Australian Commercial Law [31 ed.] 9780455238081

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AUSTRALIAN COMMERCIAL LAW

Thomson Reuters (Professional) Australia Limited 19 Harris Street Pyrmont NSW 2009 Tel: (02) 8587 7000 Fax: (02) 8587 7100 [email protected] www.thomsonreuters.com.au For all customer inquiries please ring 1300 304 195 (for calls within Australia only)

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First edition (RK Yorston & EE Fortescue, Australian Mercantile Law) – 1939 Second edition – 1940 Seventeenth edition (C Turner) – 1985 Third edition – 1943 Eighteenth edition (C Turner) – 1990 Fourth edition – 1947 Nineteenth edition (C Turner) – 1992 Fifth edition – 1949 Twentieth edition (C Turner) – 1994 Sixth edition – 1950 Twenty-first edition (C Turner) – 1997 Seventh edition – 1952 Twenty-second edition (C Turner) – 1999 Eighth edition – 1955 Twenty-third edition (C Turner) – 2001 Ninth edition – 1957 Twenty-fourth edition (C Turner) – 2003 Tenth edition – 1958 Twenty-fifth edition (C Turner) – 2005 Eleventh edition – 1960 Twenty-sixth edition (C Turner) – 2006 Twelfth edition – 1963 Twenty-seventh edition (C Turner) – 2009 Thirteenth edition – 1966 Twenty-eighth edition (C Turner) – 2011 Fourteenth edition (Editor: PE Powell) – 1971 Twenty-ninth edition (C Turner & J Trone) – 2013 Fifteenth edition (Editor: C Turner) – 1978 Thirtieth edition (C Turner & J Trone) – 2015 Sixteenth edition (C Turner) – 1981 Thirty-first edition (C Turner & J Trone) – 2016

Australian Commercial Law CLIVE TURNER LLB (B'ham), PhD (ANU) Sometime Associate Professor of Law University of Queensland

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

LAWBOOK CO. 2017

THIRTY—FIRST EDITION

Published in Sydney by Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 19 Harris Street, Pyrmont, NSW National Library of Australia Cataloguing-in-Publication entry Turner, Clive, 1942– author. Australian commercial law / Clive Turner, John Trone. 31st edition. 9780455238081 (paperback) Includes index. Commercial Law — Australia. Trone, John, 1970– author. 346.9407 © 2016 Thomson Reuters (Professional) Australia Limited This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Inquiries should be addressed to the publishers. Copyright of Cth legislative material: All Commonwealth legislative material is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright. For reproduction or publication beyond that permitted by the Copyright Act 1968 (Cth), permission should be sought in writing from the current Commonwealth Government agency with the relevant policy responsibility.

Editor: Patrick Wu Product Developer: Vickie Ma Publisher: Robert Wilson Printed by Ligare Pty Ltd, Riverwood, NSW

PEFC/21-31-17

This book has been printed on paper certified by the Programme for the Endorsement of Forest Certification (PEFC). PEFC is committed to sustainable forest management through third party forest certification of responsibly managed forests. For more info: http://www.pefc.org

To Sam, Lilliana and Max

PREFACE TO THE THIRTY—FIRST EDITION Each chapter has been thoroughly updated to incorporate the legislative amendments and case law developments since the previous edition. The significant new contract cases in this edition include the High Court decisions in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 90 ALJR 770 on estoppel (Chapter 5) and collateral contracts (Chapter 9); Gnych v Polish Club Ltd (2015) 255 CLR 414 concerning illegal contracts (Chapter 8); and Paciocco v Australian and New Zealand Banking Group Ltd (2016) 70 ALJR 835 where late payment fees charged on a customer’s credit card were held not to constitute penalties (Chapter 12). The Victorian Court of Appeal decision in Beerens v BlueScope Distribution Pty Ltd (2012) 39 VR 1 on economic duress is also included (Chapter 7). Chapter 17 (Consumer Protection) includes the legislative changes made by the Competition and Consumer Amendment (Payment Surcharges) Act 2016 (Cth) under which excessive credit card surcharges have been prohibited and the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) which extended the unfair contracts provisions of the Australian Consumer Law to standard form small business contracts. Case law developments include the decisions of the Federal Court in Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd [2015] ATPR 42-513; [2015] FCA 1204 on unfair contract terms and Australian Competition and Consumer Commission v Reebok Australia Pty Ltd [2015] ATPR 42-501; [2015] FCA 83 concerning false or misleading representations about the performance characteristics, benefits or uses of goods. Chapter 18 (Restrictive Trade Practices) incorporates the discussion of the concept of “market” by the Federal Court in Flight Centre Ltd v Australian Competition and Consumer Commission (2015) 234 FCR 367 and Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 78. Chapter 24 (Negotiable Instruments II – Cheques) incorporates the recent Victorian Court of Appeal decision in National Australia Bank Ltd v Rose [2016] VSCA 169 regarding the impact upon the enforceability of bank guarantees of non-compliance with the Code of Banking Practice. There have been several important High Court decisions in Torts (Chapter 28), including: Attwells v Jackson Lalic Lawyers Pty Limited (2016) 90 ALJR 572 concerning the scope of advocate’s immunity; Badenach v Calvert (2016) 90 ALJR 610 on the duty of care of a solicitor to a beneficiary under a will; Brookfield Multiplex Ltd v Owners Corpn Strata Plan 61288 (2014) 254 CLR 185 regarding the liability of a builder for latent defects in a commercial apartment complex; and King v Philcox (2015) 255 CLR 304 on the issue of damages for mental harm. Chapter 30 (Intellectual Property) outlines the new mechanism for combatting online piracy in the Copyright Amendment (Online Infringement) Act 2015 (Cth). This chapter includes the significant Full Federal Court decision in Scandinavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd [2016] FCAFC 91 on parallel importing and the landmark decision of the High Court in D’Arcy v Myriad Genetics Inc (2015) 89 ALJR 924 that claims for the isolated breast cancer gene BRCA1 were not patentable. In Cantarella Bros Pty Ltd v Modena Trading Pty Ltd (2014) 254 CLR 337 the High Court delivered an important decision on the meaning of “inherently adapted” in trade marks law. The chapter also outlines the principal features of the new Franchising Code of Conduct, which came into effect on 1 January 2015. Chapter 31 (Bankruptcy) incorporates the amendments made by the Insolvency Law Reform Act 2016 (Cth), which inserted a new Insolvency Practice Schedule into the Act. We would like to thank the following for updating the chapters in their specialist fields: Associate Professor Paul Ali, University of Melbourne Law School [Credit Law (Chapter 19), Partnership (Chapter 26) and Company Law (Chapter 27)]; Associate Professor Margaret Stephenson, TC Beirne School of Law, University of Queensland [Property (Chapter 22)]; Dr Alan Davidson, Senior Lecturer, TC Beirne School of Law, University of Queensland

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[The Law of Electronic Commerce (Chapter 16)]; Dr Karen Vaggelas [Law of Torts (Chapter 28)] and Ben French, Department of Employment Relations and Human Resources, Griffith University Business School and Dr Mark Mourell [The Law of Employment (Chapter 34)]. We extend our appreciation to Patrick Wu for his editorial work and to Vickie Ma, Product Developer at Thomson Reuters for her encouragement in undertaking this thirty-first edition of Australian Commercial Law. CLIVE TURNER JOHN TRONE Indooroopilly and Yeronga, Queensland 5 November 2016

TABLE OF CONTENTS Preface to the Thirty—first Edition........................................................................................................................................... vii Table of Cases ............................................................................................................................................................................... xi Table of Statutes ....................................................................................................................................................................... xliii Table of Abbreviations .......................................................................................................................................................... lxxxvi Glossary.............................................................................................................................................................................. lxxxviii

PT 1 INTRODUCTION ......................................................................................................................................... 1 1 The Australian Legal System ......................................................................................................................... 3

PT 2 LAW OF CONTRACT ................................................................................................................................ 47 2 Introduction to the Law of Contract ........................................................................................................ 49 3 Offer and Acceptance ................................................................................................................................... 55 4 Intention to Create Legal Relations .......................................................................................................... 65 5 Consideration, Promissory Estoppel and Formalities ............................................................................. 73 6 Contractual Capacity ................................................................................................................................... 87 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts .............................. 95 8 Legality of Object ........................................................................................................................................ 135 9 Contents and Interpretation of the Contract......................................................................................... 155 10 Operation of the Contract........................................................................................................................ 173 11 Termination of a Contract ........................................................................................................................ 181 12 Remedies..................................................................................................................................................... 197

PT 3 COMMERCIAL TRANSACTIONS............................................................................................................ 219 13 Agency ......................................................................................................................................................... 221 14 Sale of Goods ............................................................................................................................................. 247 15 International Sales Contracts .................................................................................................................. 291 16 The Law of Electronic Commerce ........................................................................................................... 315 17 Consumer Protection................................................................................................................................ 337 18 Restrictive Trade Practices...................................................................................................................... 399 19 Credit Law.................................................................................................................................................. 437 20 Guarantees ................................................................................................................................................ 483 21 Bailments ................................................................................................................................................... 493 22 Property ...................................................................................................................................................... 513 23 Negotiable Instruments I: Bills of Exchange......................................................................................... 555 24 Negotiable Instruments II: Cheques...................................................................................................... 587

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25 Insurance ................................................................................................................................................... 625 PT 4 BUSINESS ORGANISATION................................................................................................................... 675 26 Partnership................................................................................................................................................ 677 27 Company Law............................................................................................................................................ 705 PT 5 ALLIED AREAS OF LAW.......................................................................................................................... 767 28 Law of Torts .............................................................................................................................................. 769 29 Law of Trusts ............................................................................................................................................. 813 30 Intellectual Property................................................................................................................................ 833 31 Bankruptcy ................................................................................................................................................. 927 32 Criminal Law.............................................................................................................................................. 971 33 Business Ethics.......................................................................................................................................... 995 34 The Law of Employment......................................................................................................................... 1013

Index ........................................................................................................................................................................................ 1047

Table of Cases A A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (1996) 65 FCR 478 .............. 30.100 A & M Records Inc v Napster Inc 114 F Supp 2d 896 (2000) ................................................ 16.590 A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308 ........................ 8.470 A1 Perfect Plumbing Pty Ltd v BMW Prestige Pty Ltd (2006) 230 ALR 331 ........................... 21.80 ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1 .............. 17.1430, 25.760 ACCC v Chen (2003) 132 FCR 309 ...... 16.360, 16.380 ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312 .............................................................. 9.80 ACTEW Corporation Ltd v Mihaljevic (2011) 247 FLR 186 .................................................. 28.370 AL Underwood Ltd v Bank of Liverpool Ltd [1924] 1 KB 775 ............................................ 24.720 ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338 ...................................... 10.140 ASIC v Adler (2002) 168 FLR 253 .......... 27.40, 27.650, 27.780 ASIC v The Cash Store Pty Ltd (in liquidation) (No 2) [2015] FCA 93 .................. 19.40 ATCO Controls Pty Ltd (In liq) v Newtronics Pty Ltd (In liq) (2009) 25 VR 411 .................... 4.220 AWA Ltd v Daniels t/a Deloitte Haskins & Sells (1992) 10 ACLC 933 ............................. 28.380 Abdurahman v Field (1987) 8 NSWLR 158 .......... 8.580 Abela v Public Trustee [1983] 1 NSWLR 308 ..... 22.430 Abram v AV Jennings Ltd (2002) 84 SASR 363 .................................................................... 9.30 Abundant Earth Pty Ltd v R & C Products Pty Ltd (1985) 7 FCR 233 ............................. 17.750 Accordent Pty Ltd v Bresimark Nominees Pty Ltd (2008) 101 SASR 286 ..................... 5.210, 5.220 Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 ................................................. 12.290 Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 ................................... 8.500 Adamson v West Perth Football Club Inc (1979) 27 ALR 475 .......................................... 8.500 Adeels Palace Pty Ltd v Mourabak (2009) 239 CLR 420 .................................... 28.120, 28.500 Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431 ........................................ 17.670 Adicho v Dankeith Homes Pty Ltd [2012] NSWCA 316 .................................................... 9.140

Adnyamathanha People No 3 Native Title Claim v State of South Australia (2014) 218 FCR 148 ............................................... 22.1150 Adonia Holding GmbH v Adonia Organics LLC 2014 WL 7178389 (D Ariz 2014) ............ 15.40 Adour Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia [1991] ATPR 41-147 ................................................... 24.40 Adrenaline Pty Ltd v Bathurst Regional Council (2015) 322 ALR 180 ......................... 12.470 Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606 ........ 25.280, 25.290 Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1998) 194 CLR 171 .............................................................. 30.1810 Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 ........................... 9.20 Agriculturist Cattle Insurance Co, Re (1870) LR 5 Ch App 725 ............................................. 26.10 Agripay Pty Ltd v Byrne [2011] 2 Qd R 501 ......... 7.951 Agripower Barraba Pty Ltd v Blomfield (2015) 317 ALR 202 ...................................... 22.340 Agussol v Australian Finance Direct Limited [2004] ASC 155-066; [2004] VCAT 1560 ...... 19.760 Air Caledonie v Commonwealth (1988) 165 CLR 462 .......................................................... 1.130 Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236 .......................................... 9.80 Ajayi v Briscoe [1964] 1 WLR 1326 ..................... 5.230 Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418 ......................... 15.480, 15.490 Akiba v Commonwealth (2013) 250 CLR 209 .... 22.960, 22.1020 Akron Securities v Iliffe (1997) 41 NSWLR 353 ................................................................ 17.920 Aktas v Westpac Banking Corporation Ltd (2010) 241 CLR 79 .......................................... 24.40 Alati v Kruger (1955) 94 CLR 216 ....................... 7.630 Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337 ........................ 19.1050 Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 ................................................................ 25.880 Alexander v Rayson [1936] 1 KB 169 ................... 8.320 Alexander Stenhouse Ltd v Austcan Investments Pty Ltd (1993) 67 ALJR 421 ....... 25.210 Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-873 ...................................... 13.590 All Covers and Accessories Pty Ltd v Sidawi (2012) 36 VR 113 ............................................ 21.90 Allcard v Skinner (1887) 36 Ch D 145 ...... 7.800, 7.860 Allen v Chadwick (2015) 256 CLR 148 .............. 28.560

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Allergan Inc v Di Giacomo (2011) 199 FCR 126 .............................................................. 30.2325 Allied Concrete Co v Lester 736 SE 2d 699 (2013) ............................................... 16.250, 16.260 Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26 ............................... 14.620 Alphapharm Pty Ltd v H Lundbeck A/S (2014) 254 CLR 247 .................................... 30.2040 Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 ................ 14.550 Alyawarr v Northern Territory (2005) 145 FCR 442 ...................................................... 22.1010 Amaca Pty Ltd v Booth (2011) 246 CLR 36 ....... 28.500 Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 ............. 1.100 Amber Size Chemical Co v Menzel [1913] 2 Ch 239 ............................................................. 8.400 Amco Ukrservice v American Meter Co 312 F Supp 2d 681 (ED Pa 2004) .............................. 15.40 American Biophysics v Dubois Marine Specialties 411 F Supp 2d 61 (DRI 2006) ......... 15.50 American Mint LLC v GOSoftware 2006 US Dist LEXIS 1569 (MD Pa 2006) ...................... 15.50 America’s Collectibles Network Inc v Timlly (HK) 746 F Supp 3d 914 (ED Tenn 2010) ........ 15.20 Anaesthetic Supplies Pty Ltd v Rescare Ltd (1994) 50 FCR 1 .......................................... 30.1830 Ancher Mortlock Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd [1971] 2 NSWLR 278 ..................................... 30.180, 30.350 Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 ........................................ 20.30 Anderson v Glass (1868) 5 WW & A’B (L) 152 .................................................................. 5.160 Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR 400 ........................... 21.350 Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 ..... 12.330, 24.40 Andrews v Parker [1973] Qd R 93 ........................ 8.200 Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17 ....................... 9.450, 14.390 Angus & Coote Pty Ltd v Render (1989) 16 IPR 387 ........................................................ 30.2750 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 ....................................... 11.300, 20.180, 20.210 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 .................. 30.2720 Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Airline Pilots [1991] 1 VR 637 ..................... 34.440, 34.460 Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 .............................. 1.850, 30.1250 Apand Pty Ltd v Kettle Chip Co Pty Ltd (No 2) (1999) 88 FCR 568 .................................. 30.2680 Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994) 52 FCR 474 ........................................ 17.120 Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd (2013) 253 CLR 284 .............. 30.1830, 30.2100 Applicant v Respondent [PR548852] .................. 34.110

Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908 ................................ 14.286, 14.345 Arab Bank Ltd v Ross [1952] 2 QB 216 ............. 23.240 Argyll v Argyll [1967] 1 Ch 302 ........................ 30.2700 Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564 .................................... 30.1210 Armagas Ltd v Mundogas SA [1986] AC 717 ..... 13.640 Armory v Delamirie (1722) 1 Stra 505; 93 ER 664 ....................................................... 22.40, 22.50 Armstrong v Executive Office of the President 1 F 3d 1274 (DC Cir 1994) ............................ 16.240 Armstrong v Strain [1952] 1 KB 232 .................. 13.630 Armstrong, Re [1960] VR 202 ............................ 29.290 Ascot Four Pty Ltd v Australian Competition and Consumer Commission (2009) 176 FCR 106 ........................................................ 17.370 Ashford Shire Council v Dependable Motors Pty Ltd (1960) 104 CLR 139 ......................... 14.300 Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 ............................ 14.240, 14.360 Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828 ....................... 8.140 Ashrafi Persian Trading Co Pty Ltd v Ashrafinia [2002] Aust Torts Reports 81-636; [2001] NSWCA 243 ......................... 28.120 Ashton v Pratt (2015) 88 NSWLR 281 ....... 4.70, 8.200, 9.20 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 .................. 14.560 Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 ..................................................... 9.200 Associated Securities Ltd and the Companies Act, Re [1981] 1 NSWLR 742 ....................... 29.130 Association for Molecular Pathology v Myriad Genetics Inc 596 US 12-398 (2013) .......................................................... 30.1840 Astley v Austrust Ltd (1999) 197 CLR 1 ............ 12.250, 28.30, 28.380, 28.560 Astor Centre, The [2013] QBCCMCmr 249 ......... 16.90 AstraZeneca AB v Apotex Pty Ltd (2015) 89 ALJR 798 ..................................................... 30.1900 Atkinson v Commissioner of Taxation (2015) 318 ALR 585 ................................................. 23.450 Attorney-General v PYA Quarries Ltd [1957] 2 QB 169 ....................................................... 28.740 Attorney-General (Cth) v The Queen; Ex parte Boilermakers Society of Australia (1957) 95 CLR 529 ............................................ 1.90 Attorney-General (SA) v Corporation of the City of Adelaide (2013) 249 CLR 1 .................. 16.60 Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 90 ALJR 572 ........................... 1.540, 28.380 Attwood v Lamont [1920] 3 KB 571 .................... 8.400 Atwell v Roberts (2013) 43 WAR 507 ................ 26.490 Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202 ............ 11.480 Austar Finance v Campbell (2007) 215 FLR 464 .................................................... 16.110, 16.240

Table of Cases

Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1985) 61 ALR 417 ........................................................ 34.490 Australasian Performing Right Assoc v Canterbury-Bankstown League Club Ltd [1964] NSWR 138 ......................................... 30.370 Australasian Performing Right Assoc Ltd v Commonwealth Bank of Australia (1992) 40 FCR 59 ..................................................... 30.380 Australasian Performing Right Assoc Ltd v Tolbush Pty Ltd [1986] 2 Qd R 146 ............... 30.370 Australia & New Zealand Banking Group Ltd v Westpac Banking Corp (1988) 164 CLR 662 ........................................... 12.480, 12.490 Australia Meat Holdings Pty Ltd v Trade Practices Commission [1989] ATPR 40-932 ........................................................... 18.640 Australia and New Zealand Banking Group Ltd v Loftus [2016] VSC 58 ........................... 22.490 Australian Associated Motor Insurers Ltd v Ellis (1990) 54 SASR 61 ....... 25.110, 25.600, 25.610 Australian Capital Television Pty Ltd v Commonwealth (1992) 177 CLR 106 .............. 1.190 Australian Capital Territory v Munday (2000) 99 FCR 72 ....................................................... 8.510 Australian Communications Network Pty Ltd v Australian Competition and Consumer Commission (2005) 146 FCR 413 ................. 17.610 Australian Communications and Media Authority v Clarity1 Pty Ltd (2006) 150 FCR 494 ........................................................ 16.550 Australian Communications and Media Authority v Radio 2UE Sydney Pty Ltd (2009) 178 FCR 199 ...................................... 33.120 Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd [2001] ATPR 41-815 ........... 18.570 Australian Competition and Consumer Commission v ACN 099 814 749 Pty Ltd [2016] FCA 403 ........................................... 17.1360 Australian Competition and Consumer Commission v AGL Sales Pty Ltd [2013] ATPR 42-449; [2013] FCA 1030 .................. 17.1370 Australian Competition and Consumer Commission v AGL South Australia Pty Ltd (2015) 146 ALD 385; [2015] FCA 399 .... 17.710 Australian Competition and Consumer Commission v AirAsia Berhad Co [2012] FCA 1413 ...................................................... 17.625 Australian Competition and Consumer Commission v Apple Pty Ltd [2012] ATPR 42-404; [2012] FCA 646 ................... 17.710, 17.713 Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 78 ........ 18.482 Australian Competition and Consumer Commission v Bill Express Ltd (in liq) (2009) 180 FCR 105 ...................................... 18.340 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 .................... 17.210, 17.220

Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Ltd (2009) 239 CLR 305 ............................... 17.190 Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd (2015) 239 FCR 33; [2015] FCA 1204 ............................................... 17.315, 17.1400 Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd (No 2) [2016] FCA 144 ..................... 17.315 Australian Competition and Consumer Commission v Coles Group Ltd [2014] ATPR 42-467; [2014] FCA 363 ...................... 18.585 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2014) 317 ALR 73 ............ 17.132 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 ................ 17.710 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540 ......... 17.132, 17.710 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (No 2) [2014] ATPR 42-287; [2014] FCA 1022 .............................. 17.132 Australian Competition and Consumer Commission v Colgate-Palmolive Ltd (No 2) [2016] FCA 528 ............................ 18.530, 18.660 Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513 ...................................... 18.550 Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114 ........................................ 17.450 Australian Competition and Consumer Commission v Dell Computer Pty Ltd (2002) 126 FCR 170 ...................................... 17.350 Australian Competition and Consumer Commission v Derodi Pty Ltd [2016] FCA 365 ................................................................ 17.133 Australian Competition and Consumer Commission v Excite Mobile Pty Ltd (No 2) [2013] ATPR 42-454; [2013] FCA 1267 .... 17.990 Australian Competition and Consumer Commission v George Weston Foods Ltd (2004) 210 ALR 486 ...................................... 18.530 Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1999) 95 FCR 302 ................................. 17.630 Australian Competition and Consumer Commission v Gordon Superstore Pty Ltd [2014] ATPR 42-474; [2014] FCA 452 .......... 17.375 Australian Competition and Consumer Commission v Harvey Norman Holdings Ltd [2011] ATPR 43-384; [2011] FCA 1407 ............................................................... 17.711 Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2016] ATPR 42-523; [2015] FCA 1263 ........ 17.372

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Australian Competition and Consumer Commission v Jutsen (No 3) (2011) 206 FCR 264 ............................................. 17.20, 17.610 Australian Competition and Consumer Commission v Leahy Petroleum (No 3) (2005) 215 ALR 301 ...................................... 18.530 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] ATPR 42-477; [2013] FCAFC 90 ........ 17.255 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd (No 2) [2015] ATPR 42-510; [2015] FCA 903 ................................................................ 17.255 Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926 ................................................................ 17.250 Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 ....................... 17.640 Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [2011] ATPR 42-363; [2011] FCA 695 ........... 17.395 Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8 .................................................................... 17.640 Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 ...................................... 18.451 Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 ...................................... 18.580 Australian Competition and Consumer Commission v OmniBlend Australia Pty Ltd [2015] ATPR 42-509; [2015] FCA 871 .... 18.430 Australian Competition and Consumer Commission v Ozsale Pty Ltd [2016] FCA 1049 ............................................................ 17.1310 Australian Competition and Consumer Commission v P T Garuda Indonesia Ltd (2016) 330 ALR 230 ...................................... 18.480 Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Ltd [1996] ATPR 41-457 ............................... 18.560 Australian Competition and Consumer Commission v Pirovic Enterprises Pty Ltd (No 2) [2014] ATPR 42-483; [2014] FCA 1028 .............................................................. 17.133 Australian Competition and Consumer Commission v Qantas Airways Ltd (2008) 253 ALR 89 ................................................... 18.580 Australian Competition and Consumer Commission v RL Adams Pty Ltd [2015] FCA 1016 ...................................................... 17.133 Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292 .................................... 17.230, 17.250 Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408 ................................................... 17.495, 33.30

Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) [2016] FCA 424 .... 17.495, 33.30, 33.40 Australian Competition and Consumer Commission v Reebok Australia Pty Ltd [2015] ATPR 42-501; [2015] FCA 83 ............ 17.715 Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484 ...................... 17.990 Australian Competition and Consumer Commission v Sensaslim Australia Pty Ltd (No 1) (2011) 196 FCR 566 ................ 17.20, 17.720 Australian Competition and Consumer Commission v Snowdale Holdings Pty Ltd [2016] FCA 541 ............................................. 17.133 Australian Competition and Consumer Commission v Stott [2013] ATPR 43-439; [2013] FCA 88 ............................................... 17.990 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 ......................... 17.135, 17.940 Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] ATPR 42-473; [2014] FCA 487 ........ 30.2800 Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 4) [2013] ATPR 42-448; [2013] FCA 665 .......... 17.133 Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 5) [2013] ATPR 42-450; [2013] FCA 1109 ......... 17.133 Australian Competition and Consumer Commission v Visa Inc [2015] ATPR 42-511; [2015] FCA 1020 .............................. 18.530 Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 ......... 18.540, 33.20 Australian Competition and Consumer Commission v Woolworths Ltd [2014] ATPR 42-466; [2014] FCA 364 ...................... 18.585 Australian Competition and Consumer Commission v Woolworths Ltd [2016] ATPR 42-521; [2016] FCA 44 ........................ 17.710 Australian Competition and Consumer Commission by Australian Association of Pathology Practices Inc, Re (2004) 206 ALR 271 ........................................................ 18.350 Australian Consolidated Press v Uren (1966) 117 CLR 185; [1969] 1 AC 590 ....................... 1.540 Australian Development Corporation Pty Ltd v White (2001) 189 ALR 266 ........................... 10.80 Australian European Finance Corp Ltd v Sheahan (1993) 60 SASR 187 .......................... 4.220 Australian Finance Direct Ltd v Director of Consumer Affairs Victoria (2007) 234 CLR 96 .......................................................... 19.270 Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 ................................................................ 12.440 Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 ................................................... 14.270

Table of Cases

Australian Mutual Provident Society v Derham (1979) 25 ACTR 3 ............................ 24.860 Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 ............................ 10.190 Australian Mutual Provident Society v Lose (1997) 9 ANZ Insurance Cases 61-381 ......... 25.400, 25.410 Australian Postal Corporation v Digital Post Australia Pty Ltd (No 2) (2012) 96 IPR 532 .............................................................. 30.2400 Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 ................ 22.340 Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479 ...................................... 28.120 Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) (2012) 213 FCR 380 ............ 17.1430 Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577 .......................................................... 33.20 Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 .......................................... 9.20 Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 ................................................................ 27.740 Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199 ................................................... 33.20 Australian Video Retailers Association Ltd v Warner Home Video Pty Ltd (2001) 114 FCR 324 ........................................................ 30.420 Australian and International Pilots Association v Fair Work Australia (2012) 202 FCR 200 ................................................. 34.470 Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 ........... 9.80 Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 ................................................. 30.1190 Autodesk Inc v Dyason (1992) 173 CLR 330 ..... 30.150 Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 ........................................................ 30.150 Automobile Finance Co of Australia Ltd v Law (1933) 49 CLR 1 .................................... 23.970 Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88 ........................................ 30.360 Avellino v All Australia Netball Association Ltd (2004) 87 SASR 504 .................................. 8.500 Avery v Bowden (1855) 5 E & B 714; 119 ER 647 ................................................................. 11.200

B BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105 ........................................ 8.481, 8.482 BG Transport Service Ltd v Marston Motor Co Ltd [1970] 1 Lloyd’s Rep 371 .................... 21.40 BHP Billiton Ltd v van Soest (2014) 121 SASR 256 ....................................................... 28.100 BHP Steel Ltd v HH Robertson (Australia) Pty Ltd [2002] NSWSC 336 ........................... 14.570

BP Oil International Ltd v Petroecuador 332 F 3d 333 (5th Cir 2003) ...................... 15.50, 15.140 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266 ....... 9.260, 9.270 BS Brown & Sons Ltd v Craiks [1970] 1 WLR 752 ....................................................... 14.270 Badenach v Calvert (2016) 90 ALJR 610 ............ 28.380 Bahin v Hughes (1886) 31 Ch D 390 .................. 29.650 Bahr v Nicolay (No 2) (1988) 164 CLR 604 ....... 22.490 Baigent v Random House Group Ltd [2007] All ER (D) 456; (2007) 72 IPR 195 ................ 30.230 Bainbridge v James (2013) 39 VR 457 ................ 28.120 Baldry v Marshall [1925] 1 KB 260 .................... 14.370 Balfour v Balfour [1919] 2 KB 571 ................ 4.30, 4.40 Ball-Guymer v Livantes (1990) 102 FLR 327 ...... 22.340 Balmain New Ferry Co v Robertson (1906) 4 CLR 379 ........................................................ 28.650 Balog v Independent Commission Against Corruption (1990) 169 CLR 625 ..................... 1.420 Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 ........................................... 7.1050, 9.360 Baltic Shipping Co v Dillon (1993) 176 CLR 344 .............. 7.1050, 9.360, 12.210, 12.230, 12.240 Bank of America Australia Ltd v Ceda Jon International Pty Ltd (1988) 17 NSWLR 290 .................................................................. 8.100 Bank of England v Vagliano Bros [1891] AC 107 ................................................... 23.100, 24.140 Bank of New South Wales v Murphett [1983] VR 489 .......................................................... 24.840 Bank of New South Wales v Rogers (1941) 65 CLR 42 ............................................................ 20.70 Bank of Van Diemen’s Land v Bank of Victoria (1871) LR 3 PC 526 ......................... 23.710 Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 ....................................................... 4.140, 4.220 Barac (t/as Exotic Studios) v Farnell (1994) 53 FCR 193 .......................................................... 8.200 Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] QB 677 ....................... 24.840 Barns v Barns (2003) 214 CLR 169 ...................... 1.640 Barrow, Lane & Ballard v Phillip Phillips & Co [1929] 1 KB 574 ....................................... 14.610 Barton v Armstrong [1976] AC 104 ...................... 7.750 Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370 ...................................... 31.210 Bashtannyk v New India Assurance Co Ltd [1968] VR 573 ............................................... 25.520 Bateman v Slatyer (1987) 71 ALR 553 .............. 30.2800 Battiato v Lagana [1992] 2 Qd R 234 ................. 28.630 Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123 ........... 16.110, 16.130 Baumgartner v Baumgartner (1987) 164 CLR 137 ................................................... 29.190, 29.200 Beale v Taylor [1967] 1 WLR 1193 ..................... 14.240 Beaton v McDevitt (1987) 13 NSWLR 162 ............ 5.30 Beck v Montana Constructions Pty Ltd [1964] NSWR 229 ....................................... 30.1070

xv

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Australian Commercial Law

Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 ....................... 30.2120 Beerens v BlueScope Distribution Pty Ltd (2012) 39 VR 1 ................................................ 7.795 Behan v Obelon Pty Ltd (1985) 157 CLR 326 ...... 20.70 Behrens v Bertram Mills Circus Ltd [1957] 2 QB 1 .............................................................. 28.800 Beloff v Pressdram Ltd [1973] 1 All ER 241 ...... 30.260, 30.2730 Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464 .................................. 28.680 Bendigo Regional Institute of Technical and Further Education, Board of v Barclay (2012) 248 CLR 500 ............ 34.110, 34.330, 34.340 Bendigo and Adelaide Bank Ltd v Karamihos [2014] NSWCA 17 ......................................... 7.1070 Benjamin v Ashikian [2007] ASC 155-086; [2007] NSWSC 735 ....................................... 19.200 Bennell v Western Australia (2006) 153 FCR 120 ................................................................ 22.980 Bennett v Minister of Community Welfare (1992) 176 CLR 408 ...................................... 28.500 Benson v Doloraine Pty Ltd (2015) 13 ASTLR 156; [2015] TASSC 41 ................................... 29.390 Beresford v Royal Insurance Co Ltd [1938] AC 586 .......................................................... 25.530 Berlei Hestia Industries Ltd v Bali Co Inc (1973) 129 CLR 353 .................................... 30.2400 Bermingham v Corrective Services Commission of New South Wales (1988) 15 NSWLR 292 ............................................... 1.360 Bernstein v Skyviews & General Ltd [1978] QB 479 ............................................. 22.330, 28.680 Berry v Berry [1929] 2 KB 316 .............................. 11.90 Beswick v Beswick [1968] AC 58 ............... 10.20, 10.30 Betfair Pty Ltd v Racing New South Wales (2012) 249 CLR 217 ........................................ 1.160 Beth Schiffer Fine Photographic Arts Inc v Colex Imaging Inc 2012 WL 924380 (D NJ 2012) .......................................................... 15.40 Bettini v Gye (1876) 1 QBD 183 ................ 9.180, 9.190 Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325 ................................................................ 17.150 Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37 ............... 34.290, 34.295 Big Rock Pty Ltd v Esanda Finance Corp Ltd (1992) 10 WAR 259 ....................................... 14.650 Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341 ....................................................... 8.423 Black v Garnock (2007) 230 CLR 438 ............... 22.500 Black v Smallwood (1966) 117 CLR 52 ............. 13.520, 27.340 Blackwell v Wadsworth (1982) 64 FLR 145 ........ 30.40, 30.300 Blair v Goldpath & Callinan [2010] QCAT 483 ................................................................ 34.240 Blomley v Ryan (1956) 99 CLR 362 ..................... 7.900 Blyth v Birmingham Waterworks Co (1856) 11 Exch 781 ................................................... 28.390 Boardman v Phipps [1967] 2 AC 46 ................... 29.210

Bocardo SA v Star Energy UK Onshore Ltd [2011] 1 AC 380 ............................................ 22.330 Bodilingo Pty Ltd v Webb Projects Pty Ltd [1990] ASC 56-001 ........................................ 14.460 Bodney v Bennell (“Noongar”) (2008) 167 FCR 84 .......................................................... 22.980 Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 .............................. 17.260 Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 ................................ 20.30, 20.160, 29.210 Boghani v Nathoo [2012] Bus LR 429; [2011] EWHC 2101 .................................................. 26.535 Bojczuk v Gregorcewicz [1961] SASR 128 .............. 6.40 Bolton v Stone [1951] AC 850 ............................ 28.400 Bolton, Re; Ex parte Beane (1987) 162 CLR 514 .................................................................. 1.370 Bond v Larobi Pty Ltd (1992) 6 WAR 489 .......... 20.170 Bondina Ltd v Rollaway Shower Blinds Ltd [1986] 1 All ER 564 ....................................... 24.220 Bonython v Commonwealth [1951] AC 201 ....... 15.480 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 .................... 9.20 Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 ............ 18.220, 18.230, 18.240 Boral Bricks Pty Ltd v Cosmidis (No 2) (2014) 86 NSWLR 393 .................................. 28.560 Boral Resources (Qld) Pty Ltd v Pyke [1992] 2 Qd R 25 ......................................... 25.890, 25.900 Bostock & Co Ltd v Nicholson & Sons Ltd [1904] 1 KB 725 ............ 14.1040, 14.1050, 14.1080 Boulas v Angelopoulos (1991) 5 BPR 11,477 .... 14.1110 Boulton v Jones (1857) 2 H & N 564; 157 ER 232 .................................................. 7.230, 7.240 Bowditch v McEwan [2002] 2 Qd R 615 ............ 28.100 Boyd v Ryan (1947) 48 SR (NSW) 163 ............... 12.390 Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd (2012) 210 FCR 21 .................................. 30.1890, 30.2020 Brady v Schatzel [1911] QSR 206 ....................... 28.640 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 ....................... 3.230 Brandy v Human Rights and Equal Opportunity Commission (1995) 183 CLR 245 .................................................................. 1.180 Breskvar v Wall (1971) 126 CLR 376 ................. 22.490 Brice v Chambers [2014] QCA 310 .............. 4.140, 9.20 Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 ............... 27.330 Bridges v Hawkesworth (1851) 21 LJ QB 75 ...... 22.150 Bridgewater v Leahy (1998) 194 CLR 457 ............ 7.920 Bridle Estates Pty Ltd v Myer Realty Pty Ltd (1977) 51 ALJR 743 ........................................ 3.260 Brien v Dwyer (1978) 141 CLR 378 ...... 11.260, 24.120 Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 ............................... 11.310 Bristol-Myers Co v Beecham Group Ltd [1974] AC 646 ............................................. 30.1920 Bristol-Myers Company’s Application, Re [1969] RPC 146 ........................................... 30.1890

Table of Cases

Bristol-Myers Squibb Co v FH Faulding & Co Ltd (2000) 97 FCR 524 .......................... 30.1830 Brodie v Singleton Shire Council (2001) 206 CLR 512 .......................................................... 28.80 Brookfield Multiplex Ltd v Owners - Strata Plan 61288 (2014) 254 CLR 185 ...... 28.220, 28.370 Brosnan v Katke [2016] ATPR 42-515; [2016] FCAFC 1 ........................................................ 17.185 Brown v Heffer (1967) 116 CLR 344 ................. 22.680 Bruce v Tyley (1916) 21 CLR 277 ....................... 10.190 Brutan Investments Pty Ltd v Underwriting and Insurance Ltd (1980) 39 ACTR 47 .......... 22.630 Bryan v Maloney (1995) 182 CLR 609 ............... 28.370 Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 ................................................. 20.180 Buckland v Clarke (1956) 56 SR (NSW) 185 ...... 13.790 Buckland v Massey [1985] 1 Qd R 502 .................. 8.80 Buckley v Tutty (1971) 125 CLR 353 ................... 8.450 Bulli Coal Mining Co v Osborne [1899] AC 351 ................................................................ 28.680 Burge v Swarbrick (2007) 232 CLR 336 ............ 30.190, 30.200 Burmic Pty Ltd v Goldview Pty Ltd [2003] 2 Qd R 477 ........................................................... 8.20 Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 ............ 28.410, 28.780, 28.790 Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 ...................................... 12.170 Burns v MMI-CMI Insurance Ltd (1994) 8 ANZ Insurance Cases 61-228 ........................ 25.260 Burton v Davies [1953] QSR 26 ......................... 28.650 Buseska v Sergio (1990) 102 FLR 157 ................ 13.260 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 ......................... 17.170, 17.180 Butera v Director of Public Prosecutions (Victoria) (1987) 164 CLR 180 ...................... 16.230 Butler v Craine [1986] VR 274 ............................. 5.370 Butler v Queensland [2014] 2 Qd R 423 ............. 28.170 Byers v Dorotea Pty Ltd (1986) 69 ALR 715 ...... 17.160 Byrne v Hoare [1965] Qd R 135 ......................... 22.190 Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 ............................................ 3.130

C CAJ Investments Pty Ltd v Lourandos (1998) 83 FCR 189 ................................................... 17.820 CAL No 14 Pty Ltd v Motor Accidents Board (2009) 239 CLR 390 ...................................... 28.150 CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260 ...................................................... 30.1850 CDPP v Hill and Kamay [2015] VSC 86 ............. 27.798 CE Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 ........................ 25.750 CG v Western Australia [2015] FCA 20 ............ 22.1150 CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 ............................. 25.110 CGU Insurance Ltd v Porthouse (2008) 235 CLR 103 ...................................................... 25.1190

CI JI Family Pty Ltd v National Australian Nappies (NAN) Pty Ltd [2014] FCA 79 ........ 16.335, 16.340 CIC Insurance v Bankstown Football Club Ltd (1997) 187 CLR 384 ................................. 1.410 CMA Recycling Victoria Pty Ltd v Doubt Free Investments [2012] TASFC 7 .......................... 22.840 CNA Int’l Inc v Guangdong Kelon Electronical Holdings (ND Ill; No 05 C 5734; 3 September 2008) ................................. 15.20 CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 ................. 29.710 CSR Ltd v Resource Capital Australia Pty Ltd (2003) 128 FCR 408 ......................... 16.335, 16.350 Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd [1980] 2 NSWLR 851 ..................... 30.2580 Caj Amadio Constructions Pty Ltd v Kitchen (1991) 23 IPR 284 ....................................... 30.1130 Calabrese v Miuccio [1984] 1 Qd R 430 ............ 22.260 Caldwell v JA Neilson Investments Pty Ltd (2007) 69 NSWLR 120 ..................... 25.920, 25.930 Caltex Australia Petroleum Pty Ltd v Troost [2015] NSWCA 64 .............................. 20.30, 20.180 Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 ............... 28.340 Calverley v Green (1984) 155 CLR 242 .............. 29.180 Cameron v Brisbane Fleet Sales Pty Ltd [2002] 1 Qd R 463 ........................................ 22.630 Cameron v Murdoch (1986) 60 ALJR 280 ............ 26.10 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 ........................... 8.270 Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 .............. 17.60 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 ................ 26.30, 26.40, 26.110 Cantarella Bros Pty Ltd v Modena Trading Pty Ltd (2014) 254 CLR 337 ....................... 30.2245 Canterbury Bankstown Rugby League Football Club v Rogers [1993] Aust Torts Reports 81-246 .............................................. 28.630 Canty v PaperlinX Australia Pty Ltd (2014) 9 BFRA 524; [2014] NSWCA 309 ............. 9.20, 20.30 Caparo Industries Plc v Dickman [1990] 2 AC 605 ................................................................ 28.330 Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122 .............. 20.130 Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 Qd R 8 ............. 1.910 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 .............................................. 3.80, 3.180, 3.260 Carlton and United Breweries Ltd v Wilson [1933] VLR 113 ............................................. 20.230 Carminco Gold & Resources Ltd v Findlay & Co Stokbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472 ...................................... 13.540 Carney v Herbert [1985] AC 301 .......................... 8.620 Cary v Rural Bank of New South Wales (1967) 2 DCR (NSW) 49 .................. 24.760, 24.950 Case of Mines (1568) 1 Plow 310; 75 ER 472 .... 22.330

xvii

xviii

Australian Commercial Law

Cassegrain v Gerard Cassegrain & Co (2015) 254 CLR 425 ................................................. 22.460 Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425 ...................................... 22.490 Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd (2011) 192 FCR 445 ........ 15.157, 15.420 Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] HCASL 208 ........... 15.157, 15.420 Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 .................................. 12.180 Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) 162 CLR 395 ........................................................ 18.350 Catlow v Accident Compensation Commission (1989) 167 CLR 543 ................... 1.370 Catnic Components Ltd v Hill & Smith Ltd [1982] RPC 183 ........................................... 30.2110 Cattanach v Melchior (2003) 215 CLR 1 .............. 28.80 Causer v Browne [1952] VLR 1 ............................ 9.410 Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg [2003] 1 Qd R 482 ....................... 8.480 Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79 ................................ 11.250 Cedar Petrochemicals Inc v Dongbu Hannong Chemical Co Ltd 2011 WL 4494602 (SD NY 2011) ............................... 15.60, 15.140, 15.157 Century Insurance Co Ltd v Northern Ireland Road Transport Board [1942] AC 509 ........... 28.830 Ceramica Nuova D’Agostino SpA v MCC-Marble Ceramic Center Inc 526 US 1087 (1999) ................................................... 15.110 Chairperson, National Crime Authority v Flack (1998) 86 FCR 16 ................................ 22.170 Chan v Zacharia (1984) 154 CLR 178 .............. 26.240, 26.250 Chappel v Hart (1998) 185 CLR 232 ................. 28.500 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 ................................................................ 5.70 Chateau des Charmes Wines Ltd v Sabate USA Inc 328 F 3d 528 (9th Cir 2003) ............ 15.130 Cheattle v R (1993) 177 CLR 541 ...................... 32.320 Chiarabaglio v Westpac Banking Corp [1989] ATPR 40-971; [1991] ATPR (Digest) 46-067 ........................................................... 28.320 Chicago Prime Packers Inc v Northam Food Trading Co 320 F Supp 2d 702 (ND Ill 2004) ................................... 15.160, 15.400, 15.430 Chief Executive Officer of Customs v Biocontrol Ltd (2006) 150 FCR 64 .................. 1.420 Childrens Television Workshop Inc v Woolworths (NSW) Ltd [1981] 1 NSWLR 273 .............................................................. 30.2610 Chin v Miller (1981) 37 ALR 171 ......................... 5.250 Chin Keow v Government of Malaysia [1967] 1 WLR 813 .................................................... 28.470 China North Chemical Industries Corp v Beston Chemical Corp 2006 WL 295395 (SD Tex 2006) ................................................ 15.140 Chiou Yaou Fa v Morris (1987) 46 NTR 1 ......... 32.390

Chitts v Allaine [1982] Qd R 319 ........................... 8.40 Chomentowski v Red Garter Restaurant Ltd (1970) 92 WN (NSW) 1070 ........................... 28.120 Christie Owen & Davies Ltd v Rapacioli [1974] QB 781 ............................................... 13.430 Chubb Insurance Co of Australia Ltd v Moore (2013) 302 ALR 101 ............................ 1.540 Clarendon Homes (Aust) Pty Ltd v Henley Arch Pty Ltd (1999) 46 IPR 309 .................... 30.180 Clark v Macourt (2013) 253 CLR 1 ....... 12.111, 12.181 Clark v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790 ........................................... 22.500 Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 ................................. 17.170 Clarkson, Booker Ltd v Andjel [1964] 2 QB 775 ................................................................ 13.560 Claude R Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1973] 2 NSWLR 7 ...................................................... 25.980 Clay v Clay (2001) 202 CLR 410 ....................... 29.280 Clayton v Mutual Community General Insurance Pty Ltd (1995) 64 SASR 353 .......... 25.540 Clough v London and North Western Railway Co (1871) LR 7 Exch 26 .................... 7.630 Clough v Rosevear (1997) 69 SASR 67 ............... 32.390 Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 ........... 7.470 Clubb, Re; Ex parte Clubb v Westpac Banking Corp (1990) 93 ALR 123 ................. 31.250 Clutton v Attenborough [1897] AC 90 ................ 24.140 Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 ......................... 31.260, 31.650 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 .................................... 9.80 Coastal Estates Pty Ltd v Melevende [1965] VR 433 ............................................................ 7.630 Coca-Cola Trade Marks [1986] 1 WLR 695 ..... 30.2190 Coca Cola Amatil (New South Wales) Pty Ltd v Pareezer [2006] Aust Torts Reports 81-834; [2006] NSWCA 45 ........................... 28.120 Coco v AN Clark (Engineers) Ltd [1969] RPC 41 ................................................................ 30.2720 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 ....................... 9.30, 9.280, 11.420, 11.430 Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 .................................................................. 1.420 Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 ............................................................. 21.50 Coghlan v Pyoanee Pty Ltd [2003] 2 Qd R 636 ................................................................... 11.50 Coghlan v SH Lock (Aust) Ltd (1987) 8 NSWLR 88 ...................................................... 20.40 Cole v South Tweed Heads Rugby League Football Club Ltd (2004) 217 CLR 469 ......... 28.160 Cole v Turner (1704) 6 Mod 149; 87 ER 907 ..... 28.630 Cole v Whitfield (1988) 165 CLR 360 .................. 1.160 Colley v Overseas Exporters [1921] 3 KB 302 .... 14.960 Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040 .................................................... 5.110

Table of Cases

Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601 ........ 17.130 Comcare v PVYW (2013) 250 CLR 246 ............. 34.410 Comcare v Thompson (2000) 100 FCR 375 ......... 1.360 Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724 ................................................. 7.420 Commercial Bank of Australia v Cavanaugh (1980) 7 NTR 12 ........................................... 20.240 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 ...... 7.880, 7.890, 7.900, 7.930, 7.950, 20.70 Commercial Banking Co of Sydney Ltd v RH Brown & Co (1972) 126 CLR 337 ................ 28.590 Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491 ........................... 22.630 Commissioner of Patents v RPL Central Pty Ltd v (2015) 238 FCR 27 ............................. 30.1850 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 ............................. 12.90, 12.100 Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 90 ALJR 113 ....................................................... 18.560 Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39 ......................... 30.630, 30.2730 Commonwealth v Tasmania (1983) 158 CLR 1 ...................................................................... 1.140 Commonwealth v Verwayen (1990) 170 CLR 394 .................................................................. 5.280 Commonwealth v Yarmirr (2001) 208 CLR 1 ..... 22.960 Commonwealth Bank of Australia v Baltica General Insurance Co Ltd (1992) 29 NSWLR 579 .................................................. 25.740 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 ...................................... 34.250 Commonwealth Bank of Australia v Barker [2014] HCA 32 .............................................. 34.255 Commonwealth Bank of Australia v Carotino (2011) 111 SASR 573 ....................................... 3.260 Commonwealth Bank of Australia v Finding [2001] 1 Qd R 168 .......................................... 24.40 Commonwealth Bank of Australia v Muirhead [1997] 1 Qd R 567 ........... 23.400, 23.410 Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 .......................................... 24.40 Commonwealth Bank of Australia v Wood [2016] VSC 264 ............................................. 24.980 Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR 304 ................... 24.40, 24.680, 24.690, 24.700 Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 ................. 18.530 Compton v Ramsay Health Care Australia Pty Ltd [2016] FCAFC 106 .................................. 31.260 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 .......... 1.530, 9.280, 9.300, 25.1060

ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 ...................................... 30.2590 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 ............................ 17.50 Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577 .............................................................. 30.1070 Constantine v Imperial London Hotels Ltd [1944] KB 693 ............................................... 21.550 Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541 ............... 26.350 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 ......................... 29.210 Continental C & G Rubber Co Ltd, Re (1919) 27 CLR 194 ........................................ 11.480 Conway v Critchley [2012] NSWSC 1405 ............ 4.140 Cook v Cook (1986) 162 CLR 376 ....... 28.470, 28.480 Cook v Permanent Mortgages Pty Ltd [2007] ASC 155-085; [2007] NSWCA 219 ................ 19.630 Cook v Rodgers (1946) 46 SR (NSW) 229 ......... 13.790 Cooper v Universal Music Australia Pty Ltd (2006) 156 FCR 380 ...................................... 16.590 Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 ............................................... 1.390, 1.400 Cope Allman (Marrickville) Ltd v Farrow (1984) 3 IPR 567 ........................................... 30.300 Coppin v Western Australia (1999) 92 FCR 465 .............................................................. 22.1230 Corbett v Pallas [1995] Aust Torts Reports 81-329 ........................................................... 28.770 Cork v Kirby McLean [1952] 2 All ER 402 ........ 28.500 Cortem SpA v Controlmatic Pty Ltd [2010] FCA 852 ........................................................ 15.157 Cosmopolitan Hotel (Vic) v Crown Melbourne Ltd (2014) 45 VR 771 ..................... 9.20 Cottee v Franklins Self-Serve Pty Ltd [1997] 1 Qd R 469 ....................................................... 21.280 Coughlin v Gillison [1899] 1 QB 145 ................. 21.240 Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 ........................................ 10.20 Coulson, Ex parte; Re Jones (1947) 48 SR (NSW) 178 ..................................................... 21.550 Coulthart v Clementson (1879) 5 QBD 42 .......... 20.240 Council of the City of Sydney v West (1965) 114 CLR 481 .................. 9.480, 9.490, 9.520, 21.40 Coutts & Co v Browne-Lecky [1947] KB 104 ..... 20.100 Coventry v Charter Pacific Corporation (2005) 227 CLR 234 ...................................... 31.360 Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 607 ................................................... 28.680 Cowen v Piggott [1989] 1 Qd R 41 ...................... 7.800 Cowern v Nield [1912] 2 KB 419 ........................... 6.90 Cowper v JG Goldner Pty Ltd (1986) 40 SASR 457 .......................................... 21.420, 21.490 Cox v Coulson [1916] 2 KB 177 ......................... 26.100 Cox v Mosman [1909] QSR 45 .......................... 13.140 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 ........................... 13.130, 13.260 Crace, Re; Balfour v Crace [1902] 1 Ch 733 ....... 20.240

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Crawford v Parish (1991) 105 FLR 361 ............... 7.670 Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 ........... 11.40 Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40 ............... 7.770 Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 ........................ 28.170 Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 90 ALJR 770 .......... 5.285, 9.20, 9.175 Croydon Gas Co v Dickinson (1876) 2 CPD 46 .................................................................. 20.200 Cruttwell v Lye (1810) 17 Ves Jr 335; 34 ER 129 ................................................................ 26.320 Cullen v Trappell (1980) 146 CLR 1 .................... 1.180 Cully v Parsons [1923] 2 Ch 123 ...................... 27.1150 Cummings v Sir William Arrol & Co Ltd [1962] 1 WLR 295 ......................................... 28.500 Cundy v Lindsay (1878) 3 App Cas 459 .............. 7.210, 7.290, 7.360 Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805 .............................................. 9.440 Curtis v Singtel Optus Pty Ltd (2014) 225 FCR 458 ........................................................ 31.230 Cut Price Deli Pty Ltd v Jacques (1994) 49 FCR 397 ...................................................... 30.2800

D DC Comics v Cheqout Pty Ltd (2013) 212 FCR 194 ...................................................... 30.2345 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 ............................... 11.260 DaimlerChrysler Services Australia Pty Ltd v Berckelman [2004] ASC 155-065; [2004] NSWSC 447 ................................................... 19.200 Dale v Moses [2007] FCAFC 82 ......................... 22.980 Dallas Buyers Club LLC v iiNet Ltd (No 3) [2015] FCA 422 ............................................. 16.610 Dallas Buyers Club LLC v iiNet Ltd (No 4) [2015] FCA 838 ............................................. 16.610 Dallas Buyers Club LLC v iiNet Ltd (No 5) [2015] FCA 1437 ........................................... 16.610 Daly v Thiering (2013) 249 CLR 381 ................... 1.420 Damorgold Pty Ltd v JAI Products Pty Ltd (2015) 229 FCR 68 ...................................... 30.1890 Daniel v Accident Insurance Mutual Holdings (1996) 65 SASR 387 ...................................... 25.550 Daniel v Hotel Pacific Pty Ltd [1953] VLR 447 ................................................... 21.550, 21.560 Daniel v Western Australia (2004) 212 ALR 51 ................................................................ 22.1010 Daniel v Western Australia [2005] FCA 536 ....... 22.980 Daniels v Anderson (1995) 37 NSWLR 438 ....... 27.720 Dargusch v Sherley Investments Pty Ltd [1970] Qd R 338 ........................................... 13.330 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 ...................... 9.520, 9.530 Dart Industries Inc v Decor Corp Pty Ltd (1993) 179 CLR 101 .................................... 30.2120

Data Access Corpn v Powerflex Services Pty Ltd (1999) 202 CLR 1 ................................... 30.150 David Jones Ltd v Willis (1934) 52 CLR 110 ...... 14.280 David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1 ................ 28.320 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 .......... 7.390, 7.400, 12.510 Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 ..................................................... 9.470 Davis Contractors Ltd v Fareham UDC [1956] AC 696 ............................................... 11.310 Dawson v R (1961) 106 CLR 1 ............................ 32.90 Dawson v World Travel Headquarters Pty Ltd [1981] ATPR 40-240 ...................................... 17.510 Dawson (decd), Re [1966] 2 NSWR 211 ............ 29.650 Day v Bank of New South Wales (1978) 18 SASR 163 ....................................................... 24.720 Day v O’Leary (1992) 57 SASR 206 ................... 12.140 Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85 .......................................................... 31.370 Day Ford Pty Ltd v Sciacca [1990] 2 Qd R 209 .................................................................. 8.620 Dayeian v Davidson (2010) 76 NSWLR 512 .......... 9.20 De Francesco v Barnum (1890) 45 Ch D 430 ......... 6.80 De Garis v Neville Jeffress Pidler Pty Ltd (1990) 37 FCR 99 ............................. 30.280, 30.640 De Rose v South Australia (2003) 133 FCR 325 ................................................................ 22.980 De Rose v South Australia [2013] FCA 988 ...... 22.1290 De Rose v South Australia (No 2) (2005) 145 FCR 290 ......................................... 22.980, 22.1010 Dean v Phung (2012) Aust Torts Reports 82-111; [2012] NSWCA 223 .......................... 28.630 Dearle v Hall (1828) 3 Russ 1; 38 ER 475 .......... 10.190 Deatons Pty Ltd v Flew (1949) 79 CLR 370 ...... 13.650, 28.840 Debenham v Mellon (1880) 5 QBD 394 ............. 13.190 Delchi Carrier SpA v Rotorex Corp 1994 US Dist LEXIS 12820 (SD NY 1994) .................. 15.380 Delchi Carrier SpA v Rotorex Corp 71 F 3d 1024 (2d Cir 1995) ........................... 15.380, 15.400 Dennison Manufacturing Co v Monarch Marketing Systems Inc (1983) 66 ALR 265 .... 30.1890 Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633 ........................... 9.290, 21.270 Derham v Amev Life Assurance Co Ltd (1981) 56 FLR 34 .......................................... 13.130 Derry v Peek (1889) 14 App Cas 337 ....... 7.490, 28.580 Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 119 FCR 491 .......... 30.110, 30.120, 30.130 Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 ......... 14.60, 14.207 Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 37 IPR 477 ........................ 30.1070, 30.1080 Di Cioccio v Official Trustee in Bankruptcy (2015) 229 FCR 1 .......................................... 31.560 Diamond Leisure Pty Ltd v Newham (1993) 4 NTLR 1 ......................................................... 24.300

Table of Cases

Dickson v The Queen (2010) 241 CLR 491 ........ 32.170 Dietrich v R (1992) 177 CLR 292 ...................... 32.327 Digga Australia Pty Ltd v Norm Engineering Pty Ltd (2008) 166 FCR 268 ....................... 30.1770 Director of Consumer Affairs v Nightingale Electrics Pty Ltd [2016] FCA 279 ................. 17.1310 Director of Public Prosecutions v Le (2007) 15 VR 352 ....................................................... 1.370 Director of Public Prosecutions v Walters [2015] VSCA 303 ....................... 1.315, 1.360, 1.370 Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 .......................................... 8.340 Dollar Sweets Pty Ltd v Federated Confectioners Association of Australia [1986] VR 383 .................................. 34.440, 34.450 Doney v R (1990) 171 CLR 207 ......................... 32.320 Donoghue v Allied Newspapers Ltd [1938] 1 Ch 106 ................................. 30.210, 30.220, 30.240 Donoghue v Stevenson [1932] AC 562 ..... 28.50, 28.60, 28.90, 28.260 Dougan v Ley (1946) 71 CLR 142 .................... 14.1100 Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575 ........................................................ 16.440 Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2000] QSC 421 ........................... 15.190 Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462 ......... 15.190, 15.240, 15.300, 15.380, 15.390, 15.410 Ducret v Colourshot Pty Ltd (1981) 35 ALR 503 ................................................................ 17.440 Duff v Blinco (No 2) [2007] 1 Qd R 407 .............. 5.330 Duke Group Ltd v Pilmer (1999) 73 SASR 64 .... 26.430 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 ........ 12.300, 12.310 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 ....................................... 5.30 Dunning v BHP Billiton Ltd [2014] NSWDDT 3 ................................................... 34.417 Dupas v R (2012) 40 VR 182 ............................... 1.540 Dura-Post (Australia) Pty Ltd v Delnorth Pty Ltd (2009) 177 FCR 239 ............................. 30.2080 D’Arcy v Myriad Genetics Inc [2014] FCAFC 115 ............................................................... 30.1840 D’Orta Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 ..................................................... 28.380 D’Orta Ekenaike v Victoria Legal Aid (2015) 223 CLR 1 ..................................................... 28.380

E E v Australian Red Cross Society (1992) 31 FCR 299 ...................................................... 17.1060 EBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450 ........................................ 16.177, 16.200, 17.70 ECEM European Chemical Marketing BV v Purolite Co 2010 WL 419444 (ED Pa 2010) ............................................................. 15.110

ECEM European Chemical Marketing BV v Purolite Co 451 Fed Appx 73 (3rd Cir 2011) .............................................................. 15.110 EJ Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144 .............. 30.2180, 30.2370 EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd (2011) 191 FCR 444 ........ 30.320 Eagle Star Insurance Co Ltd v National Westminster Finance Australia Ltd (1985) 58 ALR 165 ...................................... 25.980, 25.990 Easom Automation Systems Inc v Thyssenkrupp Fabco Corp 2007 WL 2875256 (ED Mich 2007) ................................ 15.50 Easom Automation Systems Inc v Thyssenkrupp Fabco Corp 2008 WL 1901236 (ED Mich 2008) ................................ 15.50 East End Real Estate Pty Ltd t/as City Living v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 .............. 25.630, 25.640 Eclipse Motors Pty Ltd v Nixon [1940] VLR 49 .................................................................. 14.970 Edsonic Pty Ltd v Cassidy (2010) 189 FCR 271 ................................................................ 30.260 Egan v State Transport Authority (1982) 31 SASR 481 ....................................................... 28.710 Egbert v National Crown Bank [1918] AC 903 ................................................................ 20.180 Eggleston v Marley Engineers Pty Ltd (1979) 21 SASR 51 ...................................................... 9.420 Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 ......... 9.460, 14.250, 14.1140 Elders Lensworth Finance Ltd v Australian Central Pacific Ltd [1986] 2 Qd R 364 ............ 7.470 Elder’s Trustee & Executor Co Ltd v Higgins (1963) 113 CLR 426 ...................................... 29.420 Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 ........................ 9.20 Electrocraft Arkansas Inc v Super Electric Motors Ltd 2009 WL 5181854 (ED Ark 2009) ............................................................... 15.20 Electrocraft Arkansas Inc v Super Electric Motors Ltd 2010 WL 3307461 (ED Ark 2010) ............................................................... 15.20 Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995) 63 SASR 235 .................................. 3.310 Elliott v Bax-Ironside [1925] 2 KB 301 ............... 23.320 Elwes v Brigg Gas Co (1886) 33 Ch D 562 ......... 22.100 Emerson v Custom Credit Corp Ltd [1994] 1 Qd R 516 ....................................................... 22.630 Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 ................................................................ 31.250 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 .......... 3.260 Emu Brewery Mezzanine Ltd (in liq) v Australian Securities and Investments Commission (2006) 32 WAR 204 ................ 23.1060 Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd (2002) 5 VR 353 .................................. 5.180 Ennis, Re [1893] 3 Ch 238 ................................. 20.170

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Epitoma Pty Ltd v Australasian Meat Industry Employees’ Union (No 2) (1984) 3 FCR 55 .................................................................. 17.720 Equity Trustees Executors & Agency Co Ltd v New Zealand Loan & Mercantile Agency Co Ltd [1940] VLR 201 ................................. 20.160 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 ............................. 9.20 Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 ................................................................ 12.555 Erect Safe Scaffolding (Australia) Pty Ltd v Sutton (2008) 72 NSWLR 1 ............................. 20.30 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 ........ 4.10, 4.70, 4.130 Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260 .......................................................... 11.330 Erven Warnink v J Townend & Sons (Hull) Ltd [1979] AC 731 ....................................... 30.2560 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) (1997) 188 CLR 241 ........................................................ 28.330 Esanda Ltd v Powell and Dorsett (1986) 4 SR (WA) 22 ......................................................... 20.200 Esso Australia Resource Ltd v Plowman (1985) 183 CLR 10 .......................................... 1.850 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 ........................ 8.510 Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2012) 289 ALR 237 ............. 4.70 Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd [1990] ASC 55-978 ............. 14.340 Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 .................................................. 22.630 EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2010] 2 Qd R 517 ......................... 8.400, 8.483

F FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 ................................................. 25.650 FGM Pilbara Pty Ltd v Cox (2009) 175 FCR 141 .............................................................. 22.1230 FWO v Bound for Glory Enterprises Pty Ltd [2014] FCCA 432 .......................................... 34.105 Fabre v Arenales (1992) 27 NSWLR 437 ............ 28.470 Facton Ltd v Erdogan (No 1) (2012) 99 IPR 46 ................................................................ 30.1210 Facton Ltd v Toast Sales Group Pty Ltd (2012) 205 FCR 378 .................................... 30.1160 Fairfax Media Publications Pty Ltd v Reed International Books Australia Pty Ltd (2010) 189 FCR 109 ........................................ 30.90 Fairfield Sentry Ltd (in Liq) v Migani [2014] UKPC 9 ............................................................ 33.20 Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2006] NSWCA 259 .................................................. 16.130 Falko v James McEwan & Co Ltd [1977] VR 447 ................................................................ 12.220

Fallas v Mourlas (2006) 65 NSWLR 418 ............ 28.170 Famestock Pty Ltd v Body Corporate for No 9 Port Douglas Road Community Title Scheme 24368 [2013] QCA 354 ....................... 9.240 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 ........... 1.540, 1.550, 22.490 Farmers’ Co-operative Executors & Trustees Ltd v Perks (1989) 52 SASR 399 ...................... 7.810 Fearnley v Finlay [2014] 2 Qd R 392 ....... 1.250, 22.280 Fejo v Northern Territory (1998) 195 CLR 96 ............... Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037 .................................................... 3.250 Fermiscan v James (2009) 261 ALR 408 ............. 12.290 Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Pty Ltd (1993) 176 CLR 332 ................................................. 25.590 Fibrosa Spolka Akcyjna v Fairbairn, Lawson, Combe, Barbour, Ltd [1943] AC 32 .............. 11.480, 11.485 Filanto SpA v Chilewich International Corp 789 F Supp 1229 (SD NY 1992) ...................... 15.90 Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd (2011) 34 VR 257 ......... 12.333 Fire and All Risks Insurance Co Ltd v Powell [1966] VR 513 ............................................... 25.530 Firewatch Australia Pty Ltd v County Fire Authority (1999) 93 FCR 520 .......................... 17.50 First National Securities Ltd v Jones [1978] Ch 109 ............................................................. 5.180 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 .......................................................... 8.150 Fleming Bros (Monaro Agencies) Pty Ltd v Smith [1983] ATPR 40-389 .............................. 8.610 Fletcher v Nextra Australia Pty Ltd (2015) 229 FCR 153 ................................................... 17.50 Fletcher Organisation Pty Ltd v Crocus Investments Pty Ltd [1988] 2 Qd R 517 ......... 20.200 Flight Centre Ltd v Australian Competition and Consumer Commission (2015) 234 FCR 367 ........................................................ 18.481 Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd [1993] Aust Torts Reports 81-244 ..... 28.710 Foakes v Beer (1884) 9 App Cas 605 ......... 5.120, 11.80 Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 ........................... 31.360 Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 ........................... 7.340, 7.350, 7.990 Ford Credit Australia Ltd v Auto Trade Auction Pty Ltd [1982] VR 795 ..................... 14.740 Forestal Guarani SA v Daros International Inc 613 F 3d 395 (3rd Cir 2010) .......................... 15.120 Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 ....................................................... 9.20, 27.740 Fortuna Seafoods Pty Ltd v The Ship “Eternal Wind” [2005] QSC 4 ..................................... 28.340 Fortuna Seafoods Pty Ltd v The Ship “Eternal Wind” [2008] 1 Qd R 429 ............................. 28.340 Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 ................................................................ 27.390

Table of Cases

Foster v Mountford and Rigby Ltd (1977) 14 ALR 71 ........................................................ 30.2700 Foti v Banque Nationale de Paris [1990] Aust Torts Reports 81-025 ..................................... 28.320 Fouldes v Willoughby (1841) 8 M & W 540; 151 ER 1153 .................................................. 28.710 400 George Street (Qld) Pty Ltd v BG International Ltd [2012] 2 Qd R 302 ............... 5.180 Francis v Eggleston Mitchell Lawyers Pty Ltd (2014) 12 ABC (NS) 25; [2014] FCAFC 18 .... 31.520 Francis Day & Hunter Ltd v Bron [1963] Ch 587 ................................................................ 30.320 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 ..... 7.410, 7.430, 7.470, 9.20 Fraser v Thames Television [1984] 1 QB 44 ...... 30.2710 Frazer v Walker [1967] 1 AC 569 ....................... 22.490 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 ..... 13.130, 13.210, 13.240, 13.250 Frost v Sheehan (2012) 11 ABC (NS) 1; [2012] FCAFC 46 .......................................... 31.500 Frost v Warner (2002) 209 CLR 509 .................. 28.830 Fry v Oddy [1999] 1 VR 557 .............................. 26.580 Fry Consulting Pty Ltd v Sports Warehouse Inc (No 2) (2012) 201 FCR 565 ................... 30.2345 Fryer Holdings v Liaoning MEC Group [2012] NSWSC 18 ......................................... 15.157 Fullwood v Hurley [1928] 1 KB 498 ................... 13.340 Futuretronics International Pty Ltd v Gadzhis [1990] ASC 56-009 ...................................... 14.1110

G GE Capital Finance Australia v Various Debtors [2000] ASC 155-036 ......................... 19.380 GMA Garnet Pty Ltd v Barton International Inc (2010) 183 FCR 269 .................................... 9.30 Gaffney v Ryan [1995] 1 Qd R 19 .......................... 8.90 Gala v Preston (1991) 172 CLR 243 ................... 28.470 Galaxy Electronics Pty Ltd v Sega Enterprises Ltd (1997) 75 FCR 8 ..................................... 30.840 Galbraith & Grant Ltd v Block [1922] 2 KB 155 ................................................................ 14.770 Gambriell v Caparelli (1974) 7 OR (2d) 205 ...... 28.640 Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 ...................................... 14.720 Gammasonics Institute for Medical Research Pty Ltd v Comrad Medical Systems Pty Ltd (2010) 77 NSWLR 479 .................................... 14.30 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 ..... 1.540, 7.930, 7.940, 7.950, 20.150 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 .................... 17.790, 25.1020 Gattellaro v Westpac Banking Corporation (2004) 204 ALR 258 ...................................... 20.180 Gazzard v Hutchesson [1995] Aust Torts Reports 81-337 .............................................. 28.680 Geipel v Smith (1872) LR 7 QB 404 ................... 11.150

General Motors Acceptance Corporation Australia v RACQ Insurance Ltd (2003) 12 ANZ Insurance Cases 61-574; [2003] QSC 80 ............................................. 25.750, 25.755 Geneva Pharmaceuticals Technology Corp v Barr Laboratories Inc 201 F Supp 2d 236 (SD NY 2002) ....................................... 15.40, 15.80 Geo Thompson (Aust) Pty Ltd v Vittadello [1978] VR 199 ............................................... 23.390 George Trollope & Sons v Martyn Bros [1934] 2 KB 436 ............................................ 13.730 Geraghty v Minter (1979) 142 CLR 177 ............. 8.400, 8.429 Gerlach v Pearson [1950] VLR 321 .................... 13.430 Gett v Tabet (2009) 254 ALR 504 ........................ 1.540 Giannarelli v Wraith (1988) 165 CLR 543 .......... 28.380 Gibbons v Pozzan (2007) 209 FLR 233 .............. 20.180 Gibbons v Wright (1954) 91 CLR 423 .................. 6.180 Gibbs Holdings Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [2002] 1 Qd R 17 .................................................................. 25.590 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122 ........................... 3.270 Giles v Thompson [1994] 1 AC 142 ...................... 8.270 Giliberto v Kenny (1983) 48 ALR 620 .................... 9.40 Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 193 ALR 629 .......... 17.770 Gilmore v AMP General Insurance Co Ltd (1996) 67 SASR 387 ......................... 25.810, 25.820 Ginza Pte Ltd v Vista Corporation Pty Ltd [2003] WASC 11 ............................................ 15.157 Gipps v Gipps [1978] 1 NSWLR 454 ................... 7.540 Gippsreal Ltd v Registrar of Titles (2007) 20 VR 157 .............................................................. 2.90 Giumelli v Giumelli (1999) 196 CLR 101 ............ 5.280, 29.210 Giumelli v Johnston [1991] Aust Torts Reports 81-085 .............................................. 28.630 Given v Pryor (1979) 24 ALR 442; (1980) 30 ALR 189 ........................................................ 17.410 Gleebs Pty Ltd, Re [1933] VLR 293 .................... 22.290 Glyncorrwg Colliery Co, Re; Re Railway Debenture and General Trust Co v Glyncorrwg Colliery Co [1926] 1 Ch 951 .... 27.1100 Gnych v Polish Club Ltd (2015) 255 CLR 414 ............................................ 8.70, 8.105, 22.740 Godecke v Kirwan (1973) 129 CLR 629 .............. 3.260 Gokora Pty Ltd v Montgomery Jordan and Stevenson Pty Ltd [1986] ATPR 40-722 ....... 25.1020 Goldberg, Re [1921] 1 KB 606 ......................... 27.1150 Golden Editions Pty Ltd v Polygram Pty Ltd (1996) 61 FCR 479 ....................... 30.1150, 30.1230 Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd (2015) 89 NSWLR 237 ............................................. 22.680 Goldsbrough, Mort & Co Ltd v Quinn (1910) 10 CLR 674 .......................................... 3.110 Gollin & Co Ltd v Consolidated Fertilizer Sales Pty Ltd [1982] Qd R 435 ......................... 5.250 Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 ............................ 10.140, 10.160, 17.1430

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Australian Commercial Law

Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173 ........................................ 20.70 Goodwin v Ron Heath Tyre Service (SA) Pty Ltd (1999) 74 SASR 508 ................................ 21.380 Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 .................................................................. 17.56 Gordon v Tamworth Jockey Club [2003] Aust Torts Reports 81-698; [2003] NSWCA 82 ..... 28.120 Gore v Octahim Wise Ltd [1995] 2 Qd R 242 .... 23.1060 Gould v SE & C Rly Co [1920] 2 KB 186 .......... 21.440 Gould v Vaggelas (1984) 157 CLR 215 .... 7.560, 28.600 Grace Label Inc v Kliff 355 F Supp 2d 965 (SD Iowa 2005) ................................................ 15.30 Graham v Freer (1980) 35 SASR 424 .................... 7.630 Graham v Voigt (1989) 89 ACTR 11 .................. 21.150 Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 ......................... 28.170, 28.430 Grainger v Gough [1896] AC 325 ........................... 3.40 Grant v Australian Knitting Mills Ltd (1936) 54 CLR 49 ........................................ 14.270, 14.320 Graves Import Co Ltd v Chilewich International Corp 1994 US Dist LEXIS 13393 (SD NY 1994) ..................................... 15.130 Great Lakes Shire Council v Dederer [2006] Aust Torts Reports 81-860 ............................. 28.170 Great Northern Railway Co v Swaffield (1874) LR 9 Exch 132 ................................... 13.170 Greenwood v Council of the Municipality of Waverley (1928) 28 SR (NSW) 219 .................. 21.30 Greenwood v Martins Bank Ltd [1933] AC 51 .................................................................. 24.640 Grepo v Jam-Cal Bundaberg Pty Ltd [2015] QCA 131 ....................................................... 22.690 Griffiths v Minister for Lands, Planning and Environment (2008) 235 CLR 232 .............. 22.1010 Griffiths v Northern Territory (2007) 165 FCR 391 ........................................................ 22.980 Griffiths v Northern Territory (No 3) [2016] FCA 900 ...................................................... 22.1290 Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (2013) 234 IR 59 ....................................................... 34.455 Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (CFMEU) (2013) 234 IR 59; [2014] VSC 134 ................................................................ 34.440 Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (No 2) (2014) 241 IR 288 ......................................... 34.455 Gruppo Essenziero Italiano SpA v Aromi D’Italia Inc 2011 WL 3207555 (D Md 2011) ............................................................... 15.40 Guang Dong Light Headgear Factory Co Ltd v ACI International Inc 521 F Supp 2d 1153 (D Kan 2007) ........................................ 15.110 Gudjala People (No 2) v Native Title Registrar (2008) 171 FCR 317 ....................... 22.990 Gudjala People (No 2) v Native Title Registrar (2009) 182 FCR 63 ......................... 22.990

Gugliotti v Commercial Union Assurance Co of Australia (1992) 7 ANZ Insurance Cases 61-104 ................................................. 25.700 Gumana v Northern Territory of Australia (“Blue Mud Bay”) (2007) 158 FCR 349 ........ 22.980 Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237 ......................... 11.280, 22.840 Gye v McIntyre (1991) 171 CLR 609 ................. 31.370

H H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791 ................................... 12.130 H Rowe & Co Pty Ltd v Pitts [1973] 2 NSWLR 159 .................................................. 23.340 HL Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 ......................... 32.440 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 ........ 17.810 Ha v New South Wales (1997) 189 CLR 465 ....... 1.170 Hackshaw v Shaw (1984) 155 CLR 614 ............. 28.610 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 ............................. 12.120, 14.1050, 14.1090 Hagan v Waterhouse (1991) 34 NSWLR 308 ..... 29.440 Halal Certification Authority Pty Ltd v Scadilone Pty Ltd (2014) 107 IPR 23 ........... 30.2455 Hallifax Property Corp Pty Ltd v GIFC Ltd (1987) 4 BPR 9708 ........................................ 22.630 Halsey v Esso Petroleum Co Ltd [1961] 1 WLR 683 ....................................................... 28.750 Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488 .... 26.400 Hamilton v Bank of New South Wales (1894) 15 LR (NSW) 100 .......................................... 22.280 Hamilton v Lethbridge (1912) 14 CLR 236 ............ 6.60 Hammer and Barrow v Coca-Cola [1962] NZLR 723 ..................................................... 14.810 Hancock v Williams (1942) 42 SR (NSW) 252 .... 20.180 Hannaford v Australian Farmlink Pty Ltd [2008] FCA 1591 ..................... 15.20, 15.60, 15.160 Hannah v Peel [1945] 1 KB 509 ................ 22.60, 22.70 Hanwha Corp v Cedar Petrochemicals Inc 760 F Supp 2d 426 (SD NY 2011) ................... 15.50 Harbour Radio Pty Ltd v Australian Communications and Media Authority (2012) 202 FCR 525 ...................................... 33.120 Hardy & Co v Hillerns and Fowler [1923] 2 KB 490 ........................................................... 14.830 Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (2006) 95 SASR 21 ............... 14.580, 14.590 Harling v Eddy [1951] 2 KB 739 ....................... 14.1110 Harrington-Smith on behalf of the Wongatha People v Western Australia (No 9) (2007) 238 ALR 1 ..................................................... 22.980 Harrison v Melhem (2008) 72 NSWLR 380 ......... 1.370 Harrisons Group Holdings Ltd v Westpac Banking Corp (1989) 51 SASR 36 ................. 24.740 Harriton v Stephens (2006) 226 CLR 52 ............. 28.80, 28.100 Harrods Ltd v Dow Jones & Co Inc [2003] EWHC 1162 .................................................. 16.430

Table of Cases

Hart v O’Connor [1985] AC 1000 ....................... 6.180 Harvey v Harvey (1970) 120 CLR 529 ............... 26.300 Haskins v Commonwealth (2011) 244 CLR 22 .................................................................. 28.650 Hatt v Magro (2007) 34 WAR 256 ..................... 17.850 Havas v Cornish & Co Pty Ltd [1985] 2 Qd R 353 ............................................................. 13.370 Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 ....................... 7.790 Hawkes & Son (London) Ltd v Paramount Film Service Ltd [1934] 1 Ch 593 .................. 30.320 Hawkesley v May [1956] 1 QB 304 .................... 29.460 Hawkins v Clayton (1988) 164 CLR 539 ........... 28.380 Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584 ............................... 28.710 Health World Ltd v Sin-Shun Australia Pty Ltd (2010) 240 CLR 590 ............................. 30.2360 Health and Aged Care, Minister for v Harrington Associates Ltd (2000) 107 FCR 212 .......................................................... 17.80 Health and Community Services, Department of v JWB and SMB (Marion’s Case) (1992) 175 CLR 218 ................................................. 28.630 Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153 ..................... 18.530 Heaton v Richards (1881) 2 LR (NSW) 73 ............. 5.50 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 ..... 7.690, 7.700, 28.260, 28.270, 28.280 Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 ............................... 9.290 Heller Factors Pty Ltd v Toy Corp Pty Ltd [1984] 1 NSWLR 121 .................................... 23.250 Helou v PD Mulligan Pty Ltd (2003) 57 NSWLR 74 .................................................... 20.220 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 ................................ 13.230, 13.240, 13.260 Hemms Cassell & Associates Pty Ltd v Nasr (1994) 8 ANZ Insurance Cases 61-212 ....... 25.1000, 25.1010 Henderson v Radio Corp Pty Ltd (1960) 60 SR (NSW) 576 ............................................. 30.2650 Henderson-Smart v Quality Blow Moulders Pty Ltd (2010) 25 VR 724 .............................. 20.142 Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 .................... 9.420, 14.270 Henthorn v Fraser [1892] 2 Ch 27 ........................ 3.300 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 ....................................................... 8.400, 8.410 Herbohn v NZI Life Ltd (1998) 10 ANZ Insurance Cases 61-410 .................................. 25.420 Hermann v Charlesworth [1905] 2 KB 123 ......... 8.350, 8.640 Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 ........................................................... 11.390 Hill v Van Erp (1997) 188 CLR 159 ................... 28.380 Hillam v Iacullo (2015) 90 NSWLR 422 ............. 10.140 Hinchliff v Abu-Dabat (1998) 41 IPR 400 ........ 30.1110 Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 ........................................... 8.400

Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 ...................................... 21.410 Hodges v Waters (2015) 232 FCR 97 ................. 29.640 Hoffmann v Boland [2013] Aust Torts Reports 82-134; [2013] NSWCA 158 ............ 28.100 Hogan v Koala Dundee Pty Ltd (1988) 20 FCR 314 ...................................................... 30.2620 Hollis v Vabu Pty Ltd (2001) 207 CLR 21 ......... 28.810, 34.200, 34.210, 34.220 Holmes v Jones (1907) 4 CLR 1692 ..................... 7.540 Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999 ........................................................... 10.190 Honey v Australian Airlines Ltd (1989) 14 IPR 264 ........................................................ 30.2670 Hong Kong Bank of Australia Ltd v Larobi Pty Ltd (1991) 23 NSWLR 593 ..................... 20.170 Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] QB 26 ..................... 11.300 Hopcroft v Edmunds (2013) 116 SASR 191 ........ 3.240, 13.231 Horne v Queensland (1995) 22 MVR 111 .......... 28.120 Horne v Queensland [1995] Aust Torts Reports 81-343 .............................................. 28.120 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 ...................................... 17.740 Horsell International Pty Ltd v Divetwo Pty Ltd (2013) 18 ANZ Ins Cas 61-991; [2013] NSWCA 368 ....................................... 25.980 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 ............................... 15.480 Household Fire & Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216 .................................................................. 3.300 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 .......................................................... 13.140 Howe v Lord Dartmouth (1802) 7 Ves 137; 32 ER 56 ........................................................ 29.480 Howe v Teefy (1927) 27 SR (NSW) 301 ............. 12.200 Hoyts Pty Ltd v Burns (2003) 201 ALR 470 ....... 28.500 Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 ....... 9.140 Hubbard v Vosper [1972] 2 QB 84 ........ 30.610, 30.620 Hudson v Sigalla (2015) 235 FCR 122 ............... 31.270 Hudson Crushed Metals Pty Ltd v Henry [1985] 1 Qd R 202 ......................................... 11.230 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 ........... 3.60 Humberstone v Northern Timber Mills (1949) 79 CLR 389 ........................... 28.810, 34.160 Humphries v Proprietors “Surfers Palms North” Group Titles Plan 1955 (1994) 179 CLR 597 ................................................... 8.620 Hungerfords (Registered Firm) v Walker (1989) 171 CLR 125 ...................................... 28.320 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613 ......... 28.500 Hunter BNZ Finance Ltd v CG Maloney Pty Ltd (1988) 18 NSWLR 420 ........................... 24.790 Hurst v Bryk [2002] 1 AC 185 ............................ 26.510 Hycenko v Hrycenko [2016] VSC 247 ................ 22.430

xxv

xxvi

Australian Commercial Law

Hydraulic Engineering Co Ltd v McHaffie, Goslett & Co (1879) 4 QBD 670 ................. 14.1090

I I.Lan Systems Inc v Netscout Service Level Corp 183 F Supp 2d 328 (D Mass 2002) ....... 16.180 ING Bank (Australia) Ltd v Leagrove Pty Ltd [2012] 1 Qd R 140 .......................................... 20.70 IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 .................................................................. 8.610 IRC v Goldblatt [1972] Ch 498 ........................ 27.1100 IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458 .................. 30.120, 30.130 Ilich and Baystar Corp Pty Ltd [2004] WASTR 25 ....................................................... 16.80 Imbree v McNeilly (2008) 236 CLR 510 ............. 1.540, 28.470, 28.480, 28.490 Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221 .......... 22.840 Impuls ID Internacional v Psion-Teklogix Inc 234 F Supp 2d 1267 (SD Fla 2002) .................. 15.30 Inflatable Toy Co Pty Ltd v State Bank of New South Wales (1994) 34 NSWLR 243 ..... 23.250 Inn Leisure Industries Pty Ltd (Provisional Liquidator Appointed) v DF McCloy Pty Ltd (1991) 28 FCR 151 ................................... 7.390 Innotex Precision Ltd v Horei Image Products Inc 679 F Supp 2d 1356 (ND Ga 2009) .......... 15.20, 15.60 Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd (2013) 101 IPR 484 ....................................... 10.150 Insight Vacations Pty Ltd v Young (2011) 243 CLR 149 .......................................................... 1.520 International Business Machines Corp v Commissioner of Patents (1991) 33 FCR 218 .............................................................. 30.1850 International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 ........................................ 13.20 Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534 ......................... 30.490, 30.500 Investmentsource Corporation Pty Ltd v Knox Street Apartments Pty Ltd (2002) 56 NSWLR 27 .................................................... 13.440 Ireland v Wightman (2014) 119 SASR 266 ........... 1.370 Irving v Heferen [1995] 1 Qd R 255 ...... 21.550, 21.670 Italian Imported Foods Pty Limited v Pucci SRL (Italy) [2006] NSWSC 1060 ..................... 15.30 It’s Intoxicating Inc v Maritim Hotelgesellschaft mbH 2013 WL 3973975 (MD Pa 2013) ..................................... 15.50, 15.120

J J & H Just Holdings Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 .................. 22.500 J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 41 ALR 539 ................................. 12.520

J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 ...................................... 18.530 JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 ........ 7.660, 14.830 JB & BL Nominees Pty Ltd v McCormack [1982] WAR 258 ............................................ 14.190 JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 ........................................ 12.370 JGL Investments Pty Ltd v Maracorp Financial Services Ltd [1991] 2 VR 168 ......... 20.180 JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 ........................................ 9.160, 9.170 JW Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd [1985] VR 891 ................ 29.610 Jaber v Rockdale City Council [2008] Aust Torts Reports 81-952 ..................................... 28.170 Jackson v Cochrane [1989] 2 Qd R 23 ............... 21.100 Jaensch v Coffey (1984) 155 CLR 549 .................. 28.90 James v Commonwealth (1939) 62 CLR 339 ...... 21.400 James v Western Australia (2010) 184 FCR 582 .............................................................. 22.1070 James Drummond & Sons v Van Ingren & Co (1887) 12 App Cas 284 .................................. 14.380 Jango v Northern Territory (2007) 159 FCR 531 ................................................. 22.980, 22.1290 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 ................................................... 17.820 Jansz v GMB Imports Pty Ltd [1979] VR 581 ....... 14.80 Jardin v Metcash Ltd (2011) 285 ALR 677 ........... 8.421 Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 ......................................................... 5.240 Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 ............................. 8.270 Jewellery Group Pty Ltd v Australian Competition and Consumer Commission [2013] FCAFC 144 ........................................ 17.370 Joachimson v Swiss Bank Corp [1921] 3 KB 110 ................................................................... 24.40 John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 ................ 29.210 Johns Period Furniture Pty Ltd v Commonwealth Savings Bank of Australia (1980) 24 SASR 224 ......................... 24.810, 24.820 Johnson v American Home Assurance Company (1998) 192 CLR 266 ........ 25.490, 25.500 Johnson v Australian Guarantee Corp Ltd (1992) 59 SASR 382 ...................................... 20.200 Johnson v Buttress (1936) 56 CLR 113 ................. 7.800 Johnson Matthey Ltd v Australia and New Zealand Banking Group Ltd [1989] Aust Torts Reports 80-256 ..................................... 24.830 Johnson Tiles Ltd v Esso Australia Pty Ltd [2003] Aust Torts Reports 81-692; [2004] VSC 466 ........................................................ 28.220 Jones v Bartlett (2000) 205 CLR 166 .................... 10.70 Jones v Canavan [1972] 2 NSWLR 236 .............. 13.340 Jones v Commonwealth (1987) 71 ALR 497 ......... 1.540 Jones v Dumbrell [1981] VR 199 .......................... 7.510 Jones v Schiffmann (1971) 124 CLR 303 ............ 12.190

Table of Cases

Jones v Vernon’s Pools Ltd [1938] 2 All ER 626 ....................................................... 4.200, 4.210 Jonsson v Arkway (2003) 58 NSWLR 451 ......... 19.190 Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154 .... 11.480 Jovanovic v Commonwealth Bank (2004) 87 SASR 570 ....................................................... 20.120 Juric-Kacunic v Vaupotic (2013) 18 BPR 35131; [2013] NSWSC 41 ............................... 5.180 Just Juice Corp Pty Ltd (recs and mgrs apptd), Re (1992) 37 FCR 445 ................................. 27.1150 Justin Seward Pty Ltd v Commissioners of Rural and Industries Bank (1980) 1 SR (WA) 272 ....................................................... 24.840

K K-Generation Pty Ltd v Liquor Licensing Court (2009) 237 CLR 501 ............................. 1.370 KB Docker, Re (1938) 10 ABC 198 .................... 31.400 KMJ v Tasmania (2011) 20 Tas R 425 .................. 1.540 Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 .......................................................... 7.925 Karamihos v Bendigo and Adelaide Bank Ltd [2014] HCASL 176 ........................................ 7.1070 Karatjas v Deakin University (2012) 35 VR 355 ................................................................ 28.120 Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 .......................................... 17.860 Karger v Paul [1984] VR 161 .............................. 29.490 Kargotich v Mustica [1973] WAR 167 .............. 14.1000 Karpany v Deitman (2013) 252 CLR 507 ......... 22.1020 Kasler & Cohen v Slavouski [1928] 1 KB 78 .... 14.1070 Kayford Ltd, Re [1975] 1 WLR 279 ................... 29.310 Keighley, Maxsted & Co v Durant [1901] AC 240 ................................................................ 13.550 Keith Spicer Ltd v Mansell [1970] 1 WLR 333 .................................................................. 26.80 Keller v LED Technologies Pty Ltd (2010) 185 FCR 449 ............................................... 30.1600 Kelly v Kelly (1990) 64 ALJR 234 ....................... 26.300 Kelly v Solari (1841) 9 M & W 54; 152 ER 24 .................................................................... 7.370 Kelly v The Queen (2004) 218 CLR 216 ............... 1.390 Kelner v Baxter (1866) LR 2 CP 174 ..... 13.510, 27.340 Kelsen v Imperial Tobacco [1957] 2 QB 334 ....... 28.680 Khan v Miah [2000] 1 WLR 2123 ........................ 26.50 Khoury v Khouri (2006) 66 NSWLR 241 ............. 5.330 Kiama Constructions v MC Casella Building Co Pty Ltd (1980) 10 IPR 345 ..................... 30.1150 Kimberly-Clark Australia Pty Ltd v Multigate Medical Products Pty Ltd (2011) 92 IPR 21 ................................................................. 30.2110 King v Philcox (2015) 255 CLR 304 ..................... 28.90 Kinsela v Caldwell (1975) 132 CLR 458 ............ 29.310 Kiriri Cotton Co Ltd v Dewani [1960] AC 192 .................................................................. 8.560 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 ................................................. 17.790 Knight v Bell (1887) 13 VLR 878 ....................... 26.520

Knight v Beyond Properties Pty Ltd (2007) 242 ALR 586 ................................................... 17.80 Koninklijke Philips Electronics NV v Remington Products Australia Pty Ltd (2000) 100 FCR 90 ...................................... 30.2390 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 ......... 11.300, 12.20, 12.30, 12.40 Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 ....................... 13.660 Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62 ......... 29.80, 29.190, 29.280 Koster’s Premier Pottery Pty Ltd v Bank of Adelaide (1981) 28 SASR 355 ........................ 24.660 Koufos v Czarnikow Ltd [1969] 1 AC 350 ......... 12.120 Kovan Engineering (Aust) Pty Ltd v Gold Peg International Pty Ltd (2006) 234 ALR 241 ........ 9.20 Kowalczuk v Accom Finance (2008) 77 NSWLR 205 ....................................... 7.980, 7.1060 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 ................................................... 7.520 Krell v Henry [1903] 2 KB 740 ........................... 11.370 Ku-ring-gai Co-operative Building Society (No 12) Ltd, Re (1978) 22 ALR 621 .............. 18.370 Kwan, Re; Ex parte Hastings Deering (Solomon Islands) Ltd (1987) 15 FCR 264 .... 20.190 Kwei Tek Chao v British Traders and Shippers Ltd [1954] 2 QB 459 ..................................... 14.820

L L J Hooker Ltd v W J Adams Estate Pty Ltd (1977) 138 CLR 52 ........................................ 13.410 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 ......................................... 11.270 LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 44 IPR 24 ......................................... 30.1170 LED Technologies Pty Ltd v Elecspess Pty Ltd (2008) 80 IPR 85 .......................... 30.1600, 30.1650 LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 ................................. 10.80 LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 3) (1991) 24 NSWLR 499 .................................................. 28.680 La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201 ..................... 1.540 La Rosa v Nudrill Pty Ltd [2013] Aust Contract Reports 90-383; [2013] WASCA 18 .................................................................... 9.420 Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198 ...................................................... 9.20 Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273 ...... 30.80, 30.100, 30.320 Lancashire Loans Ltd v Black [1934] 1 KB 380 .................................................................. 7.800 Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 .................. 1.180, 1.190, 1.540 Laresu Pty Ltd v Clark [2010] Aust Torts Reports 82-068; [2010] NSWCA 180 .............. 20.30

xxvii

xxviii

Australian Commercial Law

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 .............. 11.240 Lavin v Toppi (2015) 254 CLR 459 ....... 20.170, 20.180 Lawrence v Coal & Allied Mining Services (2012) 202 IR 388 ............................ 34.310, 34.320 Lawrence v Kempsey Shire Council (1995) 87 LGERA 49 ..................................................... 28.770 Lawrie v Commonwealth Trading Bank of Australia [1970] Qd R 373 ............................ 24.780 Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53 ......................................................... 17.1020 Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 ................................................... 22.690 Lazenby Garages Ltd v Wright [1976] 1 WLR 459 .............................................................. 14.1010 Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661 .............................................. 4.150 Leach v Commonwealth Bank of Australia [2014] QSC 295 ............................................. 22.630 Leaf v International Galleries [1950] 2 KB 86 ........ 7.90, 7.100 Leahy v Attorney-General (NSW) [1959] AC 457 ................................................................ 29.270 Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2 NSWLR 381 ................................................. 7.630 Lederberger v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509 ........ 9.20, 13.140, 26.360 Lee v Haxton Haulage Pty Ltd (1994) 21 MVR 339 ....................................................... 32.390 Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571 .................................... 24.40 Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 ............ 25.470, 25.480 Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 ............................................................. 7.450 Leslie Homes (Aust) Pty Ltd, Re (1984) 8 ACLR 1020 .................................................. 27.1150 Letang v Cooper [1965] 1 QB 232 ...................... 28.610 Lewis v Averay [1972] 1 QB 198 ............... 7.260, 7.270 Liaweena (NSW) Pty Ltd v McWilliams Wines Pty Ltd [1991] ASC 56-038 ...... 9.440, 14.330 Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 73 NSWLR 404 ............... 5.180 Liftronic Pty Ltd v Unver (2001) 179 ALR 321 ................................................................ 28.560 Lincoln Hunt Australia Pty Ltd v Willesee (1986) 4 NSWLR 457 .................................... 28.680 Lindner v Murdock’s Garage (1950) 83 CLR 628 .................................................................. 8.400 Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673 ..................................... 25.140, 25.240 Linkenholt Pty Ltd v Quirk [2000] ASC 155-040; [2000] VSC 166 .............................. 19.190 Lintrose Nominees Pty Ltd v King [1995] 1 VR 574 .......................................................... 13.310 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 .................................................... 8.420 Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411 ............................ 22.710 Lloyd v Citicorp Australia Ltd (1986) 11 NSWLR 286 .................................................. 28.320

Lloyd v Coote [1915] 1 KB 242 ............................ 7.800 Lloyd v Grace, Smith & Co [1912] AC 716 ....... 26.470, 27.1150 Lloyd’s Bank Ltd v Bundy [1975] QB 326 ........... 7.840, 7.850 Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 ................................... 8.380 Lockhart v Osman [1981] VR 57 ...................... 14.1150 Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (No 2) (2007) 235 CLR 173 .............................................................. 30.1900 London Bank of Australia Ltd v Kendall (1920) 28 CLR 401 ........................................ 24.720 London Corp, City of v Appleyard [1963] 1 WLR 982 ....................................................... 22.180 London General Omnibus Co Ltd v Holloway [1912] 2 KB 72 ................................................ 20.80 London Plywood Ltd v Nasic Oak Ltd [1939] 2 KB 343 ........................................................ 14.790 Louth v Diprose (1992) 175 CLR 621 ...... 7.900, 7.910, 7.915 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 ...................................... 12.551 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 ......... 12.270 Luton Investments Pty Ltd v Davreal Pty Ltd [1969] 1 NSWR 289 ...................................... 26.610 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 ................................................................ 13.400 Ly v R (2014) 227 FCR 304 ............................. 30.1330 Lynch v Lynch (By Her Tutor Lynch) (1991) 25 NSWLR 411 ............................................. 28.100 Lynch v Stiff (1944) 68 CLR 428 ........................ 26.430 Lyritzis v Westpac Banking Corp [1994] ATPR 41-360 ................................................... 24.40 Lysaght v Edwards (1876) 2 Ch D 499 ............... 22.680

M M Young Legal Associates Ltd v Zahid [2006] 1 WLR 2562 ......................................... 26.50, 26.60 MCC-Marble Ceramic Center Inc v Ceramica Nuova D’Agostino SpA 144 F 3d 1384 (11th Cir 1998) .............................................. 15.110 MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1998) 43 IPR 287 .... 30.2110 MMI General insurance Ltd v Baktoo (2000) 48 NSWLR 605 ................................ 25.780, 25.790 MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 .................................................................. 9.470 Ma v Adams (2015) 18 BPR 35,557; [2015] NSWSC 1452 ................................................. 24.120 Mabo v State of Queensland (No 2) (1992) 175 CLR 1 ........................................ 22.900, 22.910 MacKenzie v Rees (1941) 65 CLR 1 ................... 11.180 MacKinlay v Derry Dew Pty Ltd (2014) 46 WAR 247 ......................................................... 8.610 Macedonian Orthodox Community Church of St Petka Inc v His Eminence Petar (2008) 237 CLR 66 ........................................ 29.640

Table of Cases

Mackay v National Australia Bank Ltd [1998] 1 VR 173 ......................................................... 20.40 Mackay Sugar Ltd v Quadrio [2015] QCA 41 ...... 4.157 Mackintosh v Johnson (2013) 37 VR 301 ............. 7.915 Macleod v The Queen (2003) 214 CLR 230 ......... 27.50 Macromex Srl v Globex International Inc 2008 WL 1752530 (SD NY 2008) ................. 15.400 Macromex Srl v Globex International Inc 330 Fed Appx 241 (2d Cir 2009) .......................... 15.400 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 .................................... 30.2720 Mahmoud & Ispahani, Re [1921] 2 KB 716 .......... 8.40, 8.120 Mahoney v McManus (1981) 180 CLR 370 ....... 20.170 Maisano v Car and Home Finance Pty Ltd [2006] ASC 155-078; [2005] VCAT 1755 ...... 19.620 Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48 ................................. 22.280 Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270 ........ 17.770 Makower, McBeath & Co Pty Ltd v Dalgety & Co Ltd [1921] VLR 365 ............................ 21.170 Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227 ......................... 4.155, 9.20 Malik v Bank of Credit and Commerce International SA [1998] AC 20 ....................... 34.250 Manbre Saccharine Co Ltd v Corn Products Co Ltd [1919] 1 KB 198 ................................ 14.820 Mander v O’Brien [1934] SASR 87 ..................... 30.100 Manufacturers’ Mutual Insurance Ltd v John H Boardman Insurance Brokers Pty Ltd (1994) 179 CLR 65 ...................................... 25.1060 Manufacturers’ Mutual Insurance Ltd v Stargift Pty Ltd (1984) 3 ANZ Insurance Cases 60-615 ................................................. 25.460 Maple Flock Co v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 ...... 14.800 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 ................................................. 28.500 Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213 ................ 1.850 Marks & Spencer Plc v One in a Million Ltd [1999] 1 WLR 903 ......................................... 16.330 Marsh v Baxter (2015) 49 WAR 1 ...................... 28.220 Marsh v Joseph [1897] 1 Ch 213 ........................ 13.140 Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232 ............... 13.540 Martin v Gale (1876) 4 Ch D 428 ........................ 6.130 Mason v New South Wales (1959) 102 CLR 108 ................................................................ 12.520 Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 ........................... 8.70, 30.2790 Masters v Cameron (1954) 91 CLR 353 ............... 3.260 Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 ................................... 9.30 Max Christmas Real Estate v Schumann Marine Pty Ltd [1987] 1 Qd R 325 ................ 13.430 Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590 ................................................. 25.615

Maxxsonics USA Inc v Fengshun Peiying Electro Acoustic Co Ltd 2012 WL 962698 (ND Ill 2012) ................................................... 15.60 Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 ..................................................... 9.130 Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 .................................... 13.550 Mazzetta Co llc c Dégust-Mer inc 2011 QCCA 717 ....................................................... 15.30 McCabe v British American Tobacco Australia Services Ltd [2002] VSC 73 ............ 16.270 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 ............................... 25.440 McCloy v New South Wales (2015) 89 ALJR 857 .................................................................. 1.190 McColl’s Wholesale Pty Ltd v State Bank of New South Wales [1984] 3 NSWLR 365 ....... 20.160 McComb v Martin Box Marine Holdings Pty Ltd (1992) 8 SR (WA) 193 ............................. 21.160 McCormack v Commonwealth (1984) 155 CLR 273 ........................................................ 12.500 McDowell Valley Vineyards Inc v Sabate USA Inc 2005 WL 2893848 (ND Cal 2005) ............ 15.30 McEvoy v ANZ Banking Group Ltd [1988] Aust Torts Reports 80-151 ............................. 28.320 McGrath v HNSW Pty Ltd (2014) 219 FCR 489 ................................................................ 17.850 McHale v Watson (1964) 111 CLR 384 ............. 28.470, 28.610 McHugh v Australian Jockey Club Ltd (2014) 314 ALR 20 ..................................................... 8.480 McInnis v R (1979) 143 CLR 575 ...................... 32.325 McKern v Minister Administering the Mining Act 1978 (2010) 28 VR 1 ................................. 1.540 McLaughlin v City Bank of Sydney (1912) 14 CLR 684 .......................................................... 6.180 McLennan v Insurance Australia Ltd (2014) 286 FLR 453 .................................................. 25.553 McMahon v National Foods Milk Ltd (2009) 25 VR 251 .............................................. 9.30, 9.170 McNally v Australia and New Zealand Banking Group [2001] ASC 155-047 ............. 19.580 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 .......... 7.110, 7.120 McWaters v Day (1989) 168 CLR 289 ............... 32.170 McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd [1988] ASC 55-695 ................ 14.330 McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394 ....................................................... 17.60, 17.90 Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 ................ 18.200, 18.210 Mendelson-Zeller Co Inc v T & C Providores Pty Ltd [1981] 1 NSWLR 366 ......................... 3.190 Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252 .............................................. 9.30 Mercantile Union Guarantee Corp Ltd v Ball [1937] 2 KB 498 ................................................ 6.90 Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580 .... 28.430

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Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 ...... 17.1075, 17.1190, 17.1220, 28.500 Meridien AB Pty Ltd v Jackson [2014] 1 Qd R 142 ............................................................... 1.360 Merritt v Merritt [1970] 1 WLR 1211 ........... 4.10, 4.60 Mersey Docks and Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1 ......... 28.820 Merwin Pastoral Co Pty Ltd v Moolpa Pastoral Co Pty Ltd (1933) 48 CLR 565 ........ 15.480 Meskenas v ACP Publishing Pty Ltd (2006) 70 IPR 172 ................................................... 30.1520 Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119 ......................................... 11.410 Meyers Taylor Pty Ltd v Vicarr Industries Ltd (1977) 137 CLR 228 .................................... 30.1890 Miami Valley Paper LLC v Lebbing Engineering & Consulting GmbH 2006 WL 2924779 .................................................... 15.40 Miami Valley Paper LLC v Lebbing Engineering & Consulting Gmbh 2009 WL 818618 (SD Ohio 2009) .......................... 15.120 Microsoft Corpn v Ezy Loans Pty Ltd (2004) 63 IPR 54 ..................................................... 30.1190 Microsoft Corporation v Goodview Electronics Pty Ltd (1999) 46 IPR 159 ......... 30.1250 Midaz Pty Ltd v Peters McCarthy Insurance Brokers Pty Ltd [1999] 1 Qd R 279 ............... 25.150 Midgley Estates Ltd v Hand [1952] 2 QB 432 .... 13.430 Midland Bank Ltd v Reckitt [1933] AC 1 ........... 24.730 Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 ................................................................ 22.880 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 ................................................. 17.131 Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506 ..... 13.530 Milliner v Milliner (1908) 8 SR (NSW) 471 ............ 4.50 Mills v Meeking (1990) 169 CLR 214 ....... 1.390, 1.410 Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 .......................... 30.480, 30.1200, 30.1240 Ministry of Health v Simpson [1951] AC 251 ..... 29.720 Minnesota Mining & Manufacturing Co v Beiersdorf (Aust) Ltd (1980) 144 CLR 253 .... 30.1900 Mirror Newspapers Ltd v Queensland Newspapers Pty Ltd [1962] Qd R 305 ........... 30.100 Mitchell v Ealing London Borough Council [1979] QB 1 ................................................... 21.140 Mitchell v Valherie (2005) 93 SASR 76 ................. 7.650 Mitchell Aircraft Spares Inc v European Aircraft Service AB 23 F Supp 2d 915 (ND Ill 1998) ......................................................... 15.100 Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365 ................................................... 13.360, 13.480 Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254 ............... 28.120, 28.500 Molinas v Smith [1932] QSR 77 ......................... 26.360 Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149 ............... 25.600 Momcilovic v The Queen (2011) 245 CLR 1 ...... 32.170

Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 ............................... 13.440 Montana Hotels Pty Ltd v Fasson Pty Ltd (1986) 61 ALJR 282 ...................................... 28.770 Montefiore v Smith (1876) 14 SCR (NSW) 245 ................................................................ 26.300 Montevento Holdings Pty Ltd v Scaffidi (2012) 246 CLR 325 ...................................... 29.390 Moorcock, The (1889) 14 PD 64 ............... 9.240, 9.250 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 .................. 30.2560 Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700 ............................. 22.250 Morris v Baron & Co [1918] AC 1 ....................... 11.90 Morris v CW Martin & Sons Ltd [1966] 1 QB 716 ................................ 21.170, 21.180, 21.190 Moses v Western Australia (2007) 160 FCR 148 ................................................................ 22.980 Moss v Elphick [1910] 1 KB 846 ........................ 26.510 Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145 ....................................................... 25.110 Moss SS Co v Whinney [1912] AC 254 ............. 27.1010 Motor Accident Mutual Insurance Pty Ltd v Kelly (1999) 10 ANZ Insurance Cases 61-420 ........................................................... 25.870 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 ....... 1.570, 9.20 Mulligan v Coffs Harbour City Council (2005) 223 CLR 486 ...................................... 28.170 Multi-Juice SA v Snapple Beverage Corp 2006 WL 1519981 .................................................... 15.40 Multisteps Pty Ltd v Source and Sell Pty Ltd (2013) 214 FCR 323 .................................... 30.1600 Munro v Willmott [1949] 1 KB 295 .................... 13.180 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 ...................................... 17.790 Murray’s Transport NSW Pty Ltd v CGU Insurance Ltd (2013) 118 SASR 11 ................ 25.760 Murrihy v Betezy.com.au Pty Ltd (2013) 238 IR 307 ............................................................ 34.345 Murrihy v Betezy.com.au Pty Ltd (No 2) [2013] FCA 1146 ........................................... 34.345 Musca v Astle Corp Pty Ltd (1988) 80 ALR 251 ................................................................ 17.820 Muschinski v Dodds (1985) 160 CLR 583 ......... 29.190 Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 ............... 28.280, 28.330 Myer Stores Ltd v Jovanovic [2004] VSC 478 ..... 28.710 Myer Stores Ltd v Soo [1991] 2 VR 597 ............. 28.650

N NAGV v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 130 FCR 46 .......................................... 1.540 NE Perry Pty Ltd v Judge (2002) 84 SASR 86 ...... 8.430, 8.480 NLS Pty Ltd v Hughes (1966) 120 CLR 583 ...... 12.332 NP Generations Pty Ltd v Feneley (2001) 80 SASR 151 ..................................................... 30.2760

Table of Cases

NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98 .......................................... 17.240 NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 ............. 18.260 NV Philips Gloeilampenfabrieken v Mirabella International Pty Ltd (1995) 183 CLR 655 .... 30.1810 Nagle v Rottnest Island Authority (1993) 177 CLR 423 ........................................................ 28.170 Naomi Marble and Granite Pty Ltd v FAI General Insurance Co Ltd [1999] 1 Qd R 507 ................................................................ 25.160 Napier v Public Trustee (WA) (1980) 32 ALR 153 ................................................................ 29.180 Narain v Euroasia (Pacific) Pty Ltd (2009) 26 VR 387 .......................................................... 20.150 National Australia Bank v Blacker (2000) 104 FCR 288 ........................................................ 22.340 National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377 .................................. 24.660 National Australia Bank Ltd v Rose [2016] VSCA 169 ...................................................... 24.980 National Commercial Banking Co of Australia Ltd v Robert Bushby Ltd [1984] 1 NSWLR 559 ............................................... 24.790 National Commercial Banking Corp of Australia Ltd v Batty (1986) 160 CLR 251 .... 26.450 National Commercial Banking Corp of Australia Ltd v Solanowski [1984] NSW Conv R 55-194 .............................................. 22.640 National Employers Mutual General Insurance Association Ltd v Manufacturers Mutual Insurance Ltd (1989) 17 NSWLR 223 .................................................................. 1.360 National Provincial Bank of England Ltd v Glanusk [1913] 3 KB 335 ................................ 20.70 National Research Development Corp v Commissioner of Patents (1959) 102 CLR 252 .............................................................. 30.1820 National Rugby League Investments Pty Ltd v Singtel Optus Pty Ltd (2012) 201 FCR 147 .... 16.570, 16.580, 30.960 National Westminster Bank Plc v Morgan [1985] AC 686 ................................................. 7.850 Nationwide News Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 215 ........................................ 17.360 Neill v Fallon [1995] Aust Torts Reports 81-321 ............................................................. 9.470 Nelson v Dahl (1879) 12 Ch D 568 ...................... 9.300 Neon Signs (A/asia) Ltd, Re [1965] VR 125 ...... 27.1010 Neowarra v Western Australia [2003] FCA 1402 ............................................... 22.980, 22.1010 Nesbit Evans Group Australia Pty Ltd v Impro Ltd (1997) 39 IPR 56 ........................ 30.2110 Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273 ......................... 30.930 New South Wales v Bujdoso (2005) 227 CLR 1 .................................................................... 28.120 New South Wales v Commonwealth (1990) 169 CLR 482 ................................................... 1.110

New South Wales v Commonwealth (Work Choices Case) (2006) 229 CLR 1 ......... 1.110, 34.20, 34.40, 34.50 New South Wales v Fahy (2007) 232 CLR 486 ................................................................ 28.390 New South Wales v Lepore (2003) 212 CLR 511 .................................................... 28.830, 28.845 Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 .......................................... 1.410 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 ..................... 18.130 News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563 ................................................................. 18.110 Ngalakan People v Northern Territory (2001) 112 FCR 148 ................................................. 22.980 Nguyen v Nguyen (1990) 169 CLR 245 ............... 1.540 Nibali v Sweeting & Denney (WA) Pty Ltd [1989] Aust Torts Reports 80-258 .................... 21.90 Nicaro Holdings Pty Ltd v Martin Engineering Co (1990) 91 ALR 513 ............. 30.1890 Nicolazzo v Harb (2009) 22 VR 220 ............. 9.30, 9.70 Nominal Defendant v GLG Australia Pty Ltd (2006) 228 CLR 529 ........................................ 1.370 Noonan v Martin (1987) 10 NSWLR 402 .......... 13.740 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 ................ 8.370 Norfolk Southern Ry Co v Power Source Supply Inc 2008 WL 2884102 (WD Pa 2008) ............................................................. 15.430 Norman v FEA Plantation Ltd (2011) 195 FCR 97 ............................................................ 4.220 Norris v Sibberas [1990] VR 161 ........... 13.590, 28.320 North Australian Aboriginal Justice Agency Ltd v Northern Territory (2015) 90 ALJR 38 .................................................................... 1.370 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 ................ 7.780 North and South Wales Bank Ltd v Macbeth [1908] AC 139 ............................................... 23.100 Northern Territory v Alyawarr, Kaytetye, Warumungu, Wakay Native Title Claim Group (2005) 145 FCR 442 ........................... 22.980 Northern Territory v Arnhem Land Aboriginal Land Trust (2008) 236 CLR 24 .... 22.890 Northern Territory of Australia v Collins (2008) 235 CLR 619 .................................... 30.2100 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 ......... 27.320 Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74 .................................... 3.300

O O Mustard & Son v Dosen [1964] 1 WLR 109 .............................................................. 30.2720 O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) 48 ALR 625 ........................... 18.380 O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 .................. 12.310, 12.320

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OOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 ..... 11.310, 11.471 O’Toole v Charles David Pty Ltd (1991) 171 CLR 232 .......................................................... 1.550 Obeid v Australian Competition and Consumer Commission (2014) 226 FCR 471 ................................................................ 18.150 Oceanroutes (Aust) Pty Ltd v MC Lamond [1984] AIPC 90-134 ....................................... 30.260 Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 ......................... 22.710, 31.430 Ogawa v Spender (2006) 151 FCR 228 ............ 30.1490 Olivaylle Pty Ltd v Flottweg AG [2010] FCAFC 62 ............................................. 3.200, 15.50 Olivaylle Pty Ltd v Flottweg AG (No 4) (2009) 255 ALR 632 ............................. 3.200, 15.50 Olley v Marlborough Court Ltd [1949] 1 KB 532 .................................................................. 9.390 Omlaw Pty Ltd v Delahunty [1995] 2 Qd R 389 ................................................................ 20.200 Onesteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd (2013) 85 NSWLR 1 ........ 14.970 Orb Holdings Pty Ltd v Lombard Insurance Co (Aust) Ltd [1995] 2 Qd R 51 .................... 25.375 Oscar Chess Ltd v Williams [1957] 1 WLR 370 ................................................................... 9.110 Ottoman Bank Ltd v Chakarian [1930] AC 277 ................................................... 34.270, 34.290 Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd (1982) 44 ALR 667 ................................................................ 18.310 Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound No 2) [1967] AC 617 ..................................... 28.530 Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388 ........................ 28.510, 28.520 Oyston v St Patrick’s College [2011] Aust Torts Reports 82-086; [2011] NSWSC 269 .... 28.120

P PGA v The Queen (2012) 245 CLR 355 ............... 32.20 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 ............................................... 9.20, 13.260 Pacific Dunlop Ltd v Hogan (1989) 23 FCR 553 .............................................................. 30.2620 Pacific Film Laboratories Pty Ltd v Commissioner of Taxation (1970) 121 CLR 154 .......................................................... 30.40 Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867 ..... 14.700 Pacific Projects Pty Ltd (in liq), Re [1990] 2 Qd R 541 ....................................................... 31.540 Paciocco v Australia and New Zealand Banking Group Ltd (2016) 90 ALJR 835 ...... 12.331, 17.1440, 24.40 Page One Records Ltd v Britton [1968] 1 WLR 157 ....................................................... 12.400 Pan Australian Credits (SA) Pty Ltd v Kolim Pty Ltd (1981) 27 SASR 353 .......................... 22.340

Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 170 ALR 579 .......................................................... 11.30 Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 .................................................... 13.260, 27.820 Pao On v Lau Yiu Long [1980] AC 614 ................ 5.170 Papas v Bianca Investments Pty Ltd (2002) 82 SASR 581 ......................................................... 7.280 Parastatidis v Kotaridis [1978] VR 449 .............. 21.240, 21.330 Paris v Stepney Borough Council [1951] AC 367 ................................................... 28.410, 28.420 Park Avenue Nominees Pty Ltd v Boon (on behalf of Weir) [2001] ASC 155-052; [2001] NSWSC 700 ....................................... 19.200 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 ................ 17.100 Parker v British Airways Board [1982] 1 QB 1004 .................................... 22.150, 22.160, 22.170 Parker v McKenna (1874) 10 Ch App 96 ............ 13.340 Parker v The Queen (1963) 111 CLR 610 ............. 1.540 Parkinson v College of Ambulance Ltd [1925] 2 KB 1 ................................................... 8.290, 8.550 Parmalat Australia Pty Ltd v VIP Plastic Packaging Pty Ltd (2013) 210 FCR 1 ............. 18.600 Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149 ............... 29.410 Pascoe v Boensch (2008) 250 ALR 24 ................. 29.280 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 ................... 27.1180, 34.420, 34.430, 34.440 Patten v Thomas Motors Pty Ltd [1965] NSWR 1457 .................................................. 14.230 Paul v Cooke (2013) 85 NSWLR 167 ................. 28.510 Paul’s Retail Pty Ltd v Sports Leisure Pty Ltd (2012) 95 IPR 151 ....................................... 30.2425 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 .............................. 12.440, 12.540, 12.550 Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 .................................... 3.260 Payzu Ltd v Saunders [1919] 2 KB 581 ............... 12.160 Pearce v Brain [1929] 2 KB 310 ............................ 6.110 Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187 .......................................................... 8.422 Peek v Gurney (1873) LR 6 HL 377 ..................... 7.490 Peldan v Anderson (2006) 227 CLR 471 ............ 31.490 Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 ..................... 22.630 Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 ........................................... 21.380, 28.710 Pennington v Norris (1956) 96 CLR 10 .............. 28.560 Pepper v Attorney-General [2008] 2 Qd R 353 .................................................................. 1.420 Perez v Fernandez (2012) 260 FLR 1 ................ 30.1470 Performing Right Society Ltd v Harlequin Record Shop Ltd [1979] 1 WLR 851 ............. 30.370 Perisher Blue Pty Ltd v Nair Smith (2015) 90 NSWLR 1 ........................................................ 28.80

Table of Cases

Permanent Custodians Ltd v Upston [2007] ASC 155-083; [2007] NSWSC 223 ................ 19.580 Permanent Mortgages Pty Ltd v Cook [2006] ASC 155-082; [2006] NSWSC 1104 .............. 19.630 Permanent Mortgages Pty Ltd v Cook [2007] ASC 155-085; [2007] NSWCA 219 ................ 19.200 Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514 .......... 25.120, 25.130, 25.140, 25.160 Perpetual Trustee Co Ltd v John Fairfax & Sons Pty Ltd (1959) 76 WN (NSW) 226 ........ 29.310 Perpetual Trustee Co Ltd v Khoshaba (2006) 14 BPR 26 ........................................................ 7.980 Perpetual Trustees Australia Ltd v Heperu Pty Ltd (2009) 76 NSWLR 195 ........................... 24.915 Perre v Apand Pty Ltd (1999) 198 CLR 180 ........ 28.90, 28.180, 28.230, 28.240, 28.340 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 ......................... 11.110, 11.140 Perry Engineering Pty Ltd v Bernold AG [2001] SASC 15 ............................................... 15.30 Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745 ........................ 22.500 Petelin v Cullen (1975) 132 CLR 355 ........ 7.320, 7.330 Peter Pan Manufacturing Corp v Corsets Silhouette Ltd [1964] 1 WLR 96 .................. 30.2740 Peters v R (1998) 192 CLR 493 .......................... 32.520 Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 .......................................................... 8.510 Petersen v Union des Assurances de Paris Aird (1995) 8 ANZ Insurance Cases 61-244 .......... 25.560 Petrofina (Great Britain) Ltd v Martin [1966] Ch 146 ............................................................. 8.360 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 ................................................ 3.40 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 ................................................ 3.40 Phillips v Brooks Ltd [1919] 2 KB 243 ..... 7.250, 7.630, 14.690 Phonographic Performance Company of Australia Ltd v Cattch Pty Ltd (2013) 102 IPR 286 ........................................................ 30.1210 Photi v Target Australia Pty Ltd [2007] NSWDC 265 .................................................. 28.650 Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827 .......................... 9.500, 9.510 Piccone v Suncorp Metway Insurance Ltd (2005) 148 FCR 437 ...................................... 31.270 Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 ........................................ 5.100 Pioneer Container KH Enterprise (cargo owners) v Pioneer Container (owners) [1994] 2 AC 324 ............................................ 21.200 Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644 ................................................... 21.70 Pivovaroff v Chernabaeff (1978) 21 SASR 1 ....... 21.250 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 ...... 12.190

Plasteel Windows Australia Pty Ltd v CE Heath Underwriting Agencies Pty Ltd (1990) 19 NSWLR 400 ..................... 25.330, 25.390 Plenty v Dillon (1991) 171 CLR 635 .................. 28.660 Pola v Australia and New Zealand Banking Group Limited [2015] NSWCA 146 ............... 22.630 Polish Community Credit Union Ltd, Re [2000] ASC 155-037 ...................................... 19.370 Polo/Lauren Company LP v Ziliani Holdings Pty Ltd (2008) 173 FCR 266 .......... 30.540, 30.1760 Polygram Records Pty Ltd v Monash Records (Aust) Pty Ltd (1985) 10 FCR 332 ............... 30.1250 Populin v HB Nominees Pty Ltd (1982) 41 ALR 471 ...................................................... 30.2110 Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300 .......................................................... 10.40 Positive Endeavour Pty Ltd v Madigan (2009) 105 SASR 109 ....................................... 8.390, 8.600 Povey v Qantas Airways Ltd (2005) 223 CLR 189 ................................................................ 21.520 Powell v Lee (1908) 99 LT 284 ............................. 3.290 Prepaid Services Pty Ltd v Atradius Credit Insurance NV (2014) 18 ANZ Insurance Cases 62-047; [2014] NSWCA 440 ................ 25.370 Preston v AIA Australia Ltd (2014) 18 ANZ Insurance Cases 62-018; [2014] NSWCA 165 ............................................................... 25.1145 Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 1 FCR 346 .......................................... 31.710 Price v Southern Cross Television (TNT9) Pty Ltd [2015] Aust Torts Reports 82-208; [2014] TASSC 70 ............................................. 4.145 Prime Start Ltd v Maher Forest Products Ltd 442 F Supp 2d 1113 (WD Wash 2006) ............. 15.30 Prince Alfred College Incorporated v ADC [2016] HCA 37 .............................................. 28.845 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 .............. 11.180, 11.240, 22.840 Proprietary Articles Trade Association v Attorney General for Canada [1931] AC 310 .................................................................. 32.20 Proprietors – Strata Plan No 14198, The v Cowell (1991) 24 NSWLR 478 ...................... 28.770 Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd (2015) 18 BPR 35511; [2015] NSWCA 16 ............................. 11.250 Proudman v Dayman (1941) 67 CLR 536 .......... 32.400 Public Service Employees Credit Union Co-operative Ltd v Campion (1984) 56 ACTR 39 ......................................................... 8.240 Public Trustee v Taylor [1978] VR 289 ................. 7.500 Puels v Exelerate Funding Pty Ltd (2005) 214 ALR 616 ........................................................ 31.215 Pukallus v Cameron (1982) 180 CLR 447 ............ 7.440 Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27 .............................................. 28.380 Pye Industries Sales Pty Ltd v Trade Practices Commission [1979] ATPR 40-124 .................. 18.410

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Australian Commercial Law

P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 ............ 3.220, 13.440

Q Qualcast (Wolverhampton) Ltd v Haynes [1959] AC 743 ............................................... 28.500 Queensland v Congoo (2015) 256 CLR 239 .... 22.1010, 22.1020 Queensland Aggregates Pty Ltd v Trade Practices Commission (1981) 38 ALR 217 ..... 18.330 Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 ........................................... 31.530, 31.540 Queensland Co-operative Milling Association Ltd, Re (1976) 8 ALR 481 ................ 18.480, 18.490 Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 ............ 18.180, 18.190, 18.270, 18.480 Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 .... 17.450, 17.850

R R v Bezzina [1994] 1 WLR 1057 ........................ 32.390 R v Clarke (1927) 40 CLR 227 ............................. 3.170 R v English (1993) 10 WAR 355 ......................... 32.350 R v Falconer (1990) 171 CLR 30 ........... 32.360, 32.370 R v Hannes (2002) 173 FLR 1 ............................ 27.796 R v Hawkins (1989) 45 A Crim R 430 ............... 32.500, 32.510 R v JS (2007) 230 FLR 276 .................................. 1.540 R v K (2003) 59 NSWLR 431 ............................. 32.320 R v Kidman (1915) 20 CLR 425 ......................... 32.170 R v Nuttall [2011] 1 Qd R 270 .............. 32.460, 32.470 R v Regos (1947) 74 CLR 613 .............................. 1.420 R v Rivkin (2004) 59 NSWLR 284 ..................... 27.797 R v Selim [2007] NSWSC 322 ............................ 16.270 R v Sparrow [1990] 1 SCR 1075 ...................... 22.1020 R v XY (2013) 84 NSWLR 363 ............................ 1.540 R Leslie Ltd v Sheill [1914] 3 KB 607 ................... 6.140 RA & A Bailey & Co Ltd v Boccaccio Pty Ltd (1986) 4 NSWLR 701 .................................... 30.530 RCA Corp v John Fairfax & Sons (1981) 34 ALR 345 ........................................................ 30.450 RE Jones Ltd v Waring & Gillow Ltd [1926] AC 670 .......................................................... 23.250 RJ Mabarrack Pty Ltd v King (1971) 1 SASR 313 ................................................................ 13.430 RJE v Secretary to the Department of Justice (2008) 21 VR 526 ............................................ 1.540 RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125 .............................. 30.2740 RV Ward Ltd v Bignall [1967] 1 QB 534 ............ 14.930 Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 ....................... 30.580, 30.990 Radaich v Smith (1959) 101 CLR 209 ................ 22.740 Rafferty v Madgwicks (2012) 203 FCR 1 ......... 30.2790 Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109 ......................................... 3.210

Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251 ...................................... 30.2770 Rasmussen & Russo Pty Ltd v Gaviglio [1982] Qd R 571 ........................................... 13.420 Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417 ........................................................ 17.540 Reckitt Benckiser (Australia) Pty Ltd v Procter & Gamble Australia Pty Ltd [2015] FCA 753 ................................................................ 17.720 Red Bull Australia Pty Ltd v Sydneywide Distributors Pty Ltd (2001) 53 IPR 481 ....... 30.2570 Redgrave v Hurd (1881) 20 Ch D 1 ...................... 7.600 Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [2009] NSWSC 678 ...... 16.110, 16.120, 16.240 Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 14 BCL 91 ................. 3.190 Reference by Australasian Performing Right Assoc Ltd; Re Australian Broadcasting Corp (1985) 5 IPR 449 .................................. 30.800 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 ................................................................ 13.340 Regazzoni v KC Sethia (1944) Ltd [1958] AC 301 .................................................................. 8.310 Regent v Millett (1976) 133 CLR 679 .................. 5.390 Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286 .................................................................... 9.20 Renehan v Leeuwin Ocean Adventure Foundation Ltd (No 3) (2006) 17 NTLR 83 ................................................................... 11.480 Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd (2012) 37 VR 486 ....................................................... 9.170 Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd (2008) 166 FCR 358 ...................................................... 30.1670 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 ................................................................ 17.130 Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 ..................... 31.530 Riches v Hogben [1986] 1 Qd R 315 ........... 4.80, 5.250 Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147 ......................................... 12.50 Rick Cobby Haulage Pty Ltd v Simsmetal Pty Ltd (1986) 43 SASR 533 ................................ 21.170 Riley v Osborne [1986] VR 193 ............................ 5.370 Ringrow Pty Ltd v BP Australia (2005) 224 CLR 656 ........................................................ 12.330 Rinsale Pty Ltd v Australian Broadcasting Commission [1993] Aust Torts Reports 81-231 ........................................................... 28.670 Risk (“Larrakia”) v Northern Territory [2006] FCA 404 .............................. 22.980, 22.1010 Roads and Traffic Authority (NSW) v Dederer (2007) 234 CLR 330 ...................................... 28.170 Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42 .......... 16.590, 16.600, 30.750, 30.1260 Robb v Green [1895] 2 QB 315 ............... 8.400, 13.330

Table of Cases

Robert J Zupanovich Pty Ltd v B & N Beale Nominees Pty Ltd (1995) 59 FCR 49 ........... 30.1160 Robertson, Re (1943) 44 SR (NSW) 103 ............ 22.420 Robertson, Re (1975) 10 SASR 189 .................... 29.290 Robinson v Davison (1871) LR 6 Ex 269 ........... 11.340 Robinson v Harman (1848) 1 Ex 850; 154 ER 363 ............................................................. 12.90 Robinson Motors Pty Ltd v Fowler [1982] Qd R 374 ....................................................... 14.750 Rocky Castle Finance Pty Ltd v Taylor (2014) 118 SASR 349 .............................................. 23.1060 Roder Zelt-Und Hallenkonstruktionen GmbH v Rosedown Park Pty Ltd (1995) 57 FCR 216 ..................................................... 15.40, 15.280 Rogers v Whitaker (1992) 175 CLR 479 ............ 28.120 Rolfe Lubell & Co (a firm) v Keith [1979] 1 All ER 860 ........................................ 23.330, 23.340 Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431 ...... 28.170, 28.400 Rondo Building Services Pty Ltd v Casaron Pty Ltd [2003] 2 Qd R 558 ............................ 14.570 Roots v Oentory Pty Ltd [1983] 2 Qd R 745 ...... 13.590 Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445 ................................................. 4.190 Rosenberg v Percival (2001) 205 CLR 434 ......... 28.500 Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46 ............................. 23.90 Roser Technologies Inc v Carl Schreiber GmbH 2013 WL 4852314 (WD Pa 2013) ...... 15.50, 15.60, 15.90 Ross v The Queen [2014] NZCA 272 ................... 33.20 Rowe v McCartney [1976] 2 NSWLR 72 ........... 28.540 Rowland v Divall [1923] 2 KB 500 ...... 14.230, 14.1030 Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 ................ 12.470 Royal Globe Life Assurance Co Ltd v Kovacevic (1979) 22 SASR 78 ........................ 13.610 Rubibi Community v Western Australia (No 7) [2006] FCA 459 .......................... 22.980, 22.1010 Ruddock v Taylor (2005) 222 CLR 612 ............. 28.650 Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 .......................................... 18.80, 18.100, 18.290 Russo v Belcar Pty Ltd (2011) 111 SASR 459 .... 14.205, 14.400 Ryan v Mutual Tontine Westminster Chambers Assoc [1893] 1 Ch 116 .................. 12.380 Rylands v Fletcher (1868) LR 3 HL 330 ............. 28.780 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 .................................................... 7.430

S SH Lock (Aust) Ltd v Kennedy (1988) 12 NSWLR 482 .................................................. 7.1040 SJ Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd [1989] 2 Qd R 87 .............................. 26.490 SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 .............. 8.610, 18.350, 18.670

SW Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466 ......................... 30.320 SZEEU v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 150 FCR 214 ........................................ 1.540 Sabate USA Inc v Chateau des Charmes Wines Ltd 540 US 1049 (2003) ................................ 15.130 Sabemo Pty Ltd v De Groot (1991) 8 BCL 132 ................................................................ 20.180 Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880 ....................... 12.560 Sablebrook Pty Ltd v Credit Union Australia Ltd [2008] QSC 242 ...................................... 22.630 Sachs v Miklos [1948] 2 KB 23 ........................... 13.160 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 ..................................... 8.20, 8.150 Saleeba v Wilke [2007] QSC 298 ........................ 22.430 Saleh v Romanous (2010) 79 NSWLR 453 ............. 9.70 Salomon v Salomon & Co Ltd [1897] AC 22 ........ 27.50 Sambo v Western Australia [2009] FCA 940 ....... 22.990 Sampi v Western Australia [2005] FCA 777 ........ 22.980 Sampi v Western Australia (No 2) (2010) 266 ALR 537 ........................................................ 22.980 Sampi v Western Australia (No 2) (“Bardi Jawi – Brue Reef”) (2005) 224 ALR 358 ...... 22.1010 Samsung: Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238 .................... 30.2125 San Lucio Srl v Import & Storage Services LLC 2009 WL 1010981 (DNJ 2009) ............. 15.430 San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 ........................... 7.730, 28.280, 28.300, 28.310 Sandell v Porter (1966) 115 CLR 666 ................. 31.520 Sanders v Snell (1998) 196 CLR 329 .................... 10.80 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 ................................................. 11.120 Sanrod Pty Ltd v Dainford Ltd (1984) 54 ALR 179 ........................................................ 17.910 Saunders v Anglia Building Society [1971] AC 1004 ..................................................... 7.300, 7.310 Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 ................................................................ 29.710 Scaffidi v Montevento Holdings Pty Ltd (2011) 6 ASTLR 446; [2011] WASCA 146 ..... 29.390 Scandanavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd [2016] FCAFC 91 .................................................... 30.2423 Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 ........................................ 11.450 Scarborough v Sturzaker (1905) 1 Tas LR 117 ........ 6.40 Schmitz-Werke GmbH & Co v Rockland Indus Inc 37 Fed Appx 687 (4th Cir 2002) ...... 15.60 Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170 ................. 18.530 Schuller v SJ Webb Nominees Pty Ltd [2015] SASCFC 162 .................................................. 28.570 Schultz v Bank of Queensland Ltd [2015] QCA 208 ......................................................... 7.950

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Scolio Pty Ltd v Cote (1992) 6 WAR 475 ............. 7.760, 8.250, 8.260 Scott v Coulson [1903] 2 Ch 249 ............................ 7.80 Scott v Littledale (1858) 8 El & Bl 815; 120 ER 304 ............................................................. 7.140 Scott v Scott (1904) 25 ALT 174 ........................... 8.350 Scott v Scott (1963) 109 CLR 649 ...................... 29.440 Scrase v Jarvis [2000] 2 Qd R 92 ........................ 28.120 Screen Australia v EME Productions No 1 Pty Ltd (2012) 200 FCR 282 ................................. 1.370 Seafolly Pty Ltd v Fewstone Pty Ltd (2014) 313 ALR 41 ................................................. 30.1760 Secton Pty Ltd (t/a BWN Industries) v Delawood Pty Ltd (1991) 21 IPR 136 .......... 30.2720 Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326 ............................................................. 7.630 Sedleigh-Denfield v O’Callaghan [1940] AC 880 ................................................................ 28.770 Segenhoe Ltd v Atkins (1990) 29 NSWLR 569 ................................................................ 28.320 Seidler v Schallhofer [1982] 2 NSWLR 80 ............ 8.210 Selected Seeds Pty Ltd v QBEMM Pty Ltd (2010) 242 CLR 336 ...................................... 25.555 Selim v Lele (2008) 167 FCR 61 ........................... 1.540 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 ........................................................ 17.820 Sevmere Pty Ltd v Cairns Regional Council [2010] 2 Qd R 276 .......................................... 1.360 Sgro v Australian Associated Motor Insurers Ltd (2015) 299 FLR 92 .................................. 25.710 Shacklady v Atkins (1994) 30 IPR 387 ............. 30.1750 Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 ....... 7.720, 7.730, 28.280, 28.290 Sharman v Kunert (1985) 1 NSWLR 225 ........... 7.1020 Shaw v Galt (1864) 16 Ir CL Rep 357 .................. 26.80 Shaw v Thomas [2010] Aust Torts Reports 82-065; [2010] NSWCA 169 ......................... 28.400 Shaw v Wolf (1998) 83 FCR 113 ........................ 22.980 Sheather v Staples Waste Removals Pty Limited (No 2) [2014] FCA 84 ....................... 16.365 Shell Co of Australia Ltd v Esso Standard Oil (Aust) Ltd (1963) 109 CLR 407 ................... 30.2400 Shelley v Paddock [1980] QB 348 ......................... 8.570 Shevill v Builders Licensing Board (1982) 149 CLR 620 .............................. 11.220, 11.260, 22.840 Shiels v Drysdale (1880) 6 VLR 126 ....................... 5.90 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 .............................................. 9.260 Shoeys Pty Ltd v Allen [1991] Aust Torts Reports 81-104 .............................................. 28.120 Shortall v White [2007] NSWCA 372 ..................... 4.50 Shuttle Packaging Systems LLC v Jacob Tsonakis, INA SA 2001 US Dist LEXIS 21630 (WD Mich 2001) ................... 15.130, 15.350 Sidhu v Van Dyke (2014) 251 CLR 505 ................ 5.280 Sidney Raper Pty Ltd v Commonwealth Trading Bank of Australia [1975] 2 NSWLR 227 .................................................. 24.810 Siemens Ltd v Schenker International (Australia) Pty Ltd (2004) 216 CLR 418 ........ 21.510

Silk Bros Interstate Traders Pty Ltd v Security Pacific National Bank (1989) 16 NSWLR 446 ................................................................ 23.950 Silvia v Thomson (1989) 87 ALR 695 ................. 31.430 Simpson Ltd v Hubbards Pty Ltd (1982) 44 ALR 695 ........................................................ 18.610 Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 .............. 18.270, 18.280 Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 ......................... 17.710, 17.712 Siu Yin Kwan (Administratrix of the Estate of Chan Ying Lung, Decd) v Eastern Insurance Co Ltd [1994] 2 AC 199 ................ 13.550 Slee v Warke (1949) 86 CLR 271 .......................... 7.410 Smallmon v Transport Sales Ltd [2012] 2 NZLR 109 .......................................... 15.60, 15.155 Smilevska v Smilevska (No 2) [2016] NSWSC 397 ....................................................... 4.70, 22.490 Smith v Anderson (1880) 15 Ch D 247 ................. 26.30 Smith v Hughes (1871) LR 6 QB 597 ................... 7.160 Smith v Land and House Property Corp (1884) 28 Ch D 7 ............................................. 7.500 Smith v The Queen (1994) 181 CLR 338 .............. 1.420 Snyman v Cooper (1990) 25 FCR 470 ................ 17.670 Solahart Industries Pty Ltd v Solar Shop Pty Ltd (2011) 281 ALR 544 ................................ 17.120 Soltykoff, Re; Ex parte Margrett [1891] 1 QB 413 ..................................................... 6.130, 23.370 Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 ...................................................... 27.1340 Sony Entertainment (Australia) Ltd v Smith (2005) 64 IPR 18 ......................................... 30.1220 Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127 ..................................................... 11.190 Souter v Shyamba Pty Ltd (2002) 11 BPR 20,369 ............................................................. 4.170 South Australian Railways Commissioner v Egan (1973) 130 CLR 506 ............................... 7.870 South Staffordshire Water Co v Sharman [1896] 2 QB 44 ................................. 22.110, 22.120 Southern Goldfields Ltd v General Credits Ltd (1991) 4 WAR 138 ......................................... 22.630 Spar Licensing Pty Ltd v Mis Qld Pty Ltd (2014) 314 ALR 35 ...................................... 30.2790 Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002) .................................... 16.190 Special Projects (Qld) Pty Ltd v Simmons [2012] QCA 205 .............................................. 1.360 Special Purposes of Income Tax, Commissioners for v Pemsel [1891] AC 531 ................................................................ 29.270 Spector v Ageda [1973] Ch 30 .............................. 8.590 Spencer v Harding (1870) LR 5 CP 561 .................. 3.60 Spencer Industries Pty Ltd v Collins (2003) 58 IPR 425 ........................................................ 30.2150 Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (2009) 253 ALR 364 ........................................ 8.600 Spira v Commonwealth Bank of Australia (2003) 57 NSWLR 544 .................................. 17.230

Table of Cases

Spirit Pharmaceuticals Pty Ltd v Mundipharma Pty Ltd (2013) 216 FCR 344 .............................................................. 30.2040 Spong v Spong (1914) 18 CLR 544 ...................... 7.830 Stamp Duties, Commissioner of v Livingston (1964) 112 CLR 12 ........................................ 22.710 Standard Bent Glass Corp v Glassrobots OY 333 F 3d 440 (3d Cir 2003) ........................... 15.100 Stapley v Towing Masters Pty Ltd [2009] NSWCA 382 .................................................. 21.490 Star Express Merchandising Co Pty Ltd v VG McGrath Pty Ltd [1959] VR 443 ................... 21.270 State v Rayney (2013) 46 WAR 1 ........................ 32.315 State Revenue, Commissioner of v Challenger Listed Investments Ltd (2011) 34 VR 617 ........ 1.540 State Revenue, Commissioner of v Challenger Listed Investments Ltd [2012] HCATrans 352 .................................................................. 1.540 State Savings Bank of Victoria, Commissioners of v Permewan Wright & Co Ltd (1914) 19 CLR 457 ............... 24.170, 24.720 State of New South Wales v TD (2013) 83 NSWLR 566 .................................................. 28.650 State of Queensland v Kelly [2015] 1 Qd R 577 ................................................................ 28.170 State of South Australia v Lampard-Trevorrow (2010) 106 SASR 331 ................................................................ 28.170 Stealth Enterprises Pty Ltd v Calliden Insurance Ltd (2015) 300 FLR 81 .................. 25.250 Steele v Tardiani (1946) 72 CLR 386 .................. 12.560 Sterling Engineering Co Ltd v Patchett [1955] AC 534 ........................................................ 30.2150 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 .............. 28.810, 34.180, 34.190 Stoker v Picken (2012) 209 FCR 132 .................. 22.290 Stone Leaf Capital Pty Ltd v Daly [2014] NSWSC 477 ................................................... 22.500 Strange Investments (WA) Pty Ltd v Coretrack Ltd (2014) 107 IPR 102 ................................... 21.10 Strickland v Minister of Lands (WA) (1998) 85 FCR 303 ................................................. 22.1230 Strickland v Rocla Concrete Pipes Ltd (1971) 124 CLR 468 ................................................... 1.110 Strickland v Western Australia (2015) 234 FCR 40 .......................................................... 22.990 Strong v Woolworths Limited (2012) 246 CLR 182 ........................................................ 28.500 Su v Commonwealth of Australia (2016) 307 FLR 357 ......................................................... 28.650 Summerton v SGIC Life Ltd (1999) 10 ANZ Insurance Cases 90-102 .................................. 25.310 Sumpter v Hedges [1898] 1 QB 673 .................... 12.560 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 .................................. 20.10, 20.30, 20.160 Suncoast Restoration Pty Ltd (in liq), Re (2013) 211 FCR 203 ...................................... 29.650 Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 ............................................... 1.840

Sutherland Shire Council v Heyman (1985) 157 CLR 424 ....................... 28.350, 28.360, 28.370 Sutton & Co v Grey [1894] 1 QB 285 .................. 26.80 Svanosio v Macnamara (1956) 96 CLR 186 ......... 7.630 Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161 .................................... 28.810, 34.220 Swinton v China Mercantile Navigation Co Ltd (1951) 83 CLR 553 ................................. 28.410 Sydney Organising Committee for the Olympic Games v Clarke (1998) 41 IPR 403 ............................................................... 30.1110 Symes v Laurie [1985] 2 Qd R 547 ....................... 14.30 Symes v Mahon [1922] SASR 447 ...................... 28.650

T TCN Channel Nine Pty Ltd v Network Ten Pty Ltd (No 2) (2005) 145 FCR 35 ................ 30.930 THC Holdings Pty Ltd v CMA Recycling Pty Ltd (2014) 101 ACSR 202 ............................. 14.535 TP Rich Investments Pty Ltd v Calderon [1964] NSWR 709 ......................................... 24.270 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 .............. 12.90, 12.110 Tabet v Gett (2010) 240 CLR 537 ........... 1.540, 28.500 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 ........................... 17.760 Talbot v General Television Corp Pty Ltd [1980] VR 224 .............................. 30.2700, 30.2740 Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 ............................................................ 11.80 Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 ............................. 17.60, 17.820 Tame v New South Wales (2002) 211 CLR 317 ..................................................... 28.90, 28.190 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 ................................................. 22.680 Taubmans Pty Ltd v Loakes [1991] 2 Qd R 109 ................................................................ 20.180 Taxation, Commissioners of v English Scottish and Australian Bank Ltd [1920] AC 683 .......................................................... 24.720 Taxation, Federal Commissioner of v Unit Trend Services Pty Ltd (2013) 250 CLR 523 .................................................................. 1.410 Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 ........................................................... 11.350 Taylor v Johnson (1983) 151 CLR 422 ..... 7.170, 7.180, 7.190, 7.360 Taylor v The Owners–Strata Plan No 11564 (2014) 253 CLR 531 ........................................ 1.360 Taylor, Re; Ex parte Century 21 Real Estate Corp (1995) 130 ALR 723 ............................... 20.30 Tebb v Filsee Pty Ltd (2010) 30 VR 473 ............. 20.180 TeeVee Toons Inc v Gerhard Schubert GmbH 2006 WL 2463537 (SD NY 2006) .... 15.110, 15.120, 15.400 Teen Ranch Pty Ltd v Brown (1995) 87 IR 308 .................................................................. 4.120

xxxvii

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Australian Commercial Law

Telstra Corporation Ltd v Hurstville City Council (2000) 105 FCR 322 ........................... 1.370 Telstra Corporation Ltd v Phone Directories Co Pty Ltd (2010) 194 FCR 142 .................... 30.140 Tempest v Lord Camoys (1882) 21 Ch D 571 ..... 29.490 Tepko Pty Ltd v Water Board (2001) 206 CLR 1 ............................................................ 28.280 The River Steamer Co, Mitchell’s Claim, Re (1871) LR 6 Ch App 822 ............................... 12.420 Theeman v Forte Properties Pty Ltd [1973] 1 NSWLR 418 ..................................... 21.570, 21.590 Thomas v Ranford (1922) 24 WALR 137 ........... 22.270 Thomas v Todd [1926] 2 KB 511 ...................... 27.1150 Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd (1985) 3 NSWLR 452 .................................... 14.660 Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Aust) Pty Ltd (1966) 115 CLR 353 ................................................. 21.220 Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548 ...................................... 13.590 Thompson v Woolworths (Qld) Pty Ltd (2005) 221 CLR 234 ...................................... 28.120 Thorby v Goldberg (1964) 112 CLR 597 ................ 9.20 Thorn Airfield Lighting Pty Ltd v W [2012] TASWRCT 11 .................................................. 16.80 Thorne Developments Pty Ltd v Thorne [2016] QCA 63 .............................................. 29.690 Thornett & Fehr v Beers & Son [1919] 1 KB 486 ................................................................ 14.285 Thornley v Tilley (1925) 36 CLR 1 ....................... 9.300 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 ............................................................ 9.370 Thorp v CA Imports Pty Ltd (1989) 16 IPR 511 ................................................................. 17.690 Thusi Pty Ltd v Neonbrook Pty Ltd [1999] 1 Qd R 429 ....................................................... 24.200 Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279 ........................ 25.710 Tina Motors Pty Ltd v Australia and New Zealand Banking Group Ltd [1977] VR 205 ................................................... 24.640, 24.650 Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 .............. 5.340, 7.430, 7.470, 20.30 Toby Constructions Products Pty Ltd v Computer Bar Sales Pty Ltd [1983] 2 NSWLR 48 ...................................................... 14.30 Todrell Pty Ltd v Finch (No 1) [2008] 1 Qd R 540 .................................................................. 5.330 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 .................... 9.20, 9.330, 9.340 Tolmark Homes Pty Ltd v Paul (1999) 46 IPR 321 ............................................................... 30.1130 Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 .................. 5.230 Total Oil Products (Aust) Pty Ltd v Robinson [1970] 1 NSWR 701 ........................................ 20.30 Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd [1994] Aust Torts Reports 81-292 ............................................................. 21.80

Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 ................... 24.40 Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397 ................................................................ 26.420 Toyota Finance Australia Ltd v Dennis (2002) 58 NSWLR 101 ............................................. 21.370 Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 ...................................... 18.530 Trade Practices Commission v Dunlop Australia Pty Ltd (1980) 30 ALR 469 ............ 18.420 Trade Practices Commission v Orlane Australia Pty Ltd (1984) 1 FCR 157 .............. 18.430 Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 41-375 .......................... 18.560 Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719; [1983] ATPR 40-390 ................................................... 18.70 Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 ............. 30.2800 Transport Tyre Sales Pty Ltd v Montana Tyres Rims and Tubes Pty Ltd (1999) 93 FCR 421 .............................................................. 30.2420 Transport Workers’ Union of Australia v Qantas Airways Limited (2012) 225 IR 13 .... 34.440, 34.470 Travelers Property Casualty Co of America v Saint-Gobain Technical Fabrics Canada Ltd 474 F Supp 2d 1075 (D Minn 2007) ......... 15.50 Trego v Hunt [1896] AC 7 .................................. 26.320 Treibacher Industrie AG v Allegheny Technologies Inc 464 F 3d 1235 (11th Cir 2006) ............................................................. 15.140 Trevey v Grubb (1982) 44 ALR 20 ....................... 4.100 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 ....... 1.540, 10.50, 10.60, 10.70 Triplex Safety Glass Co Ltd v Scorah (1938) 55 RPC 21 ................................................... 30.2150 Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 ......... 29.180, 31.500 Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591 ...................................... 17.730 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 ................................................. 11.470 Turnbull v Wightman (1945) 45 SR (NSW) 369 ................................................................ 13.430 Turner v Bladin (1951) 82 CLR 463 ................... 12.390 Turner v Morlend Finance Corp (Vic) Pty Ltd [1990] ASC 56-006 .......................................... 1.360 Turner v Queensland Motels Pty Ltd [1968] Qd R 189 ....................................................... 21.550 Tutt v Doyle (1997) 42 NSWLR 10 ...................... 7.460 Twentieth Century Fox Film Corp v South Australian Brewing Co Ltd (1996) 66 FCR 451; 34 IPR 247 ........................................... 30.2630 Twenty-first Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1990] VR 919 ............................................. 25.160, 25.270 Twidale v Bradley [1990] 2 Qd R 464 ................ 28.380

Table of Cases

Tyndall Life Insurance Co Ltd v Chisholm (2000) 11 ANZ Insurance Cases 90-104 ........ 25.420

U Ultramares Corp v Touche 255 NY 170; 174 NE 441 (1931) ............................................... 28.200 Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 ..................................... 7.800 United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 .......................................... 26.260 United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 ...................................................... 9.90 Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 ......... 25.1030, 25.1040 Universal Guarantee Pty Ltd v National Bank of Australasia Ltd [1965] 1 WLR 691 ............ 24.790 Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 ................ 18.240, 18.325, 18.530 Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 220 ALR 1 ........ 16.590 Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 ............................ 7.790 University of London Press Ltd v University Tutorial Press [1916] 2 Ch 601 ............. 30.80, 30.90 University of New South Wales v Moorhouse (1975) 133 CLR 1 ............................. 30.430, 30.440 University of Western Australia v Gray (2009) 179 FCR 346 ................................ 30.2150, 30.2160 Upfill v Wright [1911] 1 KB 506 ........................... 8.200 Uranium Equities Ltd v Fewster (2008) 36 WAR 97 ............................................................. 9.20 Usinor Industeel v Leeco Steel Products Inc 209 F Supp 2d 880 (ND Ill 2002) ......... 15.40, 15.60

V VLM Food Trading International Inc v Illinois Trading Co 811 F 3d 247 (7th Cir 2016) ........ 15.90, 15.130, 15.400 Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 81 IR 150 ............................ 34.210 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 ........................................ 20.60 Vairy v Wyong Shire Council (2005) 223 CLR 422 ................................................................ 28.170 Valamios v Demarco (2005) 63 NSWLR 191 ..... 24.220, 24.510 Vale v Sutherland (2009) 237 CLR 638 .............. 31.470 Vallance v R (1961) 108 CLR 56 ........................ 32.190 Van Den Esschert v Chappell [1960] WAR 114 ..................................................................... 9.60 Van Son v Forestry Commission of New South Wales (1995) 86 LGERA 108 ............... 28.770 Van der Lely NV v Bamfords Ltd [1963] RPC 61 ................................................................ 30.1890

Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70 ..................... 10.40 Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47 WAR 547 ................... 7.450, 9.20 Varley v Whipp [1900] 1 QB 513 ........................ 14.240 Vassallo v Haddad Import & Export Pty Ltd (2004) 2 DCLR (NSW) 123 ........................... 14.690 Vawdrey Australia Pty Ltd v Kreuger Transport Equipment Pty Ltd (2009) 261 ALR 269 ........................................................ 30.350 Vella v Permanent Mortgages Pty Ltd (2008) 13 BPR 25,343; [2008] NSWSC 505 ............. 24.670 Venning v Chin (1974) 10 SASR 299 .................. 28.610 Vero Insurance Ltd v Rail Corporation (NSW) (2013) 65 MVR 391; [2013] NSWCA 372 .... 25.760 Victoria v Commonwealth (1996) 187 CLR 416 .................................................................. 1.140 Victoria University of Technology v Wilson (2004) 60 IPR 392 ....................................... 30.2150 Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty Ltd (2012) 34 VR 397 ................... 14.390 Videon v Barry Burroughs Pty Ltd (1981) 37 ALR 365 ........................................................ 17.420 Vignoli v Sydney Harbour Casino [2000] Aust Torts Reports 81-541 ..................................... 28.650 Vimig Pty Ltd v Contract Tooling Pty Ltd (1986) 9 NSWLR 731 ...................................... 7.630 Vinden v Hughes [1905] 1 KB 795 ...................... 24.140 Vision Systems Inc v EMC Corporation 2005 WL 705107 (Mass Super 2005) ..................... 15.120 Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 1 ................................................. 18.90, 18.320 Vita Pacific Ltd v Heather (2001) 10 Tas R 334 .................................................................. 9.280 Vivo International Corpn Pty Ltd v TiVo Inc (2012) 294 ALR 661 .................................... 30.2365 Von Braun v Australian Associated Motor Insurers Ltd (1999) 10 ANZ Insurance Cases 61-419 ................................................. 25.380 Voss v Suncorp-Metway Ltd (No 2) [2004] 1 Qd R 214 ............................. 24.780, 24.900, 24.910

W WEA International Inc v Hanimex Corp Ltd (1987) 17 FCR 274 ........................................ 30.450 WGH Nominees Pty Ltd v Tomblin (1985) 39 SASR 117 ....................................................... 21.130 WL Thompson Ltd v Robinson (Gunmakers) Ltd [1955] Ch 177 ......................................... 14.980 Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd (2001) 79 SASR 517 .......................... 17.800 Wakim, Re; Ex parte McNally (1999) 198 CLR 511 .......................................................... 1.710 Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 ............................. 13.330 Walker v European Electronics Pty Ltd (1990) 23 NSWLR 1 ................................................. 26.440

xxxix

xl

Australian Commercial Law

Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259 .......................................................... 1.540 Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444 .............. 25.510 Waller v James (2006) 226 CLR 136 ....... 28.80, 28.100 Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 ........................................ 11.250 Walley v Western Australia (1996) 67 FCR 366 .............................................................. 22.1230 Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388 .... 17.1140, 21.480 Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 ............................................... 9.450, 14.400 Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657 ..................... 8.400, 8.610 Walplan Pty Ltd v Wallace (1985) 8 FCR 27 ....... 17.540 Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 ...................................... 31.250 Walsh v Doyle [2015] WASC 96 ......................... 22.630 Walsh v Lonsdale (1882) 21 Ch D 9 ................... 22.700 Walsh, Spriggs, Nolan and Finney v Hoag & Bosch Pty Ltd [1977] VR 178 ........... 24.240, 24.250 Walton Stores Ltd v Sydney City Council (1968) 88 WN (NSW) (Pt 2) 153 ..................... 21.40 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 .................. 5.260, 5.270, 5.280 Wang v Rong [2015] NSWSC 1419 .................... 26.220 Ward v State of Queensland [2004] 1 Qd R 429 ................................................................ 19.390 Ward v State of Western Australia (No 3) (2015) 233 FCR 1 ........................................ 22.1010 Ward-Miller v Perpetual Trustees Australia Ltd [2001] ASC 155-046 ................................ 19.580 Wardar’s (Import & Export) Co Ltd v W Norwood & Sons Ltd [1968] 2 QB 663 ......... 14.520 Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 107 .................................. 3.320 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 ...................................... 17.860 Warman International v Envirotech Australia Pty Ltd (1986) 11 FCR 478 .......................... 30.2700 Warner Bros Pictures Inc v Ingolia [1965] NSWR 988 .................................................... 12.400 Warner Bros Pictures Inc v Nelson [1937] 1 KB 209 ........................................................... 12.400 Watson v Delaney (1991) 22 NSWLR 358 ............ 5.380 Watt v Hertfordshire CC [1954] 1 WLR 835 ..... 28.430, 28.460 Watt v State Bank of New South Wales Ltd [2003] ACTCA 7 .............................................. 7.950 Waugh v HB Clifford & Sons Ltd [1982] Ch 374 ................................................................ 13.260 Waverley Borough Council v Fletcher [1996] QB 334 ............................................. 22.130, 22.140 Wayde v NSW Rugby League Ltd (1985) 180 CLR 459 ........................................................ 27.410 Weemah Park Pty Ltd v Glenlaton Investments Pty Ltd [2011] 2 Qd R 582 ........... 3.240

Weigall & Co v Runciman & Co (1916) 85 LJKB 1187 ..................................................... 13.580 Weld-Blundell v Stephens [1920] AC 956 ............ 13.380 Wellsmore v Ratford (1973) 23 FLR 295 ............ 22.340 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 ..................................... 7.1030, 22.650 Western Australia v Brown (2014) 253 CLR 507 .............................................................. 22.1010 Western Australia v Njamal People (1996) 134 FLR 211 ................................................ 22.1230 Western Australia v Sebastian (“Rubibi”) (2008) 173 FCR 1 ........................... 22.980, 22.1010 Western Australia v Ward (2000) 99 FCR 316 .... 22.980 Western Australia v Ward (2002) 213 CLR 1 ..... 22.930, 22.960, 22.980, 22.1010, 22.1020 Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604 ...... 1.180 Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129 .................................................................. 8.160 Westpac Banking Corp v Robinson [2014] NSWSC 577 ................................................... 22.650 Westpac Banking Corp v Spice [1990] ATPR 41-024 ........................................................... 28.320 Westpac Banking Corp v State of Queensland [2016] FCA 269 ............................................. 22.680 Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 ........................................ 7.770 Westpac Banking Corporation v Dixon [2011] FMCA 211 ..................................................... 16.130 Westrac Equipment Pty Ltd v Owners of the Ship Assets Venture (2002) 192 ALR 277 ....... 21.190 Wherry v KB Hutcherson Pty Ltd [1987] Aust Torts Reports 80-107 ..................................... 28.760 Wherry v Watson [1991] ASC 56-048 ................. 14.940 White v Baycorp Advantage Business Information Services Ltd (2006) 200 FLR 125 ................................................................ 13.550 White v Johnson (2015) 87 NSWLR 779 ............ 28.630 White v State of South Australia (2010) 106 SASR 521 ....................................................... 28.650 Whittle v Parnell Mogas Pty Ltd (2006) 94 SASR 421 ....................................................... 11.130 Wicks v State Rail Authority of New South Wales (2010) 241 CLR 60 ................................ 28.90 Wigan v Edwards (1973) 47 ALJR 586 ...... 5.100, 5.130 Wik Peoples v State of Queensland (1996) 187 CLR 1 ....................... 22.920, 22.1010, 22.1090 Wilhelmsen, Re; Ex parte Gould (1986) 11 FCR 107 ........................................................ 31.250 Wilkinson v Osborne (1915) 21 CLR 89 .............. 8.300 Williams v Barton [1927] 2 Ch 9 ........................ 29.440 Williams v Frayne (1937) 58 CLR 710 ............... 20.180 Williams v Linnitt [1951] 1 KB 565 .................... 21.550 Williams v Pisano (2015) 90 NSWLR 342 ............ 17.50 Williams v R (1986) 161 CLR 278 ..................... 32.260 Williams, Re; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 ................ 31.240 Willis v Teparyl Pty Ltd (2010) 30 VR 485 ........ 20.170, 20.180

Table of Cases

Wilmink v Westpac Banking Corporation (2015) 318 ALR 572 ...................................... 23.450 Wilson v Anderson (2002) 213 CLR 401 ....................... Wilsons & Clyde Coal Co Ltd v English [1937] 3 All ER 628 ....................................... 34.380 Wimble, Sons & Co v Rosenberg & Sons [1913] 3 KB 743 ............................................ 14.820 Windsurfing International Inc v Petit (1983) 3 IPR 449 ......................................... 30.1890, 30.1910 Winkworth v Raven [1931] 1 KB 652 ................. 21.550 Winner v Ammar Holdings Pty Ltd (1993) 41 FCR 205 ...................................................... 30.1900 Witheyman v Simpson [2011] 1 Qd R 170 ............ 1.370 Wolley v Attorney-General (Vic) (1877) 2 App Cas 163 .......................................................... 22.330 Womboin Pty Ltd v Savannah Island Trading Pty Ltd (1990) 19 NSWLR 364 ....................... 20.90 Wong, Re; Ex parte Kitson (1979) 38 FLR 207 ................................................................ 31.230 Woods v Multi-Sport Holding Pty Ltd (2002) 208 CLR 460 ................................................. 28.440 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 2016 CLR 515 ....................... 28.220 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 ........... 28.180, 28.220, 28.230, 28.370 Woolley v Dunford (1972) 3 SASR 243 ................ 10.80 Woolmington v Director of Public Prosecutions [1935] AC 462 ............................ 32.80 Workplace Safety Australia Pty Ltd v Simple OHS Solutions Pty Ltd (2015) 89 NSWLR 594 .............................................................. 30.2790 World Best Holdings v Sarker (2010) 14 BPR 27,549; [2010] NSWCA 24 ............................ 22.840 World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 ..................................................... 17.60 World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd (2007) 71 IPR 307 ..... 30.1600 Wratten v Hunter [1978] 2 NSWLR 367 ............ 29.310 Wren v Mahony (1972) 126 CLR 212 ................ 31.260 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 .............................................................. 30.2750 Wright v Gibbons (1949) 78 CLR 313 ................ 22.420 Wright v Madden [1992] 1 Qd R 343 ............... 14.1110 Wyman v Paterson [1900] AC 271 ...................... 29.470 Wynbergen v Hoyts Corporation Pty Ltd (1997) 149 ALR 25 ........................................ 28.560 Wyong Shire Council v Shirt (1980) 146 CLR 40 .................................................................. 28.390

X X and Y (By Her Tutor X) v Pal (1991) 23 NSWLR 26 .................................................... 28.100

Xstrata Coal Queensland Pty Ltd v Mark Albury (Karingbal #2) [2012] NNTTA 93 .... 22.1230

Y Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 .......... 8.20, 8.50, 8.60 Yanner v Eaton (1999) 201 CLR 351 ............... 22.1020 Yeoman Credit Ltd v Latter [1961] 1 WLR 828 .................................................................. 20.30 Yerkey v Jones (1939) 63 CLR 649 ........... 7.930, 7.950, 20.50, 20.150 Yonge v Toynbee [1910] 1 KB 215 ......... 13.580, 13.750 York Street Mezzanine Pty Ltd (in liq), Re (2007) 162 FCR 358 .................................... 23.1060 Yorke v Lucas (1985) 158 CLR 661 ...... 17.830, 17.840 Yorke v Ross Lucas Pty Ltd (1982) 69 FLR 116 ................................................................. 17.840 Yorke v Ross Lucas Pty Ltd (1983) 68 FLR 268 ................................................................ 17.840 Yorkville Nominees Pty Ltd v Lissenden (1986) 160 CLR 476 ...................................... 25.340 Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422 ......................... 22.960, 22.980 Young v Odeon Music House Pty Ltd (1976) 10 ALR 153 ................................................. 30.1060 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 ........................ 29.430

Z Zachariadis v Allforks Australia Pty Ltd (2009) 26 VR 47 .............................................. 20.70 Zapata Hermanos Sucesores SA v Hearthside Baking Co Inc 313 F 3d 385 (7th Cir 2002) .................................................. 15.40, 15.400 Zapata Hermanos Sucesores SA v Hearthside Baking Co Inc 540 US 1068 (2003) .... 15.40, 15.400 Zeccola v Universal City Studios Inc (1982) 46 ALR 189 ................................................... 30.230 Zevering v Callaghan [2012] 1 Qd R 194 ........... 29.600 Zhang v VP302 SPV (2009) 223 FLR 213 .......... 13.260 Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 ................... 10.80, 10.90 Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 ...................................... 34.160, 34.170, 34.180 Zurich Australian Insurance Ltd v Contour Mobel Pty Ltd [1991] 2 VR 146 .................... 25.360 Zurich Australian Insurance Ltd v Metals & Minerals Pte Ltd (2009) 240 CLR 391 ........... 25.880

xli

Table of Statutes COMMONWEALTH Aboriginal Land Rights (Northern Territory) Act 1976: 22.890 Acts Interpretation Act 1901: 1.350, 1.360 s 3A(2): 1.220 s 15AA: 1.390, 1.410 s 15AB: 1.370 s 15AB(1): 1.370 s 15AB(2): 1.370 s 15AB(3): 1.370 s 15AD: 1.315 Anti-Money Laundering and Counter-Terrorism Financing Act 2006: 32.550 Australia Act 1986: 1.470 Australian Consumer Law: 7.680, 7.926, 7.960, 9.100, 9.290, 9.310, 14.10, 14.410, 15.20, 15.480, 17.10, 17.20, 17.30, 17.40, 17.50, 17.190, 17.200, 17.210, 17.290, 17.330, 17.375, 17.400, 17.430, 17.460, 17.600, 17.650, 17.660, 17.670, 17.713, 17.730, 17.780, 17.830, 17.870, 17.880, 17.900, 17.930, 17.940, 17.980, 17.1000, 17.1020, 17.1140, 17.1150, 17.1170, 17.1180, 17.1200, 17.1280, 17.1290, 17.1310, 17.1320, 17.1350, 17.1410, 17.1430, 20.250, 21.300, 24.40, 28.320, 30.2630, 30.2690, 30.2800, 33.30 s 2(1): 17.340, 17.830, 17.840, 17.850, 17.1010, 17.1020, 17.1140, 17.1200, 17.1280, 17.1320, 21.230, 21.300 s 3: 17.1150 s 3(1): 17.1020, 21.300 s 3(2): 17.1020, 21.300 s 3(3): 17.1020, 21.230 s 4(1): 17.450 s 7(1): 17.1210 s 9(1): 17.1190 s 9(2): 17.1190 s 9(3): 17.1190 s 9(4): 17.1190

s 10(1): 17.580 s 12BAA(7): 17.1430 s 18: 8.100, 13.590, 16.335, 16.340, 16.350, 16.360, 16.365, 17.40, 17.50, 17.60, 17.110, 17.130, 17.131, 17.133, 17.140, 17.150, 17.160, 17.170, 17.190, 17.372, 17.390, 17.395, 17.495, 17.660, 17.710, 17.711, 17.715, 17.740, 17.750, 17.760, 17.770, 17.820, 17.840, 17.850, 17.980, 17.990, 17.1430, 20.250, 24.40, 25.1020, 28.320, 30.2630, 30.2800 s 18(1): 7.680, 17.40, 17.55, 17.60, 17.80, 17.90, 17.100, 17.120, 17.132, 17.910 s 19: 17.190 s 19(2): 17.190 s 19(3): 17.190 s 20: 17.200, 17.210, 17.220, 17.230, 17.240 s 20(1): 17.210 s 20(2): 17.230 ss 20 to 22: 7.960, 17.660, 17.710 s 21: 17.200, 17.230, 17.240, 17.250 s 21(1): 17.240 s 21(2): 17.240 s 21(3)(a): 17.240 s 21(3)(b): 17.240 s 21(4)(a): 17.240 s 21(4)(b): 17.240 s 21(4)(c): 17.240 s 22: 17.200, 17.240, 30.2800 s 22(1): 17.240 s 22(2): 17.240 s 23(1): 17.290 s 23(1)(b): 17.320 s 23(2): 17.290 s 23(3): 17.290 s 23(4): 17.290 ss 23 to 27: 17.660, 17.1430 s 24(1): 17.300 s 24(2): 17.300 s 24(3): 17.300 s 24(4): 17.300 s 25(1): 17.310

s 26(1): 17.320 s 27(2): 17.320 s 29: 17.740 s 29(1): 7.680, 17.340, 17.711 s 29(1)(a): 17.132, 17.133, 17.390 s 29(1)(g): 16.360, 17.715 s 29(1)(h): 16.360 s 29(1)(i): 17.350, 17.370, 17.372 s 29(1)(k): 17.390, 17.395, 17.690 s 29(1)(m): 17.360, 17.375 s 30: 17.420 s 30(1): 7.680, 17.400 s 30(1)(f): 17.410 s 31: 17.470 s 32: 17.670 s 32(1): 17.480 s 33: 17.132, 17.490, 17.495, 17.713, 17.715 s 34: 17.500 s 35: 17.530, 17.540 s 36: 17.560, 17.670 s 37: 17.440 s 37(1): 17.430 s 37(2): 17.430 s 39(1): 17.570 ss 40(1) to (2): 17.580 s 40(4): 17.580 s 41(1): 17.590 s 41(2): 17.590 s 41(3): 17.590 s 41(4): 17.590 s 42: 17.590 s 43(1): 17.600 s 43(4): 17.600 ss 44 to 46: 17.610 s 47(1): 17.620, 17.710 s 48: 17.625 s 48(1): 17.620 s 48(4A): 17.620 s 49: 17.630 s 50(1): 17.640 s 51: 17.1150 s 51(1): 17.1030 ss 51 to 56: 17.1000 s 52: 17.1030, 17.1150 s 53: 17.1150 s 53(1): 17.1030 s 53(3): 17.1030 s 54: 17.1050, 17.1060, 17.1280, 17.1290

xliv

Australian Commercial Law

Australian Consumer Law — cont s 54(1): 17.375, 17.1040 s 54(2): 17.1050 s 54(3): 17.1050 s 54(4): 17.1050 s 54(5): 17.1050 s 54(6): 17.1050 ss 54 to 56: 21.300 s 55: 17.1290 s 55(1): 17.1070 s 55(2): 17.1080 s 55(3): 17.1080 s 56: 17.1280, 17.1290 s 56(1): 17.1090 s 56(2): 17.1090 s 56(3): 17.1090 s 57: 17.1090 s 57(1): 17.1100 s 58: 17.1280 s 58(1): 17.1110 s 58(2): 17.1110 s 59: 17.1280 s 59(1): 17.1120 s 60: 17.1140, 21.230, 21.470, 21.480, 28.80 ss 60 to 61: 17.1000 s 61: 21.230, 21.470 s 61(1): 17.1140 s 61(2): 17.1140 s 61(3): 17.1140 s 62: 17.1140 s 63: 17.1140 s 64(1): 17.1150, 21.230, 21.300 s 64A(1): 21.300 ss 64A(1) to (2): 17.1150 s 64A(2): 21.230 s 64A(3): 17.1150, 21.230, 21.300 s 64A(4): 17.1150 s 67: 15.480 s 68: 15.20 s 69(1): 17.1360 s 71: 17.1360 s 73(1): 17.1370 s 75(1): 17.1370 s 76: 17.1380 s 77: 17.1380 s 78: 17.1380 s 79: 17.1380 s 82(1): 17.1390 s 82(2)(b): 17.1390 s 82(3): 17.1390 s 85(1)(b): 17.690 s 89: 17.1390 s 90(1): 17.1390 s 91(1): 17.1420 s 92(1): 17.1420 s 95: 17.1420 s 96(1): 17.1400 s 96(3): 17.1400 s 97(1): 17.1400

s 97(3): 17.1400 s 99(1): 17.1400 s 106(1): 17.1310 s 109(1): 17.1310 s 114(1): 17.1310 s 118(1): 17.1310 s 122(1): 17.1310 s 123(1): 17.1310 s 123(1)(c): 17.1310 s 127(1): 17.1310 s 127(2): 17.1310 s 127(3): 17.1310 s 129: 17.1310 s 131(1): 17.1310 s 134: 17.1310 s 136(1): 17.1310 s 138(1): 17.1180 s 138(2): 17.1180 ss 138 to 150: 17.1170 s 139: 17.1180 s 139A(2): 17.1150 s 139B(1): 17.670 s 140: 17.1180 s 142: 17.1220 s 143: 17.1240 s 146: 17.1260 s 148: 17.1220 s 149: 17.1270 s 150(1): 17.1250 s 151(1): 17.380 s 151(1)(a): 17.390 s 151(1)(k): 17.390 ss 151 to 168: 17.650, 17.660 s 152(1): 17.420 s 153(1): 17.470 s 154(1): 17.480 s 155(1): 17.490 s 156(1): 17.520 ss 157(1) to (2): 17.550 s 158(1): 17.560 s 159(1): 17.450 s 161(1): 17.570 s 162(1): 17.580 s 162(2): 17.590 ss 163(1) to (2): 17.600 ss 164(1) to (2): 17.610 s 165(1): 17.627 s 166(1): 17.627 s 167(1): 17.630 s 168(1): 17.640 s 170(1): 17.1370 s 172(1): 17.1370 s 173(1): 17.1380 s 174(1): 17.1380 s 175(1): 17.1380 s 178(1): 17.1390 s 183(1): 17.1390 ss 188 to 191: 17.1400 s 194(1): 17.1310 s 197(1): 17.1310 s 199(1): 17.1310

s 202(1): 17.1310 s 203(1): 17.1310 s 204(1): 17.1310 s 205(1): 17.950 s 207: 17.700 s 207(1): 17.680, 17.690 s 207(2): 17.680 s 208: 17.700 s 208(1): 17.700 s 209: 17.700 s 210(1): 17.1310 s 212: 17.660 s 217: 17.660 s 218: 17.940 s 219: 17.950 s 223: 17.960 s 224(1): 17.650, 17.710 s 224(1)(a)(i): 17.710 s 224(3): 17.710 s 225(1): 17.710 s 232: 17.650, 17.720 s 232(2): 17.730, 17.740 s 233: 17.720 s 234(1): 17.720 s 236: 17.650, 17.790, 17.800, 17.810, 17.820, 17.910 s 236(1): 17.780, 17.820, 17.830 s 236(2): 17.860 ss 236 to 238: 17.790 s 237: 17.650, 17.880, 17.900, 17.910 s 237(3): 17.880, 17.900 s 239: 17.900 s 239(1): 17.890 s 239(3): 17.890 s 239(4): 17.890 s 243: 8.100, 17.650, 17.900, 17.920 s 246(2): 17.970 s 247: 17.980 s 248: 17.990 s 250(1): 17.320 s 250(2): 17.290 s 250(3): 17.320 s 251: 17.700 s 252: 17.1310 s 255(3): 17.390 ss 255 to 257: 17.390 ss 256 to 257: 17.390 s 259(1): 17.1160 s 259(2): 17.1160 s 259(3): 17.1160 s 259(4): 17.1160 s 259(5): 17.1160 s 260: 17.1160 s 262(1): 17.1160 ss 263(2) to (3): 17.1160 s 263(4): 17.1160 s 266: 17.1160 ss 267 to 268: 17.1160 s 271: 17.1170, 17.1280

Table of Statutes

Australian Consumer Law — cont s 271(1): 17.1280 s 271(3): 17.1280 s 271(5): 17.1280 s 272: 17.1280 s 273: 17.1280 s 274: 17.1170, 17.1290 s 274(2): 17.1290 s 276: 17.1300 s 276A(1): 17.1300 s 276A(2): 17.1300 s 276A(3): 17.1300 s 276A(4): 17.1300 s 278(1): 17.1320 ss 278 to 286: 17.1320 s 279(2): 17.1340 s 279(3): 17.1340 s 280(1): 17.1330 s 280(2): 17.1330 s 281: 17.1340 s 283(1): 17.1340 s 283(6): 17.1340 s 287(1): 17.1320 s 287(2): 17.1320 Ch 2, Pt 2-1: 17.30 Ch 3, Pt 3-1: 17.30 Ch 4, Pts 4-1 to 4-7: 17.30 Ch 5, Pts 5-1 to 5-5: 17.30 Pt 2-2: 17.30, 17.200 Pt 2-3: 17.30 Pt 3-2, Div 1: 14.10, 17.30, 17.340 Pt 3-2, Div 2: 17.30 Pt 3-2, Div 3: 17.30 Pt 3-3: 17.30, 17.1310 Pt 3-5: 17.30 Sch 2: 9.100, 9.290, 13.590, 16.340, 21.230, 21.300, 21.480, 25.1020, 33.30 Australian Human Rights Commission Act 1986 s 46P: 1.900 s 46PN: 1.900 Australian Securities and Investments Commission Act 2001: 17.1430, 27.40, 27.1440, 33.60 s 9: 27.40 s 10: 27.40 s 12BF(4): 17.1430 ss 12BF to 12BM: 17.1430 ss 12CA to 12CC: 17.1430 s 12DA: 17.1430 ss 12DA to 12DN: 17.1430 s 12DB: 17.1430 s 12DF: 17.1430 s 12DG: 17.1430 s 12DH: 17.1430 s 12DJ: 17.1430 s 12DK: 17.1430

s 12DL: 17.1430 ss 12EB to 12ED: 17.1430 s 12GI(1): 17.1430 s 12GY: 17.1430 s 12BAB(1): 17.1430 s 12GBA: 17.1430 s 12GLC: 17.1430 s 12GLD: 17.1430 s 12GNB: 17.1430 s 12GND(1): 17.1430 s 12GND(2): 17.1430 s 12GXA: 17.1430 s 13: 27.1440 s 14: 27.1440 s 15: 27.1060, 27.1440 s 17: 27.1440 s 18: 27.1440 s 19: 27.1440 s 22: 27.1440 ss 28 to 39: 27.1440 s 49: 27.1440 s 50: 27.1440 s 90: 27.1440 s 91: 27.1440 Pt 2, Div 2: 17.1430 Australia–United States Free Trade Agreement 2004: 30.1270, 30.1410 Banking Act 1959: 8.60 Bankruptcy Act 1966: 6.200, 11.520, 26.600, 31.10, 31.20, 31.30, 31.60, 31.90, 31.100, 31.140, 31.170, 31.180, 31.310, 31.440, 31.460, 31.550, 31.570, 31.580, 31.610, 31.740 s 5(1): 31.160, 31.300 s 5(2): 31.470, 31.500, 31.520 s 5(3): 31.470, 31.500, 31.520 s 7: 31.90 s 7(1A): 31.100 s 12: 31.40 s 16: 31.40 s 18(1): 31.50 s 18(8): 31.50 s 18(8AA): 31.50 s 19(1): 31.60 s 20-5(1): 31.60 s 20-10(1): 31.60 s 20-20(3): 31.60 s 20F: 31.70 s 27(1): 31.80 s 27(2): 31.80 s 40: 31.190 s 40(1): 31.200, 31.220 s 40(1)(c)(i): 31.210 s 40(1)(c)(ii): 31.215 s 40(1)(g): 31.250 s 40(1)(i): 31.720 s 40(1)(j): 31.720 s 40(1)(k): 31.720

s 40(1)(l): 31.720 s 40(7): 31.220 s 41: 31.230 s 41(5): 31.230, 31.240, 31.250 s 43(1): 31.190 s 43(2): 31.150, 31.190, 31.270 s 44: 31.190 s 45: 31.130 s 45(1): 26.600 s 45(2): 26.600 s 52(1): 31.260 s 52(2): 31.260 s 54(1): 31.280 s 54(2): 31.280 s 54(3): 31.280 s 54(5): 31.280 s 54(6): 31.280 s 54(6A): 31.280 s 54(7): 31.280 s 54A: 31.160, 31.220 s 54A(2): 31.160 s 54C: 31.160 s 54C(2): 31.160 s 54D: 31.160 s 54E: 31.160 s 54L: 31.160 s 55: 31.160, 31.190, 31.260, 31.280 s 55(3B): 31.160 s 55(3AA): 31.190 s 55(6): 31.160 s 56A: 31.130 s 56A(3): 31.130 s 56B: 31.130 s 56C: 31.130 s 56E: 31.130 s 58: 31.280 s 58(1): 31.50, 31.60, 31.270, 31.570 s 58(3): 31.270 s 58(5): 31.270 s 58(5A): 31.270 s 58(6): 31.270 s 58A: 31.50 s 65-45(1): 31.700 s 65-45(5): 31.700 s 73(1): 31.330 ss 73 to 76: 31.320 s 74(5): 31.330 s 75-10: 31.290 ss 75-10 to 75-50: 31.290 s 75-15(1): 31.290 s 75-25(1): 31.290 s 75-50(2)(k): 31.330 s 75(1): 31.340 s 75(2): 31.340 s 75(3): 31.340 s 76B: 31.340 s 77: 31.280, 31.310 s 77(1)(a)(ii): 31.620 s 77(1)(c): 31.290

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Australian Commercial Law

Bankruptcy Act 1966 — cont s 77(1)(d): 31.290 s 77(1)(bb): 31.620 s 77(1)(bc): 31.620 s 77(2): 31.310 s 77C: 31.310 s 77AA: 31.310 s 77CA: 31.310 s 78(1)(f): 31.310 s 80(1): 31.620 s 80(1A): 31.620 s 81: 31.300 s 81(11AA): 31.300 ss 81A to 81G: 31.310 s 82(1): 31.360 s 82(2): 31.360 s 82(3): 31.360 s 82(3A): 31.360, 31.630 s 82(3B): 31.360 s 82(3AB): 31.360 s 82(4): 31.360 s 82(5): 31.360 ss 82 to 118: 31.690 s 84: 31.360 s 86: 31.370 s 86(2): 31.370 s 90: 31.380 s 96-1(a): 31.60 s 108: 31.580 s 109(1): 31.580 s 109(2): 31.580 s 109(3): 31.580 s 109(5): 31.580 s 109(11): 31.580 s 110: 31.610 s 113: 31.580 ss 114A to 114C: 31.580 s 115(1): 31.400 s 115(1A): 31.400 s 115(1B): 31.400 s 115(2): 31.410 s 116(1): 31.390, 31.400 s 116(1)(a): 31.430 s 116(2): 31.560 s 116(2)(b)(i): 19.430 s 116(2)(c)(i): 19.430 s 116(2B): 31.560 s 116(2C): 31.560 s 116(3): 31.560 s 116(4): 31.560 s 117: 31.560, 31.580 s 118(1): 31.460 s 118(2): 31.460 s 118(3): 31.460 s 118(4): 31.460 ss 118 to 119A: 31.420, 31.450 s 119: 31.460 s 119A: 31.460 s 119A(5): 31.460 s 120: 31.200, 31.420, 31.450, 31.500, 31.620

s 120(1): 31.470 s 120(2): 31.470 s 120(3): 31.470 s 120(3A): 31.470 s 120(4): 31.470 s 120(5): 31.470 s 120(6): 31.470 s 120(7)(a): 31.470 s 120(7)(c): 31.470 s 121: 31.200, 31.420, 31.450, 31.500, 31.620 s 121(1): 31.480, 31.500 s 121(1)(a): 31.490 s 121(1)(b): 31.500 s 121(2): 31.500 s 121(4): 31.500 s 121(5): 31.500 s 121(6): 31.500 s 121(7): 31.500 s 121(8): 31.500 s 121(9)(a): 31.500 s 121(9)(b): 31.490 s 121(9)(c): 31.500 s 121A: 31.500 s 122: 31.200, 31.450, 31.530, 31.540, 31.620 s 122(1): 31.510, 31.520 s 122(2)(a): 31.510, 31.540 ss 122(2)(b) to (d): 31.510 s 122(4)(a): 31.510 s 122(4)(c): 31.540 s 122(5): 31.540 s 122(8): 31.510 s 122(8)(c): 31.510 s 123: 31.420 s 123(1): 31.420 s 123(3): 31.420 s 123(4): 31.420 s 123(6): 31.420 s 124: 31.420 s 124(1)(a): 31.420 s 124(1)(b): 31.430 s 126: 6.200, 31.430 s 128B: 31.500, 31.620 s 128B(1)(c): 31.500 ss 128B to 128C: 31.420 s 128C: 31.500, 31.620 s 128C(1)(e): 31.500 s 129: 31.570 s 133: 31.570 s 134(1): 31.570 s 134(3): 31.570 s 136: 31.570 ss 139A to 139H: 31.390 s 139D: 31.390 s 139E: 31.390 s 139H: 31.590 s 139J: 31.440 s 139L: 31.680 s 139L(a): 31.440 s 139L(b): 31.440

s 139M: 31.440 s 139N: 31.440 s 139P: 31.440 s 139S: 31.440 s 139T: 31.440 s 139W: 31.440 s 139X: 31.440 s 139Y: 31.440 s 139DA: 31.390 s 139EA: 31.390 s 139WA: 31.440 s 139ZK: 31.440 s 139ZL: 31.440 s 139ZM(1A): 31.440 s 139ZM(1): 31.440 s 139ZO: 31.440 ss 139ZQ to 139ZT: 31.550 s 139ZIB: 31.440 s 139ZIF: 31.440 s 140: 31.600 s 141: 31.610 s 145: 31.600 s 149: 31.620 s 149A: 31.620 s 149B: 31.620 s 149C: 31.620 s 149D: 31.620 s 153: 31.630 s 153(3): 31.630 s 153(4): 20.220, 31.630 s 153A: 31.600, 31.640 s 153B: 31.640, 31.680 s 153B(2): 31.640 s 154: 31.600, 31.660 s 156A(3): 31.60, 31.280, 31.570 s 160: 31.280, 31.570 s 185C(2E): 31.680 s 185C(4A): 31.680 s 185C(2): 31.680 s 185C(4): 31.680 s 185C(5): 31.680 s 185D: 31.680 s 185E: 31.680 s 185F: 31.680 s 185G: 31.680 s 185H: 31.680 s 185K: 31.680 s 185M: 31.680 s 185N: 31.680 s 185R: 31.680 s 185T: 31.680 s 185U: 31.680 s 185Z: 31.680 s 185EA: 31.680 s 185EC(1): 31.680 s 185LA: 31.680 s 185LB: 31.680 s 185LC: 31.680 s 185MC: 31.680 s 185NA(1): 31.680 s 185NA(3): 31.680

Table of Statutes

Bankruptcy Act 1966 — cont s 185PC: 31.680 s 185QA: 31.680 ss 186B to 186D: 31.680 s 188: 31.220, 31.580, 31.680, 31.700, 31.710, 31.720 s 188(6): 31.700 s 188A(2): 31.690 s 189: 31.700 s 189(2): 31.720 s 189AB: 31.700 s 190(1): 31.710 s 190(2): 31.700 s 190(3A): 31.700 s 204: 31.710 s 204(2): 31.710 s 204(3): 31.710 s 205: 31.730 s 206: 31.720 s 208: 31.710 s 216: 31.710 s 218(1): 31.710 s 218(2): 31.710 s 221: 31.720 s 221(3): 31.720 s 221A: 31.690 s 222: 31.690 s 222A: 31.690 s 222B: 31.690 s 222C: 31.690 s 229: 31.690 s 230: 31.690 s 231: 31.690 ss 263 to 277A: 31.740 s 265(1): 31.740 s 265(1A): 31.740 s 265(4): 31.740 s 265(5): 31.740 s 265(8): 31.740 s 266: 31.740 ss 267B to 267G: 31.740 s 269: 6.200, 31.740 s 277A: 31.740 s 277B: 31.740 s 304A: 31.620, 31.740 s 306(1): 31.230 s 308(c): 31.110 Pt X: 27.830, 31.180, 31.400, 31.670, 31.680, 31.690, 31.700, 31.710, 31.720 Pt IV, Div 6: 31.400 Pt IX: 31.180, 31.670, 31.680 Pt VI, Div 4B: 31.440 Pt XI: 31.170, 31.580 Bankruptcy Regulations 1996: 19.430, 31.160, 31.440, 31.470, 31.680, 31.740 reg 6.01: 31.580 reg 6.02: 31.580 reg 6.03: 19.430, 31.560 reg 6.03B(1): 19.430, 31.560

reg 6.03B(2): 19.430, 31.560 reg 6.03B(3): 31.560 reg 6.03B(4): 31.560 reg 6.21: 31.600 Sch 3: 31.580 Bankruptcy and Family Law Legislation Amendment Act 2004: 31.440 Bills of Exchange Act 1909: 5.170, 23.10, 23.40, 23.70, 23.210, 23.230, 23.250, 23.260, 23.340, 23.370, 23.380, 23.420, 23.470, 23.720, 23.730, 23.760, 23.860, 24.10 s 4: 23.200, 23.210, 23.420 s 8(1): 5.300, 23.40 s 8(4): 23.120 s 11(1): 23.60 s 12(1): 23.100 s 12(3): 23.100 s 13(3): 23.110 s 13(4): 23.110 s 14(1): 23.90 s 14(2): 23.90 s 15(1): 23.80 s 16: 23.80 s 17: 23.620 s 18(2): 23.130 s 19(1): 23.810 s 19(2): 23.810 s 20: 23.1020 s 21: 23.680 s 22(1): 23.710 s 22(2)(a): 23.710 s 22(2)(b): 23.710 s 23(1): 23.740 s 24(1): 23.720 s 24(2): 23.720 s 24(3): 23.720 s 25: 23.580 s 25(1): 23.450 s 25(2): 23.450 s 25(3): 23.450 s 26: 23.530, 23.710 s 26(2): 23.420 s 28: 23.380 s 29: 23.430, 23.640 s 30: 23.440 s 31(1): 23.310 s 31(2): 23.310 s 32(1): 23.470 s 32(1)(b): 5.170 s 32(2): 23.490 s 33: 23.350 s 34(1): 23.230, 23.510 s 34(3): 23.540, 23.630 s 35(1): 23.490 s 35(2): 23.490, 23.500 s 36: 23.650 s 36(3): 23.670

s 36(4): 23.690 s 37: 23.670 s 38: 23.680 s 39: 23.680 s 40: 23.680 s 41: 23.610 s 41(1): 23.650 s 41(2): 23.650 s 41(3): 23.650 s 41(4): 23.650 s 42: 23.660 s 43: 23.480, 23.520 s 44: 23.730 s 45: 23.740 s 46(1): 23.750 s 46(2): 23.760 s 47: 23.760 s 48: 23.710, 23.760, 23.830 s 49(1): 23.720 s 50(2): 23.780 s 51(1): 23.790 s 51(2): 23.800 s 52: 23.840 s 53: 23.600, 23.850 s 54: 23.860 s 54(1): 23.870 s 55(1): 23.880 s 55(2): 23.890 s 56: 23.910 s 59: 23.280, 23.430, 23.550, 23.640 s 60: 23.560, 23.640 s 60(1): 23.290 s 60(2): 23.300, 23.430 s 61: 23.340, 23.570 s 62: 23.900 s 63: 23.360 s 64(1): 23.640, 23.930 s 64(3): 23.930 s 65: 23.700 s 66: 23.940 s 67: 23.630, 23.950 s 68: 23.960 s 69: 23.590 s 69(1): 23.970 s 69(2): 23.970 s 70: 23.980 s 71: 23.990 s 73: 23.1000, 23.1010 s 74: 23.1030 s 76: 23.1040 s 77: 23.1050 s 88D: 24.720 s 89: 23.1060 s 89(1): 5.300 s 90: 23.1070 s 91: 23.1090 s 92: 23.1100 s 93: 23.1110 s 94: 23.1080 s 95: 23.1120

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Australian Commercial Law

Bills of Exchange Act 1909 — cont s 97(1): 23.400 s 98(2): 23.810 s 98(3): 23.810 Broadcasting Services Act 1992: 30.900, 30.910, 30.1320 s 125: 33.120 Sch 2 cl 7(1)(a): 33.120 Business Names Registration Act 2011: 26.190 CLERP (Audit Reform and Corporate Disclosure) Act 2004: 27.940 Carriage of Goods by Sea Act 1991: 21.540 Cheques Act 1986: 23.10, 24.10, 24.120, 24.160, 24.220, 24.290, 24.300, 24.330, 24.340, 24.460, 24.500, 24.610, 24.810, 24.830, 24.880, 24.920 s 3: 24.70, 24.150, 24.940 s 3(1): 24.200, 24.360, 24.480, 24.550, 24.880 s 3(2): 24.710 s 3(3): 24.370 s 3(4): 24.370 s 3(5): 24.350, 24.850 s 3(6): 24.630 s 3(8): 24.580 s 4(3): 24.610 s 5(1): 24.810, 24.830 s 10: 5.300 s 10(1): 24.50, 24.70 s 11: 24.60 s 12(1): 24.60 s 13: 24.70 s 14(1): 24.90 s 15: 24.100, 24.940 s 16: 24.950 s 16(1): 24.110 s 16(2): 24.110 s 16(3): 24.120 s 16(4): 24.120 s 17B: 24.940 s 18: 24.290, 24.300, 24.310, 24.430 ss 18 to 22: 24.950 s 19(1): 24.140 s 19(2): 24.140 s 20: 24.130 s 20A: 24.950 s 21: 24.140, 24.950 s 22: 24.150 s 23: 24.950 s 24: 24.950 s 25: 24.200 s 26: 24.200 s 27: 24.200

s 28: 24.200 s 28(1): 24.390 s 28(2): 24.200, 24.390 s 29: 24.200 s 30(1): 24.180 s 30(2): 24.180 s 30(3): 24.180 s 30(4): 24.180 s 31(1): 24.190 s 31(2): 24.190 s 31(3): 24.190 s 32(1): 24.210, 24.640 s 32(2): 24.210 s 33(1): 24.220 s 33(2)(a): 24.220 s 33(2)(b): 24.220 s 34: 24.230 s 35(1): 24.240 s 35(2): 24.260 s 36: 24.280 s 37: 24.280 s 38: 24.280 s 39: 24.320 s 40(1): 24.320 s 40(2): 24.320 s 40(3): 24.320 s 41: 24.320 s 42: 24.340 s 43: 24.330 s 44: 24.330 s 46: 24.370 s 46(1): 24.350 s 46(2): 24.350 s 46(3): 24.350 s 49: 24.370, 24.380 s 49(1): 24.360 s 50(1): 24.370 s 50(2): 24.370 s 51: 24.370 s 52: 24.370 s 53(1): 24.160 s 53(2): 24.160 s 53(3): 24.160 ss 53 to 57: 24.160 s 54: 24.160 s 55: 24.170, 24.370 s 56: 24.160 s 57: 24.160 s 58: 24.460 s 61: 24.460 s 61(2): 24.120 s 62: 24.460 s 63: 24.460 s 64: 24.460 s 66: 24.460 s 67: 24.460 s 69: 24.470 s 70: 24.470 s 71: 24.400, 24.480 s 72: 24.480 s 73: 24.490

s 74: 24.410, 24.490 s 75: 24.420 s 75(1): 24.500 s 75(2): 24.500 s 76(1): 24.520 s 76(2): 24.520 s 77: 24.530 s 78: 24.540 s 78(1)(a): 24.550 s 78(1)(b): 24.560 s 78(1)(c): 24.570 s 78(2): 24.580 s 79: 24.550 s 80: 24.560 s 81: 24.570 s 82(1): 24.540 s 82(2): 24.450, 24.560 s 82(3): 24.440, 24.580 s 83(1)(a): 24.590 s 83(1)(b): 24.590 s 83(2): 24.590 s 84: 24.590 s 85: 24.590 s 86: 24.590 s 87: 24.550 s 89: 24.850 s 90: 24.840 s 91: 24.700 s 92: 24.620 s 93(1): 24.160 s 94(1): 24.630 s 94(2): 24.630 s 95: 24.710, 24.720, 24.790, 24.800, 24.900 s 95(2): 24.790 s 97: 24.890 s 98: 24.900 s 98(1): 24.910 s 100: 24.920 s 114: 24.80 s 115: 24.870 s 116: 24.870 Cheques and Payment Orders Act 1986: 23.10, 24.10 Cheques and Payment Orders Amendment Act 1998: 24.10, 24.610 Child Support (Registration and Collection) Act 1988 s 50: 31.580 Circuit Layouts Act 1989: 30.150 Civil Aviation (Carriers’ Liability) Act 1959: 21.510, 21.530 Pt IV: 21.530 Civil Dispute Resolution Act 2011 s 12(1): 1.840

Table of Statutes

Commonwealth of Australia Constitution: 1.40, 1.70, 1.80, 1.100, 1.160, 1.180, 1.190, 1.710, 34.20, 34.30, 34.40, 34.120 s 1: 1.70 s 51: 1.70, 1.100 s 51(xiii): 1.100 s 51(xvii): 1.100 s 51(xviii): 1.100, 30.20 s 51(xxix): 1.100, 1.140 s 51(xxxv): 1.100, 34.30, 34.50 s 51(xxxvii): 1.150, 19.40 s 51(xxxi): 22.1290 s 51(xxxix): 32.170 s 51(i): 1.100, 1.120, 1.160 s 51(v): 1.100 s 51(ii): 1.100, 1.130 s 51(vi): 1.100 s 51(xx): 1.100, 1.110, 17.20, 18.20, 34.30, 34.40, 34.50, 34.60 s 51(xii): 1.100 s 51(xiv): 1.100 s 51(xvi): 1.100 s 57: 1.220 s 61: 1.40, 1.70, 1.80 s 62: 1.80 s 64: 1.80 ss 71 to 80: 1.180 s 73: 1.570 s 75: 1.570 s 76: 1.570 s 90: 1.100, 1.170 s 92: 1.160 s 106: 1.70 s 107: 1.70 s 109: 1.100, 17.1140, 22.1000, 32.170, 34.20 Company Law Review Act 1998: 27.60, 27.230 Competition Code: 18.30 Competition and Consumer Act 2010: 1.30, 1.580, 1.590, 1.670, 7.960, 8.490, 8.510, 9.100, 9.290, 13.590, 16.340, 17.10, 17.20, 17.670, 17.1430, 18.10, 18.20, 18.30, 18.50, 18.130, 18.300, 18.310, 18.360, 18.400, 18.430, 18.450, 18.490, 18.500, 18.510, 18.520, 18.540, 18.620, 18.670, 19.660, 21.230, 21.300, 21.480, 25.1020, 27.830, 32.170, 32.490, 33.30, 33.120, 34.420, 34.440, 34.480 s 2: 1.280 s 4: 18.490 s 4D: 18.100, 18.110 s 4E: 18.480 s 4L: 18.670

s 5(1)(c): 17.20 s 6: 18.20 s 6(2F): 17.1430 s 6(3): 17.20 s 18: 30.2690 s 44ZZZB: 18.151 s 44ZZRM: 18.510 s 44ZZRO: 18.590 s 44ZZRP: 18.590 s 44ZZRQ: 18.590 s 44ZZRR: 18.590 s 44ZZRS: 18.590 s 44ZZRI: 18.600 s 44ZZRD(1): 18.150 s 44ZZRF(1): 18.590 s 44ZZRG(1): 18.590 s 44ZZRD(2): 18.150 s 44ZZRD(3): 18.150 s 44ZZRF(3): 18.590 s 44ZZRD(4): 18.150 s 44ZZRD(6): 18.150 ss 44ZZRA to 44ZZRV: 18.50 ss 44ZZRJ to 44ZZRK: 18.590 s 44AA: 18.30 ss 44ZZS to 44ZZZB: 18.50 s 44ZZT(1): 18.151 s 44ZZU(3): 18.151 s 44ZZU(4): 18.151 s 44ZZV(1): 18.151 s 44ZZW: 18.151, 18.510 s 44ZZX: 18.510 s 44ZZX(1): 18.151 s 44ZZX(2): 18.151 s 44ZZZ: 18.151 s 45: 18.60, 18.70, 18.80, 18.90, 18.120, 18.470, 18.481, 18.510, 18.560, 18.570, 18.580 s 45(2): 18.90 s 45A: 18.560 s 45B: 18.160, 18.510 s 45B(1): 18.160 s 45C: 18.160, 18.510 s 45D: 18.50, 18.170, 18.500, 18.510, 18.530, 34.480, 34.490 s 45D(1): 18.170 s 45E: 18.530 s 45F: 18.530 ss 45 to 45C: 18.50 s 45DB: 18.530 s 45DC: 34.480 s 45DD: 34.480 s 46: 18.40, 18.50, 18.180, 18.190, 18.200, 18.220, 18.230, 18.240, 18.260, 18.270, 18.280, 18.290, 18.470, 18.480, 18.500, 18.510 s 46(1): 18.180, 18.290 s 46(1AA): 18.290

s 46(1AB): 18.290 s 46(1AAA): 18.290 s 46(3): 18.180 s 46(3A): 18.180 s 46(3C): 18.180 s 46(3D): 18.180 s 46(4A): 18.290 s 46(6A): 18.290 s 46(7): 18.290 s 46A: 18.50, 18.300, 18.510 s 46A(1): 18.300 s 46A(2): 18.300 s 46A(3): 18.300 s 47: 18.50, 18.310, 18.320, 18.325, 18.380, 18.470, 18.510, 18.530 s 47(1): 18.320 s 47(6): 18.330 s 47(10): 18.310 s 48: 18.50, 18.400, 18.420, 18.500, 18.510, 18.610 s 49: 18.440 s 50: 18.50, 18.450, 18.470, 18.510, 18.600, 18.630, 18.640 s 50(1): 18.450, 18.451 s 50(1A): 18.460 s 50(3): 18.450, 18.460 s 50(4): 18.459 s 50(5): 18.459 s 50(6): 18.450, 18.480 s 50A: 18.50, 18.460, 18.470, 18.510, 18.600, 18.650 s 50A(1B): 18.460 s 50A(3): 18.460 s 50A(6): 18.460 s 51: 18.500 s 51(2)(b): 8.510 s 51(2)(d): 8.510 s 51(2)(e): 8.510 s 51(2A): 18.500 s 51(3): 18.500 s 51AD: 18.680 s 51AE: 18.680 s 51AE(2): 18.680 s 51ACA: 18.680 s 51ACA(3): 18.680 s 51ACD: 18.680 s 55: 17.1430 s 55B: 17.1430 s 55B(2): 17.1430 s 55G(1): 17.1430 ss 75 to 87: 34.480 s 76: 18.520, 18.530, 18.550 s 76(1A): 18.530 s 76(1B): 18.530 s 76(1)(ia): 17.1430 s 76(3): 18.530 s 76C(1): 18.140 s 77: 18.530 s 77A(1): 18.550

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Australian Commercial Law

Competition and Consumer Act 2010 — cont s 78: 18.530 s 80: 18.520, 18.600, 18.680 s 80(1A): 18.460, 18.600 s 80(1B): 18.460, 18.600 s 80AC: 18.459 s 81: 18.459, 18.520 s 81(1): 18.630 s 81(1A): 18.630 s 81(1B): 18.460, 18.650 s 81(1C): 18.630 s 81(2): 18.650 s 81A: 18.459 s 82: 18.520, 18.610, 18.680 s 86(1A): 18.40 s 86C: 18.680 s 86D: 18.680 s 86D(1): 18.620 s 86E: 18.520, 18.660 s 86F: 18.660 s 87: 18.520, 18.620, 18.680 s 87B(4): 18.585 s 88(6A): 18.510 s 88(6B): 18.510 s 88(8A): 18.510 s 88(9): 18.460 ss 88 to 91: 18.510 s 90(5A): 18.510 s 90(5B): 18.510 s 90(5C): 18.510 s 90(5D): 18.510 s 90(6): 18.510 s 90(8): 18.510 s 90(8A): 18.510 s 90(9): 18.460, 18.510 s 90(9A): 18.450 s 90(11): 18.459 s 90(11A): 18.459 s 90A: 18.510 s 91: 18.510 s 91B: 18.510 s 93: 18.390 s 93(7A): 18.390 s 93A: 18.390 ss 93AA to 93AF: 18.140 s 95(1): 18.680 s 95A: 18.459 s 95AC: 18.459 s 95AH: 18.510 s 95AI: 18.510 s 95AN(1): 18.459 s 95AN(2): 18.459 s 95AP: 18.459 s 95AT: 18.459 s 95AZ: 18.510 s 95AZA: 18.510 s 95AZH: 18.459 s 95AZI: 18.459 s 95AZJ: 18.459 s 95AZN: 18.530

s 96: 18.400 s 96A: 18.430 ss 96 to 100: 18.50 s 97: 18.400 s 98(2): 18.430 s 98(3): 18.430 s 101A: 18.390 s 102(1A): 18.459 s 102(1B): 18.459 s 111: 18.459 s 117: 18.459 s 118: 18.459 s 130: 17.670 s 131: 17.20 s 131A: 17.1430 s 131A(1): 17.1430 s 131A(2): 17.1430 s 137A: 17.1230 ss 138 to 138B: 17.20 s 139A(1): 17.1150 s 139A(3): 17.1150 s 139B(2): 17.670 ss 140 to 140K: 17.20 ss 150A to 150K: 18.30 Pt IIIA: 18.30 Pt X: 18.10 Pt IV: 8.510, 18.30, 18.530, 18.560, 18.620, 18.660 Pt IV, Div 2: 34.480 Pt IVB: 18.680, 33.110 Sch 1: 18.30 Sch 2: 7.680, 14.10, 15.20, 15.480, 17.20, 20.250, 24.40, 28.80, 28.320, 30.2630, 30.2690, 30.2800 Competition and Consumer Act 2010: 30.2790 s 51ACC: 30.2790 s 51ACJ: 30.2790 s 76: 30.2790 Pt IVB: 30.2790 Competition and Consumer Amendment (Industry Code Penalties) Act 2014 s 3: 30.2790 s 6: 30.2790 s 8: 30.2790 Competition and Consumer (Industry Codes – Franchising) Regulation 2014 cl 3: 30.2790 cl 6: 30.2790 cl 8: 30.2790 cl 9: 30.2790 cl 11: 30.2790 cl 26: 30.2790 cl 34: 30.2790 cl 45: 30.2790 Sch 1: 30.2790 Annexure 1: 30.2790

Annexure 2: 30.2790 Competition and Consumer Legislation Amendment Act 2011: 17.200, 17.240 Competition and Consumer Regulations 2010 reg 9(3): 18.390 r 48: 18.151 Conciliation and Arbitration Act 1904: 34.420 Constitution Bill: 1.60 Consultation Draft Personal Properties Securities Bill 2008: 19.910 Consumer Credit Code: 19.30 Consumer Credit and Corporations Legislation Amendment (Enhancements) Act 2012: 19.40 Copyright Act 1968: 16.570, 16.600, 18.250, 18.325, 30.20, 30.30, 30.40, 30.50, 30.100, 30.150, 30.160, 30.170, 30.270, 30.280, 30.300, 30.310, 30.450, 30.460, 30.520, 30.530, 30.590, 30.600, 30.650, 30.680, 30.690, 30.700, 30.710, 30.800, 30.830, 30.890, 30.900, 30.980, 30.1060, 30.1110, 30.1180, 30.1230, 30.1240, 30.1330, 30.1340, 30.1400, 30.1420, 30.1460, 30.1480, 30.1490, 30.1500, 30.1550, 30.1560, 30.1710, 30.1730, 30.1760 s 5: 30.1580 s 6(1): 30.1580 s 6(2): 30.1580 s 6(4): 30.1580 s 7: 30.1580 s 10: 30.160, 30.180, 30.240, 30.410, 30.560, 30.760, 30.830, 30.900, 30.1060 s 10(1): 30.90, 30.150, 30.400, 30.530, 30.540, 30.1270, 30.1300 s 10(2): 30.650 s 10(2A): 30.650 s 10AA: 30.1000 s 13(1): 30.1610 s 14(1): 30.320, 30.930, 30.1610 s 15(2): 30.1600 s 16: 30.1600 s 19: 30.1600 s 19(4): 30.1600 s 21(1): 30.330 s 21(1A): 30.340 s 21(3): 30.350, 30.1710 s 22(3A): 30.1410

Table of Statutes

Copyright Act 1968 — cont s 22(3B): 30.1410 s 22(4): 30.870 s 22(5): 30.950 s 22(6): 30.1260 s 27: 30.1600 s 27(1): 30.370 s 28: 30.690 s 29(1): 30.70, 30.980 s 29(1)(b): 30.850 s 29(1)(c): 30.770 s 30: 30.1040 s 31: 30.460 s 31(1)(a): 30.310 s 31(1)(a)(i): 30.320 s 31(1)(a)(ii): 30.360 s 31(1)(a)(iv): 30.400 s 31(1)(a)(vi): 30.410 s 31(1)(a)(iii): 30.370 s 31(1)(a)(vii): 30.410 s 31(1)(b): 30.310 s 31(1)(b)(i): 30.320 s 31(1)(b)(ii): 30.360 s 31(1)(b)(iii): 30.400 s 31(1)(c): 30.310, 30.420 s 31(1)(d): 30.310, 30.420 s 31(5): 30.420 s 32: 30.80 s 32(1): 30.60, 30.100 s 32(2): 30.70, 30.100 s 32(4): 30.60 s 33(2): 30.720, 30.730 s 33(3): 30.720 s 33(5): 30.730 s 35(2): 30.240 s 35(4): 30.270 s 35(5): 30.300 s 35(6): 30.260 s 35(7): 30.300 s 36(1): 30.310, 30.430 s 36(1A): 30.450 s 37: 30.460, 30.470, 30.500, 30.990 s 38: 30.460, 30.500, 30.570, 30.990 s 39B: 30.1260 s 40: 30.600 s 40(2): 30.650 s 40(3): 30.650 s 40(4): 30.650 s 40(5): 30.650 s 41: 30.600 s 41A: 30.600 s 42: 30.600 s 43(1): 30.700 s 43(2): 30.600 s 43C: 30.680 s 44A: 30.520 s 44C: 30.530, 30.540 s 44C(2): 30.530 s 44D: 30.1000

s 44E: 30.550 s 45: 30.690 s 46: 30.690 s 47J: 30.680 ss 54 to 64: 30.710 s 55: 30.710 ss 65 to 67: 30.690 s 74(1): 30.1730, 30.1760 ss 74 to 77: 30.1710 s 75: 30.1720, 30.1730 s 77: 30.1740, 30.1750, 30.1760 s 77(1): 30.1740 s 77(2): 30.1760 s 77(2)(a): 30.1740 s 77(3): 30.1760 s 77(5): 30.1760 s 77A: 30.1760 s 80: 30.740 s 81: 30.740 s 84: 30.770 s 85: 30.420 s 85(1): 30.780 s 85(1)(c): 30.400 s 86(a): 16.600 s 86(c): 16.600, 30.400 s 87: 30.920 s 87(a): 30.930 s 87(c): 30.400, 30.930 s 88: 30.980 s 89: 30.770 s 90: 30.850 s 91: 30.910 s 92: 30.980 s 93: 30.820 s 94(1): 30.890 s 95(1): 30.970 s 96: 30.980 s 97(2): 30.790 s 97(3): 30.790 s 98(2): 30.870 s 98(3): 30.870 s 99: 30.950 s 100: 30.980 s 100A: 30.1010 s 101(1): 16.600, 30.750 s 101(1A): 16.600, 30.750 s 102: 30.990, 30.1000 s 102(2): 30.990 s 103: 30.990, 30.1000 s 103A: 30.1010 s 103B: 30.1010 s 103C: 30.1010 s 103AA: 30.1010 s 104: 30.1020 s 108: 30.800 s 109: 30.800 s 109A: 30.680, 30.810 s 110AA: 30.680, 30.880 s 111: 16.580, 30.960 s 111(1): 30.960 s 111(2): 30.960

s 111(3): 30.960 s 111(4): 30.960 s 112D: 30.1000 s 112E: 30.1260 s 113(1): 30.750 s 115: 30.1060, 30.1100, 30.1220 s 115(2): 30.1120, 30.1160 s 115(3): 30.1140, 30.1160 s 115(4): 30.1180 s 115A: 30.1265 s 115A(4): 30.1265 s 115A(5): 30.1265 s 116: 30.1060, 30.1100 s 116(1): 30.1220, 30.1240 s 116(1A): 30.1220 s 116(1C) to (1E): 30.1220 s 116(2): 30.1230 s 116B: 30.1300 s 116C: 30.1300 s 116D: 30.1310 ss 116AA to 116AJ: 30.1260 ss 116AK to 116AQ: 30.1270 s 116AN: 30.1280, 30.1270 s 116AN(2): 30.1280 s 116AN(3): 30.1280 s 116AN(4): 30.1280 s 116AN(5): 30.1280 s 116AN(6): 30.1280 s 116AN(7): 30.1280 s 116AN(8): 30.1280 s 116AN(9): 30.1280 s 116AO: 30.1270 s 116AO(3): 30.1280 s 116AO(4): 30.1280 s 116AO(5): 30.1280 s 116AO(6): 30.1280 s 116AP: 30.1270 s 116AP(3): 30.1280 s 116AP(4): 30.1280 s 116AP(5): 30.1280 s 116AP(6): 30.1280 s 116AQ: 30.1290 s 116AAA: 30.1410 s 119: 30.1060 ss 120 to 125: 30.1060 s 130A: 30.1000 ss 132AA to 132AT: 30.1330 s 132AC: 30.1330 s 132AD: 30.1330 s 132AE: 30.1330 s 132AH: 30.1330 s 132AJ: 30.1330 s 132AQ: 30.1330 ss 132AQ to 132AS: 30.1310 s 132APC: 30.1330 ss 132APC to 132APE: 30.1290 ss 135A to 135ZA: 30.660 s 135AL: 30.1320 ss 135AL to 135AU: 30.1320 ss 135ZB to 135ZZH: 30.670

li

lii

Australian Commercial Law

Copyright Act 1968 — cont s 135AOA: 30.1320 s 135AOB: 30.1320 s 135AOC: 30.1320 s 135AOD: 30.1320 s 135AOE: 30.1320 s 135AOF: 30.1320 ss 135ASA to 135AU: 30.1320 s 151: 30.800 s 152: 30.800 ss 184 to 188: 30.1550 s 189: 30.1430, 30.1440 ss 189 to 195AZO: 30.1420 s 192: 30.1430 s 193(2): 30.1450 s 194: 30.1450 s 194(2)(c): 30.1450 s 195(1): 30.1450 s 195AA: 30.1450 ss 195AC to 195AH: 30.1460 s 195AI: 30.1470 ss 195AJ to 195AL: 30.1470 s 195AM: 30.1530 s 195AN: 30.1530 s 195AO: 30.1450, 30.1520 s 195AP: 30.1460, 30.1520 s 195AQ: 30.1470 s 195AR: 30.1490 s 195AS: 30.1490 s 195AT: 30.1500 s 195AW: 30.1480 s 195AW(4): 30.1480 s 195BB: 30.1450 s 195ABA: 30.1410 s 195AHA: 30.1410 s 195AWA: 30.1480 s 195AWA(4): 30.1480 s 195AZA: 30.1510 ss 195AZM to 195AZO: 30.1530 s 196(1): 30.1030 s 196(2): 30.1040 s 196(3): 5.300, 22.220, 30.1040 s 196(4): 30.1050 s 197(1): 30.1090 s 215: 30.710 s 248A: 30.1350, 30.1380 ss 248A to 248V: 30.1340 s 248G: 30.1360 s 248J: 30.1370 s 248P: 30.1400 s 248Q: 30.1400 s 248CA: 30.1390, 30.1400 Pt IV: 30.40, 30.750, 30.1020, 30.1260, 30.1450 Pt III: 30.40, 30.750, 30.1450 Pt XIA: 30.1390 Copyright Amendment Act 2006: 30.680, 30.960, 30.1270, 30.1320

Copyright Amendment (Digital Agenda) Act 2000: 30.400, 30.1260, 30.1270 Copyright Amendment (Moral Rights) Act 2000: 30.1420 Copyright Amendment (Online Infringement) Act 2015 : 30.1265 Copyright Amendment (Parallel Importation) Act 2003: 30.550, 30.560 Copyright (International Protection) Regulations 1969: 30.1550 reg 4: 30.1550 reg 4A: 30.1400 reg 4B: 30.1400 reg 6: 30.1550 reg 7: 30.1550 Copyright Regulations 1969: 30.710 reg 17(1): 30.1750 Copyright (World Trade Organization Amendments) Act 1994: 30.1400, 30.1560 Corporate Code of Conduct Bill 2000: 33.120 cll 7 to 13: 33.120 cl 16: 33.120 Corporations Act 2001: 1.30, 1.150, 1.230, 1.280, 6.170, 7.610, 10.140, 13.340, 13.370, 13.530, 25.110, 25.950, 25.1060, 25.1070, 26.70, 26.120, 26.620, 26.630, 27.10, 27.20, 27.30, 27.40, 27.50, 27.60, 27.70, 27.110, 27.120, 27.150, 27.160, 27.170, 27.200, 27.220, 27.250, 27.300, 27.340, 27.400, 27.440, 27.510, 27.540, 27.550, 27.600, 27.651, 27.653, 27.656, 27.670, 27.750, 27.770, 27.795, 27.820, 27.830, 27.880, 27.910, 27.940, 27.950, 27.1030, 27.1040, 27.1100, 27.1120, 27.1180, 27.1190, 27.1300, 27.1310, 27.1320, 27.1330, 27.1400, 27.1420, 27.1440, 31.90, 33.30, 33.60, 33.130 s 1: 1.260 s 2: 1.270 s 9: 27.90, 27.210, 27.652, 27.700, 27.890, 27.910, 27.1370 s 15AA: 1.360 s 45A: 27.140 s 45A(2): 27.140 s 45A(3): 27.140 s 57: 1.300

s 57(1): 1.300 s 57(2): 1.300 s 92(3): 27.651 s 95A: 27.1230 s 103: 26.150 s 111AC: 27.930 s 111AE: 27.930 s 111AF: 27.930 s 111AO: 27.930 s 112: 27.70 s 112(2): 27.290 s 113: 27.130 s 114: 27.150 s 115: 26.150, 26.630 s 117(1): 27.170 s 117(2): 27.170 s 117(3): 27.170 s 117(5): 27.170 s 118(1): 27.170, 27.180 s 119: 13.530, 27.170 s 119A: 27.200 s 120: 27.350, 27.500 s 121: 27.660 s 123: 27.190 s 124: 6.170, 27.300 s 124(2): 27.300 s 125: 6.170 s 125(1): 27.300 s 125(2): 27.300 s 126: 6.170 s 128: 27.320 s 128(3): 27.320 s 129(1): 27.320 s 129(2): 27.320 s 129(3): 27.320 s 129(4): 27.320 s 129(5): 27.320 s 129(6): 27.320 s 129(7): 27.320 s 130: 27.310 s 131(1): 13.140, 13.530, 27.340 s 131(2): 13.530, 27.340 s 131(3): 13.530 s 134: 27.60, 27.240 s 135(1): 27.230 s 135(2): 27.250 s 136(1): 27.270 s 136(2): 27.280 s 136(3): 27.280 s 136(5): 27.280 s 140(1): 27.240, 27.350 s 140(2): 27.350 s 141: 27.250 ss 142 to 145: 27.660 s 148(1): 27.180 s 148(2): 27.130 s 148(3): 27.130 s 165: 27.130 s 167: 27.350 s 168(1)(a): 27.360 s 169(1): 27.360

Table of Statutes

Corporations Act 2001 — cont s 169(5A): 27.360 s 169(7): 27.360 s 172: 27.360 s 173: 27.360 s 175: 27.360 s 176: 27.360 s 180(1): 13.370, 27.740 s 180(2): 27.740 ss 180 to 183: 27.710 s 181: 27.730 s 181(1): 13.370 ss 181 to 183: 27.750 ss 182 to 183: 27.730 s 183(1): 13.340 s 184: 27.300, 27.750 s 184(1): 27.730 s 184(2): 27.730 s 184(3): 27.730 s 191(1): 13.340, 27.760 s 191(3): 27.760 s 191(4): 27.760 ss 191 to 192: 27.670 s 194: 27.760 s 195(1): 27.760 s 195(2): 27.760 s 196: 27.760 s 198E: 27.250 ss 200A to 200J: 27.810 s 201A: 27.160, 27.680 s 201B: 27.690 s 201E: 27.160 s 201F: 27.150 s 201M: 27.700 s 203C: 27.160, 27.800 s 203D: 27.800 s 203E: 27.160 s 204A: 27.160, 27.820 s 204B: 27.820 s 204D: 27.820 s 205B: 27.820 s 205G: 27.670 s 206A: 31.620 s 206B(1): 27.830 s 206B(3): 17.990, 27.830 s 206B(4): 27.830 s 206C: 27.830 s 206D: 27.830 s 206E: 27.830 s 206F: 27.830 s 206G: 27.830 s 206EA: 27.830 s 208: 27.770, 27.780 s 208(2): 27.770 s 209: 27.770 s 210: 27.770, 27.780 s 211: 27.770 s 212: 27.770 s 213: 27.770 s 214: 27.770 s 215: 27.770

s 216: 27.770 ss 217 to 227: 27.770 s 228: 27.770 s 229(3): 27.770 s 232: 27.400 ss 232 to 235: 27.300 s 233(1): 27.400 s 234: 27.400, 27.1230 s 236: 27.390 s 236(3): 27.390 s 237(2): 27.390 s 241(1)(d): 27.390 s 242: 27.390 s 246F: 27.890 s 247A: 27.910 s 247D: 27.910 s 249A: 27.160 s 249B: 27.150 s 249D: 27.860 s 249E: 27.860 s 249F: 27.860 s 249G: 27.860 s 249H: 27.890 s 249N: 27.860 s 249X: 27.250 s 249HA: 27.890 s 250N: 27.160, 27.850 s 250P: 27.160, 27.850 s 250R: 27.850 s 251A: 27.150, 27.160, 27.900 s 251B: 27.900 s 254A(2): 27.470 s 254A(3): 27.480 s 254B: 27.430 s 254C: 27.430 s 254D: 27.250, 27.500 s 254H: 27.440 s 254J: 27.480 s 254K: 27.540 s 254T: 27.530 s 254U: 27.530 s 254W(2): 27.250 s 254Y: 27.550 s 254SA: 27.90 s 256A: 27.440 s 256B(1): 27.540 s 256B(2): 27.540 s 256C(1): 27.540 s 256C(2): 27.540 s 256C(4): 27.540 s 256D: 27.540 s 256D(2): 27.540 s 256D(3): 27.540 s 256E: 27.540 s 257A: 27.550 ss 257A to 257J: 27.540 s 257B: 27.550, 27.600 s 257B(2): 27.560 s 257B(4): 27.560 s 257B(5): 27.560 s 257B(7): 27.570

s 257C(1): 27.560 s 257C(3): 27.560 s 257D: 27.600 s 257D(4): 27.600 s 257E: 27.550, 27.560 s 257H(1): 27.550 s 257H(2): 27.550 s 257J: 27.600 s 258A: 27.540 s 258D: 27.540 s 258E: 27.540 s 258F: 27.540 s 259A: 27.550 s 259B(2): 27.550 s 259B(3): 27.550 s 259C: 27.610 s 259D: 27.610 s 259E: 27.610 s 259E(2): 27.610 s 259E(3): 27.610 s 259E(4): 27.610 s 260A: 27.640, 27.650 s 260A(1): 27.620 s 260B: 27.620 s 260B(1): 27.630 s 260B(2): 27.630 s 260B(3): 27.630 s 260B(4): 27.630 s 260B(5): 27.630 s 260B(6): 27.630 s 260B(7): 27.630 s 260C: 27.620, 27.630, 27.640 s 260C(1): 27.640 s 260C(2): 27.640 s 260C(3): 27.640 s 260C(4): 27.640 s 260C(5): 27.640 s 260D(1): 27.640 s 260D(2): 27.640 s 286: 27.910 s 286(2): 27.910 s 287: 27.910 s 288: 27.910 s 292(1): 27.920 s 292(2): 27.920 ss 292 to 294: 27.140 s 293: 27.920 s 294: 27.920 s 295(1): 27.920 s 295(2): 27.920 s 295(3): 27.920 s 295(4): 27.920 s 295(5): 27.920 s 295A: 27.920 s 297: 27.920 s 299: 27.920 s 300: 27.920 s 300(11B): 27.940 s 301: 27.920 s 302: 27.930 ss 303 to 305: 27.930

liii

liv

Australian Commercial Law

Corporations Act 2001 — cont s 306: 27.930 s 307C: 27.940 s 324CD: 27.940 s 324DA: 27.940 ss 325 to 331: 27.940 s 327(1A): 27.940 s 327A: 27.940 s 330: 27.940 s 331AC: 1.300 s 331AAA: 1.300 s 411(4)(a)(ii): 27.960 ss 411 to 412: 27.960 ss 411 to 415: 27.950 s 413(1)(d): 27.1430 ss 413 to 414: 27.970 s 418: 27.990 s 418A: 27.990 s 419(1): 27.1150 s 419(3): 27.1150 s 419A: 27.1150 s 420: 27.980, 27.1030 s 420A: 27.1090 s 420B: 27.1030 s 420C: 27.1110 s 421: 27.1080 s 421A: 27.1050 s 422: 27.1060 s 423: 27.1120 s 424: 27.1030 s 425: 27.1160 s 427: 27.1000 s 428: 27.1070 s 429: 27.1050 s 430: 27.1050 s 431: 27.1080 s 432: 27.1080 s 433: 27.1100 s 434A: 27.1170 s 434B: 27.1170 s 435A: 27.1180 ss 435A to 451D: 27.1180 s 436A: 27.1180 s 436B: 27.1180 s 436C: 27.1180 s 436E: 27.1180 s 436F: 27.1180 ss 437A to 437F: 27.1180 s 438A: 27.1180 ss 438B to 438C: 27.1180 ss 439A to 439C: 27.1180 s 440A: 27.1180 s 440B: 27.1180 s 440C: 27.1180 s 440D: 27.1180 s 440F: 27.1180 s 441A: 27.1180 s 441C: 27.1180 s 443D: 27.1330 s 444A: 27.1180 s 444A(4): 27.1180

s 444B: 27.1180 ss 444D to 444H: 27.1180 s 444E: 20.220, 27.1180 ss 445C to 445D: 27.1180 s 445E: 27.1180 s 446A: 27.1180 s 446C(8): 27.1330 s 447A: 27.1180 ss 448A to 448C: 27.1180 s 459A: 27.1230 s 459B: 27.1230 s 459C(2): 27.1230 s 459D: 27.1230 s 459E: 27.1230 s 459F: 27.1230 ss 459G to 459J: 27.1230 s 459P: 27.1230 s 461: 27.1240 s 461(1): 27.300 s 461(2): 27.890 s 467: 27.1250 s 468: 27.1260 s 471: 27.1260 s 471A: 27.1260 s 471B: 27.1260 s 471C: 27.1260 s 475(8): 27.1330 s 481(5)(b): 27.1430 s 482: 27.1270 s 491: 27.1280 s 493: 27.1290 s 494: 27.1300 s 495(1): 27.1300 s 495(2): 27.1310 s 496: 27.1300 s 497: 27.1300 s 497(10): 27.1300 s 499: 27.1300 s 500: 27.1300 s 501: 27.1310 s 506(1)(b): 27.1310 s 506(1)(c)(d): 27.1310 s 506(1B): 27.890 s 507(11): 27.890 s 508: 27.1310 s 509: 27.1430 s 509(1): 27.1310 s 509(3): 27.1310 s 509(5): 27.1310 s 509(6): 27.1430 s 510(1A): 27.890 s 513B: 27.1280 ss 513 to 570: 27.1190 ss 514 to 529: 27.1210 ss 531 to 545: 27.1320 s 532(2): 27.1320 s 539: 27.1330 s 553: 27.1330 s 553A: 27.1330 s 555: 27.1330 s 556: 27.1330

s 559: 27.1330 s 560: 27.1330 s 561: 27.1330 s 562: 27.1330 s 563A: 27.1340 s 563AA: 27.1340 s 568: 27.1400 ss 568A to 568F: 27.1400 s 569: 27.1400 s 570: 27.1400 s 588E(3): 27.1370 s 588G: 27.540, 27.600, 27.790 s 588G(1): 27.790 s 588G(2): 27.790 s 588H: 27.790 s 588J: 27.790 s 588M: 27.790 s 588FA: 27.1370 s 588FB: 27.1370 s 588FC: 27.1370 s 588FD: 27.1370 s 588FE: 27.1370 s 588FE(2A): 27.1370 s 588FE(2B): 27.1370 s 588FE(6A): 27.1370 s 588FF: 27.1380 s 588FG: 27.1390 s 588FJ: 27.1400 s 588FGA: 27.1350 s 588FGB: 27.1350 s 600F: 27.1100 s 601AA: 27.50, 27.1420 s 601AB: 27.50, 27.1430 s 601AB(2): 27.1430 s 601AC: 27.1430 s 601AD: 27.1410 s 601AE: 27.1410 s 601AF: 27.1410 s 601AH: 27.1430 s 601CD: 27.210 s 601CE: 27.210 ss 601CF to 601CP: 27.210 s 601CDA: 27.210 s 707: 27.360 s 708: 27.500, 27.652 s 708(11): 27.652 s 709(2): 27.653 s 709(4): 27.653 s 710(1): 27.654 s 711(1): 27.654 s 711(3): 27.654 s 711(6): 27.654 s 714: 27.654 s 715: 27.653 s 715(1): 27.655 s 715(2): 27.655 s 716: 27.655 s 727: 27.652, 27.653 s 728: 27.656 s 729(3): 27.656 s 731(1): 27.656

Table of Statutes

Corporations Act 2001 — cont s 732: 27.655 s 761A: 25.1050, 25.1070 s 764A: 25.1050 s 764A(1): 25.1070 s 916E(2): 25.1050 s 917A: 25.1050 s 917B: 25.1050 s 923(3): 25.1070 s 923(4): 25.1070 s 923B: 25.1070 s 985B(1): 25.1060 s 985B(2): 25.1060 s 985B(3): 25.1060 s 985B(4): 25.1060 s 985B(5): 25.1060 s 1013D(1)(l): 33.130 s 1019B(1): 25.1070 s 1019B(3): 25.1070 s 1019B(5): 25.1070 ss 1042A to 1042H: 27.795 s 1043A: 27.795 ss 1043B to 1043K: 27.795 s 1043L: 27.795 s 1043M: 27.795 s 1070A: 27.510 s 1070C: 27.500 s 1071B: 27.510 s 1071B(8): 27.520 s 1072A: 27.520 s 1072B: 27.520 s 1072C: 27.520 s 1072F: 27.510 s 1072G: 27.250 s 1287A: 27.940 s 1311(1): 25.1070 s 1317H: 27.750 s 1317J: 27.750 s 1317K: 27.750 s 1317M: 27.750 s 1317S: 27.750 Ch 2C: 27.360 Ch 5C: 27.220 Ch 6D: 27.130 Ch 7: 25.960 Pt 1.5: 27.160 Pt 2B.4: 27.230 Pt 2B.6: 27.170 Pt 2J.1, Div 1: 27.640 Pt 2J.1, Div 2: 27.550, 27.640 Pt 2M, Div 3: 27.920 Pt 2M.4: 27.940 Pt 5.1: 27.1430 Pt 5.2: 27.980 Pt 5.7B, Div 2: 27.1360 Pt 7.6: 25.1070 Pt 9.4B: 27.540, 27.640 Pt 9.4AAA: 32.480 Corporations Law: 15.280, 34.430 s 266: 14.560

Corporations Regulations 2001 reg 2A.1.01: 26.150 reg 2A.2.04: 27.200 Courts and Tribunals Legislation Amendment (Administration) Act 2012 : 22.970 Crimes Act 1914: 16.540, 32.170 ss 3E to 3S: 16.540 s 4B: 32.440 s 39: 16.270 Crimes (Aviation) Act 1991: 32.170 Crimes Legislation Amendment (Telecommunications Offences and Other Measures) Act (No 2) 2004: 16.520 Crimes (Traffic in Narcotic Drugs and Psychotropic Substances) Act 1990 s 10: 32.410 Criminal Code Act 1995: 16.460, 32.170, 32.200 Sch (Criminal Code): 16.470, 16.520, 32.170, 32.380 Sch Div 70: 33.120 Sch Div 270: 32.170 Sch s 5.1(1): 32.350 Sch s 6.2(1): 32.410 Sch s 12.3(6): 32.440 Sch s 70.2(1A): 33.120 Sch s 70.3: 33.120 Sch s 70.4(1): 33.120 Sch s 70.5(1): 33.120 Sch s 100.1: 32.550 Sch s 474.17: 16.520 Sch s 477.3: 16.500 Sch s 478.1: 16.510 Sch Ch 9, Pt 9.1: 32.170 Sch Pt 5.3: 32.550 Schedule Schedule: 16.470 Customs Act 1901: 32.170 s 233B(1): 32.327 Designs Act 1906: 30.1570, 30.1740 Designs Act 2003: 30.1570, 30.1580, 30.1610, 30.1620, 30.1680, 30.1690, 30.1700, 30.1710, 30.1720, 30.1730, 30.1740, 30.1760, 30.1770 s 10: 30.1690 s 10(1): 30.1640 s 10(2): 30.1640 s 15(1): 30.1600 s 16(3): 30.1630 s 19: 30.1660 s 21: 30.1590 s 22: 30.1590

s 27(1): 30.1630 s 35: 30.1700 ss 39 to 40: 30.1620 s 45: 30.1620 s 46: 30.1680 s 47: 30.1680 s 63: 30.1620 s 65: 30.1620 s 66: 30.1620 s 67: 30.1620 s 68: 30.1620 s 71(1): 30.1650, 30.1660 s 71(1)(a): 30.1650, 30.1660 s 71(1)(b) to (e): 30.1650 s 71(2): 30.1660 s 71(3): 30.1660 s 72(1): 30.1690 s 72(2): 30.1690 s 72(3): 30.1690 s 72(5): 30.1690 s 73: 30.1650 s 73(3): 30.1620 s 75(1): 30.1670 s 75(2): 30.1670 s 75(3): 30.1670 s 75(4): 30.1670 s 93: 30.1660 Designs (Consequential Amendments) Act 2003: 30.1710 Designs Regulations 2004: 30.1760 Do Not Call Register Act 2006: 17.1390 Electronic Transactions Act 1999: 16.30 s 6: 16.30 s 8: 16.30, 16.40 s 9: 16.50 s 10: 16.60 s 11: 16.70 s 12: 16.90 s 14: 16.100 s 14A: 16.110 s 14B: 16.140 s 15: 16.150 s 15(2): 16.150 Evidence Act 1995: 22.970 s 48: 16.230 s 51: 16.230 Evidence Amendment Act 2008: 22.970 Fair Work Act 2009: , 34.40, 34.60, 34.80, 34.100, 34.105, 34.110, 34.265, 34.300, 34.310, 34.330, 34.420, 34.435, 34.440, 34.470 s 19: 34.440 s 346: 34.330, 34.340 s 417: 34.440

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Fair Work Act 2009 — cont s 422: 34.440 s 424: 34.470 s 431: 34.470 s 487: 34.420 s 512: 34.420 s 513: 34.420 Ch 3: 34.420 Ch 3, Pt 3-1: 34.420 Ch 3, Pt 3-1, Div 6: 34.440 Ch 3, Pt 3-3: 34.440 Ch 3, Pt 3-3, Div 9: 34.440 Pt 3-4: 34.420 Fair Work Amendment Act 2012: 34.110 Fair Work Amendment Act 2013: 34.110 Fair Work (Registered Organisations) Act 2009: 34.80, 34.420 s 27: 34.420 s 140: 34.420 s 141: 34.420 s 142: 34.420 Ch 9: 34.420 Fair Work (Registered Organisations) Amendment Act 2012: 34.420 Family Law Act 1975: 31.470, 31.500 Pt VIIIB: 31.560 Federal Circuit Court of Australia Act 1999: 1.590 Federal Court of Australia Act 1976: 1.580 s 33: 1.570 Financial Sector (Collection of Data) Act 2001: 24.880 s 5(3): 24.880 Financial Sector Reform (Amendments and Transitional Provisions) Act 1998: 24.960 Financial Sector Reform (Consequential Amendments) Act 1998: 24.960 Financial Transaction Reports Act 1988: 24.40, 24.930, 24.940, 24.950 s 16: 24.940 s 31: 24.940 Fringe Benefits Tax Assessment Act 1986: 31.440 Income Tax Assessment Act 1997 s 125.60(4): 18.440

Industrial Relations Act 1988: 34.420 Insolvency Law Reform Act 2016 : 27.1450 Insurance Act 1973: 25.1120 Insurance (Agents and Brokers) Act 1984: 25.1060 s 14(2): 25.1060 Insurance Contracts Act 1984: 10.50, 15.490, 25.10, 25.70, 25.80, 25.90, 25.100, 25.110, 25.120, 25.260, 25.330, 25.340, 25.350, 25.380, 25.430, 25.570, 25.620, 25.660, 25.670, 25.690, 25.730, 25.830, 25.840, 25.845, 25.850, 25.880, 25.890, 25.910, 25.1080, 25.1090, 25.1104, 25.1110, 25.1120, 25.1150, 25.1170 s 7: 25.80 s 8: 15.490 s 9: 25.80 s 9(1): 25.1170 s 9(1)(d): 25.1220 s 11(1): 25.730 s 11(9): 25.200 s 13: 25.610 s 13(1): 25.110 s 13(2): 25.110 s 13(3): 25.760 s 13(4): 25.760 s 14(1): 25.110 s 14A: 25.110 s 16: 25.90 s 17: 25.90 s 18(1): 25.100 s 21: 25.120, 25.140, 25.150, 25.160, 25.270, 25.290, 25.760 s 21(1): 25.120, 25.130, 25.140, 25.150, 25.200, 25.250, 25.260 s 21(1)(a): 25.120 s 21(2): 25.170 s 21(3): 25.170 s 21A: 25.220 s 21A(1): 25.220 s 21A(3): 25.220 s 21A(4): 25.220 s 21A(5): 25.220 s 21B: 25.220 s 21B(3): 25.220 s 21B(4): 25.220 s 21B(5): 25.220 s 21B(6): 25.220 s 21B(7): 25.220 s 21B(11): 25.220 s 22: 25.430 s 22(1)(a): 25.180

s 22(1)(d): 25.180 s 22(3): 25.180 s 22(5): 25.180 s 22(6): 25.180 s 23: 25.330 s 24: 25.340 s 26(1): 25.330 s 26(2): 25.330, 25.410 s 27: 25.330 s 27A: 25.425 s 28(1): 25.240, 25.290, 25.350 s 28(2): 25.260, 25.270, 25.280, 25.290, 25.380, 25.390 s 28(3): 25.210, 25.240, 25.250, 25.260, 25.350, 25.360, 25.370, 25.375, 25.380 s 29: 25.425 s 29(1): 25.300 s 29(2): 25.300, 25.320, 25.400, 25.425 s 29(3): 25.320, 25.400, 25.410, 25.420, 25.425 s 29(4): 25.320, 25.425 s 29(6): 25.425 s 29(8): 25.425 s 29(10): 25.425 s 30: 25.320 s 30(3A): 25.320 s 31: 25.260, 25.320, 25.380, 25.390, 25.420 ss 33A to 33D: 25.1104 ss 34 to 36: 25.670, 25.1100, 25.1147, 25.1180, 25.1200, 25.1210 s 35: 25.430, 25.670, 25.1100 s 37: 25.430, 25.680 ss 37A to 37E: 25.1104 s 37C: 25.1104 s 38: 25.430 s 38(1): 25.430 s 38(2): 25.430 s 40: 25.430 s 43: 25.720 s 44: 25.430, 25.1110 s 45: 25.880 s 46: 25.660 s 47: 25.660 s 48: 10.50, 25.730, 25.760 s 48(1): 25.730, 25.750, 25.755 s 48(2): 25.730 s 48(3): 25.730, 25.740, 25.750 s 48A: 25.765 s 51: 25.760 s 52: 15.490, 25.80 s 54: 25.580, 25.630, 25.650 s 54(1): 25.580, 25.590, 25.600, 25.610, 25.615, 25.630, 25.640 ss 54(2) to (4): 25.620 s 56: 25.690, 25.710, 25.790 s 58: 25.830, 25.840

Table of Statutes

Insurance Contracts Act 1984 — cont s 59: 25.850 s 59A: 25.845 s 59A(2): 25.845 s 59A(5): 25.845 s 60(1): 25.840 s 60(4): 25.840 s 63(1): 25.850 s 65: 25.890 s 66: 25.890, 25.900 s 67: 25.910 s 68: 25.430, 25.910 s 69(2): 25.850 s 75: 25.860 s 76: 25.880 s 910A: 25.960 s 911A: 25.960 s 917A: 25.960 s 917A(1): 25.960 s 917B: 25.960 Pt 2A: 25.1120 Insurance Contracts Amendment Act 2013: 25.10, 25.730, 25.760, 25.845 : 25.425 Insurance Contracts Regulations 1985: 25.670, 25.1100 reg 2B: 25.220 regs 5 to 8: 25.1180 reg 10: 25.1100 reg 11: 25.1107 regs 13 to 16: 25.1107 regs 17 to 20: 25.1147 regs 21 to 24: 25.1200 regs 25 to 28: 25.1210 reg 29C: 25.1104 reg 29D: 25.1100, 25.1104 Insurance (Deposits) Act 1932: 25.1120 Intellectual Property Laws Amendment (Raising the Bar) Act 2012: 30.1780, 30.1900, 30.1910, 30.1920, 30.1960, 30.1970, 30.1980, 30.1990, 30.2115, 30.2450 Sch 6, item 113: 30.2240 Intellectual Property Legislation Amendment (Raising the Bar) Regulation 2013: 30.1780 International Arbitration Act 1974 Pt 2: 1.850 Pt 3: 1.850 Judiciary Act 1903: 1.570 s 23(2)(a): 22.1020 ss 35 to 35A: 1.570 s 39: 1.710

Jurisdiction of Courts (Cross-Vesting) Act 1987: 1.710 Legislation Act 2003 s 38: 1.430 s 42: 1.430 Life Insurance Act 1995: 25.1120 s 200(2)(a): 5.300 s 210: 25.850 s 228: 25.1130 Marine Insurance Act 1909: 25.1220 s 6: 25.1220 s 28: 5.300 Motor Vehicle Standards Act 1989: 19.1010 Mutual Assistance in Criminal Matters Act 1987: 16.460 National Consumer Credit Protection Act 2009: 13.860, 19.10, 19.20, 19.30, 19.40, 19.50, 19.60, 19.90, 19.120, 19.130 s 6: 19.60 s 7: 19.60 s 8: 19.60 s 29(1): 19.130 s 29(2): 19.130 s 29(3): 19.60 s 35: 19.70 s 36: 19.70 s 37(1): 19.70 s 37(2): 19.70 s 40: 19.70 s 41: 19.70 ss 44 to 45: 19.70 s 47: 19.80 ss 49 to 51: 19.80 s 53: 19.80 ss 54 to 55: 19.80 s 80(1)(d): 17.1430 ss 80 to 85: 19.80 ss 88 to 106: 19.80 s 113: 19.110 s 114: 19.110 ss 115 to 120: 19.100 ss 121 to 122: 19.110 ss 123 to 124: 19.100 s 126(1): 19.110 s 126(2): 19.110 s 128: 19.100 s 129: 19.100 s 130: 19.100 s 131: 19.100 s 132: 19.100 s 133: 19.100 s 133AA: 19.110 s 133BA: 19.110 ss 136 to 137: 19.110 ss 138 to 143: 19.100

ss 144 to 145: 19.110 ss 146 to 147: 19.100 s 149: 19.110 ss 151 to 156: 19.100 s 160D: 19.860 ss 166 to 175: 19.130 s 177: 19.130 s 178: 19.120, 19.130 s 179: 19.120 s 180: 19.120 s 180A: 19.120 s 182: 19.130 Pt 3.2A: 19.110 Pt 3.2B: 19.110 Sch 1: 7.970, 19.10, 19.140, 22.660 National Consumer Credit Protection Act 2009 : 33.30 National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011: 19.40, 19.110 National Consumer Credit Protection Amendment Regulations (No 1) 2012: 19.110 National Consumer Credit Protection Amendment Regulations (No 5) 2011: 19.110 National Consumer Credit Protection Amendment Regulations (No 6) 2011: 19.110 National Consumer Credit Protection Bill 2009: 19.40 National Consumer Credit Protection (Fees) Act 2009: 19.40 National Consumer Credit Protection Regulations 2010: 19.110, 19.230 reg 12: 19.80 reg 24: 19.60 reg 26: 19.100 reg 51: 19.230 reg 52: 19.160, 19.230 reg 55: 19.230 reg 56: 19.230 reg 67: 19.200 reg 81: 19.450 reg 85: 19.470 reg 86: 19.460 reg 88: 19.510 reg 100: 19.860 Form 5: 19.240 Form 8: 19.450 Form 9: 19.450 Form 11: 19.470 Form 12: 19.460

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National Consumer Credit Protection Regulations 2010 — cont Form 14: 19.510 National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009: 19.40 National Credit Code: 7.970, 19.10, 19.20, 19.140, 19.150, 19.160, 19.170, 19.180, 19.190, 19.200, 19.230, 19.260, 19.280, 19.310, 19.320, 19.330, 19.340, 19.400, 19.410, 19.420, 19.430, 19.450, 19.490, 19.530, 19.540, 19.570, 19.660, 19.700, 19.710, 19.750, 19.870, 19.880, 19.890, 19.1040, 20.250, 22.660 s 1: 19.890 s 2: 19.890 s 3: 19.890 s 3(1): 19.160 s 4: 19.160, 19.890 s 5: 19.890 s 5(1): 19.160 s 5(1)(a): 19.160, 19.170 s 5(1)(b): 19.180 s 5(1)(c): 19.210 s 5(1)(d): 19.220 s 5(3): 19.180 s 5(4): 19.190 s 6: 19.230, 19.890 s 6(9): 19.230 s 6(11): 19.230 s 6(13): 19.230 ss 6(14) to (18): 19.230 s 7: 19.890 s 7(8): 19.590 s 7(10): 19.230 s 8: 19.890 s 9: 19.890 s 10: 19.890 s 11: 19.890 s 12: 19.890 s 13: 19.890 s 13(2): 19.200 s 13(3): 19.200 s 14: 19.250, 19.890 s 14(2): 19.250 s 15: 19.250, 19.890 s 16: 19.240, 19.890 s 17: 19.260, 19.330, 19.890 ss 17(3) to (6): 19.330 s 17(8) to (9): 19.330 s 17(11): 19.330 s 17(15): 19.330 s 18: 19.280, 19.890 s 19: 19.890 s 20: 19.890 s 20(1): 19.290 s 20(2): 19.290

s 21: 19.300, 19.890 s 22: 19.400, 19.890 s 23: 19.310, 19.890 s 23(1): 19.330 s 24: 19.400, 19.890 s 25: 19.890 s 26: 19.890 s 26A: 19.890 s 27: 19.890 s 28: 19.890 s 29: 19.890 s 30: 19.890 s 30A: 19.890 s 31: 19.890 s 32: 19.890 s 33: 19.400, 19.890 s 34: 19.890 s 35: 19.890 s 36: 19.890 s 37: 19.890 s 38: 19.890 s 39: 19.890 s 40: 19.890 s 41: 19.890 s 42: 19.420, 19.890 s 43: 19.420, 19.890 s 44: 19.890 s 44(1): 19.420 s 44(2): 19.420 s 45: 19.420, 19.890 s 46: 19.420, 19.890 s 47: 19.890 s 48: 19.420, 19.890 s 49: 19.420, 19.890 s 50: 19.430, 19.600, 19.890 s 50(7): 19.430 s 51: 19.440, 19.890 s 52: 19.440, 19.890 s 53: 19.890 s 54: 19.890 s 55: 19.450, 19.890 s 56: 19.450, 19.890 s 57: 19.450, 19.890 s 58: 19.450, 19.890 s 59: 19.450, 19.890 s 60: 19.890 s 60(1): 19.450 s 60(2): 19.450 s 60(3): 19.450 s 60(5): 19.450 s 61: 19.450, 19.890 s 62: 19.890 s 63: 19.890 s 64: 19.890 ss 64 to 68: 19.400 s 65: 19.890 s 66: 19.890 s 67: 19.890 s 68: 19.890 s 69: 19.890 s 70: 19.890

s 71: 19.890 s 72: 19.890 s 72(1): 19.570 s 72(2): 19.570 s 72(3): 19.570 ss 72 to 75: 19.570 s 73: 19.890 s 74: 19.570, 19.890 s 75: 19.890 s 76: 19.510, 19.890 s 76(1): 7.970, 19.590 s 76(2): 19.600 s 76(4): 19.600 s 76(6): 19.600 ss 76 to 81: 19.230 s 77: 19.610, 19.890 s 78: 19.600, 19.890 s 78(1): 19.640 ss 78(2) to (4): 19.640 s 79: 19.650, 19.890 s 80: 19.890 s 80(1): 19.610 s 80(2): 19.640 s 81: 19.890 s 82: 19.890 s 82(1): 19.550 s 82(2): 19.550 s 83: 19.550, 19.890 s 84: 19.890 s 85: 19.890 ss 85(1) to (4): 19.540 s 85(5): 19.540 s 85(6): 19.540 s 85(7): 19.540 s 85(8): 19.540 s 85(9): 19.540 s 86: 19.540, 19.890 s 87: 19.470, 19.890 s 88: 19.890 s 88(1): 19.460 s 88(2): 19.460 s 88(3): 19.460 s 88(5): 19.460 s 89: 19.460, 19.890 s 90: 19.560, 19.890 s 91: 19.890 s 91(1): 19.500 s 91(2): 19.500 s 92: 19.890 s 93: 19.890 s 94: 19.480, 19.890 s 95: 19.890 s 96: 19.480, 19.510, 19.890 s 97: 19.890 s 98: 19.500, 19.890 s 99: 19.890 ss 99 to 101: 19.500 s 100: 19.890 s 101: 19.890 s 102: 19.890 s 102(1): 19.510

Table of Statutes

National Credit Code — cont s 102(2): 19.510 s 102(3): 19.510 s 102(4): 19.510 s 103: 19.510, 19.890 s 104: 19.890 s 104(1): 19.520 s 104(2): 19.520 s 104(3): 19.520 s 105: 19.520, 19.890 s 106: 19.520, 19.890 s 107: 19.890 s 108: 19.890 ss 108 to 110: 19.530 s 109: 19.890 s 110: 19.890 s 111: 19.330, 19.890 s 111(1): 19.330 s 111(2): 19.330 ss 111 to 123: 19.320 s 112: 19.890 s 112(1): 19.340 s 112(2): 19.350 s 112(3): 19.350 s 113: 19.890 s 113(1): 19.340 s 113(2): 19.340 s 113(3): 19.370 s 113(4): 19.370 s 114: 19.350, 19.890 s 114(1)(b): 19.350 s 115: 19.890 s 115(1): 19.350 s 116: 19.360, 19.890 s 117: 19.360, 19.890 s 118: 19.350, 19.890 s 119: 19.890 s 120: 19.890 s 121: 19.890 s 122: 19.890 s 123: 19.320, 19.890 s 124: 19.890 s 125: 19.890 s 126: 19.890 s 127: 19.890 s 127(1): 19.680 s 127(2): 19.690 s 127(3): 19.670 s 128: 19.700, 19.890 s 129: 19.890 s 129(1): 19.710 s 129(2)(a): 19.720 s 129(2)(b): 19.720 s 129(2)(c): 19.720 s 130: 19.890 s 130(2): 19.720 s 130(3): 19.720 s 130(4): 19.730 s 130(5): 19.730 s 130(6): 19.730 s 131: 19.730, 19.740, 19.890

s 132: 19.890 s 133: 19.890 s 134: 19.740, 19.890 s 135: 19.890 s 135(1): 19.750 s 135(2): 19.770 s 135(3): 19.770 s 135(5): 19.770 s 135(6): 19.770 s 135(7): 19.770 s 136: 19.890 s 137: 19.770, 19.890 s 138: 19.770, 19.890 s 139: 19.890 s 140: 19.890 s 141: 19.890 s 142: 19.890 ss 142 to 149: 19.780 s 143: 19.780, 19.890 s 144: 19.890 s 145: 19.780, 19.890 s 146: 19.780, 19.890 s 147: 19.890 s 148: 19.550, 19.780, 19.890 s 149: 19.890 s 150: 19.860, 19.890 s 150(1): 19.860 s 151: 19.890 s 152: 19.890 s 153: 19.890 s 154: 19.890 s 155: 19.890 s 156: 19.890 s 157: 19.890 s 157(3): 19.860 s 158: 19.860, 19.890 s 159: 19.890 s 160: 19.860, 19.890 s 161: 19.890 s 162: 19.860, 19.890 s 163: 19.890 s 164: 19.890 s 164(2): 19.860 s 164(3): 19.860 s 165: 19.890 s 166: 19.890 s 167: 19.890 s 168: 19.890 s 169: 19.890 s 170: 19.890 s 171: 19.890 s 172: 19.890 s 173: 19.890 s 174: 19.890 s 175: 19.890 s 176: 19.890 s 177: 19.890 s 178: 19.890 s 179: 19.890 s 180: 19.890 s 181: 19.890

s 182: 19.890 s 183: 19.890 s 184: 19.890 s 185: 19.890 s 186: 19.890 s 187: 19.890 s 188: 19.890 s 189: 19.890 s 190: 19.890 s 191: 19.890 s 191(1): 19.870 s 191(3): 19.870 s 192: 19.870, 19.890 s 193: 19.880, 19.890 s 194: 19.890 s 195: 19.890 s 196: 19.890 s 197: 19.890 s 198: 19.890 s 199: 19.890 s 200: 19.890 s 201: 19.890 s 202: 19.890 s 203: 19.890 s 203A: 19.890 s 203B: 19.890 s 204: 19.890 s 204(1): 7.970 s 205: 19.890 s 206: 19.890 s 207: 19.890 s 208: 19.890 s 209: 19.890 s 210: 19.890 s 211: 19.890 s 212: 19.890 s 213: 19.890 s 214: 19.890 s 215: 19.890 s 216: 19.890 s 217: 19.890 s 218: 19.890 Pt 4, Div 3: 19.230 Pt 5, Div 3: 19.230 Sch 1, Pt 13, s 204: 19.330 National Security Information (Criminal and Civil Proceedings) Act 2004: 32.550 Native Title Act 1993: 22.920, 22.930, 22.960, 22.970, 22.980, 22.990, 22.1000, 22.1050, 22.1060, 22.1090, 22.1110, 22.1140, 22.1160, 22.1170, 22.1180, 22.1280, 22.1290 s 11(1): 22.1000 s 13: 22.970 s 15: 22.1070, 22.1080 s 15(1): 22.1080 s 19: 22.930 s 21: 22.1090

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Native Title Act 1993 — cont s 22B: 22.1100 s 23A: 22.1120, 22.1130 s 23B: 22.1120 s 23C: 22.1120 s 23F: 22.1130 s 23G: 22.1130 s 24AA(2): 22.1180 s 24AB(1): 22.1280 s 24BA: 22.1280 ss 24BA to 24EB: 22.1180 ss 24GA to 24GE: 22.1180 s 24GD: 22.1180 s 24HA: 22.1180 s 24IA: 22.1180 ss 24IA to 24IB: 22.1180 s 24IC: 22.1180 s 24ID: 22.1180 ss 24JA to 24JB: 22.1180 s 24KA: 22.1180 s 24LA: 22.1180 s 24MD(3): 22.1140 s 24NA: 22.1180 s 24JAA: 22.1180 s 25: 22.990, 22.1190 s 26: 22.990, 22.1190 s 26(1)(a): 22.1180 s 26(1)(c): 22.1190 s 26(1A): 22.1180, 22.1190 s 26(2): 22.1280 s 26A: 22.1190 s 26B: 22.1190 s 26C: 22.1190 s 26D: 22.1180, 22.1190 s 27: 22.1190 s 27A: 22.1190 s 27B: 22.1190 s 28: 22.1190, 22.1240 s 29: 22.990, 22.1190 s 29(1): 22.1210 s 29(2): 22.1210 s 29(3): 22.1210 s 30: 22.990 s 30A: 22.1210, 22.1230 s 31: 22.1230 s 31(1)(b): 22.1240 s 31(3): 22.1240 s 33(1): 22.1220 s 35: 22.1240 s 36(2): 22.1240 s 36(3): 22.1240 s 36(4): 22.1240 s 36A: 22.1240 s 36B: 22.1240 s 36C: 22.1240, 22.1260 s 38: 22.1260 s 38(2): 22.1220 s 39: 22.1250 s 40: 22.1240 s 41: 22.1240, 22.1260 s 41A: 22.1240

s 42: 22.1270 s 47: 22.1150 s 51A: 22.1290 s 61: 22.970, 22.990 s 62: 22.990 s 62(1)(b) to (c): 22.980 s 62(2)(e): 22.980 s 63: 22.990 s 81: 22.970 ss 86A to 86E: 22.970 s 186(1): 22.990 s 190A: 22.990 s 190B: 22.990 s 190B(7)(a): 22.990 s 190B(7)(b): 22.990 s 211: 22.960 s 223: 22.950, 22.960, 22.980 s 223(1): 22.950, 22.980 s 223(1)(a): 22.980 s 223(1)(b): 22.980 s 223(1)(c): 22.980 s 226: 22.1180 s 227: 22.1180 s 228: 22.1070 s 229: 22.1080 s 230: 22.1080 s 231: 22.1080 s 232: 22.1080 s 232A: 22.1090 s 232B: 22.1100 s 232C: 22.1100 s 232D: 22.1100 s 232E: 22.1100 s 233: 22.1180 s 233(1)(a): 22.1180 s 233(1)(b): 22.1180 s 233(2): 22.1180 s 238: 22.1140 s 253: 22.990, 22.1170, 22.1190 Pt 2, Div 2B: 22.1110 Pt 2, Div 3: 22.1160 Pt 2, Div 3, subdiv B: 22.1280 Pt 2, Div 3, subdiv C: 22.1280 Pt 2, Div 3, subdiv D: 22.1280 Pt 2, Div 3, subdiv E: 22.1280 Pt 2, Div 5: 22.1290 Native Title Amendment Act 1998: 22.920 Native Title Amendment Act 2009: 22.970 s 86A(1): 22.970 s 87: 22.970 ss 87 to 87A: 22.970 s 94A: 22.970 s 225: 22.970 Native Title Amendment Act 2010: 22.1180 Native Title Amendment Bill 2009: 22.970

Patent Regulations 1991: 30.1940 reg 19.1: 30.2140 Patents Act 1952: 30.1820, 30.1900 Patents Act 1990: 30.1780, 30.1870, 30.1890, 30.1900, 30.1920, 30.1930, 30.1960, 30.1990, 30.2000, 30.2010, 30.2030, 30.2040, 30.2100, 30.2115, 30.2130, 30.2140, 30.2150 s 7(1): 30.1890 s 7(1)(a): 30.1890 s 7(2): 30.1900 s 7(3): 30.1900 s 7(4): 30.2080 s 7A: 30.1910 s 9: 30.1920 s 13(1): 30.2100 s 13(2): 30.2100 s 14: 30.2100 s 15: 30.1930 s 15(1): 30.2150 s 15(1)(b): 30.2150 s 18: 30.2130 s 18(1): 30.1800, 30.1820 s 18(1)(a): 30.2000, 30.2010, 30.2030 s 18(1)(b): 30.2000, 30.2030 s 18(1)(b)(i): 30.1870 s 18(1)(b)(ii): 30.2080 s 18(1)(c): 30.2000, 30.2010, 30.2030 s 18(1A)(a): 30.2080 s 18(1A)(b): 30.2080 s 18(1A)(b)(ii): 30.2080 s 18(1A)(c): 30.2080 s 18(2): 30.1840 s 18(3): 30.2080 s 18(4): 30.2080 s 20(1): 30.2130 s 23: 30.1990 s 24(1): 30.1890 s 29(1): 30.1940 s 29(2): 30.1940 s 29(3): 30.1940, 30.1960 s 29(4): 30.1940, 30.1970 s 38: 30.1960 s 40(1): 30.1960 s 40(2): 30.1970, 30.2020, 30.2030, 30.2070, 30.2130 s 40(2)(c): 30.2080 s 40(3): 30.1980, 30.2020, 30.2030, 30.2070, 30.2130 s 40(4): 30.1980, 30.2070 s 43(2)(b): 30.1990 s 44(1): 30.2000 s 44(2): 30.2000 s 45: 30.2000 s 49(1): 30.2010 s 49(5): 30.2010 s 49(6)(b): 30.2010

Table of Statutes

Patents Act 1990 — cont s 52: 30.2060 s 54(1): 30.2010 s 54(3): 30.2010 s 57: 30.2120 s 59: 30.2020 s 60: 30.2020 s 60(3A): 30.2020 s 60(4): 30.2020 s 65: 30.1790, 30.2040 s 67: 30.1790, 30.2040 s 68: 30.1790, 30.2090 ss 70 to 79: 30.2040 s 75(1): 30.2040 s 75(4): 30.2040 s 97(1): 30.2030 s 97(2): 30.2030 s 97(3): 30.2030 s 97(3A): 30.2030 s 98: 30.2030 s 100A(1): 30.2030 s 101(1): 30.2030 s 101A: 30.2070 s 101B: 30.2070 s 101E: 30.2070 s 101F: 30.2070 s 101G: 30.2070 s 101J: 30.2070 s 104: 30.2000 s 117: 30.2100 s 119A: 30.2115 s 119B: 30.2115 s 119C(1): 30.2115 s 119C(2): 30.2115 s 120: 30.2120 s 120(1A): 30.2070 s 121: 30.2130 s 122(1): 30.2120 s 123: 30.2120 ss 133 to 136: 30.2100 s 138: 30.2130 s 142(1): 30.1960 s 142(2): 30.2000 ss 186 to 187: 30.2140 s 188: 30.2140 s 190: 30.2140 Sch 1: 30.1880, 30.2100 Patents Amendment (Innovation Patents) Act 2000: 30.2050 Patents Regulations 1991: 30.1780, 30.2020 reg 1.6: 30.1920 regs 2.2 to 2.2D: 30.1890 reg 3.10: 30.1960 reg 3.15: 30.2000 reg 3.16: 30.2000 reg 4.2(2): 30.2010 reg 4.2(3): 30.2010 reg 5.4(1): 30.2020 regs 5.5 to 5.26: 30.2020

reg 6.2: 30.2040 Personal Property Securities Act 2009: 14.600, 14.750, 19.10, 19.900, 19.910, 19.920, 19.930, 19.970, 19.980, 19.1000, 19.1020, 19.1030, 19.1040, 19.1050, 22.300 s 8(1)(b): 19.930 s 8(1)(j): 19.930 s 9: 19.930 s 10: 19.990, 19.1000 s 12(1): 19.930 s 12(2): 19.930 s 12(3): 19.930 s 19(1): 19.940 s 19(2): 19.940 s 20: 19.950 s 21: 19.960 s 31: 19.940 s 33: 19.940 s 43: 19.1010 s 44: 19.1010 s 45(1): 19.1010 s 45(2): 19.1010 s 45(3): 19.1010 s 45(4): 19.1010 s 46: 19.1010 s 47: 19.1010 s 49: 19.1010 s 53: 19.1020 s 55(2): 19.980 s 55(3): 19.980 s 55(4): 19.980 s 55(5): 19.980 s 57(1): 19.980 s 62: 19.990 ss 84 to 86: 19.1000 ss 88 to 97: 19.1000 ss 99 to 103: 19.1000 ss 105 to 106: 19.1000 ss 108 to 144: 19.1030 s 111: 19.1030 s 115: 19.1030 s 116: 19.1030 s 119: 19.1040 s 119(2): 19.1040 s 147: 19.1050 s 150: 19.1050 s 153: 19.1050 ss 170 to 173: 19.1050 s 171: 19.1050 s 267: 19.960, 19.1050 s 268: 19.960, 19.1050 s 367A: 19.1050 Personal Property Securities Regulations 2010 reg 1.17: 19.1010 reg 2.1: 19.1010 reg 2.2: 19.1010 reg 4.1: 19.1040

Plant Breeder’s Rights Act 1994: 30.1860 s 22: 30.1860 Privacy Act 1988: 16.450 s 6C: 16.450 s 6D: 16.450 s 7B(3): 16.450 s 7B(4): 16.450 s 13: 16.450 Sch 1: 16.450 Proceeds of Crime Act 1987: 24.940 Proceeds of Crime Act 2002: 31.50 Racial Discrimination Act 1975: 22.910, 22.930, 22.1000, 22.1070, 22.1290 s 9: 22.930 s 10: 22.930, 22.1000 Resale Royalty Right for Visual Artists Act 2009: 30.1540 Safety, Rehabilitation and Compensation Act 1988: 34.410, 34.415 Social Security Act 1991: 31.440 Spam Act 2003: 16.550 s 16: 16.550 s 17: 16.550 s 18: 16.550 ss 20 to 22: 16.550 Sch 1, cl 2: 16.550 Sch 2, cl 4: 16.550 Statute of Westminster Adoption Act 1942: 1.470 s 2: 1.470 Telecommunications Act 1997: 16.460, 16.520 s 7: 16.520 Telecommunications (Interception and Access) Act 1979: 16.460, 16.470 Therapeutic Goods Act 1989 s 42DL(1)(f): 33.120 Tobacco Advertising Prohibition Act 1992 s 13: 33.120 s 15: 33.120 Tobacco Plain Packaging Act 2011: 33.120 Trade Mark Regulations 1995 reg 5.1: 30.2280 Trade Marks Act 1955: 30.2190 Trade Marks Act 1995: 16.340,

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Trade Marks Act 1995 — cont 30.2180, 30.2190, 30.2200, 30.2220, 30.2260, 30.2290, 30.2370, 30.2410, 30.2470, 30.2500, 30.2520, 30.2530, 30.2540, 30.2690 s 8: 30.2460 s 10: 30.2400 s 17: 30.2370 s 19: 30.2210 s 19(2): 30.2210 s 20: 30.2200 s 21: 30.2200 s 26(1): 30.2460 s 26(2): 30.2460 s 27(1): 30.2210 s 27(5): 30.2210 s 31: 30.2210 s 33: 30.2210 s 34: 30.2210 s 35: 30.2210 s 39: 30.2270 s 40: 30.2230 s 41: 30.2240, 30.2245 s 41(1): 30.2240 s 41(2): 30.2240 s 41(3): 30.2240 s 41(4): 30.2240 s 42: 30.2270 s 43: 30.2250 s 44(1): 30.2260 s 44(2): 30.2260 s 44(3): 30.2260 s 44(4): 30.2260 s 52: 30.2280 s 54: 30.2280 s 55: 30.2280 s 56: 30.2280 s 58: 30.2290, 30.2300 s 59: 30.2310 s 60: 30.2320, 30.2325 s 61: 30.2330 s 62: 30.2340 s 62A: 30.2345 s 71: 30.2350 s 72(3): 30.2350 s 73: 30.2350 s 77: 30.2350 s 85: 30.2360 s 88(1): 30.2360 s 88(2): 30.2360 s 89: 30.2367 s 92: 30.2370 s 92(4): 30.2457 s 92(4)(a): 30.2370 s 92(4)(b): 30.2370 s 93(2): 30.2370 s 94: 30.2370 s 96: 30.2370 s 106: 30.2510 s 109: 30.2510

s 113: 30.2520 s 117: 30.2520 s 120(1): 30.2380 s 120(2): 30.2400 s 120(3): 16.340 s 120(4): 16.340 s 122: 30.2410 s 123: 30.2410, 30.2420, 30.2423, 30.2425 s 124: 30.2430 s 126: 30.2450 s 126(1): 30.2450 s 126(2): 30.2450 s 127: 30.2457 ss 131 to 143: 30.2530 s 132: 30.2460 s 145: 30.2540 s 146: 30.2540 s 148: 30.2540 s 149: 30.2540 s 162: 30.2480 s 164: 30.2480 s 166: 30.2480 s 167: 30.2480 s 169: 30.2490 s 173: 30.2490 s 174: 30.2490 s 175: 30.2490 s 180: 30.2490 s 185: 30.2500 Trade Marks Regulations 1995 reg 4.15: 30.2270 Sch 1: 30.2210 Trade Practices Act 1974: 1.30, 1.670, 7.680, 7.960, 8.490, 8.500, 9.100, 9.290, 13.590, 14.10, 15.20, 15.480, 16.340, 17.10, 17.20, 17.1040, 18.10, 19.660, 20.250, 21.230, 21.300, 21.480, 24.40, 28.320, 30.2630, 30.2690, 30.2790, 30.2800, 33.30, 34.420, 34.440, 34.480 s 4M: 8.490, 8.510 s 45(2): 18.130 s 45(2)(b)(i): 18.130 s 45A: 18.90 s 45D: 34.490 s 51AA: 17.220 s 51AB: 17.250 s 52: 8.100, 13.590, 16.350, 16.360, 16.365, 17.40, 17.50, 17.60, 17.131, 17.140, 17.150, 17.160, 17.750, 17.760, 17.820, 17.840, 24.40, 25.1020, 28.320, 30.2630, 30.2800 s 52(1): 17.80, 17.90, 17.100, 17.110, 17.120, 17.910 s 53(c): 16.360 s 53(d): 16.360

s 53(e): 17.350 s 53(g): 17.360 s 53A: 17.420 s 53A(1)(b): 17.410 s 53(eb): 17.690 s 56(1): 17.540 s 56(2): 17.540 s 59(2): 17.440 s 71: 17.1060 s 75B: 17.840 s 75AZC(1)(g): 17.370 s 76D: 18.90 s 80(1): 17.740 s 82: 17.790, 17.800, 17.810, 17.820, 17.910 s 82(1): 17.820 s 87: 8.100, 17.790, 17.910 Pt IV: 8.510 Pt VI: 30.2790 Trade Practices Act 1974 s 74(1): 28.80 Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009: 18.90 Trade Practices Legislation Amendment Act 2008: 18.290 US Free Trade Agreement Implementation Act 2004: 30.1260, 30.1410 Uniform Consumer Credit Code: 19.20, 19.30, 19.40, 19.140, 19.190, 19.370, 19.380, 19.390, 19.570, 19.610, 19.630, 19.890 s 1: 19.890 s 3: 19.890 s 4: 19.890 s 5: 19.890 s 6: 19.890 s 7: 19.890 s 8: 19.890 s 9: 19.890 s 10: 19.890 s 10A: 19.890 s 10B: 19.890 s 10C: 19.890 s 11: 19.890 s 11(2): 19.200 s 12: 19.890 s 13: 19.890 s 14: 19.890 s 15: 19.890 s 16: 19.890 s 17: 19.890 s 18: 19.890 s 19: 19.890 s 20: 19.890 s 21: 19.890 s 22: 19.890

Table of Statutes

Uniform Consumer Credit Code — cont s 23: 19.890 s 24: 19.890 s 25: 19.890 s 26: 19.890 s 27: 19.890 s 28: 19.890 s 29: 19.890 s 30: 19.890 s 31: 19.890 s 32: 19.890 s 33: 19.890 s 34: 19.890 s 35: 19.890 s 36: 19.890 s 36A: 19.890 s 37: 19.890 s 38: 19.890 s 39: 19.890 s 40: 19.890 s 41: 19.890 s 42: 19.890 s 43: 19.890 s 44: 19.890 s 45: 19.890 s 46: 19.890 s 47: 19.890 s 48: 19.890 s 49: 19.890 s 50: 19.890 s 51: 19.890 s 52: 19.890 s 53: 19.890 s 54: 19.890 s 55: 19.890 s 56: 19.890 s 57: 19.890 s 58: 19.890 s 59: 19.890 s 60: 19.890 s 61: 19.890 s 62: 19.890 s 63: 19.890 s 63A: 19.890 s 64: 19.890 s 65: 19.890 s 66: 19.890 s 67: 19.890 s 68: 19.890 s 69: 19.890 s 70: 19.890 s 71: 19.890 s 72: 19.890 s 73: 19.890 s 74: 19.890 s 75: 19.890 s 76: 19.890 s 77: 19.890 s 78: 19.890 s 79: 19.890

s 80: 19.890 s 81: 19.890 s 82: 19.890 s 83: 19.890 s 84: 19.890 s 85: 19.890 s 86: 19.890 s 87: 19.890 s 88: 19.890 s 89: 19.890 s 90: 19.890 s 91: 19.890 s 92: 19.890 s 93: 19.890 s 94: 19.890 s 95: 19.890 s 96: 19.890 s 97: 19.890 s 98: 19.890 s 99: 19.890 s 100: 19.890 s 101: 19.890 s 102: 19.890 s 103: 19.890 s 104: 19.890 s 105: 19.890 s 106: 19.890 s 107: 19.890 s 110: 19.890 s 111: 19.890 s 112: 19.890 s 113: 19.890 s 113A: 19.890 s 114: 19.890 s 115: 19.890 s 116: 19.890 s 117: 19.890 s 118: 19.890 s 119: 19.890 s 120: 19.890 s 121: 19.890 s 122: 19.890 s 123: 19.890 s 124: 19.890 s 125: 19.890 s 126: 19.890 s 127: 19.890 s 128: 19.890 s 129: 19.890 s 130: 19.890 s 131: 19.890 s 132: 19.890 s 133: 19.890 s 134: 19.890 s 135: 19.890 s 136: 19.890 s 137: 19.890 s 138: 19.890 s 139: 19.890 s 140: 19.890 s 141: 19.890

s 142: 19.890 s 143: 19.890 s 144: 19.890 s 145: 19.890 s 146: 19.890 s 146A: 19.890 s 146B: 19.890 s 146C: 19.890 s 146E: 19.890 s 146F: 19.890 s 146G: 19.890 s 146H: 19.890 s 146I: 19.890 s 146J: 19.890 s 146R: 19.890 s 146S: 19.890 s 146T: 19.890 s 147: 19.890 s 148: 19.890 s 149: 19.890 s 150: 19.890 s 151: 19.890 s 152: 19.890 s 153: 19.890 s 154: 19.890 s 155: 19.890 s 156: 19.890 s 157: 19.890 s 158: 19.890 s 159: 19.890 s 160: 19.890 s 161: 19.890 s 162: 19.890 s 163: 19.890 s 164: 19.890 s 164A: 19.890 s 166: 19.890 s 167: 19.890 s 168: 19.890 s 169: 19.890 s 169A: 19.890 s 170: 19.890 s 171: 19.890 s 172: 19.890 s 173: 19.890 s 174: 19.890 s 175: 19.890 s 176: 19.890 s 182A: 19.890 s 183: 19.890 s 184: 19.890 Sch 1: 19.890 Sch 2, s 2: 19.890 Sch 2, s 4: 19.890 Sch 2, s 5: 19.890 Sch 2, s 13: 19.890 Sch 2, s 14: 19.890 Sch 2, s 16: 19.890 Sch 2, s 20: 19.890 Sch 2, s 21: 19.890 Sch 2, s 23: 19.890

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Uniform Consumer Credit Code — cont Sch 2, s 24: 19.890 Sch 2, s 25: 19.890 Sch 2, s 29: 19.890 Sch 2, s 30: 19.890 Venture Capital Act 2002: 26.650 Volunteers Protection Act 2003: 28.80 Work Health and Safety Act 2011: 34.390 Workplace Relations Act 1996: 34.20 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002: 34.420 Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008: 34.70 Workplace Relations Amendment (Work Choices) Act 2005: 34.40

AUSTRALIAN CAPITAL TERRITORY ACT Civil and Administrative Tribunal Act 2008: 1.700 s 18: 1.690 Age of Majority Act 1974 s 5: 6.20 Agents Act 2003 s 18: 13.860 s 22: 13.860 Bail Act 1992 : 32.270 Civil Law (Property) Act 2006: 22.870 s 201(2): 29.310 s 204(1): 5.330 s 205: 10.160 s 219(1): 5.180 s 507: 5.320, 5.340 Sch 3: 5.340 Civil Law (Wrongs) Act 2002: 7.670, 28.80, 28.850 s 3: 28.570 s 40: 28.80 s 41: 28.80 s 43(1): 28.390 s 43(2): 28.390 s 44: 28.450 s 45(1)(a): 28.500 s 45(1)(b): 28.510

ss 95 to 96: 28.160, 28.560 s 96: 28.570 s 98: 28.80 s 99: 28.80 s 102: 12.250, 28.560 s 110: 28.170 s 113: 28.80, 28.170 s 118(2): 28.850 s 120: 28.850 s 132: 28.940 s 134: 28.860 s 135: 28.870 s 136: 28.870 s 137: 28.880 s 138: 28.890 s 139: 28.890 s 139A(1): 28.900 s 139A(3): 28.900 s 139B: 28.910 s 139D: 28.920 s 139E: 28.950 s 139F: 28.950 s 139G: 28.950 s 139H: 28.950 s 139I: 28.950 s 144: 21.650 s 145(1): 21.650 s 145(2): 21.650 s 149(2): 21.650 s 151(2): 21.650 s 151(3): 21.650 s 152(1): 21.650 s 152(2): 21.650 s 154(1): 21.650 s 154(2): 21.650 ss 172 to 179: 7.670 s 174(3): 7.670 s 221(2)(a): 8.270 Ch 8: 28.80, 28.120, 28.170, 28.250 Ch 11: 21.650 Pt 2.2: 28.80 Pt 2.2A: 28.80 Pt 3.2: 28.90 Pt 9.3, Div 1: 28.940 Pt 11.2: 21.450 Sch 1: 21.650 Civil Law (Wrongs) Amendment Act 2006: 28.850 Civil Procedure Rules 2006: 26.340 Commercial Arbitration Act 1986: 1.850 Courts Legislation Amendment Act 2015 : 1.950 Crimes Act 1900 s 49C: 32.440 s 49D: 32.440

Criminal Code 2002: 32.190, 32.200 s 25: 32.430 s 26: 32.430 s 706: 16.270 Electronic Transactions Act 2001: 16.30 s 7: 16.40 s 8: 16.50 s 9: 16.60 s 10: 16.70 s 11: 16.90 s 13: 16.100 s 13A: 16.110 s 13B: 16.140 s 14: 16.150 s 14(2): 16.150 Evidence Act 2011 s 48: 16.230 s 51: 16.230 Fair Trading Act 1992 s 15A: 14.1110 Fair Trading (Australian Consumer Law) Act 1992 s 7(1): 17.20 Fair Trading (Australian Consumer Law) Amendment Act 2010 Sch 1, Item 1.6: 14.1110 Fair Trading Legislation Amendment Act 2001 s 27: 14.390 Financial Sector Reform (ACT) Act 1999: 24.960 Human Rights Commission Act 2005 s 54: 1.900 s 67: 1.900 Imperial Acts (Substituted Provisions) Act 1986 s 3(1): 5.320, 5.340 Justice and Community Safety Legislation Amendment Act 2014 Sch 1 Pt 1.1 item 1.3: 13.860 Land Titles Act 1925: 22.490, 22.800 Law Reform (Miscellaneous Provisions) Act 1955 s 15: 28.560 Law Reform (Miscellaneous Provisions) Act 1999 Sch 3: 5.320, 5.340 Law Reform (Misrepresentation) Act 1977: 7.670

Table of Statutes

Legal Profession Act 2006 s 283: 8.270 Legislation Act 2001: 1.350 s 73(1): 1.220 s 139: 1.360 s 142: 1.370 Limitation Act 1985: 12.410 s 11(1): 12.410 s 13: 12.410 ss 23 to 24: 12.410

Pt 6: 26.10, 26.650 Perpetuities and Accumulations Act 1985 s 8: 29.330 s 19 : 29.340 Prostitution Act 1992 : 25.250 Public Interest Disclosure Act 2012: 32.480

Magistrates Court Act 1930 s 257: 1.630

Road Transport (General) Act 1999 s 162: 25.1170

Married Persons Property Act 1986 s 3: 6.190 s 5: 13.190

Sale of Goods Act 1954: 14.10 s 2: 14.180 s 3: 14.400, 14.1030 s 5: 14.30, 14.140, 14.870 s 6: 14.20 s 7: 14.70 s 7(2): 6.180 s 7(3): 6.40 s 11: 7.90, 14.160, 14.610 s 12: 14.160, 14.610 s 13: 14.170 s 14: 14.170 s 15: 14.210 s 16: 14.400 s 17: 14.230 s 18: 14.240, 14.260 s 19: 14.270, 14.290 s 20: 14.380 ss 21 to 22: 14.440 s 23: 14.440 s 24: 14.540 s 25: 14.610 s 26: 14.640 s 27: 14.680 s 29: 14.700, 14.710 s 31: 14.760 ss 31 to 32: 14.830 s 32: 14.170, 14.760 s 33: 14.770 s 34: 14.790 s 35: 14.800 s 36: 14.770, 14.820 s 38: 14.830 s 38(1): 14.830 s 39: 14.830 s 40: 14.830 s 42: 14.850 s 43: 14.880 ss 44 to 46: 14.870 s 47: 14.890 s 48: 14.900 s 49: 14.910 s 50: 14.910, 14.920 s 51: 14.930 s 52: 14.960 s 53: 14.970 s 54: 14.1090

Mediation Act 1997 s 12: 1.950 Native Title Act 1994: 22.930 Partnership Act 1963: 26.10 s 4: 26.30 s 5: 26.10 s 6: 26.30 s 7: 26.80, 26.130 s 8: 26.190 s 9: 26.350 s 11: 26.370 s 12: 26.370 s 13: 26.380 s 14: 26.440 s 15: 26.460 s 16: 26.440 s 17: 26.480 s 18: 26.380, 26.430 s 19: 26.380 s 20: 26.380 s 21: 26.390, 26.400 s 22: 26.280 s 24: 26.300 s 27: 26.310 s 29: 26.220 s 30: 26.230 s 31: 26.270 s 32: 26.290 s 33: 26.260 s 34: 26.260 s 35: 26.260 s 36: 26.610 s 39: 26.500 s 40: 26.520 s 41: 26.400 s 42: 26.410 s 44: 26.530 s 45: 26.560 s 46: 26.540 s 47: 26.550 s 48: 26.570 s 50: 26.590

s 56: 14.1040 s 58: 14.390 s 60: 14.1110 s 62(1): 14.10 s 62(1) to (2): 7.630 Sale of Goods (Vienna Convention) Act 1987 s 5: 15.20 s 6: 15.20 Sale of Motor Vehicles Act 1977 ss 23 to 24: 17.1410 s 25B: 17.1410 Supreme Court Act 1933 s 68B: 32.320 s 68M: 32.315 s 68N: 32.315 Trustee Act 1925 s 6: 29.380 s 7A: 29.350 ss 14 to 14C: 29.410 s 27B(2): 29.490 s 36: 29.540 s 44: 29.580 s 63: 29.640 s 64: 29.470 s 70: 29.390 s 85: 29.650 s 86: 29.630 Uncollected Goods Act 1996: 21.380 Unlawful Gambling Act 2009 s 47: 8.160 Wills Act 1968 s 9: 29.260, 29.310 Work Health and Safety Act 2011: 34.390 Workers Compensation Act 1951: 25.1150, 34.410

NEW SOUTH WALES Aboriginal Land Rights Act 1983: 22.890 Anti-Discrimination Act 1977 s 91A: 1.900 Bail Act 2013 : 32.270 Builders Licensing Act 1971 s 45(1): 12.550 Building and Construction Industry Security of Payment Act 1999: 16.120 Children (Criminal Proceedings) Act 1987

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Children (Criminal Proceedings) Act 1987 — cont s 5: 32.430 Civil Aviation (Carriers’ Liability) Act 1967: 21.530 Civil Liability Act 2002: 28.80, 28.170, 28.560 s 3B: 28.80 s 5: 28.80 s 5A(1): 28.80 s 5B: 28.390 s 5B(1): 28.390 s 5B(2): 28.390 s 5C: 28.450 s 5D(1)(a): 28.500 s 5D(1)(b): 28.510 s 5D(2): 28.500 s 5G: 28.570 s 5H: 28.110, 28.170 s 5L: 28.110, 28.170 s 5O: 28.80, 28.250, 28.470 s 5P: 28.80, 28.250, 28.470 s 5R: 28.560 s 5S: 28.560 s 12: 28.80 s 16: 28.80 s 21: 28.80 s 30: 28.90 s 30(2): 28.90 s 34(2): 28.500 s 42: 28.170 s 45: 28.80, 28.170 s 50: 28.470 Pt 1A, Div 5: 28.80 Pt 2: 28.80 Pt 3: 28.90 Pt 5: 28.80, 28.120, 28.170, 28.250 Pt 6: 28.160, 28.560 Pt 9: 28.80 Pt 11: 28.80 Sch 2, Item 2: 8.270 Civil and Administrative Tribunal Act 2013: 1.700 Coal Acquisition Act 1981 s 5: 22.330 Commercial Arbitration Act 2010: 1.850 s 1(1): 1.850 s 1(3): 1.850 s 6: 1.850 ss 6 to 9: 1.850 s 7(1): 1.850 s 7(2): 1.850 s 7(3): 1.850 s 7(4) to (8): 1.850 s 8(1): 1.850 s 10(1): 1.850

s 10(2): 1.850 s 11(2): 1.850 s 11(3)(a): 1.850 s 11(3)(b): 1.850 s 17(1) to (2): 1.850 s 17(2)(a): 1.850 s 17(2)(c): 1.850 s 17(2)(d): 1.850 s 17H: 1.850 s 27(1): 1.850 s 27(2): 1.850 s 27A(1): 1.850 s 27E(1): 1.850 s 31(1): 1.850 s 31(3): 1.850 s 33A: 1.850 s 34(1): 1.850 s 34(2): 1.850 s 34(2)(a): 1.850 s 34(2)(a)(i): 1.850 s 34(2)(a)(ii): 1.850 s 34(2)(a)(iv): 1.850 s 34(2)(a)(iii): 1.850 s 34(2)(b): 1.850 s 34(2)(b)(i): 1.850 s 34(2)(b)(ii): 1.850 s 34(3): 1.850 s 34A(1): 1.850 s 36: 1.850 s 36(1): 1.850 s 36(1)(a)(v): 1.850 Common Carriers Act 1902: 21.450, 21.460 s 4: 21.460 s 7: 21.460 s 9(c): 21.460 Competition Policy Reform (New South Wales) Act 1995 s 5(1): 18.30 Constitution Act 1902 s 5B: 1.220 Contracts Review Act 1980: 7.860, 7.1010, 20.250, 22.650 s 6(1): 7.990 s 6(2): 7.990 s 7: 7.980 s 9(2): 7.980 s 9(2)(j): 7.860 s 9(3): 7.980 s 9(4): 7.980 s 9(5): 7.980 s 10: 7.1000 s 14: 7.980 s 16: 7.1000 s 17: 7.1000 s 17(4): 7.1000 s 18: 7.1000 s 21: 7.990 s 22: 7.1000

Conveyancing Act 1919: 22.800 s 12: 10.160 s 23C: 29.310 s 26: 22.460 s 38(1): 5.180 s 53(1): 22.480 s 54A(1): 5.330 s 129: 22.830 s 151A: 29.350 Pt 23: 22.480 Credit (Commonwealth Powers) Act 2010: 19.40 Crimes Act 1900: 32.180 s 117: 32.530 s 138: 16.270 s 580E: 32.220 Crimes (Appeal and Review) Act 2001 s 100: 32.315 s 101: 32.315 Criminal Procedure Act 1986 s 132: 32.320 s 260(1): 32.230 s 260(2): 32.230 Crown Lands Act 1989 s 171: 22.330 Defamation Act 2005: 28.850 s 6(2): 28.850 s 7: 28.850 s 8: 28.850 s 9: 28.850 s 20: 28.940 s 22: 28.850 s 24: 28.860 s 25: 28.870 s 26: 28.870 s 27: 28.880 s 28: 28.890 s 29: 28.890 s 30(1): 28.900 s 30(3): 28.900 s 31: 28.910 s 33: 28.920 s 34: 28.950 s 35: 28.950 s 36: 28.950 s 37: 28.950 s 38: 28.950 Pt 3, Div 1: 28.940 District Court Act 1973 s 4: 1.620 s 44: 1.620 s 134B: 7.980 Electronic Transactions Act 2000: 16.30, 16.120 s 6: 16.30 s 7: 16.40

Table of Statutes

s 48: 6.140, 6.150

Electronic Transactions Act 2000 — cont s 8: 16.50 s 9: 16.60 s 10: 16.70 s 11: 16.90 s 13: 16.100 s 13A: 16.110 s 13B: 16.140 s 14: 16.150 s 14(2): 16.150

Law Reform (Miscellaneous Provisions) Act 1965 s 9: 12.250, 28.560 s 10: 28.560

Legal Profession Uniform Law s 181: 8.270

Motor Dealers and Repairers Act 2013: 17.1420 ss 68 to 69: 17.1410 s 74: 17.1410 ss 78 to 81: 17.1410 s 105: 17.1410 s 108: 17.1410

Evidence Act 1995 s 48: 16.230 s 51: 16.230

Legal Profession Uniform Law Application Act 2014 s 4: 8.270

Motor Vehicle Repairs Act 1980 s 165: 17.1420 s 171(2): 17.1420

Factors (Mercantile Agents) Act 1923: 13.790 s 5: 13.790

Limitation Act 1969: 12.410 s 11(3): 12.410 s 14(1)(a): 12.410 s 14(1)(b): 12.410 s 16: 12.410 s 27(1): 12.410 s 27(2): 12.410 s 52: 12.410 s 54: 12.410, 12.420 s 63: 12.410, 12.420 s 68: 12.410, 12.420

Native Title (New South Wales) Act 1994: 22.930

Fair Trading Act 1987: 16.350 s 28(1): 17.20 s 51A: 14.1160 s 60: 13.860 s 60C: 13.860 s 79S(7): 1.690 Pt 6A: 1.690 Fair Trading Amendment (Australian Consumer Law) Act 2010 Sch 1, Item 40: 14.1160 Financial Sector Reform (New South Wales) Act 1999: 24.960 Financial Transaction Reports Act 1992: 24.930 Frustrated Contracts Act 1978: 11.490, 14.160 s 5(1): 11.490 s 6(1): 11.490 s 15: 11.490 Imperial Acts Application Act 1969 s 8(1): 5.320, 5.340 Innkeepers Act 1968 s 6: 21.590 s 7: 21.590 s 7(2): 21.590 s 8: 21.670 Interpretation Act 1987: 1.350 s 23(1): 1.220 s 33: 1.360 s 34: 1.370 Jury Act 1977 s 42: 32.320 s 55F: 32.320 Landlord and Tenant Act 1899: 22.870 Landlord and Tenant (Amendment) Act 1948: 22.870

Legal Profession Act 1987: 28.80 Legal Profession Regulations 2005 reg 17: 16.270

Local Court Act 2007 s 29: 1.630, 1.690 Married Persons (Equality of Status) Act 1996 s 4: 6.190 s 7: 13.190 Minors (Property and Contracts) Act 1970: 6.40, 6.150, 26.180 s 6(1): 6.20, 6.150 s 6(3): 6.150 s 16: 6.150 s 18: 6.150 s 19: 6.150 s 20(1): 6.150 s 21: 6.150 s 26(1): 6.150 s 26(3): 6.150 s 26(4): 6.150 s 27(1): 6.150 s 27(2): 6.150 s 27(5): 6.150 s 28: 6.150 s 30(1): 6.150 s 30(1)(b): 6.150 ss 30(2) to (3): 6.150 s 30(4): 6.150 s 31(1): 6.150 s 31(2): 6.150 s 33(2): 6.150 s 34(1): 6.150 s 34(2): 6.150 s 37(1): 6.150 s 37(2): 6.150 s 47: 6.150, 20.100

Motor Accidents Act 1988 Pt 3: 25.1170

Partnership Act 1892: 26.10 s 1: 26.30 s 2: 26.80, 26.130 s 4: 26.190 s 5: 26.350 s 7: 26.370 s 8: 26.370 s 9: 26.380 s 10: 26.440 s 11: 26.460 s 12: 26.440 s 13: 26.480 s 14: 26.380, 26.430 s 15: 26.380 s 16: 26.380 s 17: 26.390, 26.400 s 18: 26.280 s 20: 26.300 s 22: 26.310 s 23: 26.340 s 24: 26.220 s 25: 26.230 s 26: 26.270 s 27: 26.290 s 28: 26.260 s 29: 26.260 s 30: 26.260 s 31: 26.610 s 34: 26.500 s 35: 26.520 s 36: 26.400 s 37: 26.410 s 38: 26.530 s 39: 26.560 s 40: 26.540 s 41: 26.550 s 42: 26.570 s 44: 26.590 s 45: 26.30 s 46: 26.10 Pt 3: 26.10, 26.620, 26.650 Perpetuities Act 1984 s 7: 29.330

lxvii

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Australian Commercial Law

Perpetuities Act 1984 — cont s 18: 29.340 Personal Property Securities (Commonwealth Powers) Act 2009: 19.910 Petroleum (Onshore) Act 1991 s 6: 22.330 Property, Stock and Business Agents Act 2002: 13.440 s 36: 13.440 s 52: 13.440 s 52(1): 13.440 s 52(2): 13.440 Pt 6: 14.1110 Public Interest Disclosures Act 1994: 32.480 Real Property Act 1900: 22.490 s 100: 22.460 Residential Tenancies Act 2010: 22.870 Restraints of Trade Act 1976: 8.610 s 4(1): 8.610 Retail Leases Act 1994: 22.860 Sale of Goods Act 1923: 11.300, 11.490, 14.10 s 4(2): 14.10 s 4(2A): 7.630 s 4(5): 11.300, 14.210 s 5: 14.30, 14.140, 14.870 s 6: 14.20 s 7: 6.180, 14.70 s 11: 7.90, 14.160, 14.610 s 12: 14.160, 14.610 s 13: 14.170 s 14: 14.170 s 15: 14.210 s 16: 14.400 s 17: 14.230 s 18: 14.240, 14.260 s 19: 14.270, 14.290 s 20: 14.380 ss 21 to 22: 14.440 s 23: 14.440 s 24: 14.540 s 25: 14.610 s 25A: 14.537 s 26: 14.640 s 27: 14.680 s 28: 14.700, 14.710 s 30: 14.760 ss 30 to 31: 14.830 s 31: 14.170, 14.760 s 32: 14.770 s 33: 14.790 s 34: 14.800 s 35: 14.770, 14.820

s 37: 14.830 s 37(1): 14.830 s 38: 14.830 s 38(2): 14.830 s 39: 14.830 s 41: 14.850 s 42: 14.880 ss 43 to 45: 14.870 s 46: 14.890 s 47: 14.900 s 48: 14.910 s 49: 14.910, 14.920 s 50: 14.930 s 51: 14.960 s 52: 14.970 s 53: 14.1090 s 54: 14.1040 s 57: 14.390 s 60: 14.1110 Sale of Goods (Amendment) Act 1988: 14.180, 14.400, 14.1030 Sale of Goods (Vienna Convention) Act 1986 s 5: 15.20 s 6: 15.20 Succession Act 2006 s 6: 29.260, 29.310 Supreme Court Act 1970: 1.460 s 97: 26.380 Transport Administration Act 1988 s 90: 21.500 Travel Agents Act 1986: 13.860 Travel Agents Repeal Act 2014: 13.860 Trustee Act 1925 s 6(4): 29.380 ss 14 to 14C: 29.410 s 27B(2): 29.490 s 36: 29.540 s 38: 29.510 s 44: 29.580 s 63: 29.640 s 70: 29.390 s 85: 29.650 s 86: 29.630 Uncollected Goods Act 1995: 21.380 Unlawful Gambling Act 1998 s 56: 8.160 s 56(2): 8.160 Work Health and Safety Act 2011: 34.390 Workers Compensation Act 1987: 25.1150, 34.410

Workplace Injury Management and Workers Compensation Act 1998: 25.1150, 34.410

NORTHERN TERRITORY Accommodation Providers Act 1981: 21.660 s 3(1): 21.660 s 7(2): 21.670 Age of Majority Act 1974 s 4: 6.20 Agents Licensing Act 1979 s 17: 13.860 Anti-Discrimination Act 1992 s 78: 1.900 s 81: 1.900 Auctioneers Act 1935: 14.1110 Bail Act 1982 : 32.270 Business Tenancies (Fair Dealings) Act 2000: 22.860 Commercial Arbitration (National Uniform Legislation) Act 2011: 1.850 s 1(1): 1.850 s 1(3): 1.850 s 6: 1.850 ss 6 to 9: 1.850 s 7(1): 1.850 s 7(2): 1.850 s 7(3): 1.850 s 7(4) to (8): 1.850 s 8(1): 1.850 s 10(1): 1.850 s 10(2): 1.850 s 11(2): 1.850 s 11(3)(a): 1.850 s 11(3)(b): 1.850 s 17(1) to (2): 1.850 s 17(2)(a): 1.850 s 17(2)(c): 1.850 s 17(2)(d): 1.850 s 17H: 1.850 s 27(1): 1.850 s 27(2): 1.850 s 27A(1): 1.850 s 27E(1): 1.850 s 31(1): 1.850 s 31(3): 1.850 s 33A: 1.850 s 34(1): 1.850 s 34(2): 1.850 s 34(2)(a): 1.850 s 34(2)(a)(i): 1.850 s 34(2)(a)(ii): 1.850 s 34(2)(a)(iv): 1.850

Table of Statutes

Commercial Arbitration (National Uniform Legislation) Act 2011 — cont s 34(2)(a)(iii): 1.850 s 34(2)(b): 1.850 s 34(2)(b)(i): 1.850 s 34(2)(b)(ii): 1.850 s 34(3): 1.850 s 34A(1): 1.850 s 36: 1.850 s 36(1): 1.850 s 36(1)(a)(v): 1.850 Commercial and Private Agents Licensing Act 1979 s 5: 13.860

s 6: 16.30 s 7: 16.40 s 8: 16.50 s 9: 16.60 s 10: 16.70 s 11: 16.90 s 13: 16.100 s 13A: 16.110 s 13B: 16.140 s 14: 16.150 s 14(2): 16.150 Evidence (National Uniform Legislation) Act s 48: 16.230 s 51: 16.230

Consumer Affairs and Fair Trading Act 1990 s 27(1): 17.20 ss 168 to 171: 17.1410 Pt 11: 13.860

Financial Sector Reform (Northern Territory) Act 1999: 24.960

Consumer Affairs and Fair Trading Amendment Act 2014 s 6: 13.860

Interpretation Act 1978: 1.350 s 6: 1.220 s 62A: 1.360 s 62B: 1.370 62D 62D: 1.315

Consumer Credit (National Uniform Legislation) Implementation Act 2010: 19.40 Criminal Code 1983: 32.190, 32.200 s 38(1): 32.430 s 38(2): 32.430 s 102: 16.270 s 368: 32.320 Defamation Act 2006: 28.850 s 5(2): 28.850 s 6: 28.850 s 7: 28.850 s 8: 28.850 s 19: 28.940 s 21: 28.860 s 22: 28.870 s 23: 28.870 s 24: 28.880 s 25: 28.890 s 26: 28.890 s 27(1): 28.900 s 27(3): 28.900 s 28: 28.910 s 29: 28.920 s 31: 28.950 s 32: 28.950 s 33: 28.950 s 34: 28.950 s 35: 28.950 s 54: 28.850 Pt 3, Div 1: 28.940 Electronic Transactions (Northern Territory) Act 2000: 16.30

Financial Transaction Reports Act 1992: 24.930

Land Title Act 2000: 22.490 Pt 2, Div 1: 22.480 Law Reform (Miscellaneous Provisions) Act 1956 s 16: 12.250, 28.560 Law Reform (Miscellaneous Provisions) Act 2001 s 16: 28.560 Law of Property Act 2000: 22.800 s 10(1)(b): 29.310 s 47(1): 5.180 s 49(3): 5.180 s 56: 10.20 s 58: 5.340, 20.30 s 62: 5.330 s 182: 10.160 s 187: 29.330 s 202: 29.340 s 221: 5.320 Sch 4: 5.320 Legal Profession Act 2006 s 318: 8.270 Limitation Act 1981: 12.410 s 12(1)(a): 12.410 s 14(1): 12.410 ss 26 to 27: 12.410 Local Court Act 2015 s 12: 1.630 Married Persons (Equality of Status) Act 1989

s 3: 6.190 s 5: 13.190 Motor Accidents (Compensation) Act 1979 Pt V: 25.1170 Pt IV: 25.1170 Northern Territory Civil and Administrative Tribunal Act 2014: 1.700 Partnership Act 1997: 26.10 s 3: 26.30 s 4: 26.10 s 5: 26.30 s 6: 26.80, 26.130 s 8: 26.190 s 9: 26.350 s 11: 26.370 s 12: 26.370 s 13: 26.380 s 14: 26.440 s 15: 26.460 s 16: 26.440 s 17: 26.480 s 18: 26.380, 26.430 s 19: 26.380 s 20: 26.380 s 21: 26.390, 26.400 s 22: 26.280 s 24: 26.300 s 26: 26.310 s 27: 26.340 s 28: 26.220 s 29: 26.230 s 30: 26.270 s 31: 26.290 s 32: 26.260 s 33: 26.260 s 34: 26.260 s 35: 26.610 s 38: 26.500 s 39: 26.520 s 40: 26.400 s 41: 26.410 s 42: 26.530 s 43: 26.560 s 44: 26.540 s 45: 26.550 s 46: 26.570 s 48: 26.590 Pt 3: 26.10, 26.650 Personal Injuries (Civil Claims) Act 2003: 28.80 Personal Injuries (Liabilities and Damages) Act 2003: 28.80 s 3: 28.80 s 4: 28.80 ss 14 to 15: 28.160, 28.560 s 20: 28.80

lxix

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Australian Commercial Law

Personal Injuries (Liabilities and Damages) Act 2003 — cont ss 24 to 28: 28.80 Public Interest Disclosure Act 2008: 32.480 Racing and Betting Act 1983 s 135: 8.160 s 135(1): 8.160 Residential Tenancies Act 2000: 22.870 Sale of Goods Act 1972: 14.10 s 4: 14.540 s 4(2): 14.10 s 5: 14.30, 14.140, 14.870 s 6: 14.20 s 7: 14.70 s 7(2): 6.180 s 7(3): 6.40 s 11: 7.90, 14.160, 14.610 s 12: 14.160, 14.610 s 13: 14.170 s 14: 14.170 s 15: 14.210 s 16: 14.400 s 17: 14.230 s 18: 14.240, 14.260 s 19: 14.270, 14.290 s 20: 14.380 ss 21 to 22: 14.440 s 23: 14.440 s 25: 14.610 s 26: 14.640 s 27: 14.680 s 28: 14.700, 14.710 s 30: 14.760 ss 30 and 31: 14.830 s 31: 14.170, 14.760 s 32: 14.770 s 33: 14.790 s 34: 14.800 s 35: 14.770, 14.820 s 37: 14.830 s 38: 14.830 s 39: 14.830 s 41: 14.850 s 42: 14.880 ss 43 to 45: 14.870 s 46: 14.890 s 47: 14.900 s 48: 14.910 s 49: 14.910, 14.920 s 50: 14.930 s 51: 14.960 s 52: 14.970 s 53: 14.1090 s 54: 14.1040 s 57: 14.390 s 60: 14.1110

Sale of Goods Amendment Act 1999 s 2: 14.180

Civil Aviation (Carriers’ Liability) Act 1964: 21.530

Sale of Goods (Vienna Convention) Act 1987 s 5: 15.20 s 6: 15.20

Civil Liability Act 2003: 28.80 s 4(1): 28.80 s 5: 28.80 s 9(1): 28.390 s 9(2): 28.390 s 10: 28.450 s 11(1)(a): 28.500 s 11(1)(b): 28.510 s 14: 28.570 s 15: 28.110, 28.170 s 19: 28.110, 28.170 s 21: 28.120 s 22: 28.80, 28.250, 28.470 s 23: 28.560 s 24: 28.560 s 35: 28.170 s 37: 28.80, 28.170 s 48: 28.570 s 52: 28.80 s 54: 28.80 s 62: 28.80 Pt 1, Div 4: 28.80 Pt 3: 28.80, 28.120, 28.170, 28.250 Pt 3, Div 2: 28.80 Pt 4, Div 2: 28.160, 28.560 Pt 5: 28.80 Sch 2: 28.80

Small Claims Act 2016 s 5: 1.690 Trustee Act 1893 ss 5 to 8: 29.410 s 11: 29.380 s 24A: 29.580 s 27: 29.390 s 49A: 29.650 s 50: 29.630 s 78: 29.600 Uncollected Goods Act 2004: 21.380 Validation (Native Title) Act 1994: 22.930 Wills Act 2000 s 8: 29.260, 29.310 Work Health and Safety (National Uniform Legislation) Act 2011: 34.390 Workers Rehabilitation and Compensation Act 1988: 25.1150, 34.410

QUEENSLAND Aboriginal Land Act 1991: 22.890 : 22.890 Aboriginal and Torres Strait Islander Land (Providing Freehold) and Other Legislation Amendment Act 2014 : 22.890 Acts Interpretation Act 1954: 1.350 s 14A: 1.360 s 14B: 1.370 s 15A: 1.220 14D 14D: 1.315 Anti-Discrimination Act 1991 s 158: 1.900 s 164AA: 1.900 Bail Act 1980 : 32.270 Carriage of Goods by Land (Carriers’ Liabilities) Act 1967: 21.470 Carriage of Goods by Land (Carriers’ Liabilities) Repeal Act 1993: 21.470

Commercial Arbitration Act 1990: 1.850 Commercial Arbitration Act 2013 s 1(1): 1.850 s 1(3): 1.850 s 6: 1.850 ss 6 to 9: 1.850 s 7(1): 1.850 s 7(2): 1.850 s 7(3): 1.850 s 7(4) to (8): 1.850 s 8(1): 1.850 s 10(1): 1.850 s 10(2): 1.850 s 11(2): 1.850 s 11(3)(a): 1.850 s 11(3)(b): 1.850 s 17(1) to (2): 1.850 s 17(2)(a): 1.850 s 17(2)(c): 1.850 s 17(2)(d): 1.850 s 17H: 1.850 s 27(1): 1.850 s 27(2): 1.850 s 27A(1): 1.850 s 27E(1): 1.850 s 31(1): 1.850 s 31(3): 1.850 s 33A: 1.850 s 34(1): 1.850

Table of Statutes

Commercial Arbitration Act 2013 — cont s 34(2): 1.850 s 34(2)(a): 1.850 s 34(2)(a)(i): 1.850 s 34(2)(a)(ii): 1.850 s 34(2)(a)(iv): 1.850 s 34(2)(a)(iii): 1.850 s 34(2)(b): 1.850 s 34(2)(b)(i): 1.850 s 34(2)(b)(ii): 1.850 s 34(3): 1.850 s 34A(1): 1.850 s 36: 1.850 s 36(1): 1.850 s 36(1)(a)(v): 1.850 Construction and Tourism (Red Tape Reduction) and Other Legislation Amendment Act 2014 s 52: 13.860 Consumer Credit (Queensland) Act 1994: 19.30 Credit (Commonwealth Powers) Act 2010: 19.40 Criminal Code 1899: 32.190, 32.350 s 3: 32.220 s 29(1): 32.430 s 29(2): 32.430 s 87: 32.470 s 120: 16.270 s 140: 16.270 s 276: 21.370 s 302(1)(a): 32.350 s 391(2): 32.530 s 408C: 32.520 s 442A: 32.470 s 442B: 32.470 s 552A: 32.230 s 552B: 32.230 ss 614 to 615E: 32.320 s 678B: 32.315 s 678C: 32.315 Ch 5: 32.350 Criminal Proceeds Confiscation Act 2002: 32.470 Debt Collectors (Field Agents and Collection Agents) Act 2014 s 14: 13.860 s 26: 13.440 Defamation Act 2005: 28.850 s 6(2): 28.850 s 7: 28.850 s 8: 28.850 s 9: 28.850 s 20: 28.940 s 22: 28.850

s 24: 28.860 s 25: 28.870 s 26: 28.870 s 27: 28.880 s 28: 28.890 s 29: 28.890 s 30(1): 28.900 s 30(3): 28.900 s 31: 28.910 s 33: 28.920 s 34: 28.950 s 35: 28.950 s 36: 28.950 s 37: 28.950 s 38: 28.950 Pt 3, Div 1: 28.940 Disposal of Uncollected Goods Act 1967: 21.380 Dispute Resolution Centres Act 1990 s 35(1): 1.950 District Court of Queensland Act 1967 s 68(2): 1.620 Electronic Transactions (Queensland) Act 2001: 16.30 s 7: 16.30 s 8: 16.40 ss 9 to 13: 16.50 ss 14 to 15: 16.60 ss 16 to 18: 16.70 ss 19 to 21: 16.90 ss 22 to 25: 16.140 s 23: 16.100 s 24: 16.110 s 26: 16.150 s 26(2): 16.150 Evidence Act 1977 s 95: 16.230 Factors Act 1892: 13.790 Fair Trading Act 1989 s 16(1): 17.20 s 56: 14.1160 Fair Trading (Australian Consumer Law) Amendment Act 2010 s 18: 14.1160 Financial Sector Reform (Queensland) Act 1999: 24.960 Financial Transaction Reports Act 1992: 24.930 Jury Act 1995 s 42: 32.320 s 59A: 32.320 Land Act 1994

: 22.890 Land Title Act 1994: 22.490 s 42(1): 22.490 s 56: 22.460 ss 132 to 135: 13.100 Law Reform Act 1995 s 10: 12.250, 28.560 s 17: 6.20 s 18: 6.190 Legal Profession Act 2007 s 323: 8.270 Limitation of Actions Act 1974: 12.410 s 10(1)(a): 12.410 s 10(3): 12.410 s 13: 12.410 Local Government Act 2009 s 28(1): 1.430 Magistrates Courts Act 1921 s 2: 1.630 s 4: 1.630 Mineral Resources Act 1989 s 8: 22.330 Motor Accident Insurance Act 1994 Pt 3: 25.1170 Motor Dealers and Chattel Auctioneers Act 2014 s 33: 13.860 s 88: 13.440 s 99: 17.1410 s 110: 17.1410 s 115: 17.1410 s 132: 13.440 s 145: 17.1410 Pt 4: 14.1110 Sch 1, s 12: 17.1410 Native Title (Queensland) Act 1993: 22.930 Partnership Act 1891: 26.10 s 3: 26.30, 26.190 s 5: 26.30 s 6: 26.80, 26.130 s 8: 26.350 s 10: 26.370 s 11: 26.370 s 12: 26.380 s 13: 26.440 s 14: 26.460 s 15: 26.440 s 16: 26.480 s 17: 26.380, 26.430 s 18: 26.380 s 19: 26.380 s 20: 26.390, 26.400 s 21: 26.280

lxxi

lxxii

Australian Commercial Law

Partnership Act 1891 — cont s 23: 26.300 s 25: 26.310 s 26: 26.340 s 27: 26.220 s 28: 26.230 s 29: 26.270 s 30: 26.290 s 31: 26.260 s 32: 26.260 s 33: 26.260 s 34: 26.610 s 37: 26.500 s 38: 26.520 s 39: 26.400 s 40: 26.410 s 41: 26.530 s 42: 26.560 s 43: 26.540 s 44: 26.550 s 45: 26.570 s 47: 26.590 s 48: 26.10 Ch 3: 26.10, 26.620 Ch 4: 26.10, 26.650 Personal Injuries Proceedings Act 2002: 28.80 Personal Property Securities (Commonwealth Powers) Act 2009: 19.910 Petroleum Act 1923 s 9: 22.330 s 10: 22.330 Police Powers and Responsibilities Act 2000 Ch 14: 32.220 Property Agents and Motor Dealers Act 2000: 22.870 Property Law Act 1974: 22.800 s 11: 29.310 s 35: 22.460 s 45(1): 5.180 s 47(3): 5.180 s 55: 10.20, 29.100 s 56: 5.340, 20.30 s 59: 5.330 s 85(1): 22.630 s 124: 22.830 s 199: 10.160 s 209: 29.330 s 222: 29.340 s 237(1): 22.480 ss 241 to 249: 22.480 Property Occupations Act 2014 s 26: 13.860 s 89: 13.440

Public Interest Disclosure Act 2010: 32.480 Queensland Civil and Administrative Tribunal Act 2009: 1.700 s 11: 1.690 Sch 3: 1.690 Racing Act 2002 s 341: 8.160 s 342: 8.160 Residential Tenancies and Rooming Accommodation Act 2008: 22.800, 22.870 Retail Shop Leases Act 1994: 22.800, 22.860 Sale of Goods Act 1896: 14.10 s 3: 14.30, 14.140, 14.870 s 4: 14.20 s 5: 6.180, 14.70 s 5(3): 6.40 s 9: 7.90, 14.160, 14.610 s 10: 14.160, 14.610 s 11: 14.170 s 12: 14.170 s 13: 14.210 s 14: 14.400 s 15: 14.230 s 16: 14.240, 14.260 s 17: 14.270, 14.290 s 18: 14.380 ss 19 to 20: 14.440 s 21: 14.440 s 22: 14.540 s 23: 14.610 s 24: 14.640 s 25: 14.680 s 27: 14.700, 14.710 s 29: 14.760 ss 29 to 30: 14.830 s 30: 14.170, 14.760 s 31: 14.770 s 32: 14.790 s 33: 14.800 s 34: 14.770, 14.820 s 36: 14.830 s 37: 14.830 s 38: 14.830 s 40: 14.850 s 41: 14.880 ss 42 to 44: 14.870 s 45: 14.890 s 46: 14.900 s 47: 14.910 s 48: 14.910, 14.920 s 49: 14.930 s 50: 14.960 s 51: 14.970 s 52: 14.1090 s 54: 14.1040

s 56: 14.390 s 59: 14.1110 s 61(2): 14.10 Sale of Goods (Vienna Convention) Act 1986 s 5: 15.20 s 6: 15.20 Statute of Frauds 1972 s 3: 14.180 s 3(1): 5.320 Storage Liens Act 1973 : 22.280 Succession Act 1981 s 10: 29.260, 29.310 s 68: 29.600 Torres Strait Islander Land Act 1991: 22.890 : 22.890 Transport Infrastructure Act 1994 s 248: 21.500 Travel Agents Act 1988: 13.860 Traveller Accommodation Providers (Liability) Act 2001: 21.610 s 12(2): 21.610 s 12(3): 21.610 s 13(2): 21.610 s 14: 21.610 s 15: 21.610 Trusts Act 1973: 29.600 s 12(1): 29.380 ss 21 to 24: 29.410 s 57: 29.550 s 62: 29.580 s 76: 29.650 s 77: 29.630 s 80: 29.390 s 96: 29.640 s 101: 29.600 Work Health and Safety Act 2011: 34.380, 34.390, 34.400 Workers’ Compensation and Rehabilitation Act 2003: 25.1150, 34.370, 34.410 Workplace Health and Safety Act 2011: 34.370, 34.400

SOUTH AUSTRALIA Acts Interpretation Act 1915: 1.350 s 7: 1.220 s 22: 1.360 19A 19A: 1.315 Age of Majority (Reduction) Act 1971

Table of Statutes

Age of Majority (Reduction) Act 1971 — cont s 3(1): 6.20 Bail Act 1985 : 32.270 Civil Aviation (Carriers’ Liability) Act 1962: 21.530 Civil Liability Act 1936: 28.80 s 3: 28.80 s 4: 28.80 s 4(4): 28.80 s 32(1): 28.390 s 32(2): 28.390 s 34(1)(a): 28.500 s 34(1)(b): 28.510 s 36: 28.110, 28.170 s 37: 28.570 s 38: 28.110, 28.170 s 41: 28.80, 28.250, 28.470 s 42: 28.80, 28.170 s 44: 28.560 s 46: 28.160, 28.560 s 47: 28.570 s 47(1): 28.560 s 52: 28.80 s 53: 28.90 s 53(1): 28.90 s 54: 28.80 s 67: 28.80 Pt 9, Div 11A: 28.80 Civil Liability Act 1936 : 28.570 Commercial Arbitration Act 2011: 1.850 s 1(1): 1.850 s 1(3): 1.850 s 6: 1.850 ss 6 to 9: 1.850 s 7(1): 1.850 s 7(2): 1.850 s 7(3): 1.850 s 7(4) to (8): 1.850 s 8(1): 1.850 s 10(1): 1.850 s 10(2): 1.850 s 11(2): 1.850 s 11(3)(a): 1.850 s 11(3)(b): 1.850 s 17(1) to (2): 1.850 s 17(2)(a): 1.850 s 17(2)(c): 1.850 s 17(2)(d): 1.850 s 17H: 1.850 s 27(1): 1.850 s 27(2): 1.850 s 27A(1): 1.850 s 27E(1): 1.850 s 31(1): 1.850

s 31(3): 1.850 s 33A: 1.850 s 34(1): 1.850 s 34(2): 1.850 s 34(2)(a): 1.850 s 34(2)(a)(i): 1.850 s 34(2)(a)(ii): 1.850 s 34(2)(a)(iv): 1.850 s 34(2)(a)(iii): 1.850 s 34(2)(b): 1.850 s 34(2)(b)(i): 1.850 s 34(2)(b)(ii): 1.850 s 34(3): 1.850 s 34A(1): 1.850 s 36: 1.850 s 36(1): 1.850 s 36(1)(a)(v): 1.850 Constitution Act 1934 s 41: 1.220 Credit (Commonwealth Powers) Act 2010: 19.40 Criminal Law Consolidation Act 1935: 32.180 s 85: 25.540 s 139: 32.520 s 243: 16.270 s 274(2): 32.230 s 336: 32.315 s 337: 32.315 Defamation Act 2005: 28.850 s 6(2): 28.850 s 7: 28.850 s 8: 28.850 s 9: 28.850 s 20: 28.940 s 24: 28.860 s 25: 28.870 s 26: 28.870 s 27: 28.880 s 28: 28.890 s 29: 28.890 s 30(1): 28.900 s 30(3): 28.900 s 31: 28.910 s 33: 28.920 s 34: 28.950 s 35: 28.950 s 36: 28.950 s 37: 28.950 s 38: 28.950 Pt 3, Div 1: 28.940 District Court Act 1991 s 8: 1.620 Dust Diseases Act 2005 s 8(2): 28.100 Electronic Transactions Act 2000: 16.30

s 6: 16.30 s 7: 16.40 s 8: 16.50 s 9: 16.60 s 10: 16.70 s 11: 16.90 s 13: 16.100 s 13A: 16.110 s 13B: 16.140 s 16: 16.150 s 16(2): 16.150 Employment Agents Registration Act 1993 s 6: 13.860 Equal Opportunity Act 1984 s 27: 1.900 s 95: 1.900 Evidence Act 1929 s 34C: 16.230 Fair Trading Act 1987 s 14(1): 17.20 s 28: 14.1160 Financial Sector Reform (South Australia) Act 1999: 24.960 Financial Transactions Reports (State Provisions) Act 1992: 24.930 Frustrated Contracts Act 1988: 11.500, 14.160 s 3(2): 11.500 s 4(2): 11.500 s 6: 11.500 s 7(1): 11.500 s 7(2): 11.500 s 7(4): 11.500 s 7(5): 11.500 Juries Act 1927 s 7: 32.320 s 57: 32.320 Land Agents Act 1994 s 6(1): 13.860 s 6(2): 13.440 Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001: 12.250, 28.560 s 7: 28.560 Law of Property Act 1936 s 15: 10.160 s 26(1): 5.330 s 29: 29.310 s 41(1): 5.180 ss 61 to 62: 29.330, 29.340 ss 92 to 111: 6.190 s 104: 13.190

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Licensing Act 1967 s 120: 21.620 Limitation of Actions Act 1936: 12.410, 28.845 s 4: 12.410 s 34: 12.410 s 35(a): 12.410 Liquor Licensing Act 1985: 21.620 Liquor Licensing Act 1997: 21.620 Lottery and Gaming Act 1936 s 50: 8.160 s 50A: 8.160 Magistrates Court Act 1991 s 3: 1.690 s 8: 1.630 s 38: 1.690 Maralinga Tjarutja Land Rights Act 1984: 22.890 Mercantile Law Act 1936: 13.790 Mining Act 1971 s 16: 22.330 Minors Contracts (Miscellaneous Provisions) Act 1979: 6.160, 26.180 s 4: 6.160 s 5: 6.160, 20.100 s 6: 6.160 s 7: 6.160 s 8: 6.160 Misrepresentation Act 1972: 7.640 s 6(1): 7.660 s 6(1)(b): 14.830 s 6(2): 7.660 s 7: 7.650 s 7(1): 7.640 s 7(2): 7.640 s 7(3): 7.660 s 8: 7.660 s 11: 14.400, 14.1030 Motor Vehicles Act 1959 Pt 4: 25.1170 Native Title (South Australia) Act 1994: 22.930 Partnership Act 1891: 26.10 s 1: 26.30 s 2: 26.80, 26.130 s 4: 26.190 s 5: 26.350 s 7: 26.370 s 8: 26.370 s 9: 26.380 s 10: 26.440 s 11: 26.460 s 12: 26.440

s 13: 26.480 s 14: 26.380, 26.430 s 15: 26.380 s 16: 26.380 s 17: 26.390, 26.400 s 18: 26.280 s 20: 26.300 s 22: 26.310 s 23: 26.340 s 24: 26.220 s 25: 26.230 s 26: 26.270 s 27: 26.290 s 28: 26.260 s 29: 26.260 s 30: 26.260 s 31: 26.610 s 34: 26.500 s 35: 26.520 s 36: 26.400 s 37: 26.410 s 38: 26.530 s 39: 26.560 s 40: 26.540 s 41: 26.550 s 42: 26.570 s 44: 26.590 s 45: 26.30 s 46: 26.10 Pt 3: 26.10, 26.620 Pt 6: 26.10, 26.650 Personal Property Securities (Commonwealth Powers) Act 2000: 19.910 Petroleum Act and Geothermal Energy 2000 s 5: 22.330 Pitjantjatjara Land Rights Act 1981: 22.890 Powers of Attorney and Agency Act 1984 s 12: 13.740 Railways (Operations and Access) Act 1997 s 17: 21.500 Real Property Act 1886: 22.490, 22.800 s 74: 22.460 s 156: 13.100 Recreational Services (Limitation of Liability) Act 2002: 28.80 s 5: 28.170 Registration of Deeds Act 1935: 22.480 s 35: 13.100

Residential Tenancies Act 1995: 22.870 Retail and Commercial Leases Act 1995: 22.860 Sale of Goods Act 1895: 11.500, 14.10 s 1: 14.20 s 2: 14.70 s 2(1): 6.180 s 2(2): 6.40 s 6: 7.90, 14.160, 14.610 s 7: 14.160, 14.610 s 8: 14.170 s 9: 14.170 s 10: 14.210 s 11: 14.400 s 12: 14.230 s 13: 14.240, 14.260 s 14: 14.270, 14.290 s 15: 14.380 ss 16 to 17: 14.440 s 18: 14.440 s 19: 14.540 s 20: 14.610 s 20A: 14.537 s 21: 14.640 s 23: 14.680 s 25: 14.700, 14.710 s 27: 14.760 ss 27 to 28: 14.830 s 28: 14.170, 14.760 s 29: 14.770 s 30: 14.790 s 31: 14.800 s 32: 14.770, 14.820 s 34: 14.830 s 34(1): 14.830 s 35: 14.830 s 36: 14.830 s 38: 14.850 s 39: 14.880 ss 40 to 42: 14.870 s 43: 14.890 s 44: 14.900 s 45: 14.910 s 46: 14.910, 14.920 s 47: 14.930 s 48: 14.960 s 49: 14.970 s 50: 14.1090 s 52: 14.1040 s 54: 14.390 s 57: 14.1110 s 59(2): 14.10 s 60: 14.30, 14.140, 14.870 Sale of Goods (Vienna Convention) Act 1986 s 4: 15.20 s 5: 15.20

Table of Statutes

Second-Hand Dealers and Pawnbrokers Regulations 2013 reg 6: 14.1110 Second-hand Vehicle Dealers Act 1995 s 3: 17.1410 s 18B: 17.1410 ss 23 to 24: 17.1410 Security and Investigation Industry Act 1995 s 6: 13.860 South Australian Civil and Administrative Tribunal Act 2013: 1.700 Statutes Amendment (Enforcement of Contracts) Act 1982 s 3: 5.320, 5.340 s 4: 14.180 Statutes Amendment and Repeal (Australian Consumer Law) Act 2010 s 7: 14.1160 Summary Procedure Act 1921 s 5(3)(a): 32.230 s 107(3)(b)(ii): 32.230 Travel Agents Act 1986: 13.860 Travel Agents Repeal Act 2014: 13.860 Trustee Act 1936 ss 6 to 9: 29.410 s 14(1): 29.380 s 17: 29.470 s 33A: 29.580 s 36: 29.390 s 56: 29.650 s 91: 29.600, 29.640 Unclaimed Goods Act 1987: 21.380 Volunteers Protection Act 2001: 28.80 Whistleblowers Protection Act 1993: 32.480 Wills Act 1936 s 8: 29.260, 29.310 Work Health and Safety Act 2012: 34.390 WorkCover Corporation Act 1994: 25.1150, 34.410 Workers Rehabilitation and Compensation Act 1986: 25.1150, 34.410 Wrongs Act 1936

s 41: 28.470

TASMANIA Acts Interpretation Act 1931: 1.350 s 8A: 1.360 s 8B: 1.370 s 9: 1.220 Age of Majority Act 1973 s 3(1): 6.20 Australian Consumer Law (Tasmania) Act 2010 s 6(1): 17.20 s 45: 14.10 Pt 4: 22.860 Bail Act 1994 : 32.270 Civil Aviation (Carriers’ Liability) Act 1963: 21.530 Civil Liability Act 2002: 21.640, 28.80 s 3: 28.80 s 3B: 28.80 s 4: 28.80 s 11(1): 28.390 s 11(2): 28.390 s 12: 28.450 s 13(1)(a): 28.500 s 13(1)(b): 28.510 s 16: 28.570 s 17: 28.110, 28.170 s 20: 28.110, 28.170 s 21: 28.120 s 22: 28.80, 28.250, 28.470 s 23: 28.560 s 26: 28.80 ss 27 to 28: 28.80 s 34: 28.90 s 38: 28.170 s 42: 28.80, 28.170 s 49A(3): 21.640 Pt 2: 28.160, 28.560 Pt 6, Div 5: 28.80 Pt 8B: 28.80 Pt 9: 28.80, 28.120, 28.170, 28.250 Pt 10: 28.80 Commercial Arbitration Act 2011: 1.850 s 1(1): 1.850 s 1(3): 1.850 s 6: 1.850 ss 6 to 9: 1.850 s 7(1): 1.850 s 7(2): 1.850 s 7(3): 1.850 s 7(4) to (8): 1.850 s 8(1): 1.850

s 10(1): 1.850 s 10(2): 1.850 s 11(2): 1.850 s 11(3)(a): 1.850 s 11(3)(b): 1.850 s 17(1) to (2): 1.850 s 17(2)(a): 1.850 s 17(2)(c): 1.850 s 17(2)(d): 1.850 s 17H: 1.850 s 27(1): 1.850 s 27(2): 1.850 s 27A(1): 1.850 s 27E(1): 1.850 s 31(1): 1.850 s 31(3): 1.850 s 33A: 1.850 s 34(1): 1.850 s 34(2): 1.850 s 34(2)(a): 1.850 s 34(2)(a)(i): 1.850 s 34(2)(a)(ii): 1.850 s 34(2)(a)(iv): 1.850 s 34(2)(a)(iii): 1.850 s 34(2)(b): 1.850 s 34(2)(b)(i): 1.850 s 34(2)(b)(ii): 1.850 s 34(3): 1.850 s 34A(1): 1.850 s 36: 1.850 s 36(1): 1.850 s 36(1)(a)(v): 1.850 Common Carriers Act 1874: 21.450 Conveyancing and Law of Property Act 1884 s 35: 22.480 s 36(1): 5.330 s 60(2): 29.310 s 63(1): 5.180 s 86: 10.160 Credit (Commonwealth Powers) Act 2009: 19.40 Criminal Code 1924 s 18(1): 32.430 s 18(2): 32.430 s 99: 16.270 s 394: 32.315 Criminal Code Act 1924: 32.190 Sch 1, s 45: 21.370 Crown Lands Act 1976 s 16: 22.330 s 54: 22.330 Defamation Act 2005: 28.850 s 3: 28.920 s 6(2): 28.850 s 7: 28.850 s 8: 28.850

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Defamation Act 2005 — cont s 9: 28.850 s 20: 28.940 s 22: 28.850 s 24: 28.860 s 25: 28.870 s 26: 28.870 s 27: 28.880 s 28: 28.890 s 29: 28.890 s 30(1): 28.900 s 30(3): 28.900 s 31: 28.910 s 34: 28.950 s 35: 28.950 s 36: 28.950 s 37: 28.950 s 38: 28.950 Pt 3, Div 1: 28.940 Disposal of Uncollected Goods Act 1968: 21.380 Electronic Transactions Act 2000: 16.30 s 4: 16.30 s 5: 16.40 s 6: 16.50 s 7: 16.60 s 8: 16.70 s 9: 16.90 s 11: 16.100 s 11A: 16.110 s 11B: 16.140 s 12: 16.150 s 12(2): 16.150 Evidence Act 2001 s 48: 16.230 s 51: 16.230 Factors Act 1891: 13.790 Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998: 22.860 Financial Sector Reform (Tasmania) Act 1999: 24.960 Financial Transaction Reports Act 1993: 24.930 Juries Act 2003 s 43: 32.320 Land Titles Act 1980: 22.490, 22.800 s 44: 22.460 Legal Profession Act 2007 s 307: 8.270 Legislation Repeal Act 2000 s 3: 14.1160 Sch 1: 14.1160

Limitation Act 1974: 12.410 s 4(1)(a): 12.410 s 4(3): 12.410 s 10(1): 12.410 s 10(2): 12.410 Magistrates Court (Civil Division) Act 1992 s 3: 1.630, 1.690 s 7: 1.630 s 7(2): 1.690 Married Women’s Property Act 1935 s 3: 6.190 s 7: 6.190 s 11: 6.190 Mercantile Law Act 1935 s 6: 5.320, 5.330, 5.340, 20.30, 26.140 Mineral Resources Development Act 1995 s 6: 22.330 Minors Contracts Act 1988 s 4: 6.150 Mock Auctions Act 1973: 14.1160 Motor Accidents (Liabilities and Compensation) Act 1973 Pt IV: 25.1170 Motor Vehicle Traders Act 2011 ss 42 to 46: 17.1410 Native Title (Tasmania) Act 1994: 22.930 Partnership Act 1891: 26.10 s 4: 26.30 s 5: 26.10 s 6: 26.30 s 7: 26.80, 26.130 s 9: 26.190 s 10: 26.350 s 12: 26.370 s 13: 26.370 s 14: 26.380 s 15: 26.440 s 16: 26.460 s 17: 26.440 s 18: 26.480 s 19: 26.380, 26.430 s 20: 26.380 s 21: 26.380 s 22: 26.390, 26.400 s 23: 26.280 s 25: 26.300 s 27: 26.310 s 28: 26.340 s 29: 26.220 s 30: 26.230

s 31: 26.270 s 32: 26.290 s 33: 26.260 s 34: 26.260 s 35: 26.260 s 36: 26.610 s 39: 26.500 s 40: 26.520 s 41: 26.400 s 42: 26.410 s 43: 26.530 s 44: 26.560 s 45: 26.540 s 46: 26.550 s 47: 26.570 s 49: 26.590 Pt 3: 26.10, 26.620, 26.650 Perpetuities and Accumulations Act 1992 s 6(1): 29.330 s 22: 29.340 s 27(1): 29.340 Powers of Attorney Act 2000 s 11: 13.100 s 18: 13.100 s 52: 13.740 Property Agents and Land Transactions Act 2005 s 5: 13.860 s 18: 13.440 s 42: 14.1160 Public Interest Disclosures Act 2002: 32.480 Racing Regulation Act 2004 s 103(1): 8.160 s 103(2): 8.160 Registration of Deeds Act 1935: 22.480 Residential Tenancy Act 1997: 22.870 Sale of Goods Act 1896: 14.10 s 3: 14.30, 14.140, 14.870 s 5(2): 14.10 s 6: 14.20 s 7: 14.70 s 7(1): 6.180 s 7(2): 6.40 s 9: 14.180 s 9(1): 5.340 s 9(3): 14.200 s 11: 7.90, 14.160, 14.610 s 12: 14.160, 14.610 s 13: 14.170 s 14: 14.170 s 15: 14.210 s 16: 14.400 s 17: 14.230

Table of Statutes

Sale of Goods Act 1896 — cont s 18: 14.240, 14.260 s 19: 14.270, 14.290 s 20: 14.380 ss 21 to 22: 14.440 s 23: 14.440 s 24: 14.540 s 25: 14.610 s 26: 14.640 s 28: 14.680 s 30: 14.700, 14.710 s 32: 14.760 ss 32 to 33: 14.830 s 33: 14.170, 14.760 s 34: 14.770 s 35: 14.790 s 36: 14.800 s 37: 14.770, 14.820 s 39: 14.830 s 40: 14.830 s 41: 14.830 s 43: 14.850 s 44: 14.880 ss 45 to 47: 14.870 s 48: 14.890 s 49: 14.900 s 50: 14.910 s 51: 14.910, 14.920 s 52: 14.930 s 53: 14.960 s 54: 14.970 s 55: 14.1090 s 57: 14.1040 s 59: 14.390 s 62: 14.1110 Sale of Goods (Vienna Convention) Act 1987 s 5: 15.20 s 6: 15.20 Security and Investigations Agents Act 2002 s 4: 13.860 Supreme Court Act 1933 s 393: 32.315 Testators Family Maintenance Act 1912 : 28.380 Travel Agents Act 1987: 13.860 Travel Agents Repeal Act 2014: 13.860 Trustee Act 1898 ss 6 to 9: 29.410 s 13(1): 29.380 s 25AA: 29.470 s 29: 29.580 s 32: 29.390 s 50: 29.650

s 53: 29.630 s 58: 29.600 Wills Act 2008 s 8: 29.260, 29.310 Work Health and Safety Act 2011: 34.390 Workers Rehabilitation and Compensation Act 1988: 25.1150, 34.410 Wrongs Act 1954 s 4: 12.250, 28.560 s 44: 28.560

VICTORIA Aboriginal Lands Act 1970: 22.890 Accident Compensation Act 1985: 25.1150 Accident Compensation (WorkCover Insurance) Act 1993: 25.1150, 34.410 Age of Majority Act 1977 s 3(1): 6.20 Auction Sales Act 1958: 13.860 Auction Sales (Repeal) Act 2001 s 3: 13.860 Australian Consumer Law and Fair Trading Act 2012: 7.680, 11.485, 14.160, 21.600 s 11(1): 17.20 s 24(1): 7.680 s 25(2): 7.680 s 31: 14.10 s 32(2): 20.100 s 32(3): 20.100 s 36(1): 11.485 s 36(1)(c): 11.485 s 37: 11.485 s 38(1) to (2): 11.485 s 38(3): 11.485 s 40: 11.485 s 41: 11.485 ss 54 to 77: 21.380 s 100: 21.600 s 101(1): 21.600 s 101(2): 21.600 s 102(1): 21.600 s 102(2)(c): 21.600 s 103(4): 21.600 s 104: 21.600 s 105: 21.670 ss 182 to 185: 1.690 s 235: 21.450 Sch 3: 21.600 Bail Act 1977

: 32.270 Carriers and Innkeepers Act 1958: 21.450 Civil Aviation (Carriers’ Liability) Act 1961: 21.530 Commercial Arbitration Act 2011: 1.850 s 1(1): 1.850 s 1(3): 1.850 s 6: 1.850 ss 6 to 9: 1.850 s 7(1): 1.850 s 7(2): 1.850 s 7(3): 1.850 s 7(4) to (8): 1.850 s 8(1): 1.850 s 10(1): 1.850 s 10(2): 1.850 s 11(2): 1.850 s 11(3)(a): 1.850 s 11(3)(b): 1.850 s 17(1) to (2): 1.850 s 17(2)(a): 1.850 s 17(2)(c): 1.850 s 17(2)(d): 1.850 s 17H: 1.850 s 27(1): 1.850 s 27(2): 1.850 s 27A(1): 1.850 s 27E(1): 1.850 s 31(1): 1.850 s 31(3): 1.850 s 33A: 1.850 s 34(1): 1.850 s 34(2): 1.850 s 34(2)(a): 1.850 s 34(2)(a)(i): 1.850 s 34(2)(a)(ii): 1.850 s 34(2)(a)(iv): 1.850 s 34(2)(a)(iii): 1.850 s 34(2)(b): 1.850 s 34(2)(b)(i): 1.850 s 34(2)(b)(ii): 1.850 s 34(3): 1.850 s 34A(1): 1.850 s 36: 1.850 s 36(1): 1.850 s 36(1)(a)(v): 1.850 Constitution Act 1975 ss 65A to 65G: 1.220 County Court Act 1958 s 37: 1.620 Credit (Commonwealth Powers) Act 2010: 19.40 Crimes Act 1958: 32.180 s 72(1): 32.530 s 73(4): 32.530

lxxvii

lxxviii

Australian Commercial Law

Crimes Act 1958 — cont s 81: 32.520 s 82: 32.520 s 254: 16.270 Criminal Procedure Act 2009 s 327L: 32.315 s 327M: 32.315 Defamation Act 2005: 28.850 s 6(2): 28.850 s 7: 28.850 s 8: 28.850 s 9: 28.850 s 20: 28.940 s 22: 28.850 s 24: 28.860 s 25: 28.870 s 26: 28.870 s 27: 28.880 s 28: 28.890 s 29: 28.890 s 30(1): 28.900 s 30(3): 28.900 s 31: 28.910 s 33: 28.920 s 34: 28.950 s 35: 28.950 s 36: 28.950 s 37: 28.950 s 38: 28.950 Pt 3, Div 1: 28.940 Electronic Transactions (Victoria) Act 2000: 16.30 s 6: 16.30 s 7: 16.40 s 8: 16.50 s 9: 16.60 s 10: 16.70 s 11: 16.90 s 13: 16.100 s 13A: 16.110 s 13B: 16.140 s 14: 16.150 s 14(2): 16.150 Equal Opportunity Act 2010 s 112: 1.900 Estate Agents Act 1980 s 12: 13.860 s 49A: 13.440 s 50: 13.440 Evidence Act 2008 s 51: 16.230 Factories and Shops Act 1876: 34.370 Fair Trading Act 1999 ss 30 to 31: 14.1160

Fair Trading Amendment (Australian Consumer Law) Act 2010 s 9: 14.1160

Instruments Act 1958 s 126: 5.320, 20.30 s 126(1): 5.330

Financial Sector Reform (Victoria) Act 1999: 24.960

Interpretation of Legislation Act 1984: 1.350 s 10A(3): 1.220 s 35: 1.360, 1.370 36(3A) 36(3A): 1.315

Gambling Regulation Act 2003 s 2.4.1: 8.160 Goods Act 1958: 11.485, 14.10 s 3: 14.30, 14.140, 14.870 s 4(2): 14.10 s 6: 14.20 s 7: 6.40, 6.180, 14.70 s 11: 7.90, 14.160, 14.610 s 12: 14.160, 14.610 s 13: 14.170 s 14: 14.170 s 15: 14.210 s 16: 14.400 s 17: 14.230 s 18: 14.240, 14.260 s 19: 14.270, 14.290 s 20: 14.380 ss 21 to 22: 14.440 s 23: 14.440 s 24: 14.540 s 25: 14.610 s 25A: 14.537 s 27: 14.640 s 29: 14.680 s 30: 14.700, 14.710 s 31: 14.700, 14.710 s 34: 14.760 ss 34 to 35: 14.830 s 35: 14.170, 14.760 s 36: 14.770 s 37: 14.790 s 38: 14.800 s 39: 14.770, 14.820 s 41: 14.830 s 41(1): 14.830 s 42: 14.830 s 43: 14.830 s 45: 14.850 s 46: 14.880 ss 47 to 49: 14.870 s 50: 14.890 s 51: 14.900 s 52: 14.910 s 53: 14.910, 14.920 s 54: 14.930 s 55: 14.960 s 56: 14.970 s 57: 14.1090 s 59: 14.1040 s 61: 14.390 s 64: 14.1110 ss 65 to 72: 13.790 s 86: 15.20 s 87: 15.20

Juries Act 2000 s 39: 32.320 s 46: 32.320 Land Titles Validation Act 1994: 22.930 Legal Profession Uniform Law s 181: 8.270 Legal Profession Uniform Law Application Act 2014 s 4: 8.270 Limitation of Actions Act 1958: 12.410 s 5(1)(a): 12.410 s 5(3): 12.410 s 8: 12.410 Local Government (Decentralised Industries) Act 1963: 9.270 Magistrates’ Court Act 1989 s 3(1): 1.630 s 100: 1.630 Marriage Act 1958 ss 156 to 161: 6.190 Mineral Resources (Sustainable Development) Act 1990 s 9: 22.330 Motor Car Traders Act 1986 s 43: 17.1410 s 50D: 14.1160 ss 54 to 55: 17.1410 Occupational Health and Safety Act 2004: 34.390 Partnership Act 1958: 26.10 s 3: 26.30 s 4: 26.10 s 5: 26.30 s 6: 26.80, 26.130 s 8: 26.190 s 9: 26.350 s 11: 26.370 s 12: 26.370 s 13: 26.380 s 14: 26.440 s 15: 26.460 s 16: 26.440 s 17: 26.480 s 18: 26.380, 26.430

Table of Statutes

Partnership Act 1958 — cont s 19: 26.380 s 20: 26.380 s 21: 26.390, 26.400 s 22: 26.280 s 24: 26.300 s 26: 26.310 s 27: 26.340 s 28: 26.220 s 29: 26.230 s 30: 26.270 s 31: 26.290 s 32: 26.260 s 33: 26.260 s 34: 26.260 s 35: 26.610 s 38: 26.500 s 39: 26.520 s 40: 26.400 s 41: 26.410 s 42: 26.530 s 43: 26.560 s 44: 26.540 s 45: 26.550 s 46: 26.570 s 48: 26.590 Pt 3: 26.10, 26.620 Pt 5: 26.10, 26.650 Perpetuities and Accumulations Act 1968 s 5: 29.330 s 19: 29.340 Personal Property Securities (Commonwealth Powers) Act 2009: 19.910

s 9: 14.180 Supreme Court Act 1986 s 49: 6.120, 6.130 s 51: 6.130 Transfer of Land Act 1958: 22.490, 22.800 s 30(2): 22.460

Acts Amendment and Repeal (Financial Sector Reform) Act 1999: 24.960

Transport Act 1983: 28.170 s 49: 21.500

Age of Majority Act 1972 s 5(1): 6.20

Transport (Amendment) Act 2000 s 9: 21.500

Auction Sales Act 1973: 14.1110 s 25: 14.1160

Transport (Highway Rule) Act 2002: 28.170

Bail Act 1982 : 32.270

Travel Agents Act 1986: 13.860

Carriers Act 1920: 21.450

Travel Agents Repeal Act 2014: 13.860

Chattel Securities Act 1987: 14.650

Trustee Act 1958 ss 6 to 8: 29.410 s 38: 29.580 s 41(1): 29.380 s 48: 29.390 s 67: 29.650 s 68: 29.630 s 77: 29.600 Victorian Civil and Administrative Tribunal Act 1998: 1.700 Wills Act 1997 s 7: 29.260, 29.310 Workplace Accident Compensation Act 1985: 34.410

Powers of Attorney Act 2014 ss 14 to 15: 13.740 s 75: 13.740 Pt 2: 13.100

Wrongs Act 1958: 28.80 s 14G: 28.160, 28.560 s 26: 12.250, 28.560 s 28F: 28.80 s 28G: 28.80 s 28H: 28.80 s 32(2): 8.270 ss 34 to 37: 28.80 s 43: 28.80 s 44: 28.80 s 45: 28.80 s 48(1): 28.390 s 48(2): 28.390 s 49: 28.450 s 51(1)(a): 28.500 s 51(1)(b): 28.510 s 54: 28.570 s 59: 28.80, 28.250, 28.470 s 60: 28.80, 28.250, 28.470 s 62: 28.560 s 63: 28.560 s 73: 28.90

Protected Disclosure Act 2012: 32.480 Residential Tenancies Act 1997: 22.870 Retail Leases Act 2003: 22.860 Sale of Goods (Vienna Convention) Act 1987 s 8: 5.320

WESTERN AUSTRALIA

Transport Accident Act 1986 Pt 3: 25.1170

Petroleum Act 1998 s 13: 22.330

Property Law Act 1958 s 44(1): 22.480 s 53: 29.310 s 73(1): 5.180 s 134: 10.160 s 146: 22.830 Pt 1: 22.480

s 83: 28.170 Pt XXII: 28.80, 28.120, 28.170, 28.250 Pt XI: 28.90 Pt VBA: 28.80

Civil Aviation (Carriers’ Liability) Act 1961: 21.530 Civil Judgments Enforcement Act 2004 s 14(4): 26.340 Civil Liability Act 2002: 28.80 s 3: 28.80 s 5B(1): 28.390 s 5B(2): 28.390 s 5C(1)(a): 28.500 s 5C(1)(b): 28.510 s 5H: 28.110, 28.170 s 5K: 28.560 s 5L: 28.160, 28.560 s 5N: 28.570 s 5O: 28.110, 28.170 s 5W: 28.170 s 5Z: 28.170 s 5PB(1): 28.450 s 6: 28.80 ss 9 to 10A: 28.80 s 11: 28.80 s 52: 28.80 Pt 1A, Div 4: 28.80 Pt 1B: 28.90 Pt 1C: 28.80, 28.120, 28.170, 28.250 Commercial Arbitration Act 2012: 1.850 s 1(1): 1.850 s 1(3): 1.850 s 6: 1.850 ss 6 to 9: 1.850 s 7(1): 1.850 s 7(2): 1.850 s 7(3): 1.850 s 7(4) to (8): 1.850

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Australian Commercial Law

Commercial Arbitration Act 2012 — cont s 8(1): 1.850 s 10(1): 1.850 s 10(2): 1.850 s 11(2): 1.850 s 11(3)(a): 1.850 s 11(3)(b): 1.850 s 17(1) to (2): 1.850 s 17(2)(a): 1.850 s 17(2)(c): 1.850 s 17(2)(d): 1.850 s 17H: 1.850 s 27(1): 1.850 s 27(2): 1.850 s 27A(1): 1.850 s 27E(1): 1.850 s 31(1): 1.850 s 31(3): 1.850 s 33A: 1.850 s 34(1): 1.850 s 34(2): 1.850 s 34(2)(a): 1.850 s 34(2)(a)(i): 1.850 s 34(2)(a)(ii): 1.850 s 34(2)(a)(iv): 1.850 s 34(2)(a)(iii): 1.850 s 34(2)(b): 1.850 s 34(2)(b)(i): 1.850 s 34(2)(b)(ii): 1.850 s 34(3): 1.850 s 34A(1): 1.850 s 36: 1.850 s 36(1): 1.850 s 36(1)(a)(v): 1.850

s 7: 28.850 s 8: 28.850 s 9: 28.850 s 20: 28.940 s 22: 28.850 s 24: 28.860 s 25: 28.870 s 26: 28.870 s 27: 28.880 s 28: 28.890 s 29: 28.890 s 30(1): 28.900 s 30(3): 28.900 s 31: 28.910 s 33: 28.920 s 34: 28.950 s 35: 28.950 s 36: 28.950 s 37: 28.950 s 38: 28.950 Pt 3, Div 1: 28.940 Disposal of Uncollected Goods Act 1970: 21.380 District Court of Western Australia Act 1969 s 6(1): 1.620 s 50: 1.620

Credit (Commonwealth Powers) Act 2010: 19.40

Electronic Transactions Act 2011: 16.30 s 6: 16.30 s 8: 16.40 s 9: 16.50 s 10: 16.60 s 11: 16.70, 16.90 s 13: 16.100 s 14: 16.110, 16.150 s 14(2): 16.150 s 15: 16.140

Criminal Appeals Act 2004 s 46I: 32.315 s 46J: 32.315

Employers’ Indemnity Supplementation Fund Act 1954: 34.410

Criminal Code 1913: 32.190 s 29: 32.430 s 132: 16.270 s 253: 21.370 s 371(2): 32.530 s 409: 32.520

Employment Agents Act 1976 s 12: 13.860

Criminal Investigation Act 2006 Pt 12: 32.220

Evidence Act 1906 ss 73A to 73U: 16.230

Criminal Procedure Act 2004 s 114: 32.320 ss 117 to 120: 32.320

Factors 1842 Imperial Act 5 & 6 Vict, c 39: 13.790

Commercial Tenancy (Retail Shops) Agreements Act 1985: 22.860

Debt Collectors Licensing Act 1964 s 5: 13.860 Defamation Act 2005: 28.850 s 6(2): 28.850

Equal Opportunity Act 1984 s 91: 1.900 s 92: 1.900

Factors’ Acts Amendment Act 1878: 13.790 Fair Trading Act 2010 s 11(1): 17.20 s 35: 14.10

Financial Transaction Reports Act 1995: 24.930 Gaming and Betting (Contracts and Securities) Act 1985 s 4: 8.160 s 5: 8.160 Government Railways Act 1904 s 2: 21.500 s 37(3): 21.500 Interpretation Act 1984: 1.350 s 18: 1.360 s 19: 1.370 s 20: 1.220 s 67(1): 32.220 s 67(1a): 32.220 Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 ss 3A to 4: 12.250 s 4: 28.560 Law Reform (Miscellaneous Provisions) Act 1941 ss 2 to 3: 6.190 Law Reform (Statute of Frauds) Act 1962 s 2: 5.320, 5.330, 20.30 Legal Profession Act 2008 s 283: 8.270 Limitation Act 2005: 12.410 s 13: 12.410 s 18: 12.410 s 19: 12.410 Limited Partnerships Act 1909: 26.10, 26.620 Liquor Act 1970: 21.630 s 173(1): 21.630 Liquor Control Act 1988 s 107: 21.630 Liquor Licensing Act 1988 s 3(1): 21.630 s 176: 21.630 Magistrates Court (Civil Proceedings) Act 2004 s 3: 1.690 s 4: 1.630 s 6(1): 1.630 s 26: 1.690 Mining Act 1978 s 9: 22.330 Motor Vehicle Dealers Act 1973 ss 34 to 35: 17.1410

Table of Statutes

Motor Vehicle Repairers Act 2003: 17.1420

s 124: 7.390 s 125: 7.390

Motor Vehicle (Third Party Insurance) Act 1943: 25.1170

Public Interest Disclosure Act 2003: 32.480

Partnership Act 1895: 26.10 s 3: 26.30 s 6: 26.10 s 7: 26.30 s 8: 26.80, 26.130 s 10: 26.190 s 14: 26.370 s 15: 26.370 s 16: 26.380 s 17: 26.440 s 18: 26.460 s 19: 26.440 s 20: 26.480 s 21: 26.380, 26.430 s 22: 26.380 s 23: 26.380 s 24: 26.390, 26.400 s 25: 26.280 s 26: 26.350 s 30: 26.300 s 32: 26.310 s 33: 26.310 s 34: 26.220 s 35: 26.230 s 36: 26.230 s 37: 26.270 s 38: 26.290 s 39: 26.260 s 40: 26.260 s 41: 26.260 s 42: 26.610 s 45: 26.500 s 46: 26.520 s 47: 26.400 s 48: 26.410 s 49: 26.530 s 50: 26.560 s 53: 26.540 s 54: 26.550 s 55: 26.570 s 57: 26.590

Real Estate and Business Agents Act 1978 s 26: 13.860 s 60: 13.440

Petroleum and Geothermal Energy Resources Act 1967 s 9: 22.330 Property Law Act 1969 s 9(1): 5.180 s 11(1): 29.100 s 11(2): 10.20 s 11(3): 10.20 s 20: 10.160 s 34: 29.310 s 34(1): 5.330 s 85: 13.100 s 101: 29.330 s 113: 29.340

Registration of Deeds Act 1856: 22.480 Residential Tenancies Act 1987: 22.870 Sale of Goods Act 1895: 14.10 s 1: 14.20 s 2: 14.70 s 2(1): 6.180 s 2(2): 6.40 s 4: 14.180 s 4(1): 5.340 s 4(3): 14.200 s 6: 14.160, 14.610 s 7: 14.160, 14.610 s 8: 14.170 s 9: 14.170 s 10: 14.210 s 11: 14.400 s 12: 14.230 s 13: 14.240, 14.260 s 14: 14.270, 14.290 s 15: 14.380 ss 16 to 17: 14.440 s 18: 14.440 s 19: 14.540 s 20: 14.610 s 21: 14.640 s 21(1): 14.650 s 23: 14.680 s 25: 14.700, 14.710 s 27: 14.760 ss 27 to 28: 14.830 s 28: 14.170, 14.760 s 29: 14.770 s 30: 14.790 s 31: 14.800 s 32: 14.770, 14.820 s 34: 14.830 s 35: 14.830 s 36: 14.830 s 38: 14.850 s 39: 14.880 ss 40 to 42: 14.870 s 43: 14.890 s 44: 14.900 s 45: 14.910 s 46: 14.910, 14.920 s 47: 14.930 s 48: 14.960 s 49: 14.970

s 50: 14.1090 s 52: 14.1040 s 54: 14.390 s 57: 14.1110 s 59(2): 14.10 s 60: 14.30, 14.140, 14.870 Sale of Goods (Vienna Convention) Act 1986 s 5: 15.20 s 6: 15.20 Sale of Land Act 1970 s 22: 22.480 Statute Law Revision Act 2006: 21.450 Titles (Validation) and Native Title (Effect of Past Acts) Act 1995: 22.930 Transfer of Land Act 1893: 22.490, 22.800 s 60: 22.460 s 143: 13.100 s 144: 13.100 Travel Agents Act 1985: 13.860 Travel Agents Amendment and Expiry Act 2014 s 7: 13.860 Trustees Act 1962 s 7(1): 29.380 ss 17 to 20: 29.410 s 55: 29.550 s 59: 29.580 s 75: 29.650 s 77: 29.390 s 92: 29.640 s 98: 29.600 Volunteers (Protection from Liability) Act 2002: 28.80 Wills Act 1970 s 8: 29.260, 29.310 Workers’ Compensation and Injury Management Act 1981: 25.1150, 34.410

IMPERIAL Accumulation Act 1800 (39 & 40 Geo 111 c 98): 29.340 Australian Courts Act 1828: 1.470 Commonwealth of Australia Constitution Act 1900: 1.40, 1.60 Statute of Frauds 1677: 5.310, 5.320, 5.340, 5.360, 14.1110, 26.140

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Australian Commercial Law

Statute of Frauds 1677 — cont s 4: 5.320, 5.330, 20.30 Statute of Monopolies 1624: 30.1800 s 6: 30.1800 Statute of Westminster 1931: 1.470 s 4: 1.470 Thellusson Act: 29.340

UNITED STATES 47 Code of Federal Regulations s 73.682: 33.120 s 76.607: 33.120 Uniform Commercial Code Art 9: 19.900

UNITED KINGDOM Bills of Exchange Act 1882: 1.210 Companies Act 2006: 33.50 ss 172(1)(d) to (e): 33.50 Factories and Shops Act 1833: 34.370 Judicature Act 1873: 1.460 Marine Insurance Act 1906: 25.1220 Partnership Act 1890: 26.10, 26.60 Sale of Goods Act 1893: 1.210, 14.10

TREATIES AND CONVENTIONS Convention on Contracts for the International Sale of Goods 1980: 15.10, 15.20, 15.40, 15.70, 15.100, 15.110, 15.120, 15.240, 15.270, 15.330, 15.380 Art 1(1): 15.30 Art 1(1)(a): 15.30 Art 1(1)(b): 15.30 Art 2: 15.40 Art 3(1): 15.40 Art 3(2): 15.40 Art 4(a): 15.40 Art 4(b): 15.40 Art 5: 15.40 Art 6: 15.50 Art 7(1): 15.60 Art 7(2): 15.60 Art 8: 15.110 Art 8(1): 15.110 Art 8(2): 15.110 Art 8(3): 15.110 Art 9(1): 15.140

Art 9(2): 15.140 Art 10: 15.30 Art 11: 15.120 Art 13: 15.120 Art 14(1): 15.80 Art 14(2): 15.80 Art 15(1): 15.80 Art 15(2): 15.80 Art 16(1): 15.80 Art 16(2): 15.80 Art 17: 15.80 Art 18(1): 15.90 Art 18(2): 15.90 Art 18(3): 15.90 Art 19(1): 15.90 Art 19(2): 15.90 Art 19(3): 15.90 Art 20(1): 15.90 Art 23: 15.70 Art 25: 15.270 Art 26: 15.340 Art 28: 15.440 Art 29(1): 15.130 Art 29(2): 15.130 Art 30: 15.210 Art 31: 15.210 Art 33: 15.210 Art 35(1): 15.150 Art 35(2): 15.150, 15.157 Art 35(2)(a): 15.155 Art 35(2)(a) to (b): 15.150 Art 35(3): 15.157 Art 36: 15.157 Art 36(1): 15.157 Art 36(2): 15.157 Art 37: 15.157 Art 38: 15.160 Art 38(1): 15.160 Art 38(2): 15.160 Art 39: 15.160, 15.310 Art 39(1): 15.160 Art 39(2): 15.160 Art 40: 15.160 Art 41: 15.170 Art 42(1): 15.170 Art 42(2)(a): 15.170 Art 42(2)(b): 15.170 Art 43(1): 15.170 Art 44: 15.160, 15.170 Art 45(1): 15.310 Art 45(2): 15.310 Art 45(3): 15.310 Art 46(1): 15.310 Art 46(2): 15.310 Art 46(3): 15.310 Arts 46 to 52: 15.310 Art 47(1): 15.240 Art 47(2): 15.240 Art 48(1): 15.240 Art 48(2): 15.240 Art 49(1): 15.360

Art 49(2): 15.360 Art 50: 15.157 Art 51(2): 15.360 Art 53: 15.180, 15.210 Art 54: 15.180, 15.190 Art 55: 15.200 Art 58(1): 15.200 Art 58(2): 15.200 Art 58(3): 15.200 Art 60: 15.210 Art 61(1): 15.320 Art 61(2): 15.320 Art 62: 15.320 Arts 62 to 65: 15.320 Art 63(1): 15.240 Art 63(2): 15.240 Art 64: 15.350 Art 64(1)(a): 15.350 Art 64(1)(b): 15.350 Art 64(2): 15.350 Art 65(1): 15.320 Art 65(2): 15.320 Art 66: 15.220 Art 67(1): 15.220 Art 68: 15.220 Art 70: 15.220 Art 71(1): 15.260 Art 71(3): 15.260 Art 72(1): 15.340 Art 72(2): 15.340 Art 72(3): 15.340 Art 73(1): 15.370 Art 73(2): 15.370 Art 73(3): 15.370 Art 74: 15.380, 15.400 Art 75: 15.400, 15.410 Art 76(1): 15.420 Art 76(2): 15.420 Art 77: 15.420 Art 78: 15.430 Art 79(1): 15.250 Art 79(2): 15.250 Art 79(3): 15.250 Art 79(4): 15.250 Art 79(5): 15.250 Art 81(1): 15.330 Art 81(2): 15.450 Art 82(1): 15.450 Art 82(2): 15.450 Art 83: 15.330 Art 84(1): 15.430 Art 85: 15.230 Art 86(1): 15.230 Art 87: 15.230 Art 88(1): 15.230 Art 88(2): 15.230 Art 88(3): 15.230 Art 92: 15.100 Art 95: 15.30 Art 96: 15.120 Art 100(2): 15.30

Table of Statutes

Convention on the Elimination of All Forms of Discrimination Against Women Art 2(e): 33.90

International Convention on the Elimination of All Forms of Racial Discrimination Art 2(e): 33.90

Convention on the Rights of the Child Art 32(1): 33.90

International Covenant on Economic, Social and Cultural Rights Art 10(3): 33.90

Council of Europe Convention on Cybercrime: 16.460, 16.470 ILO Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour (No 182): 33.90 International Convention for the Protection of Industrial Property: 30.2170

Patent Co-operation Treaty 1970: 30.2170 Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks: 30.2550 United Nations Convention Against Corruption: 33.60

Art 12(1): 33.60 Art 12(2)(b): 33.60 Art 12(2)(f): 33.60 Art 12(3): 33.60 Arts 21 to 22: 33.60 United Nations Convention on the Use of Electronic Communications in International Contracts: 16.30, 16.60, 16.80, 16.100

lxxxiii

Table of Abbreviations ABC … Australian Bankruptcy Cases. 1929-1964. ABC (ns) … Australian Bankruptcy Cases (New Series). 1999 onwards. AC …Law Reports, Appeal Cases. 1891 onwards. ACLC … Australian Company Law Cases. 1971 onwards. ACLR … Australian Company Law Reports. 1974-1989. ACSR … Australian Corporations and Securities Reports. 1990 onwards. A Crim R … Australian Criminal Reports. 1980 onwards. ACTCA … Australian Capital Territory Court of Appeal. ACTSC … Supreme Court of the Australian Capital Territory ACTLR … Australian Capital Territory Law Reports. 2007 onwards. ACTR … Australian Capital Territory Reports. 1973 onwards. ACompT … Australian Competition Tribunal AIPC … Australian Intellectual Property Cases. 1982 onwards. AJR … Australian Jurist Reports. 1870-1874. ALD … Administrative Law Decisions. 1976 onwards. ALJ … Australian Law Journal. 1927 onwards. ALJR … Australian Law Journal Reports. 1958 onwards. ALR … Australian Law Reports. 1973 onwards. ALT … Australian Law Times. 1879-1928. ANZ Insurance Cases … Australian and New Zealand Insurance Cases. 1979 onwards. All ER … All England Law Reports. 1936 onwards. App Cas … Law Reports. Appeal Cases. 1876-1890. Argus LR … Argus Law Reports. 1895-1973. ASC … Australian Consumer Sales and Credit Law Reporter. 1997 onwards. ASTLR … Australian Succession and Trusts Law Reports. 2006 onwards. ATPR … Australian Trade Practices Reports. 1974-2010. Renamed Australian Competition and Consumer Law Reports. 2011 onwards. Aust Contract Reports … Australian Contract Reports. 1991 onwards. Aust Torts Reports … Australian Torts Reports. 1984 onwards. BCL … Building and Construction Law. 1985 onwards. BFRA … Banking and Finance Reports of Australia. 2003 onwards. BPR … Butterworths Property Reports. 1950 onwards. Bus LR … Business Law Reports. 2007 onwards.

CLR … Commonwealth Law Reports. 1903 onwards. CPD … Common Pleas Division. 1875-1880. Ch … Law Reports. Chancery. 1891 onwards. Ch D … Law Reports. Chancery Division. 1876-1890. Ch App … Chancery Appeal Cases. 1865-1875. Cth … Commonwealth of Australia. DCR (NSW) … New South Wales District Court Reports. 1963-1976. DCLR (NSW) … Lawbook Co.’s District Court Law Reports. 2001 onwards. DLR … Dominion Law Reports. 1912 onwards. ER … English Reports. 1220-1865. Ex … Exchequer Reports. 1848-1856. Ex D … Exchequer Division. 1875-1880. F 3d … Federal Reporter, Third Series. 1993 onwards. FCA … Federal Court of Australia. FCAFC … Federal Court of Australia Full Court. FCCA … Federal Circuit Court of Australia. 2013 onwards. FCR … Federal Court Reports. 1984 onwards. Fed Appx … Federal Appendix. 2001 onwards. FLR … Federal Law Reports. 1956 onwards. FMCA … Federal Magistrates Court of Australia. 20002013. FSR … Fleet Street Reports. 1975 onwards. F Supp … Federal Supplement. 1932 onwards. HCA … High Court of Australia. HCASL … High Court of Australia Special Leave Disposition. 2008 onwards. HLC … House of Lords Cases (Clark). 1847-1866. ILM … International Legal Materials. 1962 onwards. IMP … Imperial. IPR … Intellectual Property Reports. 1982 onwards. IR … Industrial Reports. 1982 onwards. KB … Law Reports. King’s Bench. 1901 onwards. LJ Ch … Law Journal Reports. Chancery. 1831-1946. LJ Ex … Law Journal Reports. Exchequer. LJKB … Law Journal Reports. King’s Bench. 1831-1946. LJPC … Law Journal Reports. Privy Council. 1865-1946. LJQB … Law Journal Reports. Queen’s Bench. 18311946. LR (NSW) Eq … Law Reports. NSW Equity. 1880-1900. LR App Cas … Law Reports. Appeal Cases. 1876-1890.

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Australian Commercial Law

LR Ch App … Law Reports. Chancery Appeal Cases. 1865-1875. LR CP … Law Reports. Common Pleas. 1865-1875. LR Eq … Law Reports. Equity. 1865-1875. LR Ex … Law Reports. Exchequer. 1865-1875. LR Ex D … Law Reports. Exchequer Div. 1876-1880. LR PC … Law Reports. Privy Council, Appeal Cases. 1865-1875. LR QB … Law Reports. Queen’s Bench. 1865-1876. LT … Law Times. 1859-1947. Lloyd’s Rep … Lloyd’s List Law Reports. 1951 onwards.

MVR … Motor Vehicle Reports. 1984 onwards. NNTTA … National Native Title Tribunal of Australia. NSW CA … New South Wales Court of Appeal. NSW Conv R … New South Wales Conveyancing Reports. 1980 onwards. NSWLR … New South Wales Law Reports. 1800-1900, 1971 onwards. NSWSC … New South Wales Supreme Court. NTCA … Northern Territory Court of Appeal. NTLR … Northern Territory Law Reports. 1992 onwards. NTR … Northern Territory Reports. 1978 onwards. NTSC … Northern Territory Supreme Court. NZLR … New Zealand Law Reports. 1883 onwards. P … Law Reports. Probate Division. 1891-1971. PD … Probate Division. 1875-1890. QB … Queen’s Bench Reports. 1841-1852. QB … Law Reports. Queen’s Bench. 1891 onwards. QBCCMCmr … Queensland Body Corporate and Community Management Commissioner. QBD … Law Reports. Queen’s Bench. 1876-1890. QCA … Queensland Court of Appeal. QSC … Queensland Supreme Court. QSR … State Reports (Queensland). 1902-1957. Qd R … Queensland Reports. 1958 onwards.

RPC … Reports of Patent Cases. 1884 onwards. SALR … South Australian Law Reports. 1865-1892, 1899-1920. SASC … South Australian Supreme Court. SASCFC … South Australian Supreme Court Full Court. SASR … South Australian State Reports. 1921 onwards. SCR (NSW) … Supreme Court Reports, New South Wales. 1862-1876. SR (NSW) … New South Wales State Reports. 19011970. SR (WA) … State Reports (Western Australia). 1980 onwards. TLR … Times Law Reports. 1855-1952. Tas LR … Tasmanian Law Reports. 1905-1940. Tas R … Tasmanian Reports. 1979 onwards. TASFC … Tasmanian Supreme Court Full Court. TASSC … Tasmanian Supreme Court. TASWRCT … Tasmanian Workers Rehabilitation and Compensation Tribunal. Tas SR … Tasmanian State Reports. 1941-1978. UNTS … United Nations Treaty Series. 1946 onwards. US … United States Reports. 1790 onwards. VLR … Victorian Law Reports. 1875-1956. VR … Victorian Reports. 1957 onwards. VSC … Victorian Supreme Court. VSCA … Victorian Court of Appeal. WALR … Western Australian Law Reports. 1898-1959. WAR … Western Australian Reports. 1960 onwards. WASC … Western Australian Supreme Court. WASCA … Western Australian Court of Appeal. WASTR … Western Australian Court of Appeal. WL … Westlaw citation. WLR … Weekly Law Reports. 1953 onwards. WN (NSW) … Weekly Notes, New South Wales. 18841970. WW & A’B … Wyatt, Webb and A’Beckett’s Reports (Victoria). 1864-1869.

Glossary ab initio From the beginning.

ipso jure By the law itself.

bona fide In good faith; honestly without fraud, collusion

lex loci contractus The law of a place where a contract is

or participation in wrong-doing. caveat emptor Let the buyer beware. cestui que trust A person for whom another holds in trust

property or an interest in property; the beneficiary under a trust. chose in action A right of action to recover personal property that is intangible such as a debt, contractual rights, etc. chose in possession Personal property that is tangible such as goods or chattels which are capable of physical possession. consensus ad idem Agreement as to the same thing. The exact correspondence between offer and acceptance necessary for a binding contract. contra proferentum Against the person who alleges it. de facto In fact; whether by right or not. de jure By right. de novo New, starting again. dicta See obiter dictum. Statements of opinion by a judge

not strictly necessary to her or his decision. ex gratia Voluntarily; without legal obligation. ex parte In the absence of one side. 1. Used in such phrases

as an “ex parte statement”, ie a statement made by one side. 2. An application in a judicial proceeding made: (a) by an interested person who is not a party, eg a trustee applying for directions as to administration of trust property; (b) by one party in the absence of the other. ex post facto Retrospectively. executory Still to be carried out or performed. flagrante delicto In the act of committing a crime; caught or

arrested in the act. ignorantia juris non excusat Ignorance of the law is no

excuse. in re In the matter of. inter alia Among other things. inter vivos Between living persons. intra vires Within the powers (of). ipso facto By that very fact.

made. lex mercatoria The law merchant. mala fide In bad faith. mens rea A guilty mind; the intention to commit a

wrongful act. nemo dat rule (The full expression is nemo dat quod non habet.) No-one can pass to another a better title than

he himself has. novation A new or substituted agreement. obiter dictum A saying by the way. An observation by a

judge on a legal question suggested by a case before her or him, but not arising in such manner as to require decision. It is therefore not binding as a precedent. overt Open. per annum By the year. per cent By the hundred. per curiam By the court. per diem By the day. per se By itself. Taken alone. pro rata In proportion. quantum meruit For as much as he or she has earned. The

defendant has received some benefit from the plaintiff and would be unjustly enriched if not required to pay a reasonable sum for the benefit accepted. quantum valebant As much as they are worth. An action

analogous to quantum meruit but brought in respect of goods supplied. quid pro quo Something for something. Consideration. ratio decidendi The reason/s for the decision; the essential

legal reasoning for the decision in a case. The binding precedent established by the case as distinct from mere obiter dictum or dicta.

lxxxviii

Australian Commercial Law res ipsa loquitur The thing speaks for itself. This maxim

uberrimae fidei Of the fullest confidence. A contract is said

applies in actions for negligence where the circumstances of an accident are such that it is so improbable that it would have occurred without the negligence of the defendant that a reasonable jury would find without further evidence that it was so caused. res judicata A matter already settled by judicial decision. restitutio in integrum Restoration to the original position.

to be uberrimae fidei when the promisee is bound to communicate to the promisor every fact and circumstance which may influence her or him in deciding to enter into the contract or not. ultra vires Beyond the power. An act in excess of the authority conferred by law, and therefore invalid.

scienter Knowingly; knowledge. stare decisis To stand by that which has been decided. The

principle of binding precedent whereby the decision in one case serves as a legal precedent in the deciding of a subsequent similar case. sub judice Under judicial consideration. sui juris A person who can validly contract and bind herself or himself by legal obligation uncontrolled by any other person is sui juris. tort A civil wrong or injury (as contrasted with a criminal

wrong).

vicarious liability The liability of one person for the actions

of another, eg the liability of an employer for the actions of her or his employee. vice versa The order being reversed. vis-a-vis The relationship of one or two persons or things to the other, when facing or situated opposite each other. void Of no legal effect. voidable An agreement which maybe affirmed or rejected at the option of one of the parties. volenti non fit injuria That to which a person consents cannot be considered an injury; a defence to an action in tort for, eg personal injury.

PART PT 1 INTRODUCTION

Chapter 1

The Australian Legal System

chapter 1

The Australian Legal System [1.20] The nature of law....................................................................................................................................................... 4 [1.40] The Australian constitutional system............................................................................................................ 4 [1.200] Sources of law....................................................................................................................................................... 10 [1.210] Statute law ............................................................................................................................................................. 10 [1.440] Judge-made law ................................................................................................................................................... 20 [1.540] The doctrine of precedent and the hierarchy of Australian courts........................................... 29 [1.720] Classification of law and legal proceedings .......................................................................................... 36 [1.840] Alternative methods of dispute resolution............................................................................................ 40

Introduction [1.10] In order to more fully appreciate the legal principles applicable to the branches of commercial law discussed in the following chapters of this work, it is useful to understand the legal framework in which such laws operate. The basic features of the Australian legal system are outlined in this chapter under the following headings: 1.

The nature of law.

2.

The Australian constitutional system.

3.

The sources of law.

4.

The doctrine of precedent and the hierarchy of the courts.

5.

Classification of law and legal proceedings.

6.

Alternative methods of dispute resolution.

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Pt 1 Introduction

The nature of law [1.20] The object of law is to provide rules governing the relationships between the members of society and between the government and its citizens to avoid conflict. Where conflict cannot be avoided, the law provides a means of adjudication or peaceful settlement through the instrumentality of an impartial third party, namely the courts. Basically, law can be defined as the body of principles, standards and rules that the courts apply in the resolution of disputes brought before them.

Commercial law [1.30] The present work is primarily concerned with a particular aspect of legal regulation – commercial or business law. In other words, it is concerned with those parts of the law most commonly associated with ordinary business activities. These include the law of contract, agency, sale, credit, bills of exchange and cheques, partnership, companies, bankruptcy, and insurance. In recent times there has been a considerable body of statute law enacted to regulate particular aspects of commercial law. These statutes include the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly, the Trade Practices Act 1974 (Cth)) which, inter alia, proscribes certain restrictive and unfair trading practices; and the Corporations Act 2001 (Cth) which regulates the formation and general operation of companies. On the other hand, there are still areas of commercial law that are not regulated by statute but are determined by the principles of the common law, that is, the law developed by judicial decision in particular cases over a long period of time. For example, much of the law of contract is still largely based on common law principles. It will be observed from the previous discussion that the development of the law, including commercial law, is a dynamic rather than static process. It must be constantly reinterpreted and amended if it is to adequately reflect and serve the needs of a changing society. Accordingly, it is important to be familiar with the institutions charged with the responsibility of making, developing and implementing the law, as well as being aware of the principles of law applicable to a particular transaction.

The Australian constitutional system A federal system [1.40] Australia is a federation. It comprises a central government, which has certain law-making powers, and a number of States or Territories that also have law-making powers. The effect is that there are two legal systems for each citizen: the central or federal legal system (the Commonwealth); and that of each State or Territory. A federal legal system like Australia is in contrast with a unitary legal system in which there is a single legal system which applies throughout the country. A feature of a federal legal system is that there is usually a written constitution, that is, a document setting out the powers of the federal government and its legal relationship with the States. In Australia this is found in the Commonwealth of Australia Constitution Act 1900 (IMP), an Act of the United Kingdom Parliament, which contains the Commonwealth Constitution.

chapter 1 The Australian Legal System

In addition to the Commonwealth Constitution, each of the States making up the federation also has its own Constitution which determines the system of government for that State. The law-making power of each of the territory legislatures is constrained by the federal statute which provides for the territory’s self-government. The Australian constitutional system of government comprises three main branches: (a)

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

(b)

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

(c)

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

In Australia, the Commonwealth Constitution (s 61) provides that the executive power of the Commonwealth is vested in the Queen and exercisable by the Governor-General. Accordingly, the executive arm of government in Australia is referred to as “the Crown”. The same term is used to describe the State executive governments.

The constitutional development of the Australian States [1.50] Although the three separate branches of government (legislative, executive and judicial) are clearly apparent today, such a separation of powers was only gradually achieved in the Australian colonies (as the States were called prior to Federation in 1901). In broad terms, the basic pattern of legal development in each of the Australian colonies was to initially vest authority in the Governor, then as the colony developed, to set up a Legislative Council consisting of persons nominated by the Governor to advise him in the performance of his official functions. The next stage was the introduction of representative government, where the members of the legislature were elected by the colonists rather than nominated by the Governor. The final stage was the introduction of responsible government, under which the executive branch of government was made responsible to the legislature.

The Federation movement [1.60] The mid-19th century onwards saw the constitutional development of Australia into six independent colonies, each with their own system of government and legal system. In the last decade of the 19th century, the question of federation of the Australian colonies became an increasingly real issue as it was gradually realised that a federal body could deal more effectively with issues such as national defence and intercolonial customs barriers. A convention of representatives from each of the colonies to consider a scheme for a federal Constitution was held in 1891. A second convention was held in 1897 and 1898. The product of these conventions was the drafting of the Commonwealth Constitution Bill. This was ultimately accepted by the majority of electors in each of the colonies (with the exception of Western Australia) at a referendum held in 1899. The Constitution Bill was enacted by the Imperial Parliament in 1900 as the Commonwealth of Australia Constitution Act 1900 (IMP). At this point, a majority of electors in Western Australia also voted in favour of joining the federation. Pursuant to royal proclamation, the Commonwealth of Australia came into being on 1 January 1901.

The Commonwealth Constitution [1.70] The Commonwealth Constitution created a federal Parliament, called the Commonwealth Parliament, consisting of the Queen, the Senate and the House of Representatives: Constitution, s 1.

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Provision was also made for a Governor-General to be the Queen’s representative in Australia: s 61. The Constitution gave the Commonwealth Parliament certain defined legislative powers but left the Australian States (as the former colonies were now called) as self-governing political units each with its own Constitution, Parliament, and courts: ss 51, 106, 107. Mention needs to be made of the three branches of government under the Commonwealth Constitution: the executive, the legislature and the judiciary. To some extent, the Constitution embodies a separation between these three branches of government. However, as will be seen at [1.90] and [1.180], that separation is stronger between the judiciary and the other two branches, than between the executive and the legislature.

The executive [1.80] Under the Constitution, the executive power of the Commonwealth is vested in the Queen and is exercisable by the Governor-General as the Queen’s representative: Constitution, s 61. The GovernorGeneral has an Executive Council (comprising two or three government Ministers) to advise on matters concerning the government of the country: s 62. The Governor-General is also empowered to appoint Ministers to administer the Commonwealth departments of state. The Constitution further provides that no person can be a Minister of state unless he or she is a member of the Senate or House of Representatives: s 64. In other words, a government Minister must be a Member of Parliament. By convention, the Governor-General invites the leader of the political party having the majority of members in the House of Representatives to form a government. The leader (or in the case of the Labor Party, its Caucus) selects the members who are to be Ministers and they are then appointed by the Governor-General. The Prime Minister allocates portfolios to the Ministers so appointed, that is, each Minister becomes responsible for one or more government departments. An important constituent of modern parliamentary government is the Cabinet. The Cabinet comprises those members of the ministry responsible for determining the policy and objectives of the government. The government is made responsible to the electorate through Parliament in that: (a)

Ministers must be Members of Parliament and accordingly may be questioned in Parliament about their running of the country;

(b)

where the government loses the confidence of Parliament it must resign; and

(c)

an individual Minister who loses the confidence of Parliament must resign.

[1.90] As a matter of convention the Governor-General will almost invariably act as advised by the Prime Minister. However, there are certain situations where the Governor-General may exercise her or his powers, for example to dismiss a government, without or against the advice of Ministers, such as where the government of the day has lost the confidence of Parliament but refuses to resign, or to prevent an illegality occurring. It is constitutionally permissible for the Parliament to delegate part of its legislative power to the Executive: Attorney-General (Cth) v The Queen; Ex parte Boilermakers Society of Australia (1957) 95 CLR 529 at 83-84, 86, 101, 117. An example of such a law is where a statute confers upon the Governor-General the power to make regulations for specified purposes.

The legislature [1.100] Australia has a federal system of government with governmental power being divided between the Commonwealth government and the individual States. The Constitution enumerates those subject matters in respect of which the Commonwealth Parliament has power to legislate. The Commonwealth Parliament

chapter 1 The Australian Legal System

only has such power as the Constitution confers upon it and can only make laws on such matters as are expressly, or by necessary implication, mentioned in the Constitution as being within Commonwealth power. Power to make laws on all other matters resides exclusively in the State Parliaments. As a result, most matters of private law, such as the law of contracts and torts, and most criminal matters are governed by State law. The areas in which the Commonwealth Parliament has power to legislate are set out primarily in s 51 of the Constitution. The more important of these include the power to make laws with respect to the following matters: (a)

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

(b)

taxation (s 51(ii));

(c)

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

(d)

defence (s 51(vi));

(e)

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

(f)

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

(g)

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

(h)

bankruptcy and insolvency (s 51(xvii));

(i)

copyright, patents, designs and trade marks (s 51(xviii));

(j)

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

(k)

external affairs (s 51(xxix)); and

(l)

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

Most of the legislative powers of the Commonwealth Parliament enumerated above are concurrent powers – they can be exercised by either the Commonwealth or the States. Thus, the fact that the Commonwealth has been given power to legislate with respect to such matters does not necessarily mean that the States cannot make laws on the same subject matter. However, if a State law is inconsistent with a law of the Commonwealth, the Commonwealth law prevails, and the State law, to the extent of the inconsistency, is invalid: s 109. In addition to its concurrent powers, the Commonwealth Parliament also has a limited number of exclusive powers (or matters upon which it alone can legislate to the exclusion of the State Parliaments). These exclusive powers include the power to impose customs and excise duties: s 90. The High Court gives a wide interpretation to the powers given to the Commonwealth Parliament under s 51 of the Constitution: Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 at 151. Several of these powers are of particular relevance to business.

The corporations power [1.110] The corporations power (Constitution, s 51(xx)) provides that the Commonwealth Parliament has power to make laws with respect to “Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth”. This power extends to the regulation of monopolies and restrictive trade practices among corporate trading enterprises: Strickland v Rocla Concrete Pipes Ltd (1971) 124 CLR 468 at 489, 511-513. The great potential that this power offers for the regulation of the economy is apparent from the Work Choices Case (New South Wales v Commonwealth (2006) 229 CLR 1). That decision upheld the validity of

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legislation that shifted the primary constitutional basis for federal industrial relations law from the conciliation and arbitration power to the corporations power. The Court held that laws regulating the relationship between a corporation and its employees fell within the corporations power. The power was not to be given a restricted meaning to avoid circumvention of the limitations upon the scope of the conciliation and arbitration power. Furthermore, the corporations power supports laws that “single out constitutional corporations as the object of statutory command”: New South Wales v Commonwealth (2006) 229 CLR 1 at [198]. One limitation to the power is that it does not extend to the incorporation of corporations: New South Wales v Commonwealth (1990) 169 CLR 482 at 498.

Trade and commerce power [1.120] The trade and commerce power empowers the Commonwealth Parliament to make laws with respect to trade and commerce with other countries and among the States: Constitution, s 51(i). In general, this power extends to interstate trade, but not to wholly intrastate trade.

Taxation power [1.130] The Commonwealth has power to make laws with respect to taxation: Constitution, s 51(ii). A tax is a compulsory exaction of money, but not a payment for services rendered: Air Caledonie v Commonwealth (1988) 165 CLR 462 at 466-467. In making laws under this power, the Commonwealth Parliament may not discriminate between States or parts of States.

The external affairs power [1.140] Under the “external affairs” power (s 51(xxix)) the Commonwealth has power to make laws with respect to “external affairs”. This has been interpreted by the High Court as including power to make laws for carrying out international agreements, even though the topic would not otherwise come within federal power. Given the great variety of matters which are the subject of international agreement, there is considerable potential for federal legislation concerning areas over which the Commonwealth would not otherwise have power. In Commonwealth v Tasmania (1983) 158 CLR 1 (the Tasmanian Dam Case), the High Court upheld the validity of Commonwealth legislation which gave effect to the World Heritage Convention. The result was that by Commonwealth legislation the federal government was able to stop the Tasmanian Hydro-Electric Commission’s preparatory construction work for a dam on the Gordon-below-Franklin River, an area which had been entered onto the World Heritage List. Similarly, in Victoria v Commonwealth (1996) 187 CLR 416, the court upheld aspects of a federal law regulating industrial relations as an implementation of various treaties.

Reference power [1.150] Section 51(xxxvii) of the Constitution authorises the Commonwealth Parliament to make laws with respect to “[m]atters referred to the Parliament of the Commonwealth by the Parliament or Parliaments of any State or States, but so that the law shall extend only to States by whose Parliaments the matter is referred, or which afterwards adopt the law”. Following references of power relating to corporations by all State Parliaments, the Commonwealth Parliament relied upon this power in enacting the Corporations Act 2001 (Cth). Other recent references of power have concerned industrial relations, personal property securities, credit law and business names.

Freedom of interstate trade [1.160] The Commonwealth Parliament has power to make laws with respect to “trade and commerce with other countries, and among the States”: Constitution, s 51(i). However, the Constitution also restricts

chapter 1 The Australian Legal System

the scope of this (and other) federal and State legislative powers by providing that “trade, commerce and intercourse among the States … shall be absolutely free”: s 92. Until 1988, s 92 was a major limitation upon Commonwealth legislative power. The impact of this provision upon federal legislative power was reduced somewhat by the High Court’s interpretation of this provision in Cole v Whitfield (1988) 165 CLR 360. In that case, the court unanimously held that s 92 will only have the effect of invalidating “discriminatory burdens of a protectionist kind”: Cole v Whitfield (1988) 165 CLR 360 at 398. In Betfair Pty Ltd v Racing New South Wales (2012) 249 CLR 217 the court emphasised that the focus of s 92 is interstate trade, not individual traders: at [50], [60], [114].

Duties of excise or customs [1.170] Section 90 of the Constitution provides that the power to impose excise duties or customs duties is exclusive to the Commonwealth Parliament. The State Parliaments may not impose excise duties or customs duties. A majority of the High Court has taken the view that an excise duty is “an inland tax on a step in production, manufacture, sale or distribution of goods”: Ha v New South Wales (1997) 189 CLR 465 at 490. A customs duty is a tax imposed upon the import or export of goods to or from Australia.

The judiciary [1.180] The Commonwealth Constitution provided for the setting up of the High Court of Australia: Constitution, Ch III, ss 71 – 80. The principal functions of the High Court are to interpret the Constitution, act as an appellate court from other courts exercising federal jurisdiction, hear appeals from the Supreme Courts of the States, and in certain cases act as a court of original jurisdiction. The High Court occupies a unique position of considerable constitutional importance. As the court responsible for interpreting the Constitution, the High Court determines the constitutionality of legislation (that is, whether a particular Commonwealth or State statute was a valid exercise of legislative power). As a result, the court is particularly concerned to safeguard the separation of judicial and non-judicial power. Hence judicial power may not be conferred upon non-judicial bodies, nor may non-judicial power be conferred upon federal courts: Brandy v Human Rights and Equal Opportunity Commission (1995) 183 CLR 245 at 260, 269. The High Court is the highest court of appeal from decisions of the highest State and Territory courts and the Federal Court. The Court’s judgments are authoritative statements of law which constitute binding precedents for all other Australian courts. In Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604 at [3], the High Court emphasised that until it “disapproves or revises” one of its previous decisions, that prior decision is binding upon intermediate appellate courts and judges at first instance. The binding nature of decisions of the High Court on all other Australian courts enables the maintenance of the unity of the common law across Australia. In other words, the High Court “has become the final court of appeal, not merely in matters of federal jurisdiction but as to the principles of the common law applicable throughout Australia”: Cullen v Trappell (1980) 146 CLR 1 at 6. In Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 at 563-564, the High Court unanimously held that there is one Australian common law rather than a common law particular to each State. 1

Implied freedom of communication on political matters [1.190] An example of what is sometimes referred to as “judicial activism” on the part of the High Court is the court’s recognition of an implied constitutional freedom of communication in relation to political 1

L Boyle, “An Australian August Corpus: Why there is Only One Common Law in Australia” (2016) 27 Bond Law Review 27.

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matters. In Australian Capital Television Pty Ltd v Commonwealth (1992) 177 CLR 106, it was held that legislation which prohibited political advertising on television and radio during an election period was invalid because it infringed this implied freedom. In Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 the High Court unanimously affirmed the existence of an implied freedom of communication under the Constitution in respect of governmental and political matters to enable people to exercise a free and informed choice as electors. This implied freedom arises from the system of representative government for which the Constitution provides: at 559. The right of those involved in government and politics to sue for defamatory statements had to be measured against the implied freedom. As a result, the common law of defamation was developed to accommodate constitutional requirements: at 570-571. In McCloy v New South Wales (2015) 89 ALJR 857 the court modified the test for infringement of the implied freedom by incorporating a three-stage proportionality test: at [2].

Sources of law [1.200] The basic sources of law in Australia are: (a)

statute law (Acts of Parliament); and

(b)

judge-made law (legal principles enunciated in judicial decisions).

Statute law [1.210] The primary responsibility for making changes in the law falls on Parliament which exercises this legislative function. Parliament passes Bills which, on receipt of the royal assent, are called “statutes”, or Acts of Parliament. These statutes become part of the body of law known as “statute law”. Statutes may: (a)

bring new laws into existence;

(b)

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

(c)

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

Two of the best known examples of codifying statutes are the United Kingdom Sale of Goods Act 1893 (UK) and the Bills of Exchange Act 1882 (UK) (both Acts being later adopted in Australia). These Acts gathered together in statutory form principles based originally on the customs of merchants as developed by numerous decisions of the common law courts. Mention should also be made of what is known as a “consolidating statute”, the object of which is to assemble and re-enact a number of previous statutory provisions. For example, the legislation on a particular subject may have been subject to numerous amendments and it becomes desirable to bring them together into one statute, or, a “consolidating Act”.

The making of statutes [1.220] Where it is intended to make a new law on a particular matter or amend an existing law, a Bill will be drafted, usually by parliamentary counsel. Bills may be introduced in either House but will normally be introduced into the particular House of Parliament in which the Minister in charge of the Bill sits. Most

chapter 1 The Australian Legal System

Bills tend to be introduced in the Lower House, that is, the House of Representatives of the Commonwealth Parliament, or the Legislative Assembly in the case of the State Parliaments. After introduction of a Bill to the House, it will have to pass what are called three readings. The first reading is generally a formality involving stating the name of the Bill and moving that it be read a first time. If this is agreed to, the Bill will be printed and distributed to members of the House. The second reading of the Bill involves the Minister moving that the Bill be read a second time and the members will then debate the broad principles of the Bill. On the passing of the motion for a second reading, the Bill then moves on to the next stage, known as the committee stage. The committee may be a select or standing committee of the House, or the whole House sitting as a committee. At this point each clause of the Bill may be debated and amendments made; in practice only the controversial parts of the Bill will be objected to and debated. Once all the clauses of the Bill have been considered the Bill, if approved, is reported to the House as having passed the committee stage. A motion is then proposed that the Bill be read a third time. The third reading simply involves the House voting on the Bill as it stands after the committee stage. Once passed, the Bill is then sent to the other House, usually the Upper House (that is, the Senate of the Commonwealth Parliament or the Legislative Council in the States other than Queensland), and the same process is repeated. If the Bill is passed by the Upper House unamended, it is sent to the Governor-General of the Commonwealth, or the Governor of the State, for assent. After assent the Bill becomes an Act of Parliament. An Act which is to be proclaimed to come into operation has no legal effect until such date has been proclaimed and has arrived. The Act will commence from the date specified for that purpose in it, or it may provide that it is to operate from a date to be proclaimed by the Governor-General or Governor and published in the Government Gazette. Where a Commonwealth Act is silent as to its commencement, it commences 28 days after the Governor-General’s assent was given. 2 Where a State or Territory Act does not make provision for its commencement, the various statutory interpretation laws make varying provision for the commencement date. It is the date of assent in Queensland, South Australia and the Northern Territory; 14 days after assent in Tasmania; 28 days after assent in New South Wales and Western Australia; and one year after assent in Victoria. 3 In the Australian Capital Territory, legislation commences on the day after its notification day, that is, the day the Act is notified in the Government Gazette or the electronic register of legislation. However, if the Act provides for a different commencement date, the law commences on that date. 4 Problems may arise where an Upper House refuses to pass a Bill which has been passed by a Lower House. With respect to the Commonwealth Parliament, this situation is provided for in s 57 of the Constitution, which sets down the following procedure for resolving such “deadlock”: (a)

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

(b)

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

2 3

4

Acts Interpretation Act 1901 (Cth), s 3A(2). Interpretation Act 1987 (NSW), s 23(1); Interpretation of Legislation Act 1984 (Vic), s 10A(3); Acts Interpretation Act 1954 (Qld), s 15A; Acts Interpretation Act 1915 (SA), s 7; Interpretation Act 1984 (WA), s 20; Acts Interpretation Act 1931 (Tas), s 9(3); Interpretation Act 1978 (NT), s 6. Legislation Act 2001 (ACT), s 73(1).

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(c)

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

The State Constitutions in New South Wales, Victoria and South Australia also contain provisions for resolving such “deadlocks” between the two Houses. 5 In Western Australia and Tasmania there are no such provisions and the Bill simply does not become law. The Queensland Parliament consists of a single House. A statute remains in force until it is repealed. In the United Kingdom, some Acts have been in force since their enactment in the 13th century.

Parts of a statute [1.230] The various parts of a statute are illustrated here with reference to the Corporations Act 2001 (Cth).

Act number: [1.240] “Act No 50 of 2001” Each statute enacted in a year is assigned an Act Number. This Act was the 50th statute enacted by the Commonwealth Parliament in the year 2001.

Long title: [1.250] “An Act to make provision in relation to corporations and financial products and services, and for other purposes.” The long title is a broad statement of the subject matter of the Act. It is a part of the statute: Fearnley v Finlay [2014] 2 Qd R 392 at [47]-[48].

Short title: [1.260] s 1. “This Act may be cited as the Corporations Act 2001.” The short title provides a more concise statement of the subject of the Act than is provided by the long title. Acts are customarily cited by their short title.

Commencement date: [1.270] s 2. “This Act commences on a day to be fixed by Proclamation.” This provision states the date on which the Act enters into force. In this example, that date is to be fixed by Proclamation of the Governor-General, that is, on the advice of the executive government.

Object or purpose: [1.280] The Corporations Act 2001 (Cth) does not contain an objects clause. However, many modern statutes contain a statement of the objects which the Act seeks to achieve. For example, s 2 of the 5

See Constitution Act 1902 (NSW), s 5B; Constitution Act 1975 (Vic), ss 65A – 65G; Constitution Act 1934 (SA), s 41.

chapter 1 The Australian Legal System

Competition and Consumer Act 2010 (Cth) states: “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”.

Definitions: [1.290] 9 Dictionary Unless the contrary intention appears: “AASB” means the Australian Accounting Standards Board. … “accounting standard” means: (a) an instrument in force under section 334; or (b)

a provision of such an instrument as it so has effect.

The meaning of many words in a statute are not self-evident. Most statutes contain a provision defining certain words the meaning of which may be ambiguous or which will have a specialist or technical meaning when used in the Act. This provision may be entitled “definitions”, “interpretation” or “dictionary”. Sometimes a statute may have a number of definition sections, with particular definition provisions applying only to specific parts of the Act. In some statutes, definitions are included in a separate schedule to the Act.

Sections: [1.300] 57 Classes of shares or interests in managed investment schemes (1)

The shares in a body corporate, if not divided into 2 or more classes, constitute a class.

(2)

If the interests in a managed investment scheme to which an undertaking relates are not divided into 2 or more classes, they constitute a class.

Each statute is divided into consecutively numbered sections. A section number is abbreviated by the letter “s”, multiple section numbers are abbreviated by the letters “ss”. When new sections are inserted into an Act by an amending Act, the new sections are often placed between existing sections. The new sections are assigned section numbers that include one or more letters. Where many new sections have been inserted into an Act, the numbering of the Act can become complicated. For example, this Act contains section numbers such as ss 331AAA and 331AC. Individual sections of an Act are often further subdivided into subsections. In the example above, the section number is s 57. This section is subdivided into two subsections, abbreviated as s 57(1) and s 57(2). Within the section these subsections are identified by the numbers “(1)” and “(2)”.

Marginal notes: [1.310] 52 Doing acts A reference to doing an act or thing includes a reference to causing or authorising the act or thing to be done. The marginal notes are often, but not necessarily, placed in the margin of a statute. In the example given here the marginal note appears in bold type immediately before the text of the section: “Doing acts”. Marginal notes describe in general terms the particular subject dealt with by each section.

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Examples: [1.315] 768A What is a clearing and settlement facility? (1)

… a clearing and settlement facility is a facility that provides a regular mechanism for the parties to transactions relating to financial products to meet obligations to each other that: (a) arise from entering into the transactions; ... Example 1: A facility that provides a regular mechanism for stockbrokers to pay for the shares they buy and to be paid for the shares they sell … would be a clearing and settlement facility ...

Statutory provisions sometimes include examples of their operation. In many jurisdictions these examples form part of the Act. 6

Chapters, Parts or Divisions: [1.320] Chapter 2J–Transactions affecting share capital Part 2J.1–Share capital reductions and share buy-backs Division 1–Reductions in share capital not otherwise authorised by law Division 2–Share buy-backs Division 3–Other share capital reductions Part 2J.2–Self-acquisition and control of shares Part 2J.3–Financial assistance Part 2J.4–Interaction with general directors’ duties An Act with a large number of provisions is generally divided into Chapters, Parts and Divisions, each composed of a number of individual provisions. As can be seen in the example above, each Chapter, Part and Division has an individual heading which describes its subject matter. The division of the Act into Chapters, Parts or Divisions assists comprehension of the scheme of the Act.

Schedules: [1.330] “Schedule 4–Transfer of financial institutions and friendly societies” Matters of detail are often incorporated into one or more Schedules which appear at the end of the Act.

Interpretation of statutes [1.340] A statute has to be interpreted before it can be applied. That is to say, its meaning has to be ascertained by those who enforce it and by those who have to comply with it. Interpretation of an Act of Parliament is often no easy task. There are frequently conflicting views as to the precise meaning of a particular phrase or section of an Act which may ultimately have to be resolved by the courts. There are a number of aids to assist in interpreting a statute, the principal ones being the Commonwealth and State Acts Interpretation Acts, and certain rules and maxims of statutory interpretation developed by the courts. 6

See Acts Interpretation Act 1901 (Cth) s 15AD; Interpretation of Legislation Act 1984 (Vic), s 36(3A); Acts Interpretation Act 1954 (Qld) s 14D; Acts Interpretation Act 1915 (SA) s 19A; Interpretation Act 1978 (NT) s 62D; Director of Public Prosecutions v Walters [2015] VSCA 303 at [7].

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The Acts Interpretation Acts [1.350] The Commonwealth, State and Territory Parliaments have passed Acts Interpretation Acts 7 which set down some basic rules or presumptions of interpretation, define some common terms, and deal with a number of other matters relating to form, content and operation of statutes. For example, most of the Acts have provisions stating that the male gender includes the female gender, singular includes plural and vice versa, and defining commonly occurring terms such as “document”, “person”, “Minister”, “service by post” and so on.

A “purposive” construction [1.360] The Commonwealth Acts Interpretation Act 1901 (Cth) contains a provision which, in effect, directs a court to have regard to the objects and purposes of an Act in interpreting its provisions. Thus, s 15AA provides: “In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.” There are purposive construction provisions in all of the State Acts Interpretation Acts. 8 It has been said that the corresponding provision in the New South Wales Interpretation Act 1987 (NSW), s 33 requires a “purposive” approach to statutory interpretation, that is, giving meaning to the words to effect their intended purpose, rather than a strict or literalist approach: National Employers Mutual General Insurance Association Ltd v Manufacturers Mutual Insurance Ltd (1989) 17 NSWLR 223 at 225 per Kirby P. In applying a “purposive” construction: “[T]he grammatical meaning of a provision is not to be taken to represent Parliament’s intention as to its meaning when the context or the purpose of the provision raises a real doubt about the applicability of the grammatical meaning. If purpose or context does raise a real doubt as to whether Parliament intended the grammatical meaning to apply, a court is entitled to depart from that meaning. Moreover, if the grammatical meaning gives rise to injustice or anomaly, it may strengthen the conclusion that the Parliament did not intend the grammatical or literal meaning to apply”: Bermingham v Corrective Services Commission of New South Wales (1988) 15 NSWLR 292 at 302 per McHugh JA. For example, the Queensland Court of Appeal invoked a common law maxim of interpretation in adopting an interpretation that limited the operation of the broad words of a statute. It was unlikely that Parliament intended that the provision should allow a person to take advantage of their own wrong. The provision was thus not to be interpreted to allow a purchaser who refuses to settle to escape the consequences of their breach of contract: Meridien AB Pty Ltd v Jackson [2014] 1 Qd R 142 at [31], [40]. Furthermore, to give effect to the purpose of the legislation, a court may read words into a legislative provision if by inadvertence Parliament has failed to deal with an eventuality required to be dealt with if the purpose of the Act is to be achieved, provided the following three conditions are fulfilled: “First, the court must know the mischief with which the Act was dealing. Secondly, the court must be satisfied that by inadvertence Parliament has overlooked an eventuality which must be dealt 7

8

Acts Interpretation Act 1901 (Cth); Interpretation Act 1987 (NSW); Interpretation of Legislation Act 1984 (Vic); Acts Interpretation Act 1954 (Qld); Acts Interpretation Act 1915 (SA); Interpretation Act 1984 (WA); Acts Interpretation Act 1931 (Tas); Legislation Act 2001 (ACT); Interpretation Act 1978 (NT). Interpretation Act 1987 (NSW), s 33; Interpretation of Legislation Act 1984 (Vic), s 35; Acts Interpretation Act 1954 (Qld), s 14A; Acts Interpretation Act 1915 (SA), s 22; Interpretation Act 1984 (WA), s 18; Acts Interpretation Act 1931 (Tas), s 8A; Legislation Act 2001 (ACT), s 139; Interpretation Act 1978 (NT), s 62A.

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with if the purpose of the Act is to be achieved. Thirdly, the court must be able to state with certainty what words Parliament would have used to overcome the omission if its attention had been drawn to the defect”: Bermingham v Corrective Services Commission of New South Wales (1988) 15 NSWLR 292 at 302 per McHugh JA; see also Special Projects (Qld) Pty Ltd v Simmons [2012] QCA 205 at [24]. However, where Parliament has failed to make provision for something because it has not considered the matter, the deficiency in the statute goes beyond reading in “some necessary words”. To remedy that deficiency will be impermissible as it crosses the boundary between interpreting and legislating: Sevmere Pty Ltd v Cairns Regional Council [2010] 2 Qd R 276 at [65], [71]. Other than in “extremely limited circumstances”, the judiciary may not “fill a gap” in legislation: Director of Public Prosecutions v Walters [2015] VSCA 303 at [4], [7], [57]. The High Court has indicated the broad limits of this approach: “The question whether the court is justified in reading a statutory provision as if it contained additional words or omitted words involves a judgment of matters of degree. That judgment is readily answered in favour of addition or omission in the case of simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision. It is answered against a construction that fills ‘gaps disclosed in legislation’ or makes an insertion which is ‘too big, or too much at variance with the language in fact used by the legislature’”: Taylor v The Owners–Strata Plan No 11564 (2014) 253 CLR 531 at [38]. Where the words of a statute are clear, effect must be given to them notwithstanding that Parliament appeared to have legislated “in an exceedingly odd manner”, since: “When statutory words are clear, even if the purpose informing them is not immediately apparent, the courts are not at liberty to mangle them to the point where they no longer mean what they say”: Turner v Morlend Finance Corp (Vic) Pty Ltd [1990] ASC 56-006 at 59,128 per Meagher JA. The method of purposive construction does not permit a court to redraft legislation to give effect to a presumed legislative intent: Comcare v Thompson (2000) 100 FCR 375 at [40].

Extrinsic materials [1.370] The Commonwealth Acts Interpretation Act 1901 (Cth) (s 15AB) allows the court to take into consideration certain extrinsic material in interpreting, for example, an ambiguous or obscure provision in an Act. 9 Section 15AB(1) provides, in part, that: [I]n the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material: (a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or (b)

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to determine the meaning of the provision when – (i)

the provision is ambiguous or obscure; or

(ii)

the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable.

See J Dharmananda, “Outside the Text: Inside the Use of Extrinsic Materials in Statutory Interpretation” (2014) 42 Federal Law Review 333.

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This provision allows “but does not require” a court to refer to extrinsic materials in interpreting a statute: Screen Australia v EME Productions No 1 Pty Ltd (2012) 200 FCR 282 at [48]. The material which may be referred to includes: relevant Law Reform Commission reports; relevant parliamentary committee reports; the explanatory memorandum for the Bill; the second reading speech of the Minister on the Bill; and relevant material in parliamentary debates: Acts Interpretation Act 1901 (Cth), s 15AB(2). Section 15AB(3) contains a proviso to the effect that in determining whether consideration should be given to such extrinsic material, or in considering the weight to be given to it, regard is to be had, inter alia, to: (a)

the desirability of persons being able to rely on the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; and

(b)

the need to avoid prolonging legal or other proceedings without compensating advantage.

The section is essentially an aid to interpretation of a statutory provision and the court will not give effect to the intention evinced in, for example, a Minister’s second reading speech on a Bill where it is satisfied that there is good reason not to do so. In Re Bolton; Ex parte Beane (1987) 162 CLR 514 at 518 Mason CJ, Wilson and Dawson JJ stated that “[t]he words of a Minister must not be substituted for the text of the law”. See similarly North Australian Aboriginal Justice Agency Ltd v Northern Territory (2015) 90 ALJR 38 at [229]; Director of Public Prosecutions v Walters [2015] VSCA 303 at [7]. The court has regard to the second reading speech in order to ascertain the purpose of the legislation. The court does not attribute significance to statements in the speech that refer to the intended meaning of a particular provision: Harrison v Melhem (2008) 72 NSWLR 380 at [12], [172], [191]-[192]. Furthermore, it has been stated in the High Court that: “It is only when the meaning of the text is doubtful … that consideration of extrinsic material might be of assistance. It follows that it would be erroneous to look to the extrinsic material before exhausting the application of the ordinary rules of statutory construction. If, when that is done, the meaning of the statutory text is not doubtful, there is no occasion to look to the extrinsic material”: Catlow v Accident Compensation Commission (1989) 167 CLR 543 at 550; see also Telstra Corporation Ltd v Hurstville City Council (2000) 105 FCR 322 at [142]. It is the words of the statute rather than the extrinsic materials that have primary importance for statutory interpretation: Nominal Defendant v GLG Australia Pty Ltd (2006) 228 CLR 529 at [22], [82]. Thus the words of the explanatory memorandum cannot replace the words of the statute, and where there is a clash between them, the words of the statute naturally take priority: Director of Public Prosecutions v Le (2007) 15 VR 352 at [59]-[60]. Similar provisions permitting recourse to extrinsic materials are included in most State and Territory interpretation statutes. 10 The Queensland Court of Appeal has held that the language of the statute may not be ignored in order to accord with statements in the Minister’s Second Reading speech: Witheyman v Simpson [2011] 1 Qd R 170 at [52], [82], [89]. There is no such provision in South Australia. In that State the common law applies, so the courts may have regard to extrinsic materials in determining the mischief to which a statute was directed: K-Generation Pty Ltd v Liquor Licensing Court (2009) 237 CLR 501 at [50]-[51]; Ireland v Wightman (2014) 119 SASR 266 at [44]. 10

Interpretation Act 1987 (NSW), s 34; Interpretation of Legislation Act 1984 (Vic), s 35; Acts Interpretation Act 1954 (Qld), s 14B; Interpretation Act 1984 (WA), s 19; Acts Interpretation Act 1931 (Tas), s 8B; Legislation Act 2001 (ACT), s 142; Interpretation Act 1978 (NT), s 62B.

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Common law rules of statutory interpretation [1.380] Over the years, the courts developed a number of rules to be applied in the interpretation of statutes. While described as “rules”, they are essentially guidelines for statutory interpretation. The more important of these rules are:

The literal rule [1.390] The courts are to interpret the words used in an Act of Parliament literally as far as they can, that is, they must give the words their natural, ordinary and grammatical meaning. This is based on the assumption that Parliament’s intention is expressed in the actual words used. Accordingly, if the words are clear, it is not necessary to look further for their meaning. However, the inconvenience of the result of a literal interpretation may assist the court in concluding that an alternative construction which is reasonably open is to be preferred to the literal meaning because the alternative construction more closely conforms to the legislative intent discernible from other provisions in the statute: Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 320 per Mason and Wilson JJ. In that case, Gibbs CJ explained the general position as follows: “[I]f the language of a statutory provision is clear and unambiguous, and is consistent and harmonious with the other provisions of the enactment, and can be intelligibly applied to the subject matter with which it deals, it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust. To say this is not to insist on too literal an interpretation, or to deny that the court should seek the real intention of the legislature. The danger that lies in departing from the ordinary meaning of unambiguous provisions is that … it may lead judges to put their own ideas of justice or social policy in place of the words of the statute. On the other hand, if two constructions are open, the courts will obviously prefer that which will avoid what it considers to be inconvenience or injustice. Since language, read in its context, very often proves to be ambiguous, this last mentioned rule is one that not infrequently falls to be applied”: Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 305. Arguably, the Commonwealth Acts Interpretation Act 1901 (Cth) (s 15AA) may require a more “purposive” approach to statutory interpretation than that indicated in the Cooper Brookes case, although the views expressed in that case have been referred to with approval in decisions on the amended provisions: see, for example, Mills v Meeking (1990) 169 CLR 214 at 223, 242. McHugh J stated that today “[t]he literal meaning of the legislative text is the beginning, not the end, of the search for the intention of the legislature”: Kelly v The Queen (2004) 218 CLR 216 at [98].

The golden rule [1.400] Where a literal reading would give rise to an absurdity, the judge may have resort to what is known as the “golden rule”. It has been said in the High Court that the propriety of departing from a literal interpretation is not confined to situations where the operation of the statute on a literal interpretation would be “absurd”, “capricious” or “irrational” but “extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions”: Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 321 per Mason and Wilson JJ.

The mischief rule [1.410] This brings us to the “mischief rule”. By this rule, where a literal interpretation is not possible because, for example, the words are ambiguous, logically defective, inconsistent with each other or

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incomplete, then the court may have regard to the “mischief” which Parliament passed the Act to remedy. In such circumstances, the court is to interpret the statute according to the original purpose or policy underlying its enactment. The High Court has made reference to law reform commission reports and explanatory memoranda when ascertaining the mischief to which legislation was directed: CIC Insurance v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 99, 112; Federal Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 250 CLR 523 at [53]-[54]. The mischief rule required an ambiguity or inconsistency before a court could have regard to the purpose or object of a statute. The “purposive” provision of the Commonwealth Acts Interpretation Act 1901 (Cth) (s 15AA) and the corresponding provisions in the State legislation is not so confined: Mills v Meeking (1990) 169 CLR 214 at 235: see [1.360]. Furthermore, the range of extrinsic materials to which one may have regard is more extensive under the amended provisions: see [1.370]. Accordingly, much of the scope for the operation of the common law mischief rule would now appear to have been superseded by the statutory provisions.

Maxims of interpretation [1.420] The courts apply a number of principles or “maxims” of statutory interpretation. However, these principles are aids to construction, rather than inflexible rules. Under the “ejusdem generis” maxim, where particular words are followed by a general word, the general word may be interpreted as restricted to the same class as the particular words. For example, in the absence of some contrary intention, in the phrase “dogs, cats, guinea pigs and other animals”, the general words “other animals” would be construed as restricted to domestic animals, and would not be interpreted as including elephants or whales. Ejusdem generis is merely a “guide to interpretation” rather than a rule, and it “must be used cautiously”: Chief Executive Officer of Customs v Biocontrol Ltd (2006) 150 FCR 64 at [46]; see also Pepper v Attorney-General [2008] 2 Qd R 353 at [1], [23], [34]. This rule does not apply where the particular words do not constitute a class. In that case, the general word will not be subject to that restrictive interpretation: Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 at 639–640, 648; R v Regos (1947) 74 CLR 613 at 623–624. According to the “expressio unius est exclusio alterius” maxim, express mention of one matter suggests that other matters are excluded. The maxim will not apply unless the provision concerned is intended as an exhaustive statement of some matter. The courts emphasise that this maxim is to be applied with care, for “whilst [it is] a valuable servant, it is apt to be a dangerous master”: Balog v Independent Commission Against Corruption (1990) 169 CLR 625 at 632. Under the maxim “generalia specialbus non derogant”, where there is a conflict between a specific provision and a general provision in a statute, the specific provision will usually be applied in preference to the general provision: Smith v The Queen (1994) 181 CLR 338 at 348. The courts also make certain presumptions in construing legislation. For example, “common law rights should be taken to have been cut down by statute only where there is a clear legislative expression of an unmistakable and unambiguous intention to do so”: Daly v Thiering (2013) 249 CLR 381 at [32].

Delegated legislation [1.430] Delegated legislation is legislation made under the authority of an Act of Parliament. It is also known as subordinate legislation. It is not uncommon for an Act of Parliament to set out the law on a particular matter in general terms and go on to delegate or empower some person or body to make the

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detailed rules or regulations necessary to give effect to the legislation. Examples of the persons and bodies to whom such power is commonly given include the Governor-General or Governor in Council, government Ministers and local authorities. The reasons for conferring power on others to make delegated legislation are that: (a)

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

(b)

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

The power given by the particular Act may be quite specific as to the regulations which may be made under it, or it may confer a broad power to make delegated legislation. An example of the latter is the power given to local governments by the Queensland Local Government Act 2009 (Qld), s 28(1): “A local government may make … any local law that is necessary or convenient for the good rule and local government of its local government area.” Parliament maintains some control over delegated legislation through the requirement that regulations be tabled or laid before the Parliament 11 and by retaining the option of disallowing such regulations within specified periods after their tabling. 12 In both the Commonwealth and State Parliaments, committees have been set up to examine delegated legislation tabled before the Parliament with a view to maintaining some general supervisory control over its content. It is important to bear in mind that delegated legislation is only valid if it comes within the power conferred by the Act of Parliament under which it is made. Accordingly, if in making the regulation the person or body has exceeded the power given by the particular Act, the regulation may be held to be ultra vires (beyond power) by the court and hence invalid.

Judge-made law [1.440] Another important source of law is judge-made law which comprises the principles of law propounded by judges in deciding particular cases. The term “common law” is in fact used in a number of different ways. It may refer to: (a)

the law as declared by judges as distinct from statutory law (the laws made by Parliament);

(b)

common law as distinct from equity; and

(c)

common law as distinct from civil law (to distinguish between a common law system of law as practised in the UK and those countries which inherited that system (for example, Australia), from a civil law system as practised in most European and Asian countries).

The term “common law” in the present work will generally be used to refer to the principles of law arising from the decisions of judges in deciding particular cases, as distinct from statutory law. Thus, the term “common law” will generally refer to the principles of both the common law and equity. However, in some cases it will be necessary to distinguish between common law and equity. An Act of Parliament may abrogate or modify the rules of the common law and equity. The judicial law-making function is thus subordinate to the legislative power of Parliament. To appreciate the essential nature of judge-made law, and particularly to understand the reasons for the distinction between common law and equitable principles, it is useful to have some familiarity with the historical development of judge-made law. In this context we distinguish between common law and equity. 11

Legislation Act 2003 (Cth), s 38.

12

Legislation Act 2003 (Cth), s 42.

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Development of the common law [1.450] In medieval England, the development of the Royal or Common Law Courts saw the gradual decline of local courts governed by archaic procedures. It was in these central courts that a law common to all of England gradually evolved. All actions in the Royal Courts had to be commenced by obtaining the appropriate writ from Chancery, the department responsible for issuing writs. By the 14th century, the Royal Courts had become firmly established. However, the legal system during this period suffered from a number of serious deficiencies. Only certain types of writ were available and if the wrong complained of could not be framed so as to fit within one of the existing writs, then the complainant had no cause of action and hence no remedy. Furthermore, the procedure involved in proving a case became increasingly complex and very strict. A case could be lost for non-compliance with the merest technicality. These deficiencies in the common law led to the rise of equity as a source of law.

The growth of equity [1.460] Equity developed as an amelioration of the harsh consequences of common law rules. Where persons were unable to obtain a remedy for their grievances in the Common Law Courts because of the deficiencies in the common law, they would petition the King for relief. The increase in the number of these petitions asking the King as a matter of conscience or justice to redress the petitioners’ grievances led to them being dealt with by the Chancellor, one of the King’s principal advisers. Eventually, aggrieved petitioners would send their petitions directly to the Chancellor. The Chancellor was also the head of the Chancery, the body responsible for issuing writs to those seeking a remedy in one of the Common Law Courts. The hearing of petitions by the Chancellor led to the emergence during the 15th century of the separate jurisdiction of the Chancery as a court of equity, later known as the Court of Chancery. The system of law administered by the court, which came to be known as equity, was not seen as a rival system to the common law but as supplementing the common law by providing remedies that the common law could not supply and by acknowledging rights not recognised by the Common Law Courts. For example, the recognition and enforcement of trusts was exclusively a development of equity since the common law made no provision for the legal owner of property holding it on behalf of another. Further, the remedy of the Common Law Courts was to award monetary compensation called “damages” to a person who had suffered injury, whereas the Court of Chancery could grant specific performance (that is, compel a person to do what he or she had promised) or an injunction (that is, order a person to abstain from doing something). Equitable remedies were (and remain today) discretionary. There gradually evolved two systems of law – common law and equity – which were administered in England in two separate systems of courts: the Common Law Courts and the Court of Chancery. A struggle over jurisdiction developed between the equity and common law courts. The dispute was finally settled by the passing of the Judicature Act 1873 in England in 1873. Under that Act, the separate courts were replaced by one Supreme Court of Judicature in which both the rules of equity and the rules of the common law were to be administered not only in the one court, but also in the one proceeding, with the rider that where there was any conflict between the two bodies of rules, the rules of equity would prevail. All the Australian States have followed the United Kingdom Judicature Act 1873 model, so that both common law and equitable principles are applied in the one proceeding. New South Wales was the last to adopt the “Judicature” system, which came into operation in that State following the Supreme Court Act 1970 (NSW).

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Reception of English law in Australia [1.470] The law in force in Australia today is largely based on the law of England. To appreciate the nature of that inheritance, it is necessary to have some understanding of the reception of English law in Australia. An Imperial Act, the Australian Courts Act 1828 (IMP), provided that all laws and statutes in force within the realm of England on 25 July 1828 should be applied in the administration of justice in the courts of New South Wales and Tasmania “so far as they could be applied within those colonies”. Accordingly, 25 July 1828 is the point of time at which the laws (both common law and statutory law) then existing in England apply in Australia. After 1828, changes in the laws of England did not generally apply to Australia. However, until 1942 the Commonwealth Parliament could not legislate contrary to the provisions of Imperial Acts applying to the Commonwealth. The Imperial Parliament enacted the Statute of Westminster 1931 (IMP), which was adopted by the Commonwealth Parliament in the Statute of Westminster Adoption Act 1942 (Cth). Under the Imperial Act the Imperial Parliament relinquished the power to legislate for the Commonwealth of Australia, except in the case where the Commonwealth Parliament expressly requested and consented to such enactment: Statute of Westminster 1931 (IMP), s 4. The Commonwealth was also given power to legislate contrary to Imperial Acts: Statute of Westminster Adoption Act 1942 (Cth), s 2. Since the Australia Act 1986 (Cth), the States can now legislate contrary to Imperial Acts. In other words, the Australia Act 1986 (Cth) did for the State Parliaments what the Statute of Westminster had earlier done for the Commonwealth Parliament. The law in force in each State of Australia today comprises an Imperial element, a federal element and a State element. The Imperial element includes, in addition to the law inherited from England at the time of settlement of the former colonies, statutes of the Imperial Parliament which applied to the Australian colonies, either expressly or by necessary implication, since the first introduction of English law.

Law reports [1.480] The common law comprises the decisions of judges in deciding particular cases. Those decisions are published in law reports. For the High Court the authorised law reports are the Commonwealth Law Reports (published since 1903) and for the Federal Court, the Federal Court Reports (since 1984). In the States and Territories the authorised law reports are the New South Wales Law Reports, Victorian Reports, Queensland Reports, South Australian State Reports, Western Australian Reports, Tasmanian Reports, Australian Capital Territory Law Reports and the Northern Territory Law Reports. The Australian Law Reports contain decisions of the High Court, Federal Court, Territory courts and other courts exercising federal jurisdiction and decisions of the Territory courts. The Federal Law Reports contain decisions of Commonwealth and State courts on matters of federal law. In addition, there are many specialist series of reports containing decisions on particular aspects of the law such as contract, intellectual property, trade practices, company law, torts, insurance, consumer credit, industrial law, bankruptcy, trusts and so on.

Form of a law report [1.490] Modern law reports present cases in a similar way. On turning to the report of a case, at the top of the page will usually be found the names of the parties followed by the name of the court (although in some reports this order is reversed). This will be followed by the name of the judge/s and the dates on which the

chapter 1 The Australian Legal System

case was heard. Immediately below are a number of words which very briefly indicate the subject matter of the case and relevant legislation: these words are called “catchwords”. Then will follow a fuller summary of the facts, the decision in the case and reference to cases that were applied, overruled, distinguished, discussed or referred to in the judgment: this part is called the “headnote”. The catchwords and the headnote do not form part of the judgment. Their object is to provide readers with a short summary of the case to decide whether it is relevant for their purposes. After the headnote there will be words indicating how the case came before the court, for example by statement of claim, summons, appeal, etc. This will be followed by the names of the legal representatives of the respective parties (usually barristers). In some law reports there will then be a brief summary of the arguments put to the court by counsel. Where the court does not give judgment immediately after hearing argument but gives it later, it is called a reserved judgment: this is indicated in the law report by the words “cur adv vult” (the short form of the Latin expression curia advisari vult – “the court wishes to be advised”). The law report will then set out, usually in full, the judgment/s given in the case. Judgments tend to follow a similar basic pattern, namely a statement of the material facts; identification of the issues involved; discussion of the relevant law and its application to the particular facts; the decision reached and a statement of the orders flowing from the decision. At the end of the report appear the names of the firms of solicitors representing the respective parties and the initials or name of the reporter who wrote the catchwords and headnote. The following example of a case reported in the Commonwealth Law Reports illustrates the various features of a law report:

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Pt 1 Introduction

Figure 1.1: Example of a Law Report

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Citation of cases [1.500] A case in support of a legal principle is cited by quoting the names of the parties and giving a reference to the law report where the case can be found. For example: Norwich Winterthur Insurance (Australia) Ltd v Con-Stan Industries of Australia Pty Ltd [1981] 2 NSWLR 879 This means that the case of Norwich Winterthur Insurance (Australia) Ltd (the plaintiff) against Con-Stan Industries of Australia Pty Ltd (the defendant), decided in the Supreme Court of New South Wales, is reported in the New South Wales Law Reports of 1981, volume two of that year, at page 879. In that case, the judge at first instance decided in favour of the defendant, Con-Stan Industries of Australia Pty Ltd. Accordingly, the plaintiff in the original action, Norwich Winterthur Insurance (Australia) Ltd, appealed to the New South Wales Court of Appeal. The Court of Appeal reversed the decision of the trial judge and held in favour of Norwich Winterthur Insurance (Australia) Ltd (now called “the appellant”) and against Con-Stan Industries of Australia Pty Ltd (now called “the respondent”). The report of the decision of the New South Wales Court of Appeal is cited as follows: Norwich Winterthur Insurance (Australia) Ltd v Con-Stan Industries of Australia Pty Ltd [1983] 1 NSWLR 461 As in the example above, this means that the report of the decision of the New South Wales Court of Appeal in the case can be found in the New South Wales Law Reports for the year 1983, in volume one of that year, at page 461. Subsequently, Con-Stan Industries of Australia Pty Ltd, the unsuccessful respondent in the New South Wales Court of Appeal, appealed against that court’s decision to the High Court. The decision of the High Court is cited as follows: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 The case citation given means that the decision of the High Court in the appeal of Con-Stan Industries of Australia Pty Ltd (now called the appellant) against Norwich Winterthur Insurance (Australia) Ltd (now called the respondent) is reported in the Commonwealth Law Reports, volume 160, at page 226, the judgment being delivered in the year 1986. The following points may be noted from the above explanation: 1.

In connection with the case at first instance (that is, at the original trial of the action), Norwich Winterthur Insurance (Australia) Ltd was the party who brought the action and is therefore called the plaintiff. The plaintiff’s name appears first in the citation of the case. The party against whom the action is brought, here Con-Stan Industries of Australia Pty Ltd, is called the defendant. Although the reference to the case is written Norwich etc v Con-Stan Industries etc it is referred to verbally as Norwich and Con-Stan Industries. The reason for this is that the full title of the action is “between N, plaintiff and C, defendant”.

2.

In the appeal to the New South Wales Court of Appeal, Norwich was the party who appealed and is therefore called the appellant. Con-Stan Industries, who responded to the appeal, is called the respondent.

3.

In the appeal to the High Court, Con-Stan Industries was the party who appealed and who now, therefore, is called the appellant. Norwich this time is the respondent, and in the citation the

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appellant’s name appears first. Accordingly, in this instance, the names of the parties are in reverse order in the citation of the appeal to the High Court to that in which they appeared in the citation to the report of the original action, and also in the report of the appeal to the New South Wales Court of Appeal. [1.510] Sometimes the parties are referred to by other names, for example applicant, petitioner, etc, depending on the particular court in which the case is to be heard and the nature of the proceedings. In criminal proceedings, the citation of a case dealing with the prosecution of a person for an indictable offence usually takes the following form: R v Dillon [1982] VR 434 The citation indicates that the case is reported in the Victorian Reports for the year 1982, at page 434. Here, R is an abbreviation for Regina or Reg (the Queen), or Rex (the King). Sometimes the words “the Queen” (or “the King”) are used instead of the abbreviation R. In the above citation the Crown is taking action against Dillon and the citation is expressed verbally as “the Queen against Dillon”. It will be observed that in the citations to the New South Wales Reports and the Victorian Reports above, the year is contained in square brackets. This indicates that the year was an integral part of the reference to the particular series of reports at that time. On the other hand, the Commonwealth Law Reports, the other series of law reports cited in the examples above, is cited by volume number (in the example given, volume 160) and the year in which the case was decided is not a necessary part of the citation. However, it is common practice to include in the citation in round brackets the year in which the case was decided. More recent volumes of the New South Wales Law Reports and Victorian Reports are now also cited by volume number. [1.520] With the ready availability of judgments in electronic form on the Internet, often long before their publication in the printed law reports, “medium-neutral” citations have now been adopted for the citation of judgments. Each case is given a citation which identifies the year the case was decided and the court which decided the case, together with a unique number for that case. For example, the following medium-neutral citation is that of the 16th High Court decision handed down in 2011: Insight Vacations Pty Ltd v Young [2011] HCA 16. Each judgment is divided into numbered paragraphs. These individual paragraphs are cited as follows: Insight Vacations Pty Ltd v Young [2011] HCA 16 at [20]. It is thus possible to cite to a particular point in an electronic version of a judgment with the same precision as a page number in a printed law report. Many decisions available in electronic format will be subsequently reported in the law reports. After the publication of a case in the law reports, it is customary to cite the case by its citation in the law reports rather than by its medium-neutral citation. Hence, the decision referred to above will now be cited as Insight Vacations Pty Ltd v Young (2011) 243 CLR 149. The main abbreviations for federal courts used in medium-neutral citations are HCA (High Court of Australia); FCAFC (Full Court of the Federal Court of Australia, from 2002); and FCA (single judge decision of the Federal Court). The abbreviations for State courts are generally a combination of the abbreviation for the State and the letters SC (Supreme Court) or CA (Court of Appeal). For example, the New South Wales Supreme Court is abbreviated NSWSC, while the New South Wales Court of Appeal is abbreviated NSWCA.

chapter 1 The Australian Legal System

Custom [1.530] Prior to the Norman Conquest (1066), and for a considerable period after it, much of the law of England was customary law administered in local feudal and communal courts. Gradually, customary law became incorporated as part of the common law and the significance of custom as a separate source of law steadily declined. It remains the law that where a custom is proved to be in common usage, certain and reasonable, it will be recognised and enforced by the courts: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 236-237. However, in that case the High Court held that the alleged trade custom or usage had not been established: at 241.

The doctrine of precedent and the hierarchy of Australian courts The doctrine of precedent [1.540] The principles of the common law are to be found in the decisions of the various courts. Justice requires that like cases should be decided alike or, to put it another way, that the legal principles applied in similar situations should be consistent. The common law gives effect to this notion by what is called the doctrine of binding precedent (or stare decisis). In simple terms, the doctrine requires that the decision of a court in a decided case binds judges lower in the same court hierarchy in deciding cases of a similar nature. For example, a decision of the High Court of Australia on a particular issue is binding on State Supreme Courts and the Federal Court should they have to decide the same issue in a later case. The rationale for the doctrine was explained in the High Court in this way: “If an intermediate appellate court were free to disregard a fundamental doctrine settled by the final appellate court, an endemic uncertainty would infect the administration of justice … Courts are bound to apply the principles laid down by courts higher in the appellate hierarchy and observance of that rule avoids the futility of delivering judgments which will be reversed on appeal”: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 129-130 per Brennan J. Cases decided in one hierarchy are not strictly binding on the courts in another but will be of persuasive authority only. For example, decisions of the Supreme Court, the highest appellate body for the United Kingdom since 2009, will not be binding on Australian courts although they will generally be followed unless there is good reason not to do so. 13 The precedential value of the decisions of the appellate courts of other States is very strong. A unanimous bench of the High Court has stated: “Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong. Since there is a common law of Australia rather than of each Australian jurisdiction, the same principle applies in relation to non-statutory law”: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [135]. See also R v JS (2007) 230 FLR 276 at [87], [92], [167]; McKern v Minister Administering the Mining Act 1978 (2010) 28 VR 1 at [114], [141]; Dupas v R (2012) 40 VR 182 at [222]. 13

The House of Lords was the predecessor of the Supreme Court as the highest court of the United Kingdom. For an example of a case where the High Court refused to follow a previous decision of the House of Lords, see Australian Consolidated Press v Uren (1966) 117 CLR 185; [1969] 1 AC 590 at 193, 218 (CLR); 641 (AC); see also Parker v The Queen (1963) 111 CLR 610 at 632.

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There will be a conflict of authority where the court of another jurisdiction holds that a prior decision interpreting a uniform law was wrongly decided. The New South Wales Court of Criminal Appeal followed its own earlier decision on the interpretation of uniform legislation in preference to a subsequent Victorian Court of Appeal decision that had held that the prior New South Wales decision was plainly wrong. The New South Wales court determined for itself which of the conflicting decisions was correct: R v XY (2013) 84 NSWLR 363 at [65], [87], [159], [162]. The situation is different where a court interprets State or Territory legislation that is not part of a uniform national scheme. In such a case the court need not “slavishly follow judicial decisions of the courts of another jurisdiction in respect of similar or even identical legislation”: Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259 at [31]. A further question that arises is whether an appellate court in a particular hierarchy is bound by a previous decision of the same court. The High Court “has never regarded itself as bound by its own previous decisions, which is all the more appropriate now that it is a court of last resort for all purposes”: Nguyen v Nguyen (1990) 169 CLR 245 at 269. 14 In practice, the High Court will normally follow its own earlier decisions and will only depart from them where there is a strong reason for so doing. In this context the High Court has commented that: “The power to overrule a previous decision should be exercised with great caution. Continuity and coherence in the law demand that in this court the principle of stare decisis should ordinarily be applied”: Jones v Commonwealth (1987) 71 ALR 497 at 498; see also Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 at 554. In a recent case in which the High Court did not follow its own previous decision, it was said that when a court of final appeal considers judge-made law, “[w]hile stare decisis is a sound policy because it promotes predictability of judicial decision and facilitates the giving of advice, it should not always trump the need for desirable change in the law especially, we would add, if the change is necessary to maintain a better connection with more fundamental doctrines and principles”: Imbree v McNeilly (2008) 236 CLR 510 at [45] per Gummow, Hayne and Kiefel JJ, with whom Gleeson CJ and Crennan J agreed: at [13], [193]. However, in declining to overturn a prior decision, the court emphasised that the decision whether to overrule one of its previous decisions “must be made in light of the ‘grave danger of a want of continuity in the interpretation of the law’”: Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 90 ALJR 572 at [28] per French CJ, Kiefel, Bell, Gageler and Keane JJ, with whom Nettle and Gordon JJ agreed: at [64], [131]. The High Court alone decides whether one of its decisions should continue to be followed, not the lower courts: Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at [17]. The Full Court of the Federal Court will depart from its own previous decision if convinced that it is “clearly erroneous”: NAGV v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 130 FCR 46 at [63], [74]; see also SZEEU v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 150 FCR 214 at [146]-[148]. The Court has indicated that where there are two closely reasoned previous decisions of the Court on the same point and reaching the same conclusions, it would be “almost inconceivable as a matter of practice” that the Court would decline to follow them: Selim v Lele (2008) 167 FCR 61 at [55]. In Nguyen v Nguyen (1990) 169 CLR 245 it was also said that: “The extent to which the Full Court of the Supreme Court of a State regards itself as free to depart from its own previous decisions must be a matter of practice for the court to determine for itself”: at 268. The High Court pointed out that since appeals to the High Court are now by special leave only, the appeal courts of the Supreme Courts of the States and of the Federal Court are in many instances courts of last resort for all practical purposes. 14

See generally M Harding and I Malkin, “Overruling in the High Court of Australia in Common Law Cases” (2010) 34 Melbourne University Law Review 519.

chapter 1 The Australian Legal System

Accordingly, it seemed inappropriate that these courts should regard themselves as strictly bound by their own previous decisions, since in cases where an appeal is either not available or not taken to the High Court “rigid adherence to precedent is likely on occasions to perpetuate error without … significantly increasing the corresponding advantage of certainty”: at 270. However, a State or Territory court of appeal will normally follow its own previous decisions and the circumstances in which it determines not to do so will be comparatively rare. The Victorian Court of Appeal will only depart from its own previous decision where it is convinced that the decision is “clearly, or plainly, wrong”: RJE v Secretary to the Department of Justice (2008) 21 VR 526 at [48]; see similarly Commissioner of State Revenue v Challenger Listed Investments Ltd (2011) 34 VR 617 at [20]; special leave refused Commissioner of State Revenue v Challenger Listed Investments Ltd [2012] HCATrans 352. The Tasmanian Court of Criminal Appeal has also adopted the “plainly wrong” test: KMJ v Tasmania (2011) 20 Tas R 425 at [34]. The New South Wales Court of Appeal has adopted a similar test, but with the added qualification that this is “a necessary, but not sufficient condition”: Gett v Tabet (2009) 254 ALR 504 at [296]. Other considerations relevant to the decision whether to overrule include whether the decision was part of a line of authority, inconvenience caused by the decision, reliance upon the decision and whether the decision can be confined to its precise issue: at [297]-[299]. (On appeal the High Court upheld this decision without discussing this issue: Tabet v Gett (2010) 240 CLR 537). A Court of Appeal composed of five judges will follow the “plainly wrong” rule in relation to a prior Court of Appeal decision handed down by a three-judge bench: Chubb Insurance Co of Australia Ltd v Moore (2013) 302 ALR 101 at [101], [103] (NSWCA). A single judge of a lower court is not bound by an earlier decision of another judge of the same court, for example a single judge of a Supreme Court is not bound by an earlier decision of another single judge of the same Supreme Court. However, in practice, a judge of first instance will usually follow the decision of another judge of first instance unless convinced that the earlier judgment was wrong: La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201 at 204.

The ratio decidendi of a case [1.550] Not all of the judgment of a higher court is necessarily binding on a lower court. Only the reason/s given for deciding the earlier case, called the “ratio decidendi” (often shortened to ratio), creates a binding precedent. In the High Court decision in O’Toole v Charles David Pty Ltd (1991) 171 CLR 232 at 267, Brennan J said: “… the law is changed by judicial decision, especially by decision of the higher appellate courts. Thereafter, the law is taken to be and to have been in accordance with the principle which informs the new decision: the ratio decidendi. The ratio, which is expressed in or necessarily implied by reasons for judgment to which a majority of the participating judges assent, is the law. It is not merely a judicial opinion as to what the law is; it is a source of law.” A statement of principle made in the earlier case that was not strictly necessary for the decision is not binding: such a statement is called an “obiter dictum” (singular) or “obiter dicta” (plural). However, the High Court has modified this traditional rule by stating that lower courts are bound by its “seriously considered dicta”: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [134], [158]. 15 A lower court must determine precisely what was the ratio of the higher court which is binding, a task which is often more complex than might at first appear. Furthermore, it might be found that there is some 15

See M Harding and I Malkin, “The High Court of Australia’s Obiter Dicta and Decision-Making in the Lower Courts” (2012) 34 Sydney Law Review 239.

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differentiating feature between the fact situations in the two cases so that the earlier case can be distinguished from the later, in other words, held not to apply because of the differing circumstances of the later case.

Hierarchy of the Australian courts Federal courts [1.560] There are presently four federal courts: the High Court, Federal Court, Family Court and the Federal Circuit Court. The jurisdiction of the Family Court is outside the scope of a general work on commercial law. However, each of the other courts will be examined in turn.

High Court of Australia [1.570] The High Court of Australia is the highest court in Australia. The court has both an original and an appellate jurisdiction. Under the Constitution (s 75) the court has original jurisdiction in cases that affect certain matters of foreign affairs, constitutional questions and cases concerning the legislative powers of the Federal Parliament. Additional original jurisdiction is conferred on the court by the Judiciary Act 1903 (Cth) (pursuant to s 76 of the Constitution). One justice can hear cases before the court in its original jurisdiction. The High Court is the final appeal court in Australia. Its appellate jurisdiction stems from s 73 of the Constitution which provides that the court can hear and determine appeals from: (a)

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

(b)

any federal court or court exercising federal jurisdiction; and

(c)

the Supreme Court of any State.

Litigants generally need to obtain special leave to appeal to the High Court: Judiciary Act 1903 (Cth), ss 35 – 35A; Federal Court of Australia Act 1976 (Cth), s 33. What this means is that the High Court will hear an application to appeal and decide whether or not to hear the appeal. Special leave to appeal will normally only be granted where the case involves some important question of law, or in a criminal case, a serious miscarriage of justice. The High Court’s reasons for refusing special leave applications do not constitute binding precedents: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [112], [119].

Federal Court of Australia [1.580] The Federal Court was established under the Federal Court of Australia Act 1976 (Cth). It comprises a Chief Judge and over 40 other judges. The court has both an original and appellate jurisdiction. The court enforces federal legislation such as the Competition and Consumer Act 2010 (Cth). It has concurrent jurisdiction over bankruptcy and intellectual property matters. In its appellate jurisdiction, where the court sits as a Full Court comprised of three judges, the Federal Court hears appeals from: (a)

a single judge of the court;

(b)

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

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

chapter 1 The Australian Legal System

Federal Circuit Court [1.590] This court was established by the Federal Circuit Court of Australia Act 1999 (Cth). Prior to 2012 the court was called the Federal Magistrates Court. It has a concurrent jurisdiction over minor cases concerning consumer protection under the Competition and Consumer Act 2010 (Cth) and bankruptcy. This court has reduced the workload of the Federal Court.

State courts [1.600] Each of the Australian States and Territories has its own separate hierarchy of courts. The basic structure in most of the States comprises: (a)

Supreme Court;

(b)

District or County Courts; and

(c)

Local or Magistrates Courts.

Supreme Court [1.610] The highest court in each State and Territory is the Supreme Court which exercises both civil and criminal jurisdiction. The Supreme Court has unlimited civil jurisdiction in all matters not expressly excluded by statute and vested in, for example, the Federal Court or the High Court. The original jurisdiction of the Supreme Court is exercised by a single judge. A decision of a single judge may be appealed to the Court of Appeal (in New South Wales, Victoria, Queensland, Western Australia, Australian Capital Territory and Northern Territory) or Full Court of the State (in South Australia and Tasmania). In New South Wales, appeals from single judges of the Supreme Court in civil matters are heard by a separate division of the court called the Court of Appeal in which sit specially appointed Judges of Appeal. Appeals in criminal cases in that State are heard by the Court of Criminal Appeal. In Victoria, the Court of Appeal comprises a President and a number of Judges of Appeal. The Chief Justice is also a member of the court. The Victorian Court of Appeal functions both as a civil and criminal court of appeal. In Queensland, the Supreme Court comprises two Divisions: the Court of Appeal (comprising the President and a number of Judges of Appeal) and the Trial Division. Proceedings in the Trial Division are heard by a single judge from whose decision an appeal lies to the Court of Appeal, which will normally comprise three Judges of Appeal. In Western Australia, the Supreme Court consists of a General Division and the Court of Appeal. The Court of Appeal comprises the Chief Justice, President and the other Judges of Appeal. In South Australia and Tasmania, there is a right of appeal from a single judge to a Full Court of the Supreme Court comprising a number of judges of the court (usually three) sitting together. Appeals from single judges of a Supreme Court exercising federal jurisdiction in certain matters lie to the Full Federal Court (see above). Special leave to appeal to the High Court may be sought from a decision of the Full Court or the Court of Appeal. In New South Wales, the Supreme Court has a somewhat more complex administrative structure than in the other States. In addition to the Chief Justice, the highest judicial position common to all of the States, there is also a President of the Court of Appeal, a Chief Judge of the Common Law Division and a Chief Judge of the Equity Division of the court. Proceedings in the Common Law Division include claims for

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damages in contract and tort, claims for the possession of land and the detention of goods, and certain proceedings under landlord and tenant legislation. The Equity Division of the court hears applications for injunctions, specific performance of contracts for the sale of land, the appointment of receivers and liquidators of companies, and certain proceedings under, for example, real property, family law, companies, securities industry, and intellectual property legislation. Judges in the Common Law Division of the court also hear proceedings from the Commercial Law, Admiralty, Administrative Law, and Criminal Law Divisions of the court, while judges in the Equity Division of the court also handle matters from the Probate and Protective Divisions of the court.

District or County Courts [1.620] Most States have established intermediate courts called District Courts (in New South Wales, Queensland, South Australia, and Western Australia) or County Courts (in Victoria) which have a statutory jurisdiction. This jurisdiction is limited with respect to subject matter and value of money or property in dispute. The maximum monetary limitations on the civil jurisdiction of these courts are: New South Wales ($750,000; and unlimited jurisdiction in respect of motor accident claims and work injury damages claims); Victoria (unlimited jurisdiction); Queensland ($750,000); and Western Australia ($750,000; and unlimited jurisdiction in personal injury cases). 16 Where higher amounts are involved proceedings must be taken in the Supreme Court. In South Australia there is no specified maximum monetary limitation and the District Court has the same jurisdiction as the Supreme Court in civil cases with the exception of probate and admiralty. 17 The majority of civil cases heard in the District or County Courts are common law disputes such as actions to recover money under a contract, personal actions in tort (that is, personal injury cases) and some actions for the possession of land. Tasmania, the Australian Capital Territory and the Northern Territory do not have the equivalent of these intermediate courts in the other States since their population is not considered sufficient to justify their establishment.

Local or Magistrates Courts [1.630] The lowest courts in the hierarchy of State courts are those presided over by magistrates (excepting the Northern Territory). These courts are variously known as Local Courts (in New South Wales; and also in South Australia, when exercising civil jurisdiction, and the Northern Territory); Magistrates Courts (in Victoria, Queensland, Western Australia, Tasmania and the Australian Capital Territory); Courts of Petty Sessions (when exercising criminal jurisdiction in Tasmania); and Courts of Summary Jurisdiction (when exercising criminal jurisdiction in South Australia). In civil cases the jurisdiction of the courts is generally limited to claims up to a certain monetary value. The maximum monetary limitations on the civil jurisdiction of these courts are: (a)

New South Wales ($100,000);

(b)

Victoria ($100,000);

(c)

Queensland ($150,000);

(d)

South Australia ($100,000);

(e)

Western Australia ($75,000);

(f)

Tasmania ($50,000);

16 17

District Court Act 1973 (NSW), ss 44, 4; County Court Act 1958 (Vic), s 37; District Court of Queensland Act 1967 (Qld), s 68(2); District Court of Western Australia Act 1969 (WA), ss 6(1), 50. District Court Act 1991 (SA), s 8.

chapter 1 The Australian Legal System

(g)

the Australian Capital Territory ($250,000); and

(h)

the Northern Territory ($250,000). 18

The Local Courts and Magistrates Courts in their civil jurisdiction deal primarily with debt claims, contractual disputes and minor accident claims.

Privy Council [1.640] Formerly, the Privy Council heard appeals from both the High Court and the State Supreme Courts. All such appeals are now abolished. Following the abolition of appeals from the High Court to the Privy Council, the High Court is no longer bound by earlier decisions of the Privy Council, which are therefore now of persuasive authority only: Barns v Barns (2003) 214 CLR 169 at [31], [99]-[101], [123]. 19

Other courts and tribunals [1.650] In addition to the principal courts discussed at [1.600], there are a number of other courts and tribunals in Australia both at a federal and State level.

Federal tribunals and commissions [1.660] A number of quasi-judicial bodies, tribunals and commissions have been established under federal legislation, the most significant of which for our purposes are: the Australian Competition and Consumer Commission and the Australian Competition Tribunal.

Australian Competition and Consumer Commission and Australian Competition Tribunal [1.670] The Australian Competition and Consumer Commission (ACCC) has general responsibility for initiating proceedings for contravention of the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly, the Trade Practices Act 1974 (Cth)) in restrictive trade practices cases and for instituting prosecutions for offences against the consumer protection provisions of the Act. The ACCC has the power to authorise on public benefit grounds some types of conduct in restrictive trade practices matters that might otherwise be prohibited. Decisions of the ACCC on authorisation and certain other matters are subject to review by the Australian Competition Tribunal. The Tribunal consists of a President, several Deputy Presidents (who must be judges of a Federal Court) and other Members appointed on the basis of knowledge of, or experience in: industry, commerce, economics, law or public administration.

Specialist State courts and tribunals [1.680] There are a considerable number of specialist State courts and tribunals. Some of the more important of these are outlined at [1.690].

Small Claims Tribunals [1.690] All States and Territories have instituted Small Claims Tribunals or procedures to provide a cheaper, speedier and more informal method of resolving disputes, particularly between consumers and 18

Local Court Act 2007 (NSW), s 29; Magistrates’ Court Act 1989 (Vic), ss 100, 3(1); Magistrates Courts Act 1921 (Qld), ss 2, 4; Magistrates Court Act 1991 (SA), s 8; Magistrates Court (Civil Proceedings) Act 2004 (WA), ss 4, 6(1); Magistrates Court (Civil Division) Act 1992 (Tas), ss 7, 3; Magistrates Court Act 1930 (ACT), s 257; Local Court Act 2015 (NT), s 12.

19

See M Gleeson, “The Influence of the Privy Council on Australia” (2007) 29 Australian Bar Review 123.

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Pt 1 Introduction

traders, involving comparatively small sums of money. 20 The parties normally present their own case and the dispute is heard before a referee, invariably a legal practitioner in New South Wales, Victoria, and Western Australia, and in Queensland, a stipendiary magistrate. South Australia, Tasmania, the Australian Capital Territory and the Northern Territory have provided for simplified small claims proceedings within their existing court structures. Jurisdiction is limited to hearing disputes where the claim does not exceed a prescribed amount. The monetary limits are: New South Wales $10,000 in small claims and $40,000 in consumer claims; Victoria $10,000; Queensland $25,000; Australian Capital Territory $10,000; Northern Territory $25,000; Western Australia $10,000; South Australia $12,000 and Tasmania $5,000.

Other specialist courts and tribunals [1.700] Many jurisdictions have a Civil and Administrative Tribunal. 21

Federal and State court jurisdiction [1.710] The general position is that federal courts may only exercise the jurisdiction that is conferred upon them by the Constitution or by Acts of the Commonwealth Parliament and do not have power to deal with matters falling within State jurisdiction. Similarly, State courts cannot exercise federal jurisdiction unless empowered to do so by a federal Act. State courts have been invested with federal jurisdiction from time to time (for example, under the Judiciary Act 1903 (Cth), s 39), although such jurisdiction has usually been limited to particular areas of Commonwealth legislation such as bankruptcy, taxation and intellectual property. The consequence has been that sometimes litigants have commenced an action in a particular court only to find that the court did not have jurisdiction to hear the matter. To remedy this situation, consultations took place between the Commonwealth and State governments which led to the passing of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). The Act provides for the vesting of State and Territory Supreme Courts with federal civil jurisdiction except in certain industrial and trade practices matters. By corresponding legislation passed by all the State Parliaments, the Federal Court was vested with the jurisdiction of the State Supreme Courts. The basic purpose of the legislation was to prevent actions failing in the respective court systems for lack of jurisdiction with the resultant inconvenience and expense to litigants. However, in Re Wakim; Ex parte McNally (1999) 198 CLR 511 the High Court held that the purported vesting of State jurisdiction in the Federal Court under the cross-vesting scheme was constitutionally invalid: at [3], [26], [39].

Classification of law and legal proceedings Public law and private law [1.720] Law can be classified as either public law or private law. Public law is concerned with the organisation of government and with the relationship between the government and the people. It includes constitutional law, administrative law and criminal law. Constitutional law defines the structure of 20

Local Court Act 2007 (NSW), s 29 (in Local Court); Fair Trading Act 1987 (NSW), Pt 6A and s 79S(7) (in Civil and Administrative Tribunal); Australian Consumer Law and Fair Trading Act 2012 (Vic), ss 182 – 185; Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 11, Sch 3; Magistrates Court Act 1991 (SA), ss 3, 38; Magistrates Court (Civil Proceedings) Act 2004 (WA), ss 3, 26; Magistrates Court (Civil Division) Act 1992 (Tas), ss 3, 7(2); ACT Civil and Administrative Tribunal Act 2008 (ACT), s 18; Small Claims Act 2016 (NT), s 5.

21

Civil and Administrative Tribunal Act 2013 (NSW); Victorian Civil and Administrative Tribunal Act 1998 (Vic); Queensland Civil and Administrative Tribunal Act 2009 (Qld); South Australian Civil and Administrative Tribunal Act 2013 (SA); ACT Civil and Administrative Tribunal Act 2008 (ACT); Northern Territory Civil and Administrative Tribunal Act 2014 (NT).

chapter 1 The Australian Legal System

government and the rights of individuals under that government. Administrative law regulates the exercise of powers and duties by administrative officers and authorities. Criminal law defines offences against the State and provides punishment for their commission. Whereas public law is concerned with matters affecting the State and its relationship with individuals, private law deals with the relationships between private persons or organisations. There are many branches of private law, some of the more important of which include the following: 1.

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

2.

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

3.

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

4.

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

5.

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

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

Substantive law and procedural law [1.730] A distinction is made between substantive law and procedural law. Substantive law refers to actual rights and duties under the law. Procedural law refers to the formal steps to be followed in the enforcement of those rights and duties, in particular, the rules of procedure and evidence. Procedural law is also referred to as adjectival law because it is subsidiary to substantive law.

Civil law and criminal law [1.740] The civil law is that law under which a person (the plaintiff) may sue another (the defendant) to obtain redress for a wrong committed by the defendant. The usual purpose of a civil action is to obtain monetary compensation called damages for the loss suffered by the plaintiff as a result of the defendant’s wrongful act, for example, for a breach of contract or the commission of a tort. In some cases damages are an inadequate remedy and the plaintiff might seek specific performance of a contract or an injunction to restrain some unlawful act or threatened act. The criminal law defines offences against the State (that is, against the public) and provides punishment for their commission. Crimes are defined by statute, delegated legislation or the common law and are prosecuted in the name of the Crown on behalf of the State. Where a wrongful act is both a crime and a tort, the State may prosecute the offender who committed the crime, and the victim may bring a civil action against such person for the harm or loss suffered. The distinction between civil law and criminal law is important because different procedures, different standards of proof and different remedies apply.

Criminal proceedings [1.750] Criminal offences are of two types, namely summary offences and indictable offence. Summary offences are criminal offences triable summarily, that is, offences which are heard and determined by a magistrate without a jury; they usually comprise minor offences.

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Pt 1 Introduction

Indictable offences are criminal offences triable before a judge and jury; they are generally the more serious offences. In the case of indictable offences there is a preliminary or committal hearing before a magistrate who conducts an inquiry to see if there is sufficient evidence to put the defendant on trial. The magistrate must determine whether a prima facie case has been made out and, if he or she so decides, the defendant is committed for trial before a judge and jury. In criminal law the prosecution must prove their case beyond reasonable doubt. This is essentially another way of saying that a person is innocent until proven guilty (see Chapter 32).

Civil proceedings [1.760] Civil proceedings is the term used to describe all other proceedings that are not criminal proceedings. A person will commence civil proceedings in order to enforce some legal right which they believe they have against another, for example for breach of contract, or for the commission of a tort. The party commencing the action is called the plaintiff and the party against whom the action is brought, the defendant. The procedural steps for bringing a civil action vary according to the particular court. In the Supreme Courts a civil action is generally commenced by the issue of a document called a writ or, in New South Wales, a statement of claim. This is a formal document issued by an officer of the superior court and it contains a brief statement, prepared by the plaintiff or the plaintiff’s legal advisers, of the cause of action. The plaintiff has to cause the writ to be served on the defendant. The defendant then has a limited period within which to file a document with the court, known as a notice of “appearance”, indicating their intention to defend the action. A copy of the appearance is required to be served on the plaintiff’s solicitor. If the defendant fails to file an appearance, the plaintiff may bring the matter before the court for judgment in the absence of the defendant. The writ sets out briefly the nature of the plaintiff’s cause of action but a more detailed statement of facts is required before the matter can proceed to trial. Such statement is set out in a document called a statement of claim which may be delivered with the writ, or after the defendant has entered an appearance. The defendant, if he or she intends to defend the action, is required to respond to the plaintiff’s statement of claim by filing with the court, and serving on the plaintiff, a document known as a “defence”. The defendant must admit or deny in their defence each of the allegations in the plaintiff’s statement of claim. If the defendant relies on facts which do not appear in the statement of claim, these must be set out in their defence and the plaintiff will respond to these in a further document known as a reply. The aggregate of these documents are known as “pleadings” and it is by this system of pleading that the parties determine the matters of dispute between them.

Interrogatories [1.770] In pre-trial civil proceedings interrogatories may be delivered by one party to the other. Interrogatories are a set of questions about the facts of the case that the other party is obliged to answer on oath. These answers can be used as part of the evidence at the hearing of the case. Interrogatories are designed to obtain admissions of fact and narrow the issues in dispute.

Discovery [1.780] A further useful procedure available in civil proceedings is that of discovery. A party who is asked to give discovery must make a statement on oath as to all the relevant documents in their possession or control and can be required to allow the other party to inspect and take copies of these documents. In this way the parties can find out details of the other side’s case. Certain documents are excepted from the process of discovery, for example, the instructions given by a party to their legal adviser.

chapter 1 The Australian Legal System

The trial [1.790] If the parties are unable to reach a settlement, the dispute will eventually come on for trial before the court. Counsel for the plaintiff will open her or his case with an address setting out in broad terms what the case is about and outlining the evidence to be presented. The plaintiff’s witnesses are then called and examined in turn by the plaintiff’s counsel. This is known as evidence-in-chief. Each witness on completing their evidence may be cross-examined by counsel for the defendant. After cross-examination has been completed, the plaintiff’s counsel has the right to re-examine a witness in respect of matters arising out of the cross-examination. It is then for the defendant’s counsel to open their case and to call witnesses in support of the defence. The defendant’s witnesses are examined by the defendant’s counsel and may be cross-examined by the plaintiff’s counsel. If necessary, they may be re-examined by the defendant’s counsel. On the close of the defendant’s case, the plaintiff’s counsel may adduce evidence in reply to matters raised in the defence. On completion of the evidence on both sides, first the plaintiff’s counsel and then the defendant’s counsel will give their closing address. If it is a jury trial the judge will sum up, that is, identify the facts, survey the evidence and explain the relevant legal rules. When a decision is reached by the jury a verdict is entered. If the case is heard by a judge and jury, the decision on the facts is made by the jury and the decision on the law is made by the judge. Where the case is heard by a judge sitting alone, which is the more usual situation in civil cases, the judge will determine both questions of fact and law. After a decision has been reached, the court will make appropriate orders, for example, order the defendant to pay the damages assessed for the breach of contract or tort and make an order for costs. An appeal to a higher court will normally be available.

Standard of proof [1.800] In civil proceedings the plaintiff has a lesser standard of proof than in criminal proceedings and in order to succeed must prove their case on the balance of probabilities.

The legal profession [1.810] The legal profession is basically composed of solicitors and barristers.

Solicitors [1.820] A solicitor is a general practitioner of the law. Where a member of the public has a dispute which has legal implications, requires legal documents to be drawn up in respect of a particular transaction or matter, or needs advice on some aspect of the law then they will generally consult a solicitor. The work of a solicitor includes, for example, drawing up contracts regarding commercial dealings, following through the legal technicalities of forming a company and advising on taxation matters. In relation to litigation, that is, cases to be heard before the court, the solicitor’s function is to ascertain the facts and procure the necessary documents and other evidence required by the barrister who has been briefed to conduct the case. In New South Wales and Queensland there is a divided legal profession. In other words there is a clear distinction in those States between solicitors on the one hand and barristers on the other. Although the legal profession is not technically divided in this way in Victoria, and a person is admitted both as a solicitor and a barrister in that State, the distinction between these two branches of the profession is generally maintained in practice. In South Australia and Western Australia there is similarly what is known as a “fused” legal profession; that is to say, a person is admitted to practise as both a solicitor and barrister. Accordingly, in the latter States there are those who practise exclusively as solicitors, those who practise exclusively as barristers, and those who practise as both.

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Barristers [1.830] Barristers are generally responsible for actually conducting cases in court. They also provide solicitors with legal opinions on difficult points of law. Barristers tend to specialise in a particular branch of the law. Whereas a person can see a solicitor for the first time simply by going to the solicitor’s office, or phoning up to make an appointment, a barrister cannot usually deal directly with a client in this way but must first have been instructed in the matter by a solicitor. That is to say, the client will have gone to a solicitor with their problem and if the problem involves litigation the solicitor will usually “brief” or instruct a barrister in the matter. Alternatively, the issue in question may be one of some legal complexity requiring specialist advice and the solicitor may well seek an opinion from a barrister who is an expert in that particular area of law. The solicitor is paid by the client but the barrister is paid by the solicitor whose responsibility it is to collect the fees from the client. Leading barristers in each State may apply to “take silk”, that is, be appointed a Senior Counsel (or SC), with the exceptions of Queensland where the appointment is to Queen’s Counsel (or QC) and Victoria where counsel taking silk may choose which title they prefer to use. In practice, a solicitor will only brief a Senior Counsel or Queen’s Counsel if the case is of sufficient importance and difficulty to warrant the additional cost involved.

Alternative methods of dispute resolution [1.840] The delay and ever-increasing cost of litigation has led in recent years to a growing emphasis on alternative methods of settling disputes outside formal court proceedings. Federal legislation now allows the Federal Court and the Federal Circuit Court to impose a penalty in costs where a party does not take “genuine steps” to resolve a dispute before civil proceedings are brought. 22 It is proposed to outline the system of commercial arbitration and then to consider other alternative methods of dispute resolution.

Commercial arbitration [1.850] Arbitration is the reference of a dispute to an independent third party selected by the parties or by their nominee instead of litigating the matter in the courts. Parties to a commercial dispute may agree to submit it to arbitration either by an arbitration clause in an agreement or at the time the dispute arises. The advantages of arbitration are seen as avoidance of publicity (since the proceedings are in private); avoidance of delay in having the dispute settled; the procedure is simpler and less formal than that in a court of law; reduction of expense; and, should the matter be of a technical nature such as a building dispute or involve a complex accounting or commercial matter, a person having the required technical qualifications and expertise may be appointed arbitrator.

22

See Civil Dispute Resolution Act 2011 (Cth), s 12(1); Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 at [30]ff.

chapter 1 The Australian Legal System

All States and Territories except the Australian Capital Territory have introduced new uniform legislation regarding domestic commercial arbitrations. 23 As at 16 September 2016 no Bill for a new arbitration law had been introduced into the ACT Legislative Assembly. The former uniform Act remains in force in that jurisdiction. 24 The uniform arbitration legislation is based upon the UNCITRAL Model Law on International Commercial Arbitration 25 and generally adopts the same numbering as the Model Law. Under Australian law broadly the same regime applies to both international and domestic commercial arbitrations. The State and Territory Acts apply only to domestic commercial arbitrations: s 1(1). An arbitration is domestic if (a) the parties have their places of business in Australia when they conclude their arbitration agreement; and (b) the parties have agreed in writing that their disputes are to be settled by arbitration; and (c) if the Commonwealth Act regarding international arbitrations is not applicable: s 1(3). An arbitration agreement is defined as an agreement by which the parties agree that disputes within their legal relationship will be submitted to arbitration: s 7(1). The agreement may be a contractual provision or a separate agreement: s 7(2). An arbitration agreement must be in writing: s 7(3). However, the definition of writing is very broad: s 7(4) – (8). Courts may not intervene in the arbitral process except as provided by the Act: s 6. Several sections of the Act provide for court intervention in particular circumstances: ss 6 – 9 and 36. Where an action relating to the subject matter covered by the arbitration agreement is brought before a court, the court must refer the matter to arbitration if a party makes that request no later than when they make their first submission regarding the substance of the dispute: s 8(1). The parties may agree upon the number of arbitrators: s 10(1). If the parties do not agree, there shall be one arbitrator: s 10(2). The parties may agree upon the process of appointment of the arbitrators: s 11(2). If they do not reach agreement regarding the process, in the case of a three-arbitrator panel where there are two parties, each party shall appoint one, and the two arbitrators shall appoint the third: s 11(3)(a). The Supreme Court may appoint a sole arbitrator if the parties are unable to agree on the appointment: s 11(3)(b). The arbitral tribunal may grant interim measures of protection regarding the subject matter of the dispute: s 17(1) – (2). The tribunal may grant interim measures that “maintain or restore the status quo” pending its decision on the dispute: s 17(2)(a). A tribunal may make orders for the preservation of assets: s 17(2)(c). This is similar to a Mareva injunction. See Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213 at 215. A tribunal may also make orders for the preservation of evidence that may be destroyed: s 17(2)(d). This is similar to an Anton Piller order. See Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 at 61-62. The uniform legislation allows for judicial enforcement of interim measures: s 17H. The tribunal may request the assistance of the Supreme Court in taking evidence: s 27(1). The court may assist as permitted by its jurisdiction and subject to its rules of court: s 27(2). The court may issue subpoenas requiring the attendance of witnesses or the production of documents before the tribunal: s 27A(1). 23

24 25

Commercial Arbitration Act 2010 (NSW); Commercial Arbitration Act 2011 (Vic); Commercial Arbitration Act 1990 (Qld); Commercial Arbitration Act 2011 (SA); Commercial Arbitration Act 2012 (WA); Commercial Arbitration Act 2011 (Tas); Commercial Arbitration (National Uniform Legislation) Act 2011 (NT). See generally GA Moens, J Trone and P Evans “Annotation of the Commercial Arbitration Act 2012 (WA)” in E Bergsten (ed), International Commercial Arbitration (Oceana, New York, 2014). Commercial Arbitration Act 1986 (ACT). UNCITRAL Model Law on International Commercial Arbitration adopted 21 June 1985 and as revised 7 July 2006, [2006] Uniform Law Review 866; A/61/17 p 56.

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The High Court has held that at common law arbitral proceedings are assumed to be private but not confidential: Esso Australia Resource Ltd v Plowman (1985) 183 CLR 10 at 30, 34, 39, 48. Under the new uniform legislation confidentiality is the default position unless otherwise agreed by the parties: s 27E(1). The tribunal’s award must be made in written form: s 31(1). It must be supported by written reasons, unless the parties have agreed otherwise or the award records a settlement: s 31(3). An arbitrator may order specific performance if the Supreme Court would have power to make such an order in relation to the particular contract. This is subject to any contrary agreement between the parties: s 33A. The only means of judicial recourse against an award are an application to set aside the award or an appeal against the award: s 34(1). The court may not set aside an award for an error of fact or law. The court may only set aside an award in seven circumstances: s 34(2). The first five circumstances are dependent upon proof by the applicant: s 34(2)(a). The last two are based upon a finding by the court: s 34(2)(b). First, the applicant may show that a party to the arbitration agreement was under an incapacity: s 34(2)(a)(i). Secondly, the arbitration agreement was invalid under the law that was chosen by the parties, or if no law was indicated in the contract, under the law of the State where the application was made: s 34(2)(a)(i). Thirdly, the applicant did not receive proper notice of the arbitral proceedings or of an arbitrator’s appointment, or the applicant was unable to present their case for some other reason: s 34(2)(a)(ii). Fourthly, the award deals with matters beyond the scope of the submission to arbitration: s 34(2)(a)(iii). If the matters beyond jurisdiction may be severed from the matters within jurisdiction, only part of the award will be invalid: s 34(2)(a)(iii). Fifthly, the composition of the tribunal or its procedure was not in accordance with the agreement between the parties, except where the agreement was contrary to a mandatory provision of the Act: s 34(2)(a)(iv). Alternatively, where there was no relevant agreement between the parties, the composition of the tribunal or its procedure was not in accordance with the Act: s 34(2)(a)(iv). Sixthly, if the court determines that under the law of this State the subject matter of the dispute cannot be settled by arbitration: s 34(2)(b)(i). Seventhly, the court may set aside the award if it finds that the award conflicts with the public policy of this State: s 34(2)(b)(ii). An application to set aside an award must be made within three months of the date when the applicant received the award: s 34(3). Appeals to the court against awards may only be made where before the end of the appeal period the parties agree to allow an appeal and where the court grants leave: s 34A(1). In practice appeal rights would only be effective if provided for in the arbitration agreement. It is improbable that a successful party would agree to an appeal of the award. With one exception, the grounds for refusing to recognise or enforce an award are the same as the grounds for setting aside an award: s 36(1). There is an additional ground for refusing recognition or enforcement: “the award has not yet become binding on the parties or has been set aside or suspended by a court of the State or Territory in which, or under the law of which, that award was made”: s 36(1)(a)(v). The expansion of international trade has led to an increase in international commercial arbitration. Part 2 of the International Arbitration Act 1974 (Cth) provides for the recognition and enforcement of foreign

chapter 1 The Australian Legal System

arbitral awards in State and Territory courts. Under Pt 3 of the Act the Model Law is applicable to all international commercial arbitrations conducted in Australia unless the parties have expressly contracted out of its provisions. 26

Alternative dispute resolution [1.870] The expression “alternative dispute resolution” (or ADR) refers to methods of dispute management that offer an alternative to litigation. Methods of alternative dispute resolution can be classified as facilitative, advisory, or determinative processes. Facilitative processes include negotiation, mediation and facilitation. Advisory processes include conciliation and independent expert appraisal. Determinative processes include arbitration and private judging. A range of ADR processes are described in the next section. The processes appear in order of the level of third party neutral intervention in the particular process.

Negotiation [1.880] Negotiation between the parties with a view to seeking a mutually acceptable outcome through discussion, either with or without the assistance of a third party, is the most commonly used method of resolving disputes. The majority of commercial disputes are resolved by negotiation between the parties.

Mediation [1.890] Where the parties are unable to negotiate a settlement between them they may seek mediation of the dispute. Mediation is a voluntary negotiation process in which a neutral third party, the mediator, assists disputing parties to find their own solution to their dispute by helping them to isolate the issues in dispute, to develop options for their resolution and to reach an agreement that accommodates the interests and needs of all the parties.

Conciliation [1.900] In conciliation, a neutral third person assists the parties to negotiate as in mediation but exercises greater influence over the outcome than is the case with mediation. The conciliator may suggest options and possible solutions and is generally much more directive than a mediator. In Australia conciliations often take place within a statutory framework, for example, complaints of discrimination under federal and State anti-discrimination legislation. 27

Independent expert appraisal [1.910] Expert appraisal is a process that provides for an independent expert appointed by the parties to give a determination on some disputed issue of fact or law. The independent expert acts in an investigatory, inquisitorial manner in obtaining the information necessary to arrive at a proper determination of the issue. The parties will decide whether the determination of the independent expert is to be final and binding upon them. If not, they may use the determination as a basis for negotiating a settlement, or at least as clarifying the issues between them. The issues to be determined by the independent expert may be factual, a trade or 26 27

See J Trone and GA Moens, “The International Arbitration Act 1974 (Cth) as a Foundation for International Commercial Arbitration in Australia” (2007) 4 Macquarie Journal of Business Law 293. Australian Human Rights Commission Act 1986 (Cth), ss 46P–46PN; Anti-Discrimination Act 1977 (NSW), s 91A; Equal Opportunity Act 2010 (Vic), s 112; Anti-Discrimination Act 1991 (Qld), ss 158–164AA; Equal Opportunity Act 1984 (SA), ss 27 and 95; Equal Opportunity Act 1984 (WA), ss 91–92; Anti-Discrimination Act 1998 (Tas), ss 75–77; Human Rights Commission Act 2005 (ACT), ss 54–67; Anti-Discrimination Act 1992 (NT), ss 78–81.

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industry practice or custom, or legal. Independent expert appraisal needs to be distinguished from arbitration since, in the case of an arbitration, the Commercial Arbitration Acts will apply: see [1.850]. The distinction can sometimes be a fine one: Capricorn Inks Pty Ltd v Lawter International (Australasia) Pty Ltd [1989] 1 Qd R 8 at 28, 33, 39.

Commercial dispute centres [1.950] The Australian private sector has played an active role in the development of mediation practice in Australia. Private sector organisations offer a variety of mediation services including mediations, lists or panels of mediators who are available to mediate disputes, mediation venues and standard mediation documentation. In addition, many industries have integrated mediation and other forms of ADR into their dispute management processes and grievance procedures without legislative compulsion. The Financial Ombudsman Service is an example of such a dispute management scheme. The conditions under which private mediators perform their mediation services varies according to whether or not they mediate under the umbrella of a particular private sector organisation and, if so, which one. For example, unless provided by the organisation for which they mediate or by specific legislation, mediators do not enjoy immunity from prosecution as do judges. 28

Further reading Australian Legal Development R Hinchy, The Australian Legal System: History, Institutions and Method (2nd ed, Thomson Reuters, Sydney, 2015). Australian Constitutional System G Williams, S Brennan and A Lynch, Blackshield and Williams Australian Constitutional Law and Theory: Commentary and Materials (6th ed, Federation Press, Sydney, 2014). GA Moens and J Trone, Lumb, Moens & Trone The Constitution of the Commonwealth of Australia Annotated (9th ed, LexisNexis Butterworths, Sydney, 2016). PA Gerangelos et al, Winterton’s Australian Federal Constitutional Law: Commentary and Materials (3rd ed, Thomson Reuters, Sydney, 2013). Sources of Law S Corcoran and S Bottomley (eds), Interpreting Statutes (Federation Press, Sydney, 2005). K Hall and C Macken, Legislation and Statutory Interpretation (4th ed, LexisNexis Butterworths, Sydney, 2015). P Herzfeld, T Prince and S Tully, Statutory Interpretation Principles (Thomson Reuters, Sydney, 2014). D Pearce and S Argument, Delegated Legislation in Australia (4th ed, LexisNexis Butterworths, Sydney, 2012). 28

For examples of the statutory grant of immunity to mediators, see Dispute Resolution Centres Act 1990 (Qld), s 35(1); Mediation Act 1997 (ACT), s 12 (repealed by Courts Legislation Amendment Act 2015 (ACT), s 4).

chapter 1 The Australian Legal System

D Pearce and RS Geddes, Statutory Interpretation in Australia (8th ed, LexisNexis Butterworths, Sydney, 2014). Legal Research and Writing B Bott and R Talbot-Stokes, Nemes and Coss' Effective Legal Research (6th ed, LexisNexis Butterworths, Sydney, 2015). C Cook et al, Laying Down the Law (9th ed, LexisNexis Butterworths, Sydney, 2015). R Finkelstein and D Hamer (eds), Lexis Nexis Concise Australian Legal Dictionary (5th ed, LexisNexis Butterworths, Sydney, 2015). T Hutchinson, Researching and Writing in Law (3rd ed, Lawbook Co., Sydney, 2010). L McNamara and A Lynch, Australian Legal Research: Exercises and Tasks (3rd ed, Butterworths, Sydney, 2004). T Mann (ed), Australian Law Dictionary (2nd ed, Oxford University Press, South Melbourne, 2013). J Sanderson and K Kelly, A Practical Guide to Legal Research (3rd ed, Lawbook Co, Sydney, 2014). R Watt and F Johns, Concise Legal Research (6th ed, Federation Press, Sydney, 2009). Doctrine of Precedent and Hierarchy of the Courts J Carvan, Understanding the Australian Legal System (7th ed, Thomson Reuters, Sydney, 2015). R Chisholm et al, Understanding Law (8th ed, LexisNexis Butterworths, Sydney, 2012). C Cook et al, Laying Down the Law (9th ed, LexisNexis, Sydney, 2015). J Crawford and B Opeskin, Australian Courts of Law (4th ed, Oxford University Press, Melbourne, 2004). Legal Profession A Lamb, J Littrich, K Murray, Lawyers in Australia (3rd ed, Federation Press, Sydney, 2015). Alternative Methods of Dispute Resolution L Boulle, Mediation: Principles, Process, Practice (3rd ed, LexisNexis Butterworths, Sydney, 2011). S Hardy and O Rundle, Mediation for Lawyers (CCH Australia, Sydney, 2010). D Jones, Commercial Arbitration in Australia (2nd ed, Thomson Reuters, Sydney, 2013). T Sourdin, Alternative Dispute Resolution (5th ed, Thomson Reuters, Sydney, 2016). D Spencer, Principles of Dispute Resolution (Thomson Reuters, Sydney, 2011). D Spencer and S Hardy, Dispute Resolution in Australia: Cases, Commentary and Materials (3rd ed, Thomson Reuters, Sydney, 2014).

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Internet sites Legislation and Case Law Australasian Legal Information Institute (AustLII) http://www.austlii.edu.au (decisions of federal, State and Territory courts and tribunals; Commonwealth, State and Territory consolidated statutes) Parliaments The various Parliamentary websites generally provide access to Hansard, Bills, explanatory memoranda and Committee Reports: (Commonwealth) Parliament of Australia http://www.aph.gov.au Legislative Assembly for the ACT http://www.parliament.act.gov.au Parliament of New South Wales http://www.parliament.nsw.gov.au Legislative Assembly of the Northern Territory http://www.nt.gov.au/lant Queensland Parliament http://www.parliament.qld.gov.au Parliament of South Australia http://www.parliament.sa.gov.au Parliament of Tasmania http://www.parliament.tas.gov.au Parliament of Victoria http://www.parliament.vic.gov.au Parliament of Western Australia http://www.parliament.wa.gov.au

Journals Australasian Dispute Resolution Journal Federal Law Review Public Law Review

PART PT 2 LAW OF CONTRACT

Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12

Introduction to the Law of Contract Offer and Acceptance Intention to Create Legal Relations Consideration, Promissory Estoppel and Formalities Contractual Capacity Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts Legality of Object Contents and Interpretation of the Contract Operation of the Contract Termination of a Contract Remedies

chapter 2

Introduction to the Law of Contract [2.20] Definition of a contract ........................................................................................................................................ 50 [2.30] Essential elements of a contract ................................................................................................................... 50 [2.50] Classification of contracts ................................................................................................................................. 51 [2.110] Illustration of simple express written contract ................................................................................... 52

Introduction [2.10] The law of contract is the basis of commercial law. Much of the law governing the sale of goods, agency, negotiable instruments, insurance, partnerships and so on concerns the application of general contractual principles to specialised areas of commercial law. It is necessary to distinguish those agreements that are regarded by the law as valid and enforceable and those which are mere agreements and not enforceable. The terms “contract” and “agreement” are frequently used interchangeably. Every contract involves an element of agreement; however, not every agreement amounts, in law, to a contract. For this reason it is necessary to define what constitutes a “contract”.

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Definition of a contract [2.20] A contract is an agreement between two or more parties under which legal rights and obligations are created which will be enforced in the courts. More succinctly, a contract is a promise or a set of promises that the law will enforce. The law of contract is concerned with the principles applicable to the formation, performance, interpretation and breach of contracts.

Essential elements of a contract [2.30] For there to be a contract, certain essential elements must be present. In the absence of one or more of these elements, the agreement between the parties will not constitute a contract and will not be enforced by the courts. The essential elements of a contract are: (a)

an offer by one party and its acceptance by the other;

(b)

the intention of the parties to create legal relations;

(c)

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

(d)

legal capacity of the parties to act;

(e)

a genuine consent by the parties; and

(f)

legality of the objects of the agreement.

The requirement that there be an offer by one party which is accepted by the other together form the agreement between the parties. The nucleus of all contracts is an agreement. However, not all agreements are enforceable at law. For example, a social agreement (say, where A agrees with B to play cards at B’s house on a certain night) does not give rise to contractual rights since the parties do not intend their agreement to be legally binding. Hence, the requirement that for a contract to come into existence, the parties must intend their agreement to create legal relations. [2.40] A further essential element in the formation of a contract is that some value must have been given in exchange for the other party’s promise, that is, in a simple contract the agreement must be supported by valuable consideration. This requirement means that the law will not enforce a gratuitous promise. For example, a promise by A to give something to B is not legally enforceable. An exception is where the promise is made under seal, that is, contained in a formal deed, in which case valuable consideration is not necessary for the promise to be enforceable. The parties to a contract must be legally capable of reaching a binding agreement, that is, have the legal capacity to enter into a contract. To be enforceable, the agreement must have been the product of a genuine consent by each of the parties. Factors affecting genuine consent such as mistake, misrepresentation, duress and undue influence may affect the enforceability of the agreement. The subject matter of the agreement must be legal. Each of these essential elements of a contract are discussed in further detail in the following chapters. If one of these essential elements is lacking then the courts will not enforce the agreement between the parties. Assuming that the court is satisfied that there is a valid contract, its next task in the event of dispute is to determine the nature and extent of what the parties have agreed by interpreting the terms of the contract. The court is then in a position to determine whether a party is in breach of their obligations under the contract and, if so, decide the appropriate remedy available to the other party.

chapter 2 Introduction to the Law of Contract

Classification of contracts [2.50] Some of the common types of contract and their basic characteristics are outlined at [2.60]–[2.100].

Simple contracts [2.60] All contracts (other than contracts under seal) are termed “simple contracts”. In general, a simple contract may be oral, wholly or partly in writing, or may even be implied by the conduct of the parties. However, some simple contracts are required by statutory provision to be in writing, and others are required to be evidenced in writing. Every simple contract, irrespective of how it is formed, must be supported by consideration: see Chapter 5.

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

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

Bilateral and unilateral contracts [2.90] Most contracts consist of the exchange of mutual promises, the actual performance of which is to occur at some future time. For example, where a steel manufacturer enters into a contract with a coal supplier in February for the delivery of coal during August at a specified price, each party has made a promise to the other to do something at a future date. Such a contract, consisting of a “promise for a promise” is a bilateral contract. A unilateral contract is one in which an offer is made inviting acceptance by actual performance rather than by a promise. For example, the offer of a reward for the return of a lost dog is accepted by the return of the dog. A unilateral contract “comes into existence when one party promises to do something in return for acts performed by the other party, with the intention of being contractually bound if those acts are performed, and the other party accepts that promise by performing his or her side of the bargain”: Gippsreal Ltd v Registrar of Titles (2007) 20 VR 157 at [42].

Valid, voidable, void and unenforceable contracts [2.100] A valid contract is one in which all the essential elements are present. As a result it is enforceable against both parties. The usual remedy for breach of the contract is a judgment for damages. Sometimes an equitable remedy such as specific performance may be available.

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A voidable contract is one which a party may avoid, that is, get out of, if that party wishes to do so. For example, a person who was induced to enter into a contract by the other party’s fraud may avoid the contract. A void contract is one which, as far as the law is concerned, never existed at all. It is of no legal effect between the parties and thus does not create legal rights or obligations. For example, where the purpose of the contract is totally illegal, such as a contract to commit a crime, the contract would be void. An unenforceable contract is one which is prima facie a valid contract but which by reason of some technical defect is not capable of being enforced by action by one or both of the parties, for example, a contract made verbally which is required by statute to be evidenced in writing and which has not been so evidenced.

Illustration of simple express written contract [2.110] EXAMPLE OF CONTRACT Date Parties

Agreement to sell Deposit Completion

Attestation Clause

THIS AGREEMENT made the fifth day of November 2017. BETWEEN WILLIAM JOHN AUSTIN of “Hilton Park” Tamworth in the State of New South Wales Grazier (hereinafter called the Vendor) of the one part and HAROLD ERIC GRAY of Tamworth aforesaid Butcher (hereinafter called the Purchaser) of the other part. 1. The Vendor agrees to sell and the Purchaser agrees to purchase 200 steers branded WA and depastured at “Hilton Park” aforesaid for the sum of $70,000. 2. Upon signing of this contract the Purchaser will pay to the Vendor a deposit of $10,000 and the balance of purchase money shall be paid on completion. 3. The Vendor shall deliver the said steers to Tamworth Sale Yard and completion of this contract shall take place on the sixteenth day of December 2017. AS WITNESS the hands of the parties hereto. SIGNED by the said WILLIAM JOHN AUSTIN in the presence of: SIGNED by the said HAROLD ERIC GRAY in the presence of:

Further reading for Chapters 2-12 JW Carter, Carter's Guide to Australian Contract Law (3rd ed, LexisNexis Butterworths, Sydney, 2015). JW Carter, Contract Law in Australia (6th ed, LexisNexis Butterworths, Sydney, 2013). JW Carter, Cases and Materials on Contract Law in Australia (6th ed, LexisNexis Butterworths, Sydney, 2012). MP Ellinghaus, Australian Cases on Contract (Code Press, Melbourne, 2009). J Gooley, P Radan and I Vickovich, Principles of Australian Contract Law (3rd ed, LexisNexis Butterworths, Sydney, 2014). S Graw, An Introduction to the Law of Contract (8th ed, Thomson Reuters, Sydney, 2015).

chapter 2 Introduction to the Law of Contract

D Khoury and YS Yamouni, Understanding Contract Law (8th ed, LexisNexis Butterworths, Sydney, 2010). J Paterson, R Robertson and A Duke, Principles of Contract Law (5th ed, Thomson Reuters, Sydney, 2016). J Paterson, R Robertson and A Duke, Contract: Cases and Materials (12th ed, Thomson Reuters, Sydney, 2012). NC Seddon, RA Bigwood and MP Ellinghaus, Cheshire and Fifoot Law of Contract (10th Aust ed, LexisNexis Butterworths, Sydney, 2012).

Journal Journal of Contract Law

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Offer and Acceptance [3.20] The offer ...................................................................................................................................................................... 56 [3.160] Acceptance............................................................................................................................................................. 59

Introduction [3.10] The first essential element in the formation of a contract is an offer by one party and the acceptance of that offer by another. In practice, an offer and acceptance may not be as clear as, for example, where A says to B, “I offer to sell you this” and B says, “I accept”. If a valid contract is alleged it must be shown on analysing all the negotiations that one person has made an offer and another person has accepted that offer expressly or impliedly on the terms in which it was made. An agreement, and thus a contract, implies three things: (a)

two parties at least;

(b)

an offer; and

(c)

an acceptance of that offer.

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The offer [3.20] An offer is a proposal by one party to enter into a legally binding contract with another. The offer may be made in writing, orally or implied by conduct. An offer can only exist if there is a firm promise to do or refrain from doing something. The person making the offer must intend that it can be converted into a binding obligation by acceptance.

Offers distinguished from invitations to treat [3.30] It is important to distinguish an offer which will give rise to binding obligations on acceptance from an “invitation to treat”; that is, an indication of willingness to deal or trade. An invitation to treat is essentially an initial approach to others inviting them to make an offer which may or may not be accepted. For example, if A said: “I want to sell my car but I will not let it go for less than $5,000”, that is an invitation to treat. Even if you desired to purchase A’s car for $5,000 he cannot be compelled to sell it to you for he has made no offer which you can accept. However, if A had said, “I will sell you my car for $5,000”, that would be an offer.

Shop displays, catalogues and advertisements [3.40] The display of an article in a shop window, even with a card indicating its price, is not generally an offer but merely an invitation for someone to make an offer of purchase. A prospective purchaser makes the offer to purchase which the shopkeeper may either accept or reject. Window displays, catalogues, price lists and advertisements are usually invitations to deal and not firm offers by the seller. It has been held that a bookseller who sends out a catalogue of books with prices indicated against them is not making an “offer” but merely issuing an invitation to transact business: Grainger v Gough [1896] AC 325 at 334. “… it would be wrong to say that the shopkeeper is making an offer to sell every article in the shop to any person who might come in and that that person can insist on buying any article by saying ‘I accept your offer’. I agree with the illustration put forward during the case of a person who might go into a shop where books are displayed. … There is no contract by the shopkeeper to sell until the customer has taken the book to the shopkeeper … and said ‘I want to buy this book’ and the shopkeeper says ‘Yes’. That would not prevent the shopkeeper, seeing the book picked up, saying: ‘I am sorry I cannot let you have that book: it is the only copy I have got and I have already promised it to another customer’”: Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 at 802 per Lord Goddard CJ; affirmed Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 at 406-408 (CA). In the latter case it was held that this principle extends to self-service stores. Thus, the taking of articles from the shelves by the customer would normally constitute an offer to buy and not the acceptance by her or him of an offer to sell.

Auction sales [3.50] In the case of an auction sale, the auctioneer’s call for bids is only an invitation to treat. Where a bid is made, such constitutes an offer from the bidder to buy at that price. The auctioneer may then either accept or reject the bid on behalf of the principal.

Tenders [3.60] A statement that goods are to be sold by tender is usually regarded as an invitation to treat. Accordingly, the person making the statement is not bound to sell to the highest tenderer, unless it was

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expressly stated in the original statement that he or she would do so: Spencer v Harding (1870) LR 5 CP 561 at 564. The offer is normally made by those submitting tenders and there is no contract until the person who called for tenders accepts one of them. However, although a party calling for tenders may do no more than issue an invitation to treat, the steps taken by it may result in the making of contractual commitments in relation to the whole or parts of the tendering process and, accordingly, each case turns on its own facts: Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 184.

Persons to whom an offer may be made [3.70] An offer can be made to a specific person or persons, to a particular class of persons, or to the world at large. It may only be accepted by the person or persons for whom it was intended. However, if the offer is made to the world at large, for example by way of a general advertisement, then it may be accepted by anyone who reads the advertisement.

case [3.80] The defendants manufactured an influenza preparation called the carbolic smoke ball. They advertised their preparation by offering to pay £100 to any purchaser who used it in accordance with the printed directions and caught influenza. The advertisement stated that the defendants had deposited £1,000 with their bankers to show their sincerity. The plaintiff bought and used the smoke ball as directed but still caught influenza. She claimed the £100 and when her claim was rejected sued the defendants. The Court of Appeal rejected the defendants’ arguments that the advertisement was a mere puff and was too vague to constitute a definite offer. In the court’s view there was an offer made to all the world which was capable of acceptance by those members of the public who performed the conditions set out in the offer. Accordingly, it was held that the plaintiff was entitled to recover the £100: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 261-262, 268, 273.

Communication of offer [3.90] The offer must be communicated, that is, brought to the notice of the person to whom it is made. Unless an offer is communicated there can be no acceptance and therefore no contract. The reason for the rule that an offer must be communicated is that the whole basis of the law of contract is that there has been an agreement between the parties. The word “agreement” presupposes that the parties were aware of the fact that what they were doing would lead to an agreement.

Revocation of offer [3.100] An offer is revoked when the offeror formally withdraws the offer. On revocation the offer comes to an end and cannot subsequently be accepted. The offeror can give notice of the revocation of the offer at any time before acceptance. An offer can be revoked notwithstanding that at the time of making the offer, the offeror has said that the offer will remain open for a specified time. There is an apparent, although not real, exception to this rule in the case of offers supported by consideration, or made by deed, which are stated to be capable of acceptance within a specified period of time. In these cases the true analysis is that the promise given for consideration or made by deed means that the offeror is bound by contract not to revoke the offer within

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the time specified. In the event of the offeror in such a case purporting to revoke the offer, the purported revocation is ineffective and the offer may be accepted within the time originally specified.

case [3.110] In Goldsbrough, Mort & Co Ltd v Quinn (1910) 10 CLR 674, the defendant by an agreement gave to the plaintiff in consideration of the sum of 5 shillings the right to purchase certain property within one week at a stated price. Before acceptance the defendant repudiated the offer. The company accepted the offer within the week and brought a suit for specific performance of the agreement. It was held that the option having been given for value was not revocable, and that the acceptance of the offer by the company constituted a binding contract which was enforceable by specific performance: at 678–679, 690–691. [3.120] To be effective the revocation of an offer, like the offer itself, must be communicated to the offeree. Until the time the offeree becomes aware of the revocation, he or she can accept the offer and create a contract.

case [3.130] For example, by letter of 1 October, Van Tienhoven wrote from Cardiff offering goods for sale to Byrne in New York. Byrne received the offer on 11 October and accepted it by telegram on the same day, and by letter on the 15th. Meanwhile, on 8 October, Van Tienhoven had posted a letter withdrawing the offer. The letter did not reach Byrne until 20 October. It was held that the withdrawal of the offer was ineffective. While an offer could be revoked at any time before its acceptance, a revocation was not effective until it had been communicated to the offeree: at 347. A contract binding both parties had been entered into on 11 October when Byrne accepted by telegram the offer of 1 October. At the time of their acceptance of the offer, they were not aware that it had been withdrawn: Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 at 348. [3.140] The law does not stipulate any particular way in which the revocation is communicated to the offeree. It simply requires the offeree to be made aware that the offer has been withdrawn. Accordingly, any method of communication is sufficient provided the fact of revocation actually comes to the offeree’s notice. Although as a general rule an offer may be revoked before acceptance, if it takes the form of an offer in exchange for the doing of an act, it may not be open to the person who makes the offer to revoke that offer after the offeree has partly performed the act.

Lapse of offer [3.150] An offer will lapse: (a)

if not accepted within the time stated;

(b)

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

(c)

if a counter-offer is made, for example if a person offered to sell their car for $5,000 and the person to whom the offer was made replied that they would pay $3,500 for the car, this reply would constitute a counter-offer to buy and the original offer would lapse. The buyer could not then purport to contract by accepting the original offer of $5,000;

chapter 3 Offer and Acceptance

(d)

on the death of either party before acceptance; and

(e)

by loss of contractual capacity by either party, for example by insanity. 1

Acceptance [3.160] An acceptance occurs when the party to whom an offer is made agrees to the proposal of the offeror. Acceptance may be made by word of mouth, in writing, or by conduct and must be made in the manner indicated by the offeror. The offer can only be accepted by the person to whom it is made but there is nothing to prevent an offer being made to a number of persons generally, any of whom may accept. The manner in which the acceptance is to be signified depends upon the terms of the offer, and if no special manner is specified then the mode of acceptance would depend upon the circumstances. It may happen that a person carries out certain acts in ignorance of the fact that an offer exists which is capable of acceptance by so performing those acts. In such a case, where the person carrying out those acts does not do so on the faith of the offer, there is not an acceptance capable of resulting in a binding contract.

case [3.170] A proclamation offered a reward of £1,000 for information that would lead to the arrest and conviction of the person who had murdered two policemen. A and B were arrested and charged with the murder of one of the policemen. B gave evidence which led to the conviction of A and C for the murder of that policeman. B was subsequently released from custody and claimed the reward of £1,000. It was revealed in evidence that B volunteered the information in order to clear himself of a false charge of murder. It was held that as B did not act in reliance upon the offer, there was no acceptance of the offer, and therefore no contract between the parties: R v Clarke (1927) 40 CLR 227 at 231–232, 241, 245.

Communication of acceptance [3.180] The general principle is that acceptance of an offer must be communicated to the offeror for there to be a binding contract between the parties. However, this is subject to the following exceptions, namely: (a)

where the offeror has dispensed with notification of acceptance, that is, where it has been made clear that notification of acceptance is unnecessary;

(b)

where acceptance is to take the form of performance of an act (as in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, see [3.80]);

(c)

where the postal acceptance rule applies (as to which, see [3.300]).

In accordance with the general principle stated above, where two people make a contract by word of mouth the acceptance must be actually communicated to the person making the offer.

1

See also D McLauchlan and R Bigwood, “Lapse of Offers Due to Changed Circumstances: A Contract Conversation” (2011) 27 Journal of Contract Law 222

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Further, where the means of communication between the offeror and the offeree is instantaneous, such as the case of the telephone or fax machine, the formation of a contract between the parties is governed by the general rule that a contract is concluded at the time when, and the place where, the acceptance is received.

case [3.190] Where an offer to sell fruit was made by vendors in California to buyers in Sydney, and the latter accepted the offer by telex, it was held that the contract was made in California at the time of the vendor’s receipt there of the buyers’ telex: Mendelson-Zeller Co Inc v T & C Providores Pty Ltd [1981] 1 NSWLR 366 at 369; see similarly Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd (1988) 14 BCL 91 at 95, 108 (NSWCA). [3.200] A contract whose acceptance is communicated by electronic mail (email) is made in the place where acceptance is received: Olivaylle Pty Ltd v Flottweg AG (No 4) (2009) 255 ALR 632 at [25], affd Olivaylle Pty Ltd v Flottweg AG [2010] FCAFC 62. [3.210] The acceptance must be within the time prescribed or, if no time has been prescribed, then within a reasonable time: Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109 at 111.

Rule as to acceptance [3.220] The following points illustrate the primary basis for the rule as to acceptance. 1.

Acceptance which is to take the form of a promise and not the performance of an act must be communicated to the offeror. Acceptance may be by word of mouth, writing or conduct: P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 at [9], [105], [107].

case [3.230] A local council authorised a waste disposal contractor to charge and retain the proceeds of a fee for the deposit of waste. The council offered to increase the fee which might be charged. By a letter in reply the contractor asked that a higher fee be set. However, the contractor went on to charge and retain the fee set by the council’s offer, which constituted an acceptance by conduct. The contractor’s letter in reply was not a rejection of the offer, but merely a negotiating tactic: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [156]. [3.240] However, silence generally cannot constitute acceptance, “as some external manifestation of assent to the offer [is] required”: Weemah Park Pty Ltd v Glenlaton Investments Pty Ltd [2011] 2 Qd R 582 at [46]; see also Hopcroft v Edmunds (2013) 116 SASR 191 at [75], [91].

case [3.250] A offered to buy B’s horse for a stated price, adding that, “If I hear no more about him I consider the horse is mine at £30 15s”. B made no reply to this offer although it appeared from subsequent dealings that he had made up his mind to accept it. It was held that there was no contract: Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037 at 875–876 (CB (NS)); 1040 (ER).

chapter 3 Offer and Acceptance

[3.260] Where an offeree takes the benefit of an offer with knowledge of its terms and knowledge of the offeror’s reliance on payment being made in return for his work, the offeree may be taken by the court as having accepted the offer according to its terms and conditions: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 531, 535. 2.

Acceptance which is to take the form of an act does not require communication to the offeror unless the terms of the offer require it. An example of this type of acceptance is Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, see [3.80].

3.

Acceptance must be unconditional – a qualified acceptance would amount to a counter-offer. In Commonwealth Bank of Australia v Carotino (2011) 111 SASR 573 a party signed a letter undertaking to execute a guarantee after a standard form of guarantee was provided by a bank. No guarantee was provided or executed: at [5]. It was held that the party had not undertaken to act as guarantor: at [64]. Any obligation to execute a guarantee was conditional upon the bank’s provision of the standard form, which never occurred: at [65]. Where the acceptance is made “subject to contract” or “subject to a formal contract to be drawn up by our solicitors”, as often happens in negotiations for the purchase of land, then in the absence of cogent evidence of a contrary intention, there will be no binding agreement between the parties until a formal document has been drafted and signed: Masters v Cameron (1954) 91 CLR 353 at 362-363; Bridle Estates Pty Ltd v Myer Realty Pty Ltd (1977) 51 ALJR 743 at 744, 747, 749; Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 at [1], [64]-[72], [162]. 2 On the other hand, where parties have reached agreement on the terms of a particular transaction and it is apparent that they intend to be immediately bound by those terms but at the same time intend to have them embodied in a formal document, then there will be a binding contract from the date of their initial agreement: Godecke v Kirwan (1973) 129 CLR 629 at 639-640, 644-645, 648.

4.

Acceptance must follow the conditions, if any, stated in the offer.

case [3.270] A lease contained an option to renew subject to the giving of three months’ previous notice in writing, the punctual payment of rent and the due performance of covenants by the tenant. During the currency of the lease the rent was, without objection by the landlord, paid at irregular intervals and rarely on the due date. The tenant sought to renew the lease but the landlord claimed that the option was not validly exercised. It was held that the punctual payment of rent was a condition which had to be fulfilled before the tenant could validly exercise the option: Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122 at 123-124. 5.

Acceptance can be made only by the party to whom the offer was made.

6.

Acceptance can be revoked provided the revocation is communicated to the offeror before the acceptance is received.

7.

Acceptance must be made within the time prescribed or, if no time has been prescribed, within a reasonable time.

8.

The existence of the offer must be known to the person accepting it.

2

See JW Carter, E Peden and GJ Tolhurst, “When Three Just Isn’t Enough: the Fourth Category of the “Subject” to Contract’ Cases” (2004) 20 JCL 156; JW Carter, E Peden and GJ Tolhurst “Masters v Cameron — Again!” (2011) 42 Victoria University of Wellington Law Review 49.

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9.

Communication of acceptance must be made in a regular and authorised manner.

case [3.290] P applied for the position of headmaster of a school. The school board passed a resolution appointing him. The resolution was not communicated to P officially. One of the board privately informed him of it. Subsequently the resolution was rescinded. It was held that P’s offer had not been accepted as the resolution was never communicated to him: Powell v Lee (1908) 99 LT 284 at 286.

Postal acceptance rule [3.300] The general principle is that an acceptance must be communicated to the offeror. However, there is an important exception to this principle: the postal acceptance rule. 3 According to this rule, where acceptance by post is contemplated by the parties, acceptance is complete as soon as the letter of acceptance is posted: Henthorn v Fraser [1892] 2 Ch 27 at 33, 36. The acceptance is not affected by delay or loss of the letter in the course of post, provided that the parties contemplated the post as a means of entering into contractual obligations: Household Fire & Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216 at 219, 223, 227. An offeror can stipulate the required method of acceptance of their offer. Accordingly, the postal acceptance rule is excluded where the offeror requires actual communication of the acceptance. This may arise, for example, where there is an express stipulation in the offer requiring receipt by the offeror of the offeree’s acceptance for it to be effective. In such a case, the mere posting of the acceptance would not create a binding contract: Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74 at 83-84. Further, the postal acceptance rule may be impliedly excluded where it is apparent that an uncommunicated acceptance was not intended.

case [3.310] C sent a letter by ordinary post to E giving notice within the specified time that it wished to exercise an option to renew its sub-lease. E claimed that it never received the letter. A clause in the sub-lease provided that a notice mailed by registered or certified letter was deemed to be served on E on the third business day following that on which it was posted. The court held the postal acceptance rule could not be relied upon as its operation was impliedly excluded by the clause regarding notification by certified mail. In the circumstances, the ordinary rule applied. Since C’s notice had not been actually communicated to E, C had not effectively exercised its option to renew: Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995) 63 SASR 235 at 238, 242. [3.320] Where the postal acceptance rule applies, a person who makes an offer cannot revoke the offer once a letter of acceptance has been posted by the offeree, even though the acceptance has not yet reached the offeror. This is because the letter of acceptance creates a binding contract at the time of its posting. In other words, if acceptance may be made by post, the revocation of an offer must reach the offeree before the latter actually posts their acceptance, otherwise the revocation will be of no effect. Where the postal 3

See generally D McLauchlan, “The Uncertain Basis of the Postal Acceptance Rule” (2013) 30 JCL 33; E Macdonald, “Dispatching the Dispatch Rule? The Postal Rule, E-mail, Revocation and Implied Terms” (2013) 19, 2 Web Journal of Current Legal Issues, http://webjcli.org (accessed 17 September 2016).

chapter 3 Offer and Acceptance

acceptance rule does not apply, the general principle is that an acceptance can be revoked provided the fact of revocation is communicated to the offeror before the acceptance is received. The New South Wales Court of Appeal declined to extend this rule beyond the context of contractual acceptance. In particular, the Court held that no similar rule applies to loan repayments sent by post: Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 107 at [210]–[212], [370], [376].

Joint promises [3.330] A promisor or the promisee, or both, may consist of more than one person. Thus A, B and C as promisors may promise X as promisee that they will pay $1,000 on 1 July. This is a joint promise on the part of A, B and C. There are two important divisions of joint promises. The first is those which are purely joint; the second, those which are joint and several. In effect, with joint promises, the promisors all promise to do the thing agreed upon. With promises which are joint and several, all promise to do the thing and each one of them, for herself or himself, and as a separate promise, promises to do the thing agreed upon. The most important distinctions flowing from this difference are: 1.

In the case of a joint promise any one of the joint contractors can insist that any action be taken against all of such contractors and not merely one or some of them.

2.

If the promise is joint and several the promisee is at liberty to take action against all or one or some of the promisors.

3.

If a contract is joint a judgment on the contract obtained against one of the joint promisors bars further action against the others.

4.

If a contract is joint and several, a judgment obtained against one only of the co-promisors does not discharge the others.

5.

If a contract is joint a release of one of the joint contractors from their obligations under the contract operates for the benefit of all, so that they are all released from their obligations.

6.

If a contract is joint and several, a release of one of the contractors from their obligations does not operate to release the other contractors from their obligations.

When is a promise joint? [3.340] A promise is a joint one when it is made by two or more persons without words indicating that each is bound individually as well as jointly. Express words are generally necessary to make a contract joint and several. Examples of joint contracts are: contracts made by partners and a promissory note signed by two or more persons; a bill of exchange accepted by two or more persons.

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

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Intention to Create Legal Relations [4.30] Intention and social and domestic agreements..................................................................................... 66 [4.140] Intention and commercial agreements................................................................................................... 68

Introduction [4.10] An agreement will not give rise to legally enforceable rights and obligations unless the second essential element to the formation of a contract is present, namely, an intention to create legal relations. That is, there must be an intention that the agreement was to be enforceable in the courts, if necessary, in the event of dispute. The test for determining an intention to create legal relations is an objective test, and is not concerned with the subjective intentions of the parties. “[T]he court does not try to discover the intention by looking into the minds of the parties. It looks at the situation in which they were placed and asks itself: Would reasonable people regard the agreement as intended to be binding?”: Merritt v Merritt [1970] 1 WLR 1211 at 1213 per Lord Denning MR. The courts consider what “would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties”: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [25]. The intention to create legal relations will be considered in relation to: (a)

social and domestic agreements; and

(b)

commercial agreements.

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Intention and social and domestic agreements Agreements between a husband and wife [4.30] In normal circumstances the courts will regard domestic arrangements between a husband and wife as not intended to give rise to legally enforceable obligations. 1 An example is provided by Balfour v Balfour [1919] 2 KB 571.

case [4.40] The defendant was a civil servant stationed in Sri Lanka. His wife alleged that when it had become clear that she could not again accompany him to Sri Lanka because of her ill health, he had promised to pay her £30 a month as maintenance during the time that they were forced to live apart. She sued for breach of this agreement. Her action failed since it was held that the agreement was an ordinary domestic arrangement which was not intended to give rise to a legally binding contract: Balfour v Balfour [1919] 2 KB 571 at 574, 577, 579. [4.50] The same principle applies to continuing de facto relationships. The principle does not apply to agreements made after the de facto relationship has ended: Shortall v White [2007] NSWCA 372 at [18]. However, where the agreement between a husband and wife falls outside normal domestic arrangements and concerns some essentially commercial matter, such as their relationship under a partnership, then it will be enforceable: Milliner v Milliner (1908) 8 SR (NSW) 471 at 473, 476. Similarly, agreements as to the disposition of property where the marital relationship has broken down will be enforceable.

case [4.60] A husband left his wife to live with another woman. It was arranged that the husband would pay the wife a monthly allowance out of which she was to pay the outstanding balance on the mortgage of the matrimonial home which was in their joint names. The husband signed a document stating that, in consideration of her paying all charges in connection with the home until the mortgage repayments had been completed, he agreed to transfer the house into her sole ownership. The wife paid off the remainder of the mortgage but the husband refused to transfer the house to her. It was held that since the parties had separated, the agreement regarding the ownership of the matrimonial home was one which was intended to create legal relations and was binding on them: Merritt v Merritt [1970] 1 WLR 1211 at 1213-1214.

Other family agreements [4.70] Similarly, while other kinds of family arrangements are not generally regarded as intended to give rise to enforceable rights and obligations, the circumstances may indicate that the parties intended to be legally bound: Smilevska v Smilevska (No 2) [2016] NSWSC 397 at [143], [151], [155]-[156]. The High Court has made clear that there is no presumption that family arrangements are not intended to be legally binding: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [26]-[27]; Ashton v 1

For a criticism of this approach, see M Keyes and K Burns, “Contract and the Family: Whither Intention?” (2002) 26 Melbourne University Law Review 577.

chapter 4 Intention to Create Legal Relations

Pratt (2015) 88 NSWLR 281 at [73], [222]-[223]. In Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2012) 289 ALR 237 the Full Federal Court cautioned that the “courts must be careful not to convert informal situations that frequently arise in circumstances that involve love, friendship and concomitant human emotional feelings of duty or responsibility, into the stuff of daily community life”: at [16]. The courts are more inclined to find an intention to create legal relations where one of the parties has significantly changed their position in reliance on the agreement.

case [4.80] An 88-year-old widow persuaded her 64-year-old son and his family to migrate to Australia with her from the UK on the promise of buying a house here in the son’s name if they would take care of her during her lifetime. The son and his family gave up their rent-free council house in the UK and sold their possessions at a considerable loss. On arrival in Australia, the widow bought a house in her own name and ordered her son and his family to leave the house after only seven days following an argument. It was held that the agreement between the parties went beyond a mere family arrangement and was intended to have legal effect. It was further held that in the circumstances the widow was trustee of the house for the benefit of her son and was ordered to transfer it to him subject to her right to live in a “granny flat” attached to the house during her lifetime: Riches v Hogben [1986] 1 Qd R 315 at 317, 326, 329–330.

Agreements to participate in competitions and lotteries [4.90] While most social arrangements are regarded as too insubstantial to be intended to give rise to legal rights and obligations, agreements to participate in a competition or lottery have been held to be enforceable.

case [4.100] Where a lotto entry coupon lodged by one person on behalf of a three-member syndicate won a first prize of $218,000, the High Court held that in the circumstances there was an enforceable contract to share the winnings in the same proportion as the proportion of costs of the winning entry paid by each party. Hence, as the appellant had contributed 50 cents of the $2 winning entry, she was entitled to receive 25 per cent of the total prize-money: Trevey v Grubb (1982) 44 ALR 20 at 25.

Charitable activities [4.110] Participation in the activities of a charitable or other voluntary organisation will not normally give rise to contractual rights and obligations.

case [4.120] The respondent was injured while working as a volunteer at a camp for teenagers run by a non-profit Christian organisation. It was held that no contract of service existed between the respondent and the organisation since there was no indication that legal relations were contemplated

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by the parties. Accordingly, the respondent was not entitled to workers’ compensation: Teen Ranch Pty Ltd v Brown (1995) 87 IR 308 at 310-311. [4.130] On the other hand, in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, the High Court held that there was no presumption that an agreement as to remuneration between a person appointed an Archbishop of the Greek Orthodox Church in Australia and a cultural and ethnic community organisation was not intended to create legal relations. The majority doubted “the utility of using the language of presumptions in this context”: at [26]. The issue was to establish the existence of a legally binding contract between the parties, the onus of proving which was on the Archbishop: at [26]. It was held that the parties did intend to create legal relations. 2

Intention and commercial agreements [4.140] Where an agreement is reached in the course of business dealings, the courts will enforce the agreement unless it is apparent that the parties did not intend that their agreement should be legally binding. In Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 at 523 it was said that: The whole thrust of the law today is to attempt to give proper effect to commercial transactions. … If the statements are appropriately promissory in character, courts should enforce them when they are uttered in the course of business and there is no clear indication that they are not intended to be legally enforceable. See also Brice v Chambers [2014] QCA 310 at [140]. On the other hand: “A loosely formed shared idea, based wholly or partly on common expectations, mutual optimism and misplaced enthusiasm, to which greed and the hope of financial gain may be added in varying degrees, is not a contract”: Conway v Critchley [2012] NSWSC 1405 at [6].

case [4.145] A tour boat operator agreed to take the plaintiff to an island without charge if she took part in a television programme as an extra. She was seriously injured during filming. It was held that the agreement was not legally binding as it was a social agreement, “though there is an air of commerciality about it”: Price v Southern Cross Television (TNT9) Pty Ltd [2015] Aust Torts Reports 82-208; [2014] TASSC 70 at [62].

case [4.150] The plaintiff was injured at the defendant’s go-kart track. The defendants sought to rely upon an exemption clause contained in a form signed by the plaintiff. The plaintiff had not read the form. He thought that the form was for marketing purposes. The form was not signed by any representative of the defendant. On the night in question the track had been booked for a corporate promotion, which the plaintiff attended: at 662-663. The court held that the signature by one party only of a document presented by another party did not necessarily create a contract. To determine whether a contract had been created it was necessary to examine the circumstances in which the 2

See also, Courmadias N, “Intention to create legal relations: the end of presumptions?” (2006) 34 ABLR 175.

chapter 4 Intention to Create Legal Relations

document was given to that party: at 666. The plaintiff’s attendance at the track was not in pursuance of any obvious commercial relationship with the defendant: at 667. No indication was given to the plaintiff that he was signing a contract. The Court held that the form did not constitute a contract: Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661 at 668.

case [4.155] Following a mediation the parties entered into Heads of Agreement. The Agreement provided that “[w]ithout affecting the binding nature of these Heads of Agreement the parties within 7 days [are] to execute a formal document or documents as agreed between their respective solicitors to carry out and express in more formal terms and additional terms as these Heads of Agreement”: at [10]. The New South Wales Court of Appeal held that the Agreement was binding. The words “without affecting the binding nature” of the Agreement were “decisive” in establishing the intention to be bound: Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227 at [23].

case [4.157] Under a contract for the supply of sugar cane the mill was not to be bound until it had reached agreements with a certain number of growers and had signed the agreement. A grower signed the execution page of the contract. It was held that the grower’s signature indicated an intention to be bound. Both parties were bound when the mill signed the agreement: Mackay Sugar Ltd v Quadrio [2015] QCA 41 at [20]-[21]. [4.160] Ordinarily, where a business or land is sold, a contract will not be created until a formal contract has been signed. However, in such a situation a contract can arise even without the signing of a formal contract if the parties intended to be immediately bound.

case [4.170] Following several months of negotiations, the parties signed a document regarding the sale of a hotel. This document set out the price, the contracting parties and the property to be sold. The vendor asked its solicitors to draft a formal contract. After another buyer made a better offer, the vendor argued that it was not bound by the document. It was held that the document constituted a binding contract. The document was expressed in formal and legalistic language and was not expressed to be subject to contract: at [21], [23]. The parties had intended that the document would conclude the negotiations between them: at [24]. The document included all essential terms, including “the parties, the property, the price and the promises”: Souter v Shyamba Pty Ltd (2002) 11 BPR 20,369 at [26].

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Express exclusion of intention [4.180] Where the agreement includes an express stipulation that it is not intended to give rise to legally enforceable obligations, the courts will give effect to such provision. Accordingly, such an agreement will not be enforceable at law.

case [4.190] An agreement contained a clause which stated: “This arrangement is not entered into … as a formal or legal agreement, and shall not be subject to legal jurisdiction in the Law Courts …, but it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence – based on past business with each other – that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation”. It was held that the agreement was not a legally binding contract. It was clear from the clause that the agreement was intended to be binding in honour only and not intended to create legal obligations: Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445 at 454. [4.200] It is common to insert in competition, lottery and pools forms a stipulation to the effect that entry into the competition is not intended to give rise to legally enforceable obligations. A provision of this kind was considered in Jones v Vernon’s Pools Ltd [1938] 2 All ER 626.

case [4.210] The plaintiff alleged that he had sent in a completed football coupon to the defendant pools company. It would have been a winning coupon but could not be traced by the defendant. When sued by the plaintiff, the defendant relied on the following clause included on its coupons: It is a basic condition of the sending in and acceptance of this coupon that it is intended and agreed that the conduct of the pools and everything done in connection therewith … shall not be attended by or give rise to any legal relationship, rights, duties or consequences whatsoever or be legally enforceable or the subject of litigation, but all such arrangements, agreements and transactions are binding in honour only. It was held that in view of this clause the agreement was not intended to give rise to a legally binding contract. Accordingly, the plaintiff had no enforceable claim against the defendant pools company: Jones v Vernon’s Pools Ltd [1938] 2 All ER 626 at 629-630.

Letters of comfort [4.220] A letter of comfort is usually written by a parent company to a lender giving “comfort” to the lender about a loan to be made by the lender to a subsidiary of the parent company. 3 Such a letter may be given in circumstances where, for example, the parent company is unwilling to accept the legal commitments of a guarantor to the lender for the loan to its subsidiary. A letter of comfort tends to be phrased in general terms and will typically include: 3

See generally M Seddon, “Banking and finance: Letters of Comfort” (1998) 26 Australian Business Law Review 309; J Lipton, “Good Faith and Letters of Comfort” (1999) 28 University of Western Australia Law Review 138; C Schultz, “Letters of Comfort: Gate Gourmet – Feast or Famine” [2004] Australian Mining and Petroleum Law Association Yearbook 546; L Thai, “Comfort letters – a fresh look?” (2006) 17 Journal of Banking and Finance Law and Practice 15.

chapter 4 Intention to Create Legal Relations

(a)

an acknowledgment that the parent company is aware of the proposed loan and approves of it;

(b)

a commitment to maintain its shareholding in the borrowing company so long as the loan is outstanding; and

(c)

some statement of support to the lender, couched in terms such as: “It is our policy to ensure that the business of [the borrowing company] is at all times in a position to meet its liabilities to you”.

Letters of comfort tend to be construed by the courts as merely statements of commercial intent and not legally enforceable contracts of security: Australian European Finance Corp Ltd v Sheahan (1993) 60 SASR 187 at 206; ATCO Controls Pty Ltd (In liq) v Newtronics Pty Ltd (In liq) (2009) 25 VR 411 at [54]; contrast Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 at 525-526. In Norman v FEA Plantation Ltd (2011) 195 FCR 97, FEA wrote a “letter of commitment” which stated that it would provide FEAP with sufficient cash to meet its ongoing obligations: at [6]. As a holder of a financial services licence FEAP was subject to a “cash needs requirement”: at [14]. The Full Federal Court held that the letter bound FEA in view of its terms and the circumstances in which it was given: at [91]. The word “commitment” connoted obligation, especially when read in the regulatory context of the cash needs requirement: at [98].

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

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Consideration, Promissory Estoppel and Formalities [5.20] Consideration ........................................................................................................................................................... 74 [5.230] Promissory or equitable estoppel .............................................................................................................. 79 [5.290] Formalities.............................................................................................................................................................. 82

Introduction [5.10] This chapter discusses three issues. First, the third essential element in the formation of a simple contract is that consideration (that is, some value or benefit) must be given or promised by one party in return for the other party's promise. The requirement for consideration does not apply where the contract is made under seal (that is, a deed). Secondly, some relief may be obtained from the strict rule that a promise is not enforceable unless some consideration has been given for it by the doctrine of promissory or equitable estoppel. Thirdly, some contracts will only be enforceable if certain formalities are complied with, such as statutory requirements that the contract be in writing.

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Consideration [5.20] The vast majority of contracts are simple contracts, that is, they are not made under seal: see [5.180]. These contracts are also referred to as “parol” or “informal” contracts. Simple contracts may be formed by verbal agreement, or may be implied from the conduct of the parties, or may be in writing or evidenced by some written memorandum. The important essential in all simple contracts is that valuable consideration must be present for their validity.

Meaning of consideration [5.30] Broadly speaking, the requirement of consideration means that a promise can only be legally enforced by the promisee (the person to whom the promise is made) if the promisee can show that they have given or promised to give something in return for the promise. Accordingly, a gratuitous promise, for example a promise to make a gift, is not enforceable because nothing of value has been given in return for it (although such a promise would be enforceable if made under seal, that is, by deed). In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 855, Lord Dunedin adopted the following definition of consideration: “An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” In essence, consideration is the price paid by one party in exchange for the other party’s promise. It was described in the New South Wales Court of Appeal as follows: “By our law, consideration is an essential requirement for an enforceable contract. Without consideration, a promise is unenforceable at law. The modern theory of consideration has arisen from the notion that a contract is a bargain struck between the parties by an exchange. By that modern theory, consideration must be satisfied in the form of a price in return for the promisor’s promise or quid pro quo. The price can be in the form of an act, forbearance or promise”: Beaton v McDevitt (1987) 13 NSWLR 162 at 168 per Kirby P.

Essential rules regarding consideration [5.40] 1. Consideration is essential in every simple contract.

case [5.50] The government undertook to print and publish a book for the plaintiff, the plaintiff agreeing to pay all the costs but no advantage resulted to the government. It was held that it was a gratuitous undertaking on the part of the government, and hence unenforceable: Heaton v Richards (1881) 2 LR (NSW) 73 at 77. [5.60] 2. So long as consideration exists, the court is not concerned as to its adequacy, provided that it is of some value.

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case [5.70] To promote sales of their chocolate bars, the respondents offered to sell a record for 1s 6d plus three chocolate bar wrappers. The House of Lords held that the wrappers formed part of the consideration: the respondents’ offer was to supply a record, not just for the money, but for the wrappers as well. “It is said that when received the wrappers are of no value to [the respondents]. This I would have thought irrelevant. A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn”: Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 at 114 per Lord Somervell. [5.80] 3. The consideration must not be illegal or unlawful and must not involve a breach of the law or public policy. 4. The nature of the consideration must be definite. If the consideration is vague it will not be sufficient.

case [5.90] An agreement by a married woman, whereby she promised to attend upon her aged father and mother as long as they lived, and provide them with necessary services, and in consideration of which the father should transfer to her some of his land, was void for uncertainty since no particular land was indicated: Shiels v Drysdale (1880) 6 VLR 126 at 130. [5.100] 5. It should be executed or executory consideration and not past consideration. (Certain exceptions exist to the rule that past consideration will not support a simple contract: see [5.170].) 6. The consideration must be capable of performance. If the promise of one of the parties to the contract was an absolute physical impossibility, for example, to walk from Sydney to Perth in one day, there would not be a real consideration. 7. It must move from the promisee, that is to say, the party who wishes to enforce a contract must be able to show that they have furnished the consideration. “Consideration must move from the promisee …; it need not move to the promisor”: Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 214 ALR 392 at [66]. 8. There is no consideration if all that the promisor does or promises to do amounts to no more than that which they are already obliged to do or refrain from doing: (a)

by law; or

(b)

under an existing contract with the promisee. In such a case the “new promise, indistinguishable from the old, is an illusory consideration”: Wigan v Edwards (1973) 47 ALJR 586 at 594.

case [5.110] An example of the first class of case arose in Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040. A attended on subpoena to give evidence on B’s behalf in a case in which B was a litigant. A sued B to recover moneys which he alleged B had agreed to pay him in consideration of his giving evidence. It was held that as A was under a legal duty to give evidence because he had been subpoenaed, the giving of evidence was not consideration: at 956-957 (B & Ad); 1042 (ER).

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case [5.120] An example of the second class of case arose in Foakes v Beer (1884) 9 App Cas 605. The plaintiff had recovered a judgment against the defendant and the defendant asked for time to pay. It was then agreed that if the defendant would pay a certain sum at once and the balance by instalments the plaintiff would not take any proceedings on the judgment. The agreement was not entered into under seal: at 610-611. The defendant ultimately paid the whole amount of the judgment debt but the plaintiff sought to issue execution for the interest which a statute provided should accrue on the debt. It was held that the agreement to pay by instalments was not supported by consideration as the defendant had agreed only to do what he was already obliged to do (pay the judgment debt). The agreement was unenforceable and did not relieve the defendant from the obligation of paying interest: at 611, 623, 630. 1 [5.130] Where, however, the promisor agrees to do something more, albeit only a little more, or something different from what they are already obliged to do and the promisee agrees to accept that in discharge of the existing obligation, then there is sufficient consideration even though the substituted performance may not be as valuable as the original obligation. 9. Consideration may consist of a promise to refrain from taking legal action, provided that the person threatening such action has a bona fide belief in the claim and their prospects of success, and that the claim itself is a reasonable one. 10. Consideration may also consist of the bona fide compromise of a dispute arising from a claim honestly believed to be well founded: Wigan v Edwards (1973) 47 ALJR 586 at 594-595.

Executed, executory and past consideration [5.140] Consideration is said to be executed where one party performs an act in exchange for the other party’s promise. For example, A offers a $100 reward for the return of his lost wallet. B, on finding and returning the wallet, has performed her part of the bargain. It remains for A to fulfil his obligation by paying the reward. Consideration is said to be executory where one party has given a promise to do, or refrain from doing, something in exchange for the other party’s promise. For example, A agrees to sell B 1 tonne of coal on the basis that B is to pay for it on delivery. In this case both promises remain to be performed in the future and each provides consideration for the other.

Past consideration [5.150] Since “consideration” is defined as the price paid in exchange for a promise, past acts can never in law amount to consideration sufficient to support a subsequent contract. “Past consideration” is no more than the motive for a person making a present promise.

1

See D Thampapillai, “Practical benefits and promises to pay lesser sums: reconsidering the relationship between the rule in ‘Foakes v Beer’ and the rule in ‘Williams v Roffey’” (2015) 34 University of Queensland Law Journal 301.

chapter 5 Consideration, Promissory Estoppel and Formalities

case [5.160] G promised to give his overseer increased wages, not only for the future, but for a past period during which his wages had been at a previously agreed lower rate. It was held that the contract was unenforceable as to the past period for want of consideration. The promise to pay increased wages for past services was based on a past consideration: Anderson v Glass (1868) 5 WW & A’B (L) 152 at 153.

Exceptions [5.170] There are certain apparent exceptions to the rule that past consideration will not support a simple contract: 1.

Where the consideration amounts to some past act or forbearance that was done at the request of the person making the present promise. “An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisor’s request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance”: Pao On v Lau Yiu Long [1980] AC 614 at 629 (PC). If B requested E to paint his house and after the painting B said: “As you have made a very good job of it I will pay you $750 for your trouble”, a valid contract would exist, as the subsequent promise of payment can be linked to the original request to do the work. B’s request is virtually an offer of a promise to pay a proper price for the job, and his subsequent promise would be evidence as to the value of the services rendered by E.

2.

The Bills of Exchange Act 1909 (Cth) provides that the consideration for a bill of exchange may be based on an antecedent debt or liability: s 32(1)(b).

3.

A subsequent promise to pay a past debt on which action is barred by the State Limitation Acts which limit the periods during which legal proceedings may be taken to enforce a right under a contract: see [12.410]-[12.420].

Contracts under seal [5.180] A contract under seal must be in writing and signed, sealed and delivered. 2 Contracts under seal obtain their binding force from their form alone. Every deed must now be signed 3 and attested by at least one witness who is not a party to the deed. The deed may be signed by an agent on behalf of party to the deed, though the agent’s authority to do so must derive from a deed: Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 73 NSWLR 404 at [37], [70]. It is not always essential that a seal be actually affixed, it being sufficient if the contract is expressed to be a deed: First National Securities Ltd v Jones [1978] Ch 109 at 118-119, 121. In Queensland and the Northern Territory delivery is defined as “the intention to be legally bound either immediately or subject to the fulfilment of a condition”. 4 Where an instrument was executed in the form of a deed, but the parties intended that it would not take effect until all parties were bound, there was no 2 3

4

See generally N Seddon, Seddon on Deeds (Federation Press, Sydney, 2015). Conveyancing Act 1919 (NSW), s 38(1); Property Law Act 1958 (Vic), s 73(1); Property Law Act 1974 (Qld), s 45(1); Property Law Act 1969 (WA), s 9(1); Conveyancing and Law of Property Act 1884 (Tas), s 63(1); Law of Property Act 1936 (SA), s 41(1); Civil Law (Property) Act 2006 (ACT), s 219(1); Law of Property Act 2000 (NT), s 47(1). Property Law Act 1974 (Qld), s 47(3); Law of Property Act 2000 (NT), s 49(3).

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intention to be bound immediately so the instrument had not been delivered: 400 George Street (Qld) Pty Ltd v BG International Ltd [2012] 2 Qd R 302 at [57], [68]–[69]. 5 The fact that a deed is undated does not affect its validity: Juric-Kacunic v Vaupotic (2013) 18 BPR 35131; [2013] NSWSC 41 at [49]–[51]. At common law a deed could only be discharged by another deed. However, a release by simple contract is enforceable in equity if it is supported by consideration: Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd (2002) 5 VR 353 at [33].

Differences between contracts under seal and simple contracts [5.190] The basic differences between contracts under seal and simple contracts are: 1.

A gratuitous promise is binding if under seal but is not binding in the case of a simple contract.

2.

A party to a contract under seal is “estopped” (prevented from denying) the facts expressed in it.

3.

The period during which a right of action arising out of a contract under seal can be enforced is 15 years in Victoria and South Australia; and 12 years in New South Wales, Queensland, Tasmania, Western Australia and the Northern Territory. In the case of a simple contract the period is, in general, six years.

4.

The terms of a simple contract will merge in a deed, that is, if a simple contract is entered into and a deed is executed in substitution for it, then the simple contract comes to an end; however, this is so only where the parties are the same and the deed is in respect of the same matters as the simple contract.

Escrow [5.200] An escrow is a deed delivered subject to a condition and does not come into operation until the fulfilment of the condition. The deed may be retained by the person executing it or delivered to a solicitor to hold until the condition is fulfilled. For example, a vendor of land executes the conveyance to the purchaser and leaves it with his solicitor to be handed to the purchaser in return for the purchase money. Whilst held by the solicitor the deed is an escrow.

Indenture [5.210] An indenture is a deed to which there are two or more parties with different interests. The undertakings may be enforced only by the parties to the deed: Accordent Pty Ltd v Bresimark Nominees Pty Ltd (2008) 101 SASR 286 at [66]-[67].

Deed poll [5.220] A deed poll is a deed to which there are one or more parties with the same interests, a common use being to change a person’s name. The undertakings may be enforced by non-parties to the deed: Accordent Pty Ltd v Bresimark Nominees Pty Ltd (2008) 101 SASR 286 at [66]-[67].

5

See Allen R, “Deed I do … If Signed and Delivered: 400 George Street (Qld) Pty Limited v BG International Limited” (2013) 25 Bond Law Review 144.

chapter 5 Consideration, Promissory Estoppel and Formalities

Promissory or equitable estoppel The general nature of promissory estoppel [5.230] Some relief from the rule that a promise is not enforceable unless some consideration is given for it by the promisee (the person to whom the promise is made) may be obtained in limited circumstances by the doctrine of promissory or equitable estoppel. 6 The primary application of this doctrine has been where one party to a contract promises, or by words or conduct leads the other party to believe, that the promisor will not enforce their strict legal rights under the contract, and the other party acts on that representation and alters their position accordingly. The Privy Council described this doctrine in the following terms: “[W]hen one party to a contract in the absence of fresh consideration agrees not to enforce his rights an equity will be raised in favour of the other party. This equity is, however, subject to the qualification (a) that the other party has altered his position; (b) that the promisor can resile from his promise on giving reasonable notice, which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position; (c) the promise only becomes final and irrevocable if the promisee cannot resume his position”: Ajayi v Briscoe [1964] 1 WLR 1326 at 1330. It will be seen from the above passage that the doctrine of “promissory estoppel” does not necessarily prevent the promisor from reverting back to the strict legal position. Thus, where the contract is of a continuing nature, the promisor by giving due notice can resume the right which they have suspended and revert, for the future, to the original contract: Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 at 764-765, 785, 799.

case [5.240] The defendant tenant leased a shop in the plaintiff landlord’s shopping centre. On the expiry of the first three-year lease for the shop in 1976 the tenant signed a new lease at a substantially increased rental. Some months later, the landlord orally agreed to a reduction of rent for an indefinite period. The tenant continued to pay the reduced rental for the next 18 months. The landlord then found that the tenant was about to vacate the premises and demanded the accumulated “arrears” of rent, that is, the difference between the rental stipulated in the lease and the amount the tenant had actually been paying in consequence of the landlord’s oral agreement to a rent reduction. The landlord brought an action to recover the alleged “arrears” of rent: at 107, 109. It was held by a majority of the court that the tenant had so altered his position, that is, had suffered a detriment, by continuing in possession at the reduced rental on the basis that the landlord’s promise would not be resiled from, that it would be inequitable to allow the landlord to go back on his promise. Accordingly, the landlord was estopped in the circumstances from claiming the alleged “arrears” of rent: Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 at 107, 115-116. [5.250] For the promisee to successfully rely on promissory or equitable estoppel, the promisee must be able to show that they have suffered some material detriment, that is, that they have altered their position in reliance on the statement or representation, and in consequence it would be unjust to permit the promisor to resile from the statement or representation: Chin v Miller (1981) 37 ALR 171 at 172, 181, 188. Thus, in a case where the lessor of land had accepted rent without question for 12 months at a lower rate 6

See J Goldberger, “Estoppel and contract” (2015) 29(3) Commercial Law Quarterly 16.

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than that strictly payable, but then demanded that the arrears as well as future rent be paid in accordance with the strict terms of the agreement, the lessee’s argument against such payment based on promissory estoppel was rejected on the ground that there had been no alteration in the lessee’s position and that there was no injustice merely in the lessee being required to pay the rental arrears: Gollin & Co Ltd v Consolidated Fertilizer Sales Pty Ltd [1982] Qd R 435 at 451-452. It has been held that an interest in land may arise by an equitable estoppel where a party has acted to their detriment in consequence of an expectation created or encouraged by another that the interest in the land will be granted: Riches v Hogben [1986] 1 Qd R 315 at 342.

The High Court's decision in Waltons Stores [5.260] The effect of the High Court’s decision in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 is that the doctrine of promissory or equitable estoppel enables a promisee, in appropriate circumstances, to enforce a promise or representation on which the promisee had relied to their detriment, even where such promise or representation relates to a non-contractual right, that is, notwithstanding the absence of a pre-existing contractual relationship between the parties.

case [5.270] Waltons Stores negotiated with Maher for the lease of commercial premises. Under the proposal, Maher was to demolish an existing structure on the site and erect a new building to be leased by Waltons. After discussions between the solicitors for both parties, the necessary documents were drawn up. Certain amendments were proposed by Maher’s solicitors. Waltons’ solicitors said they believed approval for the amendments would be forthcoming from their client, adding: “We shall let you know tomorrow if any amendments are not agreed to”. Some days later Maher’s solicitors, having heard nothing about the amendments, submitted “by way of exchange” documents executed by their client for signature by Waltons. Receipt of these documents was not acknowledged for nearly two months as Waltons were privately reconsidering their position in view of impending policy changes to their future trading operations. Meanwhile, Maher sought finance for redevelopment of the site, and proceeded to demolish the existing building which Waltons became aware of shortly afterwards. Erection of the new building was begun to ensure completion by the required date. When the building was 40 per cent completed, Maher was advised that Waltons did not intend to proceed with the transaction. No binding contract to lease the premises had been concluded between the parties as there had been no exchange of documents: at 393-395. The High Court held that Maher had assumed that exchange of contracts would take place as a mere formality: at 395. The inaction of Waltons in retaining the executed documents and doing nothing constituted clear encouragement or inducement to Maher to continue to act on the assumption that the lease was proceeding. It was unconscionable for Waltons, knowing that Maher was exposing himself to detriment by acting on the basis of a false assumption, to adopt such a course of inaction that had encouraged Maher to proceed: at 407-408. “To express the point in the language of promissory estoppel, [Waltons] is estopped in all the circumstances from retreating from its implied promise to complete the contract”: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 408 per Mason CJ and Wilson J. [5.280] Following the Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, the basis for the application of promissory or equitable estoppel would appear to be the prevention of unconscionable (that

chapter 5 Consideration, Promissory Estoppel and Formalities

is, unfair or unjust) conduct on the part of the person making the promise so as to avoid the loss or detriment that would otherwise be suffered by the person to whom the promise is made. A bare promise followed by reliance on such promise to their detriment by the promisee will not be sufficient to result in the promise being enforceable in the absence of consideration. There must be something more, namely, the creation or encouragement by the promisor of an assumption by the promisee that a contract would come into existence or a promise would be performed. See further, Commonwealth v Verwayen (1990) 170 CLR 394 at 413, 444, 500; Giumelli v Giumelli (1999) 196 CLR 101 at [6]. “It is not the breach of promise, but the promisor’s responsibility for the detrimental reliance by the promisee, which makes it unconscionable for the promisor to resile from his or her promise”: Sidhu v Van Dyke (2014) 251 CLR 505 at [58] per French CJ, Kiefel, Bell and Keane JJ.

case [5.285] Crown leased space in its casino to two restaurants. The parties negotiated a new lease. The term was five years. The lease required the tenants to undertake major refurbishments of the restaurants. The tenants were concerned that they might not recoup the cost of the refurbishments within five years. They sought the inclusion of a right to renew the lease for a further five years. Crown was unwilling to agree to such term. During the negotiations, a representative of Crown assured the tenants that they would be “looked after at renewal time”. The tenants entered into the lease and undertook the major refurbishments. Towards the end of the term of the new lease Crown refused to renew the lease: at [4]–[9], [13]. The court held that Crown was not estopped from refusing to renew the lease. French CJ, Kiefel and Bell JJ pointed out that a representation must be clear to be able to found a promissory estoppel. The representation must be able to be understood by a reasonable person in the way in which the party claims that they were misled. Here the representation by Crown would not have been understood by a reasonable person to mean that Crown would offer to renew the lease: at [35]. Furthermore, it had not been shown that the tenants had relied upon the representation to their detriment: at [39]. At first instance it had been found that the representation led the tenants to expect that they would be offered a new lease on terms to be determined by Crown. By contrast, the tenants had argued that they had been led to expect that there would be a renewal of the lease on the same terms as the previous lease. The tenants thus had not relied upon the representation made by Crown: at [40]. Keane J held that a representation must be “clear” and “unambiguous” in order to found an promissory estoppel: at [142]. A representation founding a promissory estoppel must be sufficiently certain to have supported a contractual variation: at [147]. Crown could set any terms of its choice in offering a new lease: at [155]. While the tenants had argued that the terms were to be the same as the previous lease, it was clear that Crown had refused to agree to such a commitment: at [156]. Nettle J considered that a representation which would support a promissory estoppel did not need to reach the level of certainty required to support a contract: at [211]. However, the tenants had not argued that they had acted in accordance with a “more limited” assumption and had not sought an alternative form of relief: at [226]–[227]. Gageler and Gordon JJ found it unnecessary to consider the question of estoppel: Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 90 ALJR 770 at [46], [271].

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Formalities [5.290] Many contracts, particularly those of a minor nature, are made by word of mouth and do not need to be in writing. Where the contract is of importance it is generally considered prudent to reduce its terms to writing. This provides valuable evidence of the terms of the agreement in the event of dispute. Accordingly, in practice many oral contracts are confirmed in writing as soon as possible after they are made. The common law does not require a simple contract to be in writing nor that written evidence of the details of the contract exist in order for the contract to be enforceable. However, in some cases various statutes require that in order for a contract to be enforceable it must be in writing. In other cases, there are statutory provisions to the effect that in order for a contract to be enforceable some written evidence of it must exist, that is, it must be evidenced in writing.

Contracts required to be in writing [5.300] Certain kinds of simple contracts are required by various statutes to be entirely in writing, otherwise they will be void or unenforceable. Examples are as follows: 1.

Bills of exchange and promissory notes: Bills of Exchange Act 1909 (Cth), ss 8(1), 89(1).

2.

Cheques: Cheques Act 1986 (Cth), s 10.

3.

Assignments of copyright: Copyright Act 1968 (Cth), s 196(3).

4.

Contracts of marine insurance: Marine Insurance Act 1909 (Cth), s 28.

5.

Assignments of life insurance policies: Life Insurance Act 1995 (Cth), s 200(2)(a).

6.

An acknowledgment of a debt barred by the State Limitation Acts: see Chapter 12.

7.

Most forms of consumer credit contract: see Chapter 19.

Contracts to be evidenced in writing [5.310] The principal legislative provisions requiring contracts to be evidenced in writing are contained in the Statute of Frauds 1677 (IMP) or the local re-enactment of some of its provisions.

The Statute of Frauds 1677 [5.320] The Statute of Frauds 1677 (IMP), a United Kingdom statute, was received in Australia on settlement. Section 4 of the Statute provides that no action shall be brought in certain cases unless the agreement or some memorandum of it is in writing signed by the party to be charged or by some person authorised by that party to contract on their behalf. The Statute has been repealed in its application to most Australian States and Territories but a number of its provisions have been re-enacted by State legislation in similar terms. 7 The main types of contract required to be evidenced by a written memorandum by s 4 of the Statute or local re-enactment of its provisions are: (a) contracts dealing with an interest in land; and (b) contracts of guarantee. 7

The Statute no longer applies in the following States and Territories: Imperial Acts Application Act 1969 (NSW), s 8(1); Statute of Frauds 1972 (Qld), s 3(1); Statutes Amendment (Enforcement of Contracts) Act 1982 (SA), s 3; Imperial Acts (Substituted Provisions) Act 1986 (ACT), s 3(1), relocated by Law Reform (Miscellaneous Provisions) Act 1999 (ACT), Sch 3 and relocation repealed by Civil Law (Property) Act 2006 (ACT), s 507; Law of Property Act 2000 (NT), s 221 & Sch 4. In Victoria the Statute of Frauds 1677 (IMP), s 4 was replaced by local enactment in the same terms by the Instruments Act 1958 (Vic), s 126, but the latter section only applies, in effect, to guarantees and contracts for the sale of land since the commencement of the Sale of Goods (Vienna Convention) Act 1987 (Vic), s 8. In Tasmania, the Statute of Frauds 1677 (IMP), s 4 has been replaced by a local enactment in the same terms: Mercantile Law Act 1935 (Tas), s 6. The

chapter 5 Consideration, Promissory Estoppel and Formalities

(a) Contracts dealing with an interest in land [5.330] A contract for the sale or other disposition of land or any interest in land is required to be evidenced in writing. This part of s 4 of the Statute of Frauds 1677 (IMP) has been replaced in most States and Territories by local enactments in substantially similar terms. 8 Agreements to buy, sell or lease land fall within the provision, and a contract to assign a lease has been held to be an interest in land and therefore required to be evidenced in writing. Case law provides examples of what constitutes a sale or other disposition of land or any interest in land. The New South Wales Court of Appeal held that a contract for the declaration of a trust over land was a disposition of an interest in land: Khoury v Khouri (2006) 66 NSWLR 241 at [3], [15], [47]. An option for the sale of land also falls within the provision: Todrell Pty Ltd v Finch (No 1) [2008] 1 Qd R 540 at [86]. A profit à prendre gives a right to remove something from the land of another person. In Duff v Blinco (No 2) [2007] 1 Qd R 407, the profit à prendre gave a right to take timber from the plaintiff’s land. The Queensland Court of Appeal held that a profit à prendre was not a contract for the sale or other disposition of land, so it did not fall under the writing requirement of this section of the Statute: at [32], [34].

(b) Contracts of guarantee [5.340] A further important category of contract covered by the Statute of Frauds 1677 (IMP) was a “promise to answer for the debt, default or miscarriage of another person”. This expression has been held to cover a contract of guarantee or suretyship: Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 at [61]-[63]. It does not apply to a contract of indemnity. The provision does not apply in New South Wales, South Australia, or the Australian Capital Territory. 9 It is important to notice the difference between a guarantee and an indemnity. A guarantee may be defined as a promise made by one person (the guarantor or surety) to another (the creditor) that should a third person (the principal debtor) fail to carry out an engagement made with the creditor, the guarantor will be answerable for the carrying out of such engagement. An indemnity is a contract for the purpose of insuring the party indemnified against loss. A guarantee must be evidenced in writing, whereas an indemnity need not: see Chapter 20. 10

8

9

10

Statute of Frauds 1677 (IMP), s 4 still applies in Western Australia but is limited, in effect, to guarantees and contracts for the sale of land: Law Reform (Statute of Frauds) Act 1962 (WA), s 2. See W Wen, “Contractual Damages and Post-Sidhu Proprietary Estoppel: A Further Blow to the Statute of Frauds?” (2015) 5 Property Law Review 32. Conveyancing Act 1919 (NSW), s 54A(1); Instruments Act 1958 (Vic), s 126(1); Property Law Act 1974 (Qld), s 59; Law of Property Act 1936 (SA), s 26(1); Mercantile Law Act 1935 (Tas), s 6 and Conveyancing and Law of Property Act 1884 (Tas), s 36(1); Law of Property Act 2000 (NT), s 62; Civil Law (Property) Act 2006 (ACT), s 204(1). In Western Australia the Statute of Frauds 1677 (IMP), s 4 still applies but is limited, in effect, to guarantees and contracts for the sale of land (Law Reform (Statute of Frauds) Act 1962 (WA), s 2). The Property Law Act 1969 (WA), s 34(1) also contains a provision to similar effect. Imperial Acts Application Act 1969 (NSW), s 8(1); Statutes Amendment (Enforcement of Contracts) Act 1982 (SA), s 3; Imperial Acts (Substituted Provisions) Act 1986 (ACT), s 3(1), relocated by Law Reform (Miscellaneous Provisions) Act 1999 (ACT), Sch 3 and relocation repealed by Civil Law (Property) Act 2006 (ACT), s 507 and Sch 3. In Queensland and the Northern Territory guarantees must be evidenced in writing: Property Law Act 1974 (Qld), s 56; Law of Property Act 2000 (NT), s 58. The Statute of Frauds 1677 (IMP) also applied to: agreements made in consideration of marriage; agreements not to be performed within one year from their making; and agreements involving a special promise by an executor or administrator to satisfy the liability of a deceased person out of their own money. However, such categories of contract are now only affected in Tasmania (Mercantile Law Act 1935 (Tas), s 6). The Statute also applied to contracts for the sale of goods valued at $20 or more: this now only affects contracts in Western Australia (Sale of Goods Act 1895 (WA), s 4(1) and Tasmania (Sale of Goods Act 1896 (Tas), s 9(1)).

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The memorandum required [5.350] Attention must be paid to the following matters that must be covered by the memorandum: 1.

The names of the parties must be specified.

2.

The subject matter must be stated.

3.

The consideration must be apparent (except in guarantees).

4.

The memorandum must be signed by the party to be charged or by some person authorised by them to contract on their behalf.

The memorandum is not the agreement; it is merely evidence of the agreement. To be efficacious the memorandum must contain all the express terms of the agreement.

Effect of non-compliance: the doctrine of part performance [5.360] A contract that is not evidenced in writing as required by the Statute of Frauds 1677 (IMP) is unenforceable at common law. However, equity will enforce such a contract provided that the claimant for relief has partly performed the contract. The basis of the equitable doctrine is that it would be unconscionable to allow a defendant to set up the Statute to deny relief to a claimant who has performed either the whole or part of her or his obligations by reliance on the contract. The application of the doctrine of part performance has, in practice, generally been confined to contracts for the sale or other disposition of an interest in land.

case [5.370] The deceased had orally agreed with the defendant that he would build a house for her and her family if she would take care of him as part of her family for the rest of his life. After the house was built the defendant and her family moved in with the deceased who was looked after by the defendant for some 23 years before he died. The deceased’s administrator brought an action to recover possession of the house from the defendant for the benefit of the deceased’s estate. It was held that the contract indicated by the defendant’s acts of performance was one in which, in consideration of her making her home with the deceased and caring for him for the remainder of his life, the deceased had agreed to transfer the title of the property to her: at 200. Accordingly, the court granted a decree of specific performance of the agreement and a declaration that the defendant was the beneficial owner of the property: Riley v Osborne [1986] VR 193 at 201; see similarly, Butler v Craine [1986] VR 274 at 281-283.

case [5.380] In a further example, the plaintiffs went into possession of a dwelling-house paying rent and effecting substantial repairs to the house on the oral promise (corroborated by the owner’s will) that they could live in the house for the rest of their lives: at 360. An oral grant of a tenancy for life could not take effect at common law because of the absence of writing: at 361. However, it was held that the promise should be construed in equity as an agreement for a lease and there were sufficient acts of part performance unequivocally referable to that agreement. Accordingly, the court ordered specific performance of the agreement for the lease of the house for the joint lives of the plaintiffs: Watson v Delaney (1991) 22 NSWLR 358 at 363, 366.

chapter 5 Consideration, Promissory Estoppel and Formalities

[5.390] A claimant must establish that the acts of part performance relied on are referable to the contract in the sense that the parties’ conduct must be inexplicable except on the assumption that some such contract as that alleged has been made: Regent v Millett (1976) 133 CLR 679 at 683. In that case Gibbs J said (at 684): “It is clear that if a vendor permits a purchaser to take possession to which a contract of sale entitles him, the giving and taking of that possession will amount to part performance notwithstanding that under the contract the purchaser was entitled rather than bound to take possession.” The payment of money on its own will not usually be regarded as a sufficiently unequivocal act since it may also be consistent with either no, or some other kind of, agreement between the parties.

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

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chapter 6

Contractual Capacity [6.20] Minors .......................................................................................................................................................................... 88 [6.150] Contractual capacity of minors in New South Wales..................................................................... 91 [6.160] Special provisions as to minors in South Australia.......................................................................... 92 [6.170] Corporations .......................................................................................................................................................... 93 [6.180] Mentally incapacitated and intoxicated persons ............................................................................... 93 [6.190] Married women.................................................................................................................................................... 94 [6.200] Bankrupts................................................................................................................................................................ 94

Introduction [6.10] Not all persons can enter into a valid contract. Certain classes of persons are regarded by law as incapable, either wholly or partly, of entering into contractual obligations. 1 The capacity of the following persons to enter into valid contracts will be discussed:

1

1.

Minors.

2.

Corporations.

3.

Mentally incapacitated and intoxicated persons.

4.

Married women.

5.

Bankrupts.

See generally E Bant, “Incapacity, Non Est Factum and Unjust Enrichment” (2009) 33 Melbourne University Law Review 368.

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Minors [6.20] Formerly, a minor 2 was a person who had not reached the age of 21 years. However, in all States and Territories the age of majority has been reduced to 18 years. 3 In New South Wales and South Australia the legal position of minors differs markedly from that in the other States. The position in these States will be considered separately at the end of this section. With the exception of New South Wales, contracts with minors may be considered under three headings depending on their legal effect. Such contracts may be: (a)

valid;

(b)

voidable; or

(c)

void.

Valid contracts [6.30] Two classes of contracts with minors are binding, namely: (a)

a contract for the supply of “necessaries”; and

(b)

a beneficial contract of service, such as a contract of apprenticeship.

A minor is liable under a contract for “necessaries” [6.40] The word “necessaries” is not confined to articles necessary for the maintenance of life but includes goods and services fit to maintain the person in question at the standard of living and in the position in life which he or she enjoys. So far as goods are concerned, necessaries have been defined as “goods suitable to the condition in life of such minor and … to his actual requirements at the time of the sale and delivery”. 4 In any given case there are two questions involved: (a)

are the goods or services within the classes of goods which can be classed as “necessaries” for a person in the circumstances of the minor in question?; and

(b)

were the goods or services in fact necessary to the minor at the time?

It follows that no hard and fast rules can be laid down as to what a minor will be made liable to pay for, as the position must vary in every case. Thus, in Scarborough v Sturzaker (1905) 1 Tas LR 117, it was held that a minor who was accustomed to cycle a distance of some 12 miles to his daily employment was liable to pay for a new bicycle: at 117–118. By contrast, in Bojczuk v Gregorcewicz [1961] SASR 128, a minor who lived in Poland and had a permanent job there, but who wished to emigrate to Australia, was held not to be liable to repay to a relative, who had paid for her passage to Australia, the cost of the passage: at 132–134. 2 3

4

The earlier cases and legislation used the expression “infant” when referring to a person below the age of majority. However, the modern legislative trend is to use the more appropriate term “minor”. Minors (Property and Contracts) Act 1970 (NSW), s 6(1); Age of Majority Act 1977 (Vic), s 3(1); Law Reform Act 1995 (Qld), s 17; Age of Majority (Reduction) Act 1971 (SA), s 3(1); Age of Majority Act 1972 (WA), s 5(1); Age of Majority Act 1973 (Tas), s 3(1); Age of Majority Act 1974 (ACT), s 5; Age of Majority Act 1974 (NT), s 4. Goods Act 1958 (Vic), s 7; Sale of Goods Act 1896 (Qld), s 5(3); Sale of Goods Act 1895 (SA), s 2(2); Sale of Goods Act 1895 (WA), s 2(2); Sale of Goods Act 1896 (Tas), s 7(2); Sale of Goods Act 1954 (ACT), s 7(3); Sale of Goods Act 1972 (NT), s 7(3). In New South Wales the position is now governed by the Minors (Property and Contracts) Act 1970 (NSW) which is discussed separately at the end of this section.

chapter 6 Contractual Capacity

If the court finds that the goods or services are not within the classes of necessaries, or were not in fact necessary, then the minor is not liable to pay nor, unless he or she obtained them by fraud, to return the goods. Even where the goods are found to be necessaries, the minor is not bound to pay the contract price but only a reasonable price.

A minor is liable under a beneficial contract of service [6.50] This particularly applies to agreements relating to services to provide the minor with a means of livelihood, apprenticeship contracts or contracts relating to education. In deciding whether the contract is for the minor’s benefit, the agreement must be taken as a whole and any restrictions placed on the minor at the present time and in the future closely considered.

case [6.60] While still a minor, the defendant had entered into articles of clerkship with the plaintiff. The articles contained a covenant by the defendant that he would not practise as a solicitor within 50 miles of Toowoomba where the plaintiff carried on his practice. Within a year of qualifying, the defendant started to practise in Toowoomba. The plaintiff sued for an injunction to restrain the defendant from so practising. The defendant pleaded his infancy at the time of entering into the articles as a defence. The High Court unanimously held that the covenant was enforceable against the defendant. Although the contract contained clauses that were prejudicial to him, the contract as a whole was beneficial and therefore enforceable: Hamilton v Lethbridge (1912) 14 CLR 236 at 255, 266. [6.70] In contrast, if the contract is substantially detrimental to the interests of the minor, it will not be enforced against her or him.

case [6.80] A girl aged 14 years entered into a seven-year apprenticeship with the plaintiff to be taught stage dancing. She agreed that she would not marry during the apprenticeship and would not accept professional engagements without the plaintiff’s permission. The plaintiff did not bind himself to provide her with engagements nor was he obliged to maintain her while she was not working. The pay he agreed to give in the event of her employment was less than generous. The plaintiff was entitled at his own discretion to terminate the contract if, after a fair trial, he decided that she was unfit for stage dancing: at 440-442. It was held that the terms of the apprenticeship deed were unreasonable and unenforceable: De Francesco v Barnum (1890) 45 Ch D 430 at 443. [6.90] The question of whether the contract is beneficial to the minor is the crucial issue in determining the validity of this type of contract. On the other hand, this does not mean that any contract which benefits the minor will be enforced against her or him. Thus, it is well-established that a trading contract is not binding on a minor, notwithstanding that it may be financially beneficial. For example, a minor who carried on business as a haulage contractor agreed to purchase a lorry under a hire-purchase agreement. When he was sued for arrears under the agreement, it was held that the contract was a trading contract by which the minor could not be bound: Mercantile Union Guarantee Corp Ltd v Ball [1937] 2 KB 498 at 502-503; see similarly, Cowern v Nield [1912] 2 KB 419 at 424.

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Voidable contracts [6.100] The contracts voidable by a minor are either:

Those binding unless repudiated by the minor during their minority or within a reasonable time after attaining their majority [6.110] This applies to contracts which are of a permanent nature – those which involve a continuing obligation, for example: (a)

shares in a company;

(b)

leases;

(c)

partnerships; or

(d)

marriage settlements.

A minor is bound by such contracts unless he or she takes steps to repudiate them within a reasonable time after attaining majority. If the minor has received no benefit under the contract he or she may repudiate it and also secure a return of any money paid on the contract. If, however, the minor had the benefit or the use of goods, he or she, while able to renounce the contract, cannot obtain a refund of the money paid for them: Pearce v Brain [1929] 2 KB 310 at 314-315. In other words, rescission avoids future liability only.

Those not binding unless ratified within a reasonable time after attaining the age of majority [6.120] These are contracts which are not of a continuing nature, for example the purchase of goods which are not necessaries. These contracts require the express ratification of the minor after coming of age to make them binding. In Victoria these contracts, that is those not binding unless ratified within a reasonable time after attaining the age of majority, are not effective, as in that State legislation makes such contracts absolutely void and incapable of ratification by the minor after attaining majority. 5

Void contracts [6.130] In Victoria all contracts whether simple or made under a deed are void: (a)

for the repayment of money lent or to be lent;

(b)

for the payment of goods supplied or to be supplied (other than contracts for necessaries); or

(c)

all accounts stated (that is, an account acknowledged by the parties to be correct): Supreme Court Act 1986 (Vic), s 49.

In all States a minor is not liable on a bill of exchange (or cheque) even if given for the price of necessaries: Re Soltykoff; Ex parte Margrett [1891] 1 QB 413 at 415-416. A minor cannot give a valid security to repay advances even if made to enable her or him to purchase necessaries: Martin v Gale (1876) 4 Ch D 428 at 431. In Victoria a contract made by a minor, after he or she comes of age, to repay a loan contracted during minority is void. 6 5

Supreme Court Act 1986 (Vic), s 49.

6

Supreme Court Act 1986 (Vic), s 51.

chapter 6 Contractual Capacity

Misrepresentation by minors [6.140] Minors are not liable for a tort 7 directly connected with any contract upon which no action will lie against them. It is impossible indirectly to enforce such a contract by changing the form of action to one in tort. Thus an action for deceit does not lie against minors who, by falsely representing themselves to be of full age, have fraudulently induced another to contract with them, since to enable a plaintiff to convert a breach of contract into a tort would destroy the protection that the law affords to minors: R Leslie Ltd v Sheill [1914] 3 KB 607 at 611-612, 620, 625. 8

Contractual capacity of minors in New South Wales [6.150] The New South Wales Minors (Property and Contracts) Act 1970 (NSW) contains extensive provision regulating the contractual capacity of minors, that is, those under 18 years of age. The liability of minors is based on their participation in a civil act: s 16. The legislation defines civil act as including a contract; an election to rescind or determine a contract for fraud, mistake or breach; a disposition of property; an assent to or waiver of any matter affecting their rights or obligations under a contract or relating to property; and any other act relating to contractual or proprietary rights or obligations: s 6(1). The Act provides that, where a minor participates in a civil act and that participation is for their benefit, the civil act is “presumptively binding” on the minor: s 19. The expression “presumptively binding” means that the civil act is as binding on the minor as if he or she was not a minor at the time of their participation: s 6(3). The Act also makes certain transactions presumptively binding on a minor even though they may not necessarily be for her or his benefit. For example, where a minor makes a disposition of property for a consideration which is not manifestly inadequate and he or she received the whole or any part of the consideration, the disposition is presumptively binding on the minor: s 20(1). Similarly, the disposition of property by the minor either wholly or partly as a gift where the disposition was reasonable at the time it was made is another example of a civil act made presumptively binding on a minor: s 21. However, a minor will not be presumptively bound by a civil act where he or she lacks, by reason of youth, the understanding necessary for participation in such act: s 18. On application by a minor the Supreme Court may make an order granting the minor capacity to participate in any civil act where the court considers this would be for the minor’s benefit: s 26(1), (3). Where the minor participates in a civil act authorised by such order it will become presumptively binding on the minor: s 26(4). Should a contract or disposition of property proposed to be made by a minor involve less than $10,000, the Local Court may approve such contract where the court considers this would be for the minor’s benefit: s 27(2), (5). The contract would then be presumptively binding on the minor: s 27(1). Furthermore, a contract involving, for example, a disposition of property by a minor, will be presumptively binding on her or him, without recourse to the courts, provided that a solicitor (who must be instructed and employed independently of any other party to the disposition) or the NSW Trustee or Guardian issues a certificate not more than seven days before the making of the disposition, stating that he or she is satisfied that the minor understands the true purport and effect of the disposition, makes the 7 8

A tort is a civil wrong, committed by one person against another, consisting in the infringement of a right created independent of contract, giving the injured party a right to claim damages or compensation: see Chapter 28. This is no longer the position in New South Wales: see Minors (Property and Contracts) Act 1970 (NSW), s 48.

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disposition freely and voluntarily, and that an independent valuer or financial adviser has given written advice that the consideration is not manifestly inadequate: s 28. Where a civil act, for example a contract entered into by a minor, is not presumptively binding on the minor, it may be affirmed on their behalf by a court whilst the minor remains a minor: s 30(1). Application for affirmation by the court may be made not only by the minor but by any person interested in the contract although the court must not affirm a civil act unless it considers that the affirmation would be for the minor’s benefit: s 30(2) – (3). A minor may personally affirm a civil act, not otherwise presumptively binding, after he or she attains the age of 18 years: s 30(1)(b). The effect of affirmation is to make the civil act presumptively binding on the minor: s 30(4). A civil act may be repudiated by a minor at any time during minority or before he or she attains the age of 19 years: s 31(1). To be effective the repudiation must be in writing, signed by the person making it or their agent, and served on the person affected by the repudiation: s 33(2). The court also has power to repudiate a civil act on behalf of a minor at any time during minority: s 34(1). However, in all cases a purported repudiation is of no effect if it appears that at the time of repudiation the civil act is for the benefit of the minor: ss 31(2), 34(2). Furthermore, repudiation is, in essence, only effective in the case of contracts not presumptively binding on the minor. Where a contract or other civil act is not repudiated in accordance with the provisions just outlined, it is presumptively binding on the minor. On repudiation of a contract or other civil act in accordance with the provisions of the Act, the court is given very wide powers on the application of any person interested in the contract to make orders either confirming the contract wholly or in part or anything done under it, or for the adjustment of rights arising out of the contract or its repudiation or anything done under it: s 37(1). The court may also confirm any contract and anything done under it where the contract or other civil act has been induced by a fraudulent misrepresentation by the minor as to her or his age or other matter affecting their capacity to contract: s 37(2). The Act expressly abolishes the common law rule that a minor cannot be made liable in tort where the tort arises out of a contractual duty: s 48. The guarantor of an obligation of a minor is bound by the guarantee to the extent to which the guarantor would be bound had the minor been an adult at the time he or she entered into the transaction being guaranteed: s 47; 9 see Chapter 20.

Special provisions as to minors in South Australia [6.160] In South Australia the Minors Contracts (Miscellaneous Provisions) Act 1979 (SA) provides that where a contract is unenforceable against a person because he or she was a minor at the time of entering into it, such contract remains unenforceable against the minor unless he or she ratifies it in writing on or after the day on which he or she attains majority: s 4. The effect of the provision is to abrogate the distinction between those contracts binding on a minor unless repudiated within a reasonable time after majority and those not binding unless ratified within a reasonable time after majority: see [6.110] and [6.120]. Ratification after majority is now required in both cases for the contract to be enforceable. The provision does not affect those contracts already binding on a minor, that is, contracts for the supply of “necessaries”, and beneficial contracts of service: see [6.40]. The guarantor of a minor’s contractual obligations is bound by the guarantee to the same extent to which the guarantor would be bound had the minor been of full age at the time of entering into the contract 9

In Tasmania, the Minors Contracts Act 1988 (Tas), s 4 makes similar provision for the liability of a guarantor of a minor’s contract.

chapter 6 Contractual Capacity

being guaranteed: s 5. Provision is also made for the terms of a proposed contract to be approved by the court and where such approval is given, the contract is to have the same effect as if the minor had attained majority before entering into it: s 6. Application to the court for the requisite approval may be made by the minor, her or his parent or guardian, or any other party to the proposed contract. The court is also empowered to appoint a person to transact any specified business or to execute any documents on behalf of a minor on application being made to the court by the minor or her or his parent or guardian. Liabilities incurred by the agent so appointed are enforceable against the minor: s 8. Where a person has avoided a contract on the ground of their minority and before avoidance property passed to another contracting party, a court may order restitution of the property to the minor, notwithstanding that the minor received some benefit under the contract or another party has partly performed their obligations under the contract: s 7. This provision modifies the common law principle whereby a minor who avoids a contract on the ground of their minority cannot recover any money or other property the minor previously transferred where they received some benefit under the contract.

Corporations [6.170] A corporation must contract by means of an agent. Their powers to contract are either limited by reason of the instrument creating them or limited by the very nature of their artificial existence (for example, a corporation could not make a contract to sing at a concert). The Corporations Act 2001 (Cth) provides that, where a company exercises a power contrary to an express restriction or prohibition in its constitution, or does an act which is not within the objects of the company as set out in its constitution, the exercise of such a power or doing of such an act is not invalid: s 125. In general a company has the legal capacity of a natural person: s 124. A company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. The power may be exercised without using the company seal: s 126.

Mentally incapacitated and intoxicated persons [6.180] Mentally incapacitated and intoxicated persons may be made liable under contracts for the provision of necessaries. However, all other contracts entered into by them will be voidable provided: (a)

they were incapable of understanding the nature of what they were agreeing to at the time they contracted; and

(b)

the other party was aware, or should have been aware, of their incapacity.

Accordingly, a person of unsound mind will not be able to avoid a contract where the other party was unaware of their mental incapacity: Hart v O’Connor [1985] AC 1000 at 1027-1028. The onus of proving the existence of both incapacity and the knowledge of the other party of that incapacity rests with the mentally incapacitated or intoxicated person. The effect of mental incapacity or intoxication is to make the contract voidable at the option of the person suffering the disability and does not entitle the other party to set aside the contract: Gibbons v Wright (1954) 91 CLR 423 at 439. A voidable contract can be ratified on the intoxicated person regaining sobriety, or the mentally incapacitated person recovering their sanity, and the ratified contract will then become binding: McLaughlin v City Bank of Sydney (1912) 14 CLR 684 at 690.

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Both mentally incapacitated and intoxicated persons are bound to pay a reasonable price for necessaries obtained while incapable of knowing what they were doing. 10

Married women [6.190] Formerly, married women were under disabilities which did not attach to other persons; however, their position is now much the same as that of a single woman or a man. 11

Bankrupts [6.200] A bankrupt is not deprived of their general capacity to contract. However, there are certain provisions of the Bankruptcy Act 1966 (Cth) which relate to dealings by bankrupts. If an undischarged bankrupt, or a debtor who is party to a debt agreement, obtains credit or enters into a contract for goods and services involving an obligation to pay $3,000 or more (indexed in accordance with the Consumer Price Index) without disclosing they are an undischarged bankrupt, they are liable to imprisonment for up to three years: s 269. An undischarged bankrupt is liable to the same penalty if they carry on business under an assumed or firm name without disclosing the bankrupt’s true identity and the fact that they are an undischarged bankrupt. Certain transactions by a bankrupt in relation to property acquired after the date of the sequestration order are valid against their trustee provided they are completed before any intervention by the trustee: s 126; and see Chapter 31.

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

10

11

Sale of Goods Act 1923 (NSW), s 7; Goods Act 1958 (Vic), s 7; Sale of Goods Act 1896 (Qld), s 5(2); Sale of Goods Act 1895 (SA), s 2(1); Sale of Goods Act 1895 (WA), s 2(1); Sale of Goods Act 1896 (Tas), s 7(1); Sale of Goods Act 1954 (ACT), s 7(2); Sale of Goods Act 1972 (NT), s 7(2). Married Persons (Equality of Status) Act 1996 (NSW), s 4; Marriage Act 1958 (Vic), ss 156 – 161; Law Reform Act 1995 (Qld), s 18; Law of Property Act 1936 (SA), ss 92 – 111; Law Reform (Miscellaneous Provisions) Act 1941 (WA), ss 2 – 3; Married Women’s Property Act 1935 (Tas), ss 3, 7, 11; Married Persons Property Act 1986 (ACT), s 3; Married Persons (Equality of Status) Act 1989 (NT), s 3.

chapter 7

Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts [7.20] Mistake ........................................................................................................................................................................ 97 [7.480] Misrepresentation........................................................................................................................................... 108 [7.570] Innocent misrepresentation ...................................................................................................................... 111 [7.690] Negligent misrepresentation .................................................................................................................... 116 [7.740] Duress ................................................................................................................................................................... 118 [7.800] Undue influence................................................................................................................................................ 120 [7.870] Unconscionable contracts .......................................................................................................................... 122

Introduction [7.10] The consent of the parties to a contract must be a genuine one otherwise the contract may be avoided. A consent which has been induced by means of fraud, or misrepresentation, or obtained through a mistake of fact is considered in law not to be genuine although, it by no means follows that all mistakes or misrepresentations enable avoidance of a contract. To summarise, the effect of the following will be considered: 1.

Mistake.

2.

Misrepresentation, which comprises: (a)

fraudulent misrepresentation;

(b)

innocent misrepresentation; and

(c)

negligent misrepresentation.

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3.

Duress.

4.

Undue influence.

5.

Unconscionable contracts.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

Mistake [7.20] As a general rule a person is bound by an agreement in which there exists an element of mistake unless he or she can show that the mistake is one of the classes mentioned at [7.30] and [7.390]. The following discussion concerns the situations in which a mistake of fact may vitiate, in certain circumstances, the apparent contract between the parties. The effect of a mistake of law is considered separately at [7.390]. Mere errors of judgment are not sufficient to have a contract set aside. If A purchases a picture assuming it is worth $1,000 when it is only worth $50, then A is bound by the contract and must bear the loss. Mistake as to the qualities possessed by a thing does not ordinarily render the contract void. The position is different if: (a)

the seller specifically contracts that he or she is selling a thing with certain qualities; or

(b)

the seller goes out of their way to make statements ascribing qualities to the thing.

These two situations are dealt with at [7.480]–[7.560].

Mistakes of fact [7.30] The general position is that a legally operative mistake of fact renders the contract void, that is, there is no contract. However, the High Court has held that a unilateral mistake as to the terms of a written contract renders the contract voidable rather than void: see [7.190]. It is difficult to appreciate the nature of the legal principles without distinguishing between the various types of mistake:

Common mistake [7.40] That is, where parties make the same mistake. Only some types of common mistake invalidate a contract; such cases are usually restricted to the existence or non-existence of the subject matter of the contract, or of a fact which goes to the root of a contract. Example A and B agree for the sale of a car which they erroneously assume to be in existence whereas it has been destroyed by fire. This contract is void. A sells to B a bull, both mistakenly believing it has won several prizes of a specific nature in the past. This contract is valid.

Mutual mistake [7.50] That is, where the parties are both mistaken but their mistakes are not the same. They are at cross-purposes. This type of mistake does not necessarily invalidate. Example A makes a clear offer to sell china to B. B makes an unqualified acceptance of the offer. B thinks that A is offering Dresden china. A is not aware of the state of B’s mind and thinks that B is merely concluding a contract to buy china. Here both parties make different kinds of mistake as to the contractual intention of the other. The contract is valid.

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However, this type of mistake may invalidate the contract in certain circumstances: see [7.130].

Unilateral mistake [7.60] That is, where one party is mistaken as to the terms of the contract or the identity of the other party and that mistake is known to the other party. In the example in [7.50], if A knows that B erroneously thinks that he is being offered Dresden china the error is B’s alone. The contract is void (or possibly voidable – see [7.190]). The effect of each of the above categories of mistake will now be considered in more detail.

Common mistake as to the existence of a fundamental fact [7.70] Here the parties have made the contract on the basis of a common assumption of fact which both intend to be a condition precedent to the existence of a binding contract. If the fact does not exist, then the condition precedent for the existence of a binding contract has not been fulfilled. The most common instance is where the subject matter of the contract has ceased to exist before the date of the contract.

case [7.80] A contract for the assignment of a life insurance policy was made upon the basis of a belief common to both parties that the assured was alive. In fact, he had died before the contract of assignment was made. It was held that there was a common mistake, and therefore the contract was one that could not be enforced: Scott v Coulson [1903] 2 Ch 249 at 252-253. In this type of case the parties have both believed wrongly that the subject matter of the contract was in existence. That belief was wrong and consequently the basic assumption on which the contract was made has never been fulfilled. [7.90] The principle is given statutory confirmation in the provision of the Sale of Goods Acts 1 that “where there is a contract for the sale of specific goods, and the goods, without the knowledge of the seller, have perished at the time when the contract was made, the contract is void”. This principle of avoidance on the ground of common mistake is, however, limited to mistake as to the existence of the subject matter or, in one special situation, mistake as to substantial identity. It does not apply to the case of a mistake made by both parties merely as to qualities or attributes possessed by the subject matter. This point is illustrated by Leaf v International Galleries [1950] 2 KB 86:

case [7.100] The plaintiff purchased a painting of Salisbury Cathedral from the defendants which both parties mistakenly believed had been painted by John Constable. When the plaintiff attempted to resell the painting, he discovered that it was not a Constable. The plaintiff sought rescission of the contract for the defendant’s innocent misrepresentation that the painting was a Constable: at 86-87.

1

Sale of Goods Act 1923 (NSW), s 11; Goods Act 1958 (Vic), s 11; Sale of Goods Act 1896 (Qld), s 9; Sale of Goods Act 1895 (SA), s 6; Sale of Goods Act 1895 (WA), s 6; Sale of Goods Act 1896 (Tas), s 11; Sale of Goods Act 1954 (ACT), s 11; Sale of Goods Act 1972 (NT), s 11.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

In the Court of Appeal Denning LJ stated: “There was a mistake about the quality of the subject-matter, because both parties believed the picture to be a Constable; and that mistake was in one sense essential or fundamental. But such a mistake does not avoid the contract: there was no mistake at all about the subject-matter of the sale. It was a specific picture, ‘Salisbury Cathedral’. The parties were agreed in the same terms on the same subject-matter, and that is sufficient to make a contract”: Leaf v International Galleries [1950] 2 KB 86 at 89. [7.110] It may be that there was no common intention that the existence of the subject matter should be a condition precedent to the existence of the contract. It may be that the seller of goods undertakes that the goods are in existence. If so there is no condition precedent, there is a valid contract and if the goods fail to materialise the seller is liable for breach of contract. This was the position in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377:

case [7.120] The Disposals Commission advertised for tenders for the purchase of a wrecked tanker on a reef. The plaintiff was the successful tenderer. In reality, there had never been a wreck on the reef specified. The High Court held that there was a valid contract. The Disposals Commission was liable for its breach because it had promised that the goods were in existence. There was no “common mistake”. There was in fact a promise that the subject matter of the contract existed. The court said that in such a case “the common law … has always regarded the fundamental question as being: ‘What did the promisor really promise?’ Did [they] promise to perform [their] part at all events, or only subject to the mutually contemplated original or continued existence of a particular subject matter?” Where such questions arise, they “must be determined in the light of the words used by the parties and … the surrounding circumstances”: McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 407-408.

Mutual mistake [7.130] In mutual mistake, although there is to all outward appearances an existing contract, nonetheless because the parties are at cross-purposes there is in fact no correspondence of offer and acceptance. In such cases the court seeks to determine whether a “reasonable person” would infer a contract. If it decides in the affirmative, then the parties are bound by the contract a reasonable person would infer; if it decides in the negative then there is no contract.

case [7.140] Where A had sold to B by sample 100 chests of tea then lying in bond “ex the ship Star of the East” but later discovered that they had submitted a sample of a totally different tea lower in quality than that contained in the chests, it was held that A was obliged to deliver the tea: Scott v Littledale (1858) 8 El & Bl 815; 120 ER 304 at 821 (El & Bl); 307 (ER).

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Unilateral mistake As to the promise of one party [7.150] Here only one of the parties makes the mistake. This mistake must be as to the terms on which the contract is offered and must be known to the other party to have a vitiating effect on the contract.

case [7.160] In Smith v Hughes (1871) LR 6 QB 597, A had some new oats to sell and interviewed B, a racehorse trainer. B believed that A was offering to sell old oats and entered into a contract, but on finding out his error B tried to cancel his obligation. It was held that in order to release B from the contract it was necessary to prove that A knew of B’s mistake in believing that the offer was for the sale of old oats: at 608, 610. [7.170] Thus, in order that B may avoid the contract he must prove: (a)

that he intended to buy old oats;

(b)

that he thought A intended to sell old oats; and

(c)

that A knew: (i)

that B wanted to buy old oats; and

(ii)

that B thought A’s offer was to sell old oats.

The effect of a unilateral mistake as to a fundamental term of a written contract was considered by the High Court in Taylor v Johnson (1983) 151 CLR 422:

case [7.180] The vendor granted to a purchaser an option to purchase two adjoining blocks of land. The option was exercised and the parties entered into a written contract of sale for the land. In both the option and the sale agreements the purchase price stipulated was $15,000. The vendor later refused to complete the purchase on the ground that she had mistakenly believed that the option and sale agreements provided for a price of $15,000 per acre which would have amounted to a total purchase price of $150,000, the two blocks comprising 10 acres: at 425. The High Court considered that the evidence led to the inference that the purchaser believed that the vendor was acting under a serious mistake or misapprehension about either the terms (the price) or the subject matter (its value) of the transaction and deliberately set out to ensure that she was not disabused of the mistake or misapprehension: at 427. It was held that the contract of sale should be set aside. The High Court said that the particular proposition of law applicable to the case could be narrowly stated as follows: “It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension”: Taylor v Johnson (1983) 151 CLR 422 at 432.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

[7.190] The High Court made it clear in Taylor v Johnson (1983) 151 CLR 422 that where the unilateral mistake relates to the actual terms of a written contract, the mistaken party cannot rely on their own mistake to say that the contract was a nullity from the beginning, that is, void ab initio. The contract in such circumstances is voidable only, that is, binding on the parties unless and until it is set aside in accordance with equitable principles, for example for fraud, misrepresentation or, as in that case, unconscionable dealing: at 429.

As to the identity of the person with whom the contract is made [7.200] This follows the same principles as those stated in the previous section. If B intends to contract with C and, wrongly thinking that A is C, goes through the motions of contracting with A, then B is normally bound as A is entitled to assume that B is assenting to the position as it actually appears. However, if A knows of the position, the contract is void.

case [7.210] In Cundy v Lindsay (1878) 3 App Cas 459, a certain person, Alfred Blenkarn, wrote to a well-known manufacturer (Lindsay) offering to purchase a considerable quantity of goods. He signed the letter in such a way as to make it appear that the signature was that of W Blenkiron & Co, a well-known and respectable firm. Lindsay wrote to “W Blenkiron & Co” at the address given by the impostor and later forwarded goods which were of course received by the impostor. The latter disposed of the goods to the defendant Cundy: at 459-460. It was held that the contract whereby Lindsay purported to sell was absolutely void: at 465, 467. Cundy derived no title to the goods, even though he was entirely ignorant of the fraud: at 466, 469. [7.220] The mistake as to identity need not, however, be caused fraudulently.

case [7.230] In Boulton v Jones (1857) 2 H & N 564; 157 ER 232, Jones was previously accustomed to deal with one Brocklehurst whose business, unknown to Jones, had been taken over by Boulton. Boulton, who knew that Jones intended to deal with Brocklehurst, supplied the goods without communicating the fact that the business had changed hands. It was held that there was no contract. Jones had no intention of contracting with Boulton and Boulton knew of it but thought that it did not matter: at 565-566 (H & N); 233 (ER). [7.240] However, in order to invalidate the contract, it is necessary to show that the party mistaken had a definite intention not to contract with the other party. In most situations of the general type of Boulton v Jones (1857) 2 H & N 564; 157 ER 232, the contract would not be void because normally the personality of the supplier of the goods would not be important to the offeror. In Boulton v Jones it was important because Jones had a set-off against Brocklehurst which was not available against Boulton. This requirement that the mistaken party should have no intention to contract with the other party raises some difficulties in the case of a fraudulently induced mistake.

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case [7.250] In Phillips v Brooks Ltd [1919] 2 KB 243, a man named North called at the plaintiff’s shop and expressed a wish to buy some jewellery. He wrote out a cheque for £3,000 saying that he was Sir George Bullough and giving the latter’s address. On the faith of this statement the plaintiff allowed him to take away some jewellery which he pledged to the defendant who had no knowledge of the fraud: at 243. It was held that the plaintiff had contracted to sell to the person who in fact had entered the shop even though he believed he was Sir George Bullough. The contract was made with the person physically present but his personality was regarded as that of another: at 246. The contract was therefore voidable for fraudulent misrepresentation but not void for mistake; the result was that the defendant derived a good title to the jewellery: at 249.

case [7.260] In Lewis v Averay [1972] 1 QB 198, L advertised his car for sale. A rogue tested the vehicle and said he liked it. He said he was “Richard Green” and led L to believe he was the well-known film actor of that name. The rogue wrote out a cheque for the agreed price of the vehicle and signed it “RA Green”. He wanted to take the vehicle at once but L was hesitant and asked for proof of identity. The rogue produced a special pass of admission to Pinewood Studios with an official stamp on it. It bore the name “Richard A Green” and a photograph which was plainly that of the rogue. On seeing this L was satisfied and let the rogue have the car. A few days later the bank told L that the cheque was worthless. Meanwhile the rogue had sold the car to A who bought it in good faith and without knowledge of the fraud. L brought an action against A for conversion of the car: at 203-204. The court held that the contract between L and the rogue was not void for mistake and accordingly A acquired a good title to the car. Lord Denning MR said that when a seller deals with a person actually present before him the presumption is that he is contracting with that person, even though the latter fraudulently impersonates someone else. On the facts, L had contracted with the person present before him, that is, the rogue, and therefore although that contract was voidable because of the rogue’s fraudulent misrepresentation, it was not void. Title to the car passed to A on its subsequent sale to him by the rogue: at 207. [7.270] Lewis v Averay [1972] 1 QB 198 demonstrates that where there is a mistake as to the identity of a party, but that mistake was not essential to the other party’s decision to enter the contract, there will be a valid contract. However, the contract will be voidable, that is, liable to be set aside by the mistaken person for the rogue’s fraudulent misrepresentation so long as the mistaken party does so before a third party in good faith acquires rights under it, for example by purchasing the goods from the rogue.

case [7.280] In Papas v Bianca Investments Pty Ltd (2002) 82 SASR 581, the plaintiff sold a car to a rogue using a false identity and paying for the vehicle with a bank cheque which was subsequently dishonoured. The rogue then obtained a loan of money from the defendant using the car as security. The court held that the contract between the plaintiff and the rogue was valid since the plaintiff was prepared to sell to anyone who could pay, that is, the “identity of the purchaser was immaterial”: at [20]. Although the contract between the plaintiff and the rogue was liable to be rescinded for the rogue’s misrepresentation, the plaintiff’s action to recover the vehicle from the defendant failed since

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

the plaintiff did not rescind the contract before the defendant acquired its interest in the vehicle: at [29]. [7.290] The two cases discussed at [7.270]–[7.280] differ from the Cundy v Lindsay (1878) 3 App Cas 459 type of case where the mistaken party never addressed his offer to the impostor at all; he intended to make his offer to a third person. In such a situation as we have seen, the contract is void for mistake. The rogue therefore has no title at all to the goods he has received as a result of his fraud and therefore nothing which he can transfer to an innocent third party who will be liable to return the goods to the original seller of the goods to the rogue. The question really is whether there was an intention right through to deal only with a particular third party, in which case the contract will be void for mistake, or whether there was an intention to deal with the offering party though motivated by the belief that he or she was somebody else, in which case there is a valid contract, although voidable, that is liable to be set aside by the mistaken person provided he or she does so before a third party in good faith acquires rights under it.

Mistake as to the nature of the transaction [7.300] This applies only to written documents. If a person signs a written document which he or she mistakenly believes to relate to a transaction entirely different in character from that to which in fact it does relate he or she will not be bound. To an action on the contract such person has a defence which is called non est factum (“it is not his deed”). 2 The plea of non est factum was closely examined by the House of Lords in Saunders v Anglia Building Society [1971] AC 1004. This defence will only succeed where a person can establish that the document they signed was fundamentally different in character from that which they thought it to be: at 1017, 1022, 1026, 1039. Furthermore, if in the circumstances the signer was careless in failing to take reasonable precautions before signing the document, he or she will not be able to avoid liability on the document against an innocent third party. In particular, where a person of full age and understanding fails to read a document which they sign, either because they are too busy or too lazy, that person will not be entitled to raise the plea of non est factum: at 1016, 1019, 1021, 1023, 1026, 1036. The facts in the Saunders case were as follows:

case [7.310] The plaintiff, a widow of 78 years of age, gave the deeds of her home to her nephew to assist him in raising money on the security of the house. She knew that L, a friend and business associate of her nephew, would help him to arrange a loan. L consulted a firm of solicitors who drafted a deed of assignment of the house from the plaintiff to L. L asked the plaintiff to sign the document. The plaintiff had broken her spectacles and could not read the document so she asked L what it was. L told her that it was a deed of gift of the house to her nephew and she executed it in that belief. L mortgaged the house to a building society but used the money so raised to pay his own debts and defaulted on the mortgage instalments. The building society sought to obtain possession of the house. The plaintiff brought an action against L and the building society seeking a declaration that the 2

See generally E Bant, “Incapacity, Non Est Factum and Unjust Enrichment” (2009) 33 Melbourne University Law Review 368; CYC Chew, “The Application of the Defence of Non Est Factum: An Exploration of its Limits and Boundaries” (2009) 13 University of Western Sydney Law Review 83.

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assignment to L was void. She invoked the plea non est factum, claiming that what she had intended was a gift of the property to her nephew and not its assignment to L: at 1028-1029. The House of Lords, affirming the decision of the Court of Appeal, rejected the plaintiff’s claim on the ground that she had failed to establish that the assignment to L was fundamentally different in character and nature from what she had intended. From the evidence, it was apparent that the plaintiff had signed the document with the object of enabling L to raise a loan on the security of the house for the benefit of her nephew, an object which would in fact have been achieved had L acted honestly: Saunders v Anglia Building Society [1971] AC 1004 at 1018, 1020. [7.320] The same basic approach was adopted by the Australian High Court in Petelin v Cullen (1975) 132 CLR 355:

case [7.330] P owned land which R wished to buy and develop. Through his agent C, R obtained a six-month option to purchase the land from P in consideration of $50. Shortly after the expiry of the option a letter was written to P in which was enclosed a further cheque for $50. Subsequently C saw P and asked him whether he had received the cheque for $50. On P replying in the affirmative, C then asked him: “Have you got a paper like that?” and showed P a form of document proposing an extension of the option. P replied that he had and C said: “Sign it that you have received $50”. P signed the document but did not read it. P could not read English. He had signed the document in the belief that it was a receipt, when in fact it was an extension of the option. The reason for P accepting the second cheque for $50 was that C had said when the original cheque was handed over: “Here’s the $50 and after six months you will receive another $50”: at 357-358. R exercised the option within the period of the second six months but P refused to sell the land. When R brought an action for specific performance of the option, P relied on the defence of non est factum. The High Court said: “To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part”: Petelin v Cullen (1975) 132 CLR 355 at 360. The court added that what was meant by carelessness in this context was a “failure to take reasonable precautions in ascertaining the character of a document before signing it”: at 360. The need to take such precautions is “of fundamental importance when the defence is asserted against an innocent person, … who relies on the document and the signature which it bears and who is unaware of the circumstances in which it came to be executed”: at 360. On the facts the question of carelessness was not relevant since P’s belief that the document was a receipt had been caused by C, for whose actions R was responsible. Consequently as against P, R was “not to be considered an innocent person without reason to doubt the validity” of P’s signature: at 360. In any event the facts disclosed that there had been no carelessness on P’s part. The High Court went on to hold that P had discharged the onus on him of showing that there was a radical difference between what he signed (that is, an extension of the option) and what he thought he was signing (that is, a receipt) and had therefore made out the defence of non est factum: at 361. [7.340] This doctrine was applied in Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42:

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

case [7.350] F borrowed $200,000 using his house as security. He had an intellectual disability and was illiterate. The loan was entered into at the behest of his son to finance the son’s business. F had no understanding of the loan: at [21]. He was manipulated by his son: at [16]. The business failed and F defaulted on the loan. F derived no benefit from the loan other than a sum of $24,000 deposited into his bank account: at [23]-[24]. The Court held that where a signer had no understanding at all of the transaction, “the mind does not go with the pen”: Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at [77]. On the facts F did not know what he was signing, beyond knowing that it was a piece of paper: at [84]-[85]. The defence of non est factum was available. The loan and mortgage were void.

Effect of mistake of fact [7.360] The general position where a mistake of fact is legally operative is that it renders the contract void. However, the High Court in Taylor v Johnson (1983) 151 CLR 422 held that a unilateral mistake as to the actual terms of a written contract does not render the contract void but voidable, that is, binding unless and until set aside in equity, for example for fraud, misrepresentation, or unconscionable dealing: at 429. The High Court left open the question whether that is also the position in the case of a unilateral mistake in relation to an informal contract, or as to the identity of the other party. The view taken by the authors is that a unilateral mistake in both those situations renders the contract void unless and until the issue is determined otherwise in some future decision. In circumstances where the mistake renders the contract void, then where the contract is wholly or partly unperformed on both sides either party can repudiate and can successfully defend any action brought against them. One result of the contract being void (and not merely voidable) is that people who in ignorance purport to deal with one of the parties acquire no rights in the subject matter of the contract, as for instance in Cundy v Lindsay (1878) 3 App Cas 459: see [7.210]. If the contract is entirely performed on one side by the payment of money under a mistake of fact, then the person who has so paid can recover.

case [7.370] An insurance company paid B a sum of money by mistake under an insurance policy which had lapsed through non-payment of premiums. It was held that as the payment of money was made through a mistake of fact it could be recovered: Kelly v Solari (1841) 9 M & W 54; 152 ER 24 at 58 (M & W); 26 (ER). [7.380] The recovery of money paid under a mistake of fact by an action in restitution is discussed in Chapter 12.

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Mistake of law [7.390] In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, the High Court held that payments made under a mistake of law are prima facie recoverable in the same way as payments made under a mistake of fact. 3 However, the recipient of money paid under a mistake will not be liable to repay the money if they can point to circumstances which the law recognises would make an order for restitution unjust: at 379. Such “defences” to an action for recovery of money paid under a mistake include: (a)

that the payments were made for good consideration, for example if the money is paid to discharge, and does discharge, a debt owed to the recipient by the payer; and

(b)

that in reliance upon receipt of the payments the recipient, in good faith, changed its position to its detriment, 4 that is, can point to expenditure or financial commitment which can be ascribed to the mistaken payment: at 380.

Further, a “voluntary” payment made in satisfaction of an honest claim is not recoverable. The High Court described such “voluntary” payment as follows: “The payment is voluntary … if the plaintiff chooses to make the payment even though he or she believes a particular law or contractual provision requiring the payment is, or may be invalid, or is not concerned to query whether payment is legally required; he or she is prepared to assume the validity of the obligation, or is prepared to make the payment irrespective of the validity or invalidity of the obligation, rather than contest the claim for payment”: at 373-374.

case [7.400] In David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 the appellants entered into an agreement with the Commonwealth Bank for a foreign currency loan. The loan agreement required the appellants to pay the bank in respect of its withholding tax liability. Subsequently, the appellants suffered considerable financial losses owing to adverse fluctuations in exchange rates and claimed damages against the bank and the accountants who had advised them in relation to the loan. The bank cross-claimed for recovery of moneys due under the loan: at 360-361. The High Court held that money paid under a mistake of law is prima facie recoverable. However, the High Court remitted the case back to the trial judge to determine whether in the particular circumstances the appellants had paid the additional amounts under the contract because of their mistaken belief that their contractual arrangements with the bank required the payments, and whether the bank had changed its position on the faith of the receipt of the payments by the appellants: at 386.

Remedy of rectification [7.410] Where the parties are agreed and there has been no mistake as to what they have agreed upon, but the contract has been reduced to writing and by a common mistake such writing erroneously records the effect of what has been already agreed, equity will order the written contract to be rectified to accord with 3

4

In Western Australia, the Property Law Act 1969 (WA), s 124 contains a provision to similar effect. That section was considered in Inn Leisure Industries Pty Ltd (Provisional Liquidator Appointed) v DF McCloy Pty Ltd (1991) 28 FCR 151 at 169-170. In Western Australia the Property Law Act 1969 (WA), s 125 contains a provision to similar effect. See E Bant and P Creighton, “The Statutory Change of Position Defences in Western Australia” (2003) 31 University of Western Australia Law Review 47.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts 5

the parties’ intention. This is the remedy of rectification: Slee v Warke (1949) 86 CLR 271 at 280-281. The contract is actually rewritten to accord with the intention of the parties: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [30], [42], [446].

case [7.420] A term in a written contract for the sale of land provided that the purchaser should pay interest on the balance of the purchase price calculated from 1 May 1975. It was found on the facts that the common intention of the parties prior to the written contract was that interest was to be calculated from 1 May 1974, the date the purchaser was to enter into possession of the property, and that insertion of the date 1975 had been made by mistake: at 729. It was held that the written contract should be rectified by substituting “1974” for “1975”: Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724 at 732. [7.430] In Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 it was held that this remedy is concerned with the subjective rather than the objective common intentions of the parties, that is, it is concerned with their actual intentions: at [1], [182], [189], [267], [316]. Hence parol evidence of intention is admissible in a rectification case: at [1], [189], [269]. However, each party must know the intention of the other party in order for there to be a common intention: at [1], [189], [281]. Some decisions have held that rectification is not limited to a mistake in recording the common intention of the parties. These decisions take the view that the remedy is also available where there is a mistake as to the meaning or effect of the words that the parties have deliberately chosen to use in the contract: Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 at [282]-[283]. For rectification of a contract to be granted, convincing proof must be given that the written contract does not embody the final intention of the parties and the omitted ingredient must be capable of such proof in clear and convincing terms: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [30], [42], [451].

case [7.440] Land sold by a vendor to a purchaser was described in the contract of sale as including “Subdivision 1 of Portion 1154”. Both parties believed that an area containing a bore and some 27 acres of cultivated land lay within the portion sold but in fact it was within land retained by the vendor. This was only discovered after completion of the contract. The purchaser sought rectification of the contract to include the bore and cultivated land. The High Court held that rectification should not be granted. The purchaser had not advanced convincing proof that the written contract describing the specific parcel of land to be conveyed did not embody the final intention of the parties. The term proposed was clearly inconsistent with the description of the land in the contract and, further, the purchaser had failed to establish the precise terms of the new boundary line: Pukallus v Cameron (1982) 180 CLR 447 at 449, 453, 457. [7.450] In some cases where the mistake has been unilateral, for instance where one party has snapped up an offer which they knew was not intended, and the contract has then been reduced to writing, the court in

5

See generally D Mossop, “Rectification for Unilateral Mistake” (1996) 10 Journal of Contract Law 259; JW Carter, “The Remedy of Rectification” (2013) 27(2) Commercial Law Quarterly 10.

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its equitable jurisdiction has put the alternative to the defendant of either submitting to have the contract rectified or have it rescinded, that is cancelled and set aside by the court. Equity is able to take this kind of attitude because its remedies are discretionary. The Victorian Court of Appeal has stated the principles concerning rectification for unilateral mistake as follows: “If (1) one party, A, makes an agreement under a misapprehension that the agreement contains a particular provision which the agreement does not in fact contain; and (2) the other party, B, knows of the omission and that it is due to a mistake on A’s part; and (3) lets A remain under the misapprehension and concludes the agreement on the mistaken basis in circumstances where equity would require B to take some step or steps … to bring the mistake to A’s attention; then (4) B will be precluded from relying upon A’s execution of the agreement to resist A’s claim for rectification to give effect to A’s intention”: Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 at 14. Rectification may thus be granted for a unilateral mistake by one party where the conduct of the other party is unconscionable: Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47 WAR 547 at [174]. In that case the contract mistakenly provided for a licence fee of $375 per year rather than per month: at [135]. Rectification was granted where one party unconscionably sought to “take advantage” of the other party’s “obvious and significant mistake”: at [180].

case [7.460] In Tutt v Doyle (1997) 42 NSWLR 10, the vendor of a block of land had, to the purchaser’s knowledge, mistakenly indicated on a plan of subdivision a larger area to be transferred than had been agreed under the contract: at 11. The New South Wales Court of Appeal held that, in view of the vendor’s unilateral mistake, it would be unconscionable for the purchaser to retain the benefit thereby obtained. In the circumstances the Court ordered retransfer of the land rather than rescission: at 12-13, 20. [7.470] The remedy of rectification is available in relation to a deed poll, which may be a unilateral instrument: Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 at [278]. In rectifying a contract, the court gives effect to the common intention of the parties. Where that common intention cannot be achieved, the court does not order what it considers to be the “nearest alternative”: Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 at [14]. The power to rectify a contract is limited to what is necessary to express the common intention of the parties and may not change the contract beyond that extent: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [30], [42], [448]. In appropriate circumstances, the power to rectify a document extends to rectification by the substitution of one name for another: Elders Lensworth Finance Ltd v Australian Central Pacific Ltd [1986] 2 Qd R 364 at 367-368.

Misrepresentation [7.480] With a mistake that is regarded as invalidating a contract, the notion is that the parties have not really agreed. With misrepresentation, the parties have agreed but one of them has been motivated to agree by a statement as to some existing fact or past event that is not true. A representation is a statement of fact intended to induce a party to make a contract. If the representation is untrue, that is, where it constitutes a misrepresentation, the contract is not void. The remedies available to a party who is induced to enter into a

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

contract because of a misrepresentation of fact will vary according to the nature of the misrepresentation, that is, whether the misrepresentation was made innocently, fraudulently, or negligently. It is vital to distinguish simple representations from representations which are terms of the contract. Simple representations as to fact are not terms of the contract; they are merely inducing causes of it being made. However, if the party making a statement promises the truth of that statement in the sense of making it part of the contractual bargain, then it is a term of the contract, and non-fulfilment entitles the other party to take action for breach of contract. In such a case, the innocent party always has the right of suing for damages but if the term is a condition, that is, a term of such importance as to go to the basis of the contract, he or she can repudiate the contract and hold themselves discharged from further performance. If it is merely a warranty, 6 that is a term of lesser significance, the party is limited to suing for damages. If a term of the contract is involved, the remedies given are common law remedies and they are given whether the promise which forms the condition or warranty, as the case may be, is made fraudulently or innocently. The distinction between fraudulent and innocent misrepresentation is one concerning the case where the statements are representations only and not contractual promises. Each of the categories of fraudulent, innocent, and negligent misrepresentation will now be considered.

Fraudulent misrepresentation [7.490] Fraud exists “when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”: Derry v Peek (1889) 14 App Cas 337 at 374. Fraud may also exist where there is a partial statement of fact in such a manner that the withholding of what is not stated “makes that which is stated absolutely false”: Peek v Gurney (1873) LR 6 HL 377 at 403. For an action for fraud to succeed, or for the other party to have the remedies given to a person induced to enter into a contract by means of fraudulent misrepresentation, the following six elements must be established: 1.

The representation must be one of fact.

2.

The representation must be untrue.

3.

The party who makes such representation must know that what they are stating is false, or they must have no belief in its truth, or not care whether it is true or false.

4.

The party who makes the representation must intend the other party to the contract to act upon such representation.

5.

The representation must, in fact, have been acted upon by the other party.

6.

The person claiming must have suffered damage.

The presence of each element is necessary in order to constitute the grounds for an action for fraud, or to afford those remedies to the other party to the contract.

1. Statement of fact [7.500] There must be a statement of fact as distinct from a mere expression of opinion. However, a statement of opinion can be held to involve a misrepresentation when the person making it really did not hold that opinion or a reasonable person could not have held the opinion: Smith v Land and House Property Corp (1884) 28 Ch D 7 at 15. 6

The distinction between conditions and warranties in a contract is explained in detail at [9.180].

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It has been held that a fraudulent misrepresentation of law will also give rise to the same remedies as a fraudulent misrepresentation of fact. Thus, where there was a fraudulent misrepresentation as to the zoning of certain land, it was held that the misrepresentation was one of law not fact but that the purchaser was nonetheless entitled to rescind the contract for the sale of the land: Public Trustee v Taylor [1978] VR 289 at 299.

2. Falsity [7.510] This is obviously a necessary ingredient of liability. It is a question of fact in each case whether the representation is false or not. If the representation “is true when made, but becomes false to the knowledge of the representor before the contract is concluded”, and the representor concludes the contract without disclosing the falsity of the representation, they are just “as liable as if the representation had been false to [their] knowledge when originally made”: Jones v Dumbrell [1981] VR 199 at 203-204.

3. Known to be false, or without belief in its truth, or recklessly careless whether it be true or false [7.520] This is a further element of fraud. The representor need not actually know that what they are representing is in fact untrue. The representor is liable if they make the false statement when they have no knowledge whether it is true or false, and also when they do not trouble to verify the truth of what is said. If, on the other hand, the person making the representation genuinely believed the statement to be true, there is no fraud even though their belief was formed negligently. The High Court has stated that: “In order to succeed in fraud, a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood”: Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 578.

4. Intended to be acted upon [7.530] This means, for example, intending that the other party enter into a contract or do any other act in reliance on the statement.

5. In fact acted upon [7.540] The misrepresentation must have induced the other party to enter into the contract. Accordingly, if the party to whom the representation is made is fully aware of the falsity of the statement, they will be unable to show that it induced them to enter into the contract. However, even where the person to whom the representation was made did not believe the representation to be entirely true, they will still have a remedy for fraudulent misrepresentation so long as they were not aware at the relevant time of the extent of the fraud: Gipps v Gipps [1978] 1 NSWLR 454 at 460. Where the representation is believed to be true but is not relied upon by the person to whom it is made, there is no liability since the representation would not have induced them to enter into the contract: Holmes v Jones (1907) 4 CLR 1692 at 1706, 1710.

6. Resulting in damage [7.550] If no damage is suffered from the false representation, no action lies.

Remedies for fraudulent misrepresentation [7.560] A person who has been induced to enter into a contract by reason of fraudulent misrepresentation is in the following position:

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

1.

They may refuse to be bound by the contract and bring an action for its rescission where such a course is necessary, for example in the case of contracts under which the defrauded party has given some benefit before the fraud was discovered.

2.

They may take advantage of the contract to the extent of retaining what benefits they may have received and sue for fraud, claiming such damages or loss as they have sustained.

3.

They may successfully defend any attempts to enforce the contract against them.

In cases 1. and 3. the representee is treating the contract as at an end. In case 2. the representee is affirming the contract, that is allowing the contract to stand, but is claiming damages for the loss they have suffered through the misrepresentation. Where the latter approach is adopted, the general principle in assessing damages is that the plaintiff is to be put, so far as possible, in the position they would have been in if they had not acted on the fraudulent inducement. For example, where a person complains that they have been induced by fraud to buy something and pay more for it than it was worth, the measure of damages which that person is entitled to recover is, prima facie, the amount by which the price paid exceeds the value of the thing purchased at the time of sale. Consequential loss is also recoverable in an appropriate case: Gould v Vaggelas (1984) 157 CLR 215 at 222, 242, 254. Where fraud is present the contract is not void but merely voidable. However, where the fraudulent misrepresentation has been of such a nature that it has resulted in no true agreement between the parties, then the contract may be void on the grounds of mistake.

Innocent misrepresentation [7.570] An innocent misrepresentation is an incorrect statement of fact made without an intention to mislead or deceive, or made without realisation of its untruth. It can also arise from a non-disclosure of facts where such non-disclosure occurs without the intention of deceiving. It is a misrepresentation of facts or circumstances which operate as an inducement to the making of the contract.

Difference between innocent misrepresentation and fraud [7.580] An innocent misrepresentation occurs when a person makes an untrue statement in good faith and without knowing that they have made a false statement or created a wrong impression. Fraudulent misrepresentation occurs where a person makes an untrue statement either 1. knowing it is untrue, or 2. without a belief in its truth, or 3. recklessly without caring whether it is true or not.

Example of innocent misrepresentation [7.590] The following is an example of innocent misrepresentation:

case [7.600] In Redgrave v Hurd (1881) 20 Ch D 1, the defendant was induced to enter into a contract to purchase from the plaintiff a house and together with it the latter’s practice as a solicitor, on the faith of a misstatement as to the value of the returns from the business. The court held that there was no statement made which was false to the knowledge of the plaintiff; hence damages were refused to the defendant but the plaintiff was refused specific performance and the contract was rescinded: at 12, 22, 26.

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Remedies for innocent misrepresentation [7.610] Common law disregarded innocent misrepresentation where it was not made a term of the contract; it neither awarded damages nor regarded the contract as void or liable to be rescinded. There are three exceptions to this: 1.

If the representation is so basic that the subject matter as actually existing is so different from what it would have been if the representation had been true as to amount to a complete difference in substance between what the mistaken party bargained for and what in fact he or she will obtain if the contract is fulfilled, then the contract is void on the basis of common mistake at common law: Kennedy v Panama Royal Mail Co (1867) LR 2 QB 580 at 586-587.

2.

Where an agent wrongly represents that they have authority to sell property when in fact they do not, the agent is liable for damages even though their misrepresentation was innocent. (This is known as “breach of warranty of authority”: see [13.580].)

3.

If the representation becomes more than a representation and is made a term of the contract. (This is not really a true exception.)

There is also a statutory exception in the Corporations Act 2001 (Cth) whereby directors and promoters of companies are made liable for certain statements in prospectuses and reports unless they establish certain defences: see s 728. [7.620] Subject to the exceptions and qualifications discussed at [7.610], and those mentioned later, the remedies of a person who has been deceived by an innocent misrepresentation are of an equitable character only. The injured party to a contract entered into through innocent misrepresentation has in equity the right: (a)

to rescind the contract whereupon they can obtain an “indemnity” against expenses incurred because of the obligations in the contract;

(b)

to resist successfully an action for specific performance of the contract.

Apart from the elements of fraud and damage, an innocent misrepresentation in order to bring about the above results must exhibit the same characteristics as those which were previously set out in the case of fraudulent misrepresentation, namely 1., 2., 4. and 5. set out at [7.490]-[7.550]. The main difference between the remedies for fraud and the remedies for innocent misrepresentation is that damages are not obtainable as a result of innocent misrepresentation unless, as has been pointed out, the representation becomes a term of the contract. Several legislative modifications of these principles are discussed separately at [7.640].

The remedy of rescission [7.630] This equitable remedy is available in the case of both fraudulent and innocent misrepresentation. It amounts to setting the contract aside and restoring the parties to the position they occupied before the contract was made. 7 The following points are relevant to this remedy: 1.

7

The right is lost if the party entitled to rescind affirms the contract after becoming aware of the falsity of the representation. A contract is affirmed if the representee, after full knowledge of the See generally NY Nahan, “Rescission: A Case for Rejecting the Classical Model?” (1997) 27 University of Western Australia Law Review 66; DSK Ong, Ong on Rescission (Federation Press, Sydney, 2015).

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

facts, declares their intention to proceed with the contract, or does some act from which such an intention may be inferred: Clough v London and North Western Railway Co (1871) LR 7 Exch 26 at 34. A representee will not generally be taken to have affirmed a contract unless they were also aware of their right to rescind: Coastal Estates Pty Ltd v Melevende [1965] VR 433 at 435, 443, 453. Where the contract is affirmed, the representee retains a right to sue for damages only if the representation was fraudulent. 2.

The right is lost if third parties acting in good faith acquire rights in the subject matter of the contract before the right to rescind is exercised. This occurred in Phillips v Brooks Ltd [1919] 2 KB 243, discussed at [7.250].

3.

It does not exist if by reason of the changes that have occurred it is no longer possible to restore the parties to their former position. In this context the court will go to considerable lengths in ordering payments and adjustments to be made, particularly in a case of fraudulent misrepresentation: Alati v Kruger (1955) 94 CLR 216 at 223-224.

4.

In the case of innocent misrepresentation, the court will not order rescission if the contract has been completed: Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326 at 332. 8 This limitation on the right to rescission has been doubted but it seems at least to apply to contracts dealing with interests in land where a conveyance, transfer, or lease has been executed: Svanosio v Macnamara (1956) 96 CLR 186 at 198, 209. Rescission was held to be unavailable where a contract for the sale of a business had been fully executed: Vimig Pty Ltd v Contract Tooling Pty Ltd (1986) 9 NSWLR 731 at 737.

5.

It was held in South Australia and in New South Wales that a contract for the sale of goods can be rescinded for innocent misrepresentation: Graham v Freer (1980) 35 SASR 424 at 424, 436; Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2 NSWLR 381 at 387. This is now confirmed in New South Wales by the Sale of Goods Act 1923 (NSW), s 4(2A). In the Australian Capital Territory, a contract for the sale of goods can be rescinded for an innocent misrepresentation: Sale of Goods Act 1954 (ACT), s 62(1) – (2).

Statutory remedies for misrepresentation in South Australia and the Australian Capital Territory South Australia [7.640] At common law, damages can only be recovered by a contracting party for a fraudulent as opposed to an innocent misrepresentation, unless the latter has become a term of the contract. The South Australian Misrepresentation Act 1972 (SA) extends the circumstances in which damages may be awarded for misrepresentation. The Act provides that a party induced to enter into a contract by the misrepresentation of another party, her or his agent, or a person receiving any consideration or material advantage as a result of the formation of the contract, is entitled to damages in the same way as if the representation had been made fraudulently: s 7(1). However, it is a defence to such an action for damages that: (a)

8

the person by whom the representation was made had reasonable grounds to believe and did believe that the representation was true; or See P McFarlane and L Willmott“Rescission of an Executed Contract at Common Law for an Innocent Misrepresentation” (1998) 10 Bond Law Review 58.

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(b)

the defendant was not the person by whom the representation was made and did not know and could not reasonably be expected to have known that the representation had been made or that it was untrue: s 7(2).

To be actionable the representation has to constitute a misrepresentation and not amount to mere puffery.

case [7.650] The sales brochure for a house stated: Nothing to Spend – Perfect Presentation. In fact the house required major structural repairs. The South Australian Full Court held that the buyer had not engaged in misrepresentation under s 7 of the Misrepresentation Act 1972 (SA). The majority judges gave different reasons for this conclusion. White J held that the statement was not a representation of fact. The “more specific” a statement is, the “less likely” that it will constitute “mere puffery”: at [72]. The statement appeared as an eye-catching headline: at [79]. The words “perfect presentation” were puffery, and the words “nothing to spend” were coloured by this immediate context: at [80]. The words were also used in a context – real estate advertising – where exaggeration is common: at [81]. Layton J summarised the principles relating to puffery and misrepresentation. Puffery means exaggeration and does not amount to a representation of fact. It is very common in the real estate context: at [109]. The words “perfect presentation” were puffery: at [117]. “Nothing to spend” did amount to a representation of fact: at [119]. Linked with the words about presentation, the words “nothing to spend” meant that the purchaser would not need to spend any money on presentation, that is the “visual appearance” of the house: at [120]. If the words “nothing to spend” had not been linked to a statement about presentation, the result might have been different: at [123]. Sulan J dissented since in his view there had been a misrepresentation: Mitchell v Valherie (2005) 93 SASR 76. [7.660] The Act also removed certain limitations to rescission by providing that a party is entitled to rescind a contract for misrepresentation notwithstanding that the misrepresentation has become a term of the contract, that the contract has been performed, or that conveyances, transfers or other documents have been registered at any public registry office in pursuance of the contract: Misrepresentation Act 1972 (SA), s 6(1); see JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378, discussed at [14.830]. The right to rescind will be lost, as was the case prior to the Act, where a third party has in good faith and for valuable consideration acquired an interest in the subject matter of the contract: s 6(2). Where it is proved that a party has rescinded or is entitled to rescind a contract for misrepresentation, the court may, if it considers it just and equitable to do so, declare the contract to be subsisting and award such damages as it considers fair and reasonable in view of the misrepresentation: s 7(3). In other words, the provision enables the court to decide whether damages rather than rescission is the more appropriate remedy in the circumstances. A provision in a contract which purports to exclude or restrict the liability of a party for misrepresentation or the remedies available to another contracting party arising from a misrepresentation, is of no effect except to the extent to which the court may allow reliance on such provision as being fair and reasonable in the circumstances of the case: s 8.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

Australian Capital Territory [7.670] Similar remedies for misrepresentation are also available in the Australian Capital Territory by virtue of the Civil Law (Wrongs) Act 2002 (ACT). 9 For example, the purchasers of a franchise for the installation of domestic burglar alarms recovered damages for the loss they suffered as a result of reliance on the defendant’s false representation as to the state of competition in such business in Canberra: Crawford v Parish (1991) 105 FLR 361 at 367. The only real difference between the Australian Capital Territory Act and the South Australian Act lies in the formulation of the defences available to an action for damages for misrepresentation. Thus, in the Australian Capital Territory it is a defence to an action for damages that: (a)

where the representation was made by the defendant – the defendant had reasonable grounds for believing and did believe up to the time the contract was made, that the representation was true; and

(b)

where the representation was made by a person acting for or on behalf of the defendant – both the defendant and that person had reasonable grounds for believing, and did believe up to the time the contract was made, that the representation was true: s 174(3).

Misrepresentation under the Australian Consumer Law [7.680] The Australian Consumer Law 10 provides civil remedies where misrepresentations by a person constitute misleading or deceptive conduct. Section 18(1) provides that: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. The Act also provides civil remedies, as well as penal sanctions, where misrepresentations are made in connection with the supply of goods or services. Section 29(1) provides: A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services make a false or misleading representation: (a) that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;

9 10

(b)

that services are of a particular standard, quality, value or grade;

(c)

that goods are new;

(d)

that a particular person has agreed to acquire goods or services;

(e)

that purports to be a testimonial by any person relating to goods or services;

(f)

concerning: (i)

a testimonial by any person; or

(ii)

a representation that purports to be such a testimonial; relating to goods or services;

(g)

that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits;

(h)

that the person making the representation has a sponsorship, approval or affiliation;

(i)

with respect to the price of goods or services;

(j)

concerning the availability of facilities for the repair of goods or of spare parts for goods;

The remedies for misrepresentation formerly contained in the Law Reform (Misrepresentation) Act 1977 (ACT) were repealed and incorporated in the Civil Law (Wrongs) Act 2002 (ACT), ss 172 – 179. The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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(k)

concerning the place of origin of goods;

(l)

concerning the need for any goods or services;

(m)

concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy;

(n)

concerning a requirement to pay for a contractual right that: (i)

is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy; and

(ii)

a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law).

The Australian Consumer Law also prohibits misrepresentations made in relation to the sale or grant of an interest in land. In this context s 30(1) provides: A person must not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land make a false or misleading representation: (a)

that the person making the representation has a sponsorship, approval or affiliation;

(b)

concerning the nature of the interest in the land;

(c)

concerning the price payable for the land;

(d)

concerning the location of the land;

(e)

concerning the characteristics of the land;

(f)

concerning the use to which the land is capable of being put or may lawfully be put; or

(g)

concerning the existence or availability of facilities associated with the land.

A more detailed account of the false or misleading representation provisions of the Australian Consumer Law will be found in Chapter 17. In Victoria the Australian Consumer Law and Fair Trading Act 2012 (Vic) provides that if a purchaser enters into a contract for the supply of goods following an innocent representation, the purchaser has the right to rescind the contract if they would have been entitled to rescind if the misrepresentation had been fraudulent. The right to rescind may be exercised by giving notice to the supplier within a reasonable period after acceptance of the goods (or delivery of the goods in the case of a lease): s 24(1). The purchaser must return the goods to the supplier or allow the supplier to take possession of them: s 25(2).

Negligent misrepresentation [7.690] So far we have been considering the remedies available where a person has been induced to enter into a contract with another as a result of a misrepresentation made by the latter. However, a person may enter into a contract as a result of negligent advice or information given to them by a third party. In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, the House of Lords recognised that in an appropriate case damages could be obtained in tort for negligent misrepresentation against the third party who gave the negligent advice or information. The facts in that case were as follows:

case

[7.700] Hedley Byrne was an advertising agency which had placed substantial forward advertising orders for a company called Easipower. Hedley Byrne was personally liable to television and

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

newspaper companies for the costs of the advertisements. Subsequently, Easipower sought to have Hedley Byrne undertake for it an advertising campaign involving substantial expenditure. Hedley Byrne asked its bankers to obtain a credit report from Heller & Partners, which was Easipower’s bank. Heller subsequently provided a favourable credit report. The report was supplied in a letter which was headed Without Responsibility On The Part Of This Bank Or Its Officials. In reliance on the favourable credit report, Hedley Byrne placed orders which, on the failure of Easipower, caused Hedley Byrne a substantial financial loss: at 480-481. It was held that as there had been an express disclaimer of responsibility Heller was under no duty of care to Hedley Byrne: at 492, 504, 533, 540. However, the Law Lords expressed the view that a negligent, though honest, statement, whether spoken or written, might nonetheless give rise to an action for damages for financial loss caused thereby, even though there was no contractual or fiduciary relationship, since the law will imply a duty of care when a party seeking information from a party possessed of a special skill trusts her or him to exercise due care, and that party knew or ought to have known that reliance was being placed on their skill and judgment: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 486, 502-503, 514, 539. [7.710] The High Court has extended the Hedley Byrne doctrine to include the liability of a local council for negligent information provided by one of its employees in response to an inquiry from a member of the public.

case [7.720] The plaintiffs intended purchasing land for commercial redevelopment. Before the exchange of contracts, the plaintiffs’ solicitor telephoned the defendant Council to ask whether there were any road-widening proposals affecting the land. He was told there were not. The solicitor subsequently made a similar inquiry in writing in conjunction with an application to the Council for a certificate under the relevant legislation. The Council’s practice in dealing with such inquiries was to insert a note of any road-widening proposal at the foot of the certificate sent to the inquirer, although the Council was not legally bound to do so. In the absence of such note, it was usually assumed that no proposal existed. The certificate was sent to the plaintiffs’ solicitor without reference to any road-widening proposal. The plaintiffs proceeded with the purchase but subsequently discovered that a road-widening proposal, which substantially affected the land, did exist at the time. They were therefore unable to proceed with the redevelopment. The plaintiffs sued the Council for damages on the ground of negligent misrepresentation on the part of its employees: at 228-229, 245-247. The High Court was unanimous in upholding the plaintiffs’ claim. Thus, the plaintiffs through their solicitor were entitled to rely on the Council’s response to the written inquiry, although not on the telephone inquiry, and a duty of care arose out of the relationship which had been established. The High Court treated the Council’s failure to mention the road-widening proposal as amounting to a statement that none existed: Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 at 236, 242, 253, 256. [7.730] The decision in Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 makes it clear that liability for negligent misrepresentation extends to the giving of information as well as advice. Mason J stated:

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“[W]henever a person gives information or advice to another upon a serious matter in circumstances where the speaker realises, or ought to realise, that he is being trusted to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to act on that information or advice, the speaker comes under a duty to exercise reasonable care in the provision of the information or advice he chooses to give”: Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 at 250; see further, San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 356, 372, discussed at [28.310]. The measure of damages recoverable for negligent misrepresentation is the amount of money necessary to restore the plaintiff to the position he or she was in before the statement, subject to the loss being reasonably foreseeable.

Duress [7.740] Duress is actual or threatened violence to, or the deprivation of liberty of, a person or their immediate family or near relatives to pressure or coerce such person into entering into a contract. A person who has been coerced into entering into a contract under duress has been deprived of their free will to act and thus there is no true consent to the agreement. A contract made under duress is voidable at the option of the party coerced, that is, he or she can elect not to be bound by the contract. It has been held that the duress need not be the sole reason for the party subjected to the duress to enter into the contract. It is sufficient if it was one of the reasons for doing so.

case [7.750] The plaintiff claimed that he had executed a deed for the purchase of the defendant’s shares in a company because of the defendant’s threats against his life. At trial it was held that the plaintiff had also been motivated to execute the deed for business reasons: at 113. The Privy Council, held that: “[T]hough it may be that [the plaintiff] would have executed the documents even if [the defendant] had made no threats and exerted no unlawful pressure to induce him to do so the threats and unlawful pressure in fact contributed to his decision to sign the documents”: Barton v Armstrong [1976] AC 104 at 120. [7.760] The Western Australia Full Supreme Court held that a contract entered into by an employee for the repayment of moneys misappropriated from her or his employer was not voidable on the ground of duress where the employer had threatened police intervention. The court held that the threat of prosecution in such a case was not enough to set aside the contract for duress where the amount was owing; and the employee received consideration by being given time to pay the debt: Scolio Pty Ltd v Cote (1992) 6 WAR 475 at 484.

Economic duress [7.770] The courts have also recognised a category of duress known as “economic duress”. 11 That expression refers to a situation where one party is induced to enter into a contract because of threats to that party’s economic interests. It has been said that in determining whether there has been economic duress the proper approach is to ask: 11

See generally MP Sindone, “The Doctrine of Economic Duress” (1996) 14 Australian Bar Review 34 (Pt 1), 114 (Pt 2); N Tamblyn, “Causation and Bad Faith in Economic Duress” (2011) 27 Journal of Contract Law 140.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

(a)

whether any applied pressure induced the party to enter into the contract; and

(b)

whether that pressure went beyond what the law is prepared to countenance as legitimate, for example unlawful threats or unconscionable conduct: Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40 at 46; see, similarly, Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 at 288.

Where economic duress is established the contract will be voidable at the option of the person threatened.

case [7.780] A shipbuilding company threatened to terminate a contract for the building of a tanker unless paid increased payments following a currency devaluation. The shipowner agreed because it required the vessel for a lucrative charter it was negotiating. Some time after delivery of the vessel the shipowners sought to recover the increased payments they had been compelled to make. It was held that the shipbuilder’s threat to break the contract without any legal justification unless the owners agreed to the increased payments amounted to economic duress: at 719. The contract for the increased payments was therefore voidable and the moneys prima facie recoverable: at 720. However, it was held that because of their delay in seeking recovery of the excess payments, the owners had affirmed the contract and could not recover the payments: North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 at 721. [7.790] A further example of economic duress was a situation where a shipowner whose tanker was blacklisted by a union agreed to the payment of moneys to get the bans lifted for fear of the catastrophic economic consequences which would ensue if the demands were refused: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 383, 397; see also, Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 301-302.

case [7.795] For many years BlueScope supplied steel to a customer on informal credit terms. Bluescope subsequently required the customer to enter into a formal credit arrangement: at [13]-[14]. A creditor brought a winding-up application against the customer: at [25]. BlueScope then insisted that the customer’s director provide a guarantee in his own name if credit was to continue. If no guarantee was given BlueScope would join in the winding-up application. The customer gave the personal guarantee: at [28]. The winding-up application was subsequently held to have been an abuse of process: at [44]. The Victorian Court of Appeal held that the guarantee was not voidable for economic duress. The court held that to press a creditor by indicating in good faith a preparedness to join in a winding-up application was not improper pressure that would constitute economic duress: at [43], [90]. It was not improper pressure to threaten to support a winding-up application that was an abuse of process where all that BlueScope knew was that the application was disputed: Beerens v BlueScope Distribution Pty Ltd (2012) 39 VR 1 at [46], [90].

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Undue influence [7.800] Undue influence is the improper use of the ascendancy acquired by one person over another for the benefit of the ascendant person themselves or someone else, so that the acts of the person influenced are not, in the fullest sense of the word, their free voluntary acts. 12 Undue influence usually arises in transfers of property for no or inadequate consideration. The granting of relief on account of undue influence is founded on the principle of correcting abuses of confidence and is applied where two persons are so situated that one may obtain considerable influence over the other. Where the following special relationships exist undue influence is presumed in dealings and the onus of proving that it was not exercised is on the party denying it: (a)

parent and child; until the child has withdrawn from the influence of the parent (Lancashire Loans Ltd v Black [1934] 1 KB 380 at 404-405, 410-411, 419);

(b)

guardian and ward;

(c)

trustee and cestui que trust (beneficiary);

(d)

solicitor and client (Lloyd v Coote [1915] 1 KB 242 at 248);

(e)

religious adviser and devotee (Allcard v Skinner (1887) 36 Ch D 145 at 172, 181-182, 190); 13 or

(f)

doctor and patient.

However, the list of relationships which may give rise to a presumption of undue influence is not closed. Thus, it is open to a person to establish that a special relationship of trust and confidence has arisen such as to give rise to a presumption of undue influence against the person in the dominant position. In Johnson v Buttress (1936) 56 CLR 113 an illiterate man, a widower, was able to set aside a conveyance of his only asset to a relative upon whom he relied for advice: at 123, 138, 143. On the other hand, it has been held that there is no presumption of undue influence in the relationship of accountant/financial adviser and client: Cowen v Piggott [1989] 1 Qd R 41 at 44-45. Where a special relationship of confidence exists between the parties to a contract such as to raise a presumption of undue influence, the onus is on the person in whom the confidence is reposed to establish that the transaction in question was the “pure voluntary and well-understood” act of the person reposing the confidence, that is, that the latter’s mind or intention was not subject to any undue influence: Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 at 576. The relationship of husband and wife does not give rise to a presumption of undue influence. However, in an appropriate case a special relationship of control and dominance may be established giving rise to such presumption:

case [7.810] The plaintiff, an executor of the estate of the defendant’s deceased wife, sought a declaration that the deceased’s transfer of her share in a farming property to the defendant, which she had formerly jointly owned with him, should be set aside by reason of undue influence. There was 12 13

See F Burns, “Undue Influence Inter Vivos and the Elderly” (2002) 26 Melbourne University Law Review 499; F Burns, “Elders and Testamentary Undue Influence in Australia” (2005) 28 University of New South Wales Law Journal 145. See P Ridge, “The Equitable Doctrine of Undue Influence Considered in the Context of Spiritual Influence and Religious Faith: Allcard v Skinner Revisited in Australia” (2003) 26 University of New South Wales Law Journal 66.

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evidence that the defendant exercised considerable influence over his deceased wife through physical and mental abuse over a long period of time and he was later convicted of murdering her: at 401. It was held that although the marital relationship is not one in which undue influence is presumed, a special relationship of control and dominance existed in the particular circumstances sufficient to give rise to a presumption that the deceased had transferred her share in the property to the defendant as a result of undue influence on his part: at 403, 416-417. The evidence proved that the transfer resulted from actual undue influence by the defendant: Farmers’ Co-operative Executors & Trustees Ltd v Perks (1989) 52 SASR 399 at 417. [7.820] In the absence of establishing a special relationship giving rise to a presumption of undue influence, the onus is on the person seeking to avoid a transaction to prove that it was the result of undue influence exerted on her or him by another.

Examples of undue influence case [7.830] A father brought an action against his son for rescission of a voluntary transfer of land by the father to the son. The trial judge found that son knew that the father was, “feeble-minded, weak and incapable of transacting … business” and therefore gave judgment for the father: at 548. The High Court dismissed the appeal, holding that the evidence showed a fiduciary relationship between the father and the son. Since the father had not received any independent advice the transfer should be set aside: Spong v Spong (1914) 18 CLR 544 at 549, 553.

case [7.840] The defendant, an elderly farmer, and his only son had been customers of the plaintiff bank for many years. The son formed a company which banked at the same branch of the bank as the defendant. The defendant guaranteed the company’s overdraft and charged the whole of his farm, his sole remaining asset, to secure the amount under the guarantee: at 334-335. It was held that the court should prevent the abuse of the relationship of “confidentiality” that existed between the bank and the defendant: at 341. Since the effect of the guarantee and charge could have resulted in the defendant being left penniless in old age and the defendant had had no independent advice as to the wisdom of what he was doing, there was a breach by the bank of its fiduciary duty of care and the guarantee and charge should be set aside for undue influence: Lloyd’s Bank Ltd v Bundy [1975] QB 326 at 340, 345. [7.850] In relation to Lloyd’s Bank Ltd v Bundy [1975] QB 326, it should be borne in mind that the relationship of banker and customer is not one which ordinarily gives rise to a presumption of undue influence. On the other hand: “[A] relationship of banker and customer may become one in which the banker acquires a dominating influence. If the banker does and a manifestly disadvantageous transaction is proved, there would then be room for the court to presume that it resulted from the exercise of undue

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influence”: National Westminster Bank Plc v Morgan [1985] AC 686 at 707. In the latter case, a wife had consented to signing a mortgage over her home, which she owned jointly with her husband, to secure short-term bridging finance advanced by the bank to pay out an earlier mortgagee who was pressing for payment: at 701. The House of Lords held that the wife had failed to establish undue influence on the part of the bank manager: at 709.

Effect of undue influence [7.860] Undue influence renders a contract voidable at the option of the “weaker” party. If an unreasonable length of time is allowed to elapse after the entire cessation of the influence, the right of a person to have a transaction set aside on the ground of undue influence may be lost: Allcard v Skinner (1887) 36 Ch D 145 at 186, 189, 193. In New South Wales, the Contracts Review Act 1980 (NSW) empowers a court to give relief in respect of a contract, or a provision of a contract, which is found by the court to have been “unjust” (defined as including “unconscionable, harsh or oppressive”) in the circumstances relating to the contract at the time it was made. One of the factors the court is to take into account in determining whether the contract or one of its provisions is “unjust” is “whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief” under the Act: s 9(2)(j). Thus, in New South Wales relief is now likely to be sought under the Contracts Review Act 1980 (NSW) rather than on the common law principles of duress or undue influence.

Unconscionable contracts At common law [7.870] The general rule is that the court will not grant relief to a party merely because the contract they have entered into operates harshly or oppressively against them. For example, the High Court gave effect to an agreement notwithstanding that in the opinion of one of the judges it was: “… perhaps the most wordy, obscure and oppressive contract that I have come across … I am sure that not one oppressive provision which could be found was omitted. The contract is so outrageous that it is surprising that any contractor would undertake work for the Railways Commissioner upon its terms”: South Australian Railways Commissioner v Egan (1973) 130 CLR 506 at 512.

The High Court's decision in Amadio's case [7.880] In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, the High Court had the opportunity of clarifying the principles to be applied in determining whether a contract should be set aside on the ground that it was unconscionable. It was held that a court in exercising its equitable jurisdiction could set aside a transaction as unconscionable whenever one party by reason of some condition or circumstance is placed at a special disadvantage as against another and unfair or unconscientious advantage is then taken of the opportunity thereby created: at 467, 474.

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case [7.890] In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, the plaintiffs, Mr and Mrs Amadio, were an elderly Italian couple of little formal education and limited knowledge of the English language. They signed a mortgage to the defendant bank over a block of shops as security for payment of its debts by one of their son’s building companies: the mortgage included a guarantee under which the plaintiffs became liable for the total present and future indebtedness of the company. At the time of signing the mortgage/guarantee, the plaintiffs believed the company to be prosperous, but it was actually in serious financial difficulty: at 451. Earlier on the day of their signing the mortgage/guarantee, the plaintiffs’ son, who had never read its terms, had led them to believe that their liability was limited to $50,000 and was to run for no longer than six months. Later on the same day, the manager of the son’s bank called on the plaintiffs at their home with the mortgage/guarantee contract. There was little discussion. The plaintiffs did not try to read the document, nor did the manager purport to explain its meaning or effect, except to correct Mr Amadio’s apparent misunderstanding that the mortgage/guarantee was only for six months: at 453. Having obtained the plaintiffs’ signatures, the manager left without leaving them a copy of the agreement: at 473. The son’s company ultimately went into liquidation and the bank claimed nearly $240,000 from the plaintiffs under the terms of the mortgage/guarantee: at 454. The plaintiffs sought to have the contract set aside. It was held by a majority of the High Court that the mortgage/guarantee should be set aside on the ground of unconscionable dealing. The plaintiffs were in a position of special disadvantage in that they were mistaken as to the extent of their liability under the agreement and as to the financial circumstances of their son’s company, which far from being prosperous as they believed, was insolvent and being propped up by the bank which had inadequate security to cover its indebtedness. In consequence, the plaintiffs were ill-informed as to the seriousness of their position in signing the mortgage/guarantee which spelt financial ruin for them but ameliorated the position of the bank. Their age and background and reliance on their son’s misleading advice contributed to their position of special disadvantage: at 464, 476. Although the bank may not have had full and actual knowledge of the plaintiffs’ disability, it knew enough to be put on inquiry as to whether Mr and Mrs Amadio appreciated the nature of the contract they were being asked to sign and the bank’s failure to make further inquiry as to whether the transaction had been properly explained to them amounted to wilful ignorance: at 466-467, 479. Thus, in Mason J’s view: “It must have been obvious to [the bank manager] … that the transaction was improvident from the viewpoint of the [plaintiffs]. In these circumstances it is inconceivable that the possibility did not occur to [the bank manager] that the [plaintiffs’] entry into the transaction was due to their inability to make a judgment as to what was in their best interests, owing to their reliance on their son, whose interests would inevitably incline him to urge them to sign the instrument put forward by the bank”: at 466-467. [7.900] In the words of Mason J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 467, the general principle to be applied in such cases is that: “[I]f A, having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same”.

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The High Court in Amadio’s case recognised that it was impossible to definitively describe all circumstances which would give rise to a situation of special disadvantage which if unfairly taken advantage of may lead to relief being granted by the court on the ground of unconscionable dealing. However, the High Court approved the dicta of Fullagar J in the earlier High Court decision in Blomley v Ryan (1956) 99 CLR 362 at 405: “The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.” A further example of relief being granted in respect of unconscionable conduct is the decision of the High Court in Louth v Diprose (1992) 175 CLR 621:

case [7.910] The respondent, a practising solicitor, made a gift of moneys to the appellant to enable her to buy a house in circumstances which the court considered to be an unconscientious exploitation by the appellant of the respondent’s infatuation and emotional dependence on her: at 649. The High Court dismissed an appeal by the appellant against an order that she transfer the house to the respondent: Louth v Diprose (1992) 175 CLR 621 at 626, 633, 638, 642-643.

case [7.915] In Mackintosh v Johnson (2013) 37 VR 301 a 73-year-old man and a 45-year-old woman were in an intimate relationship. During the relationship he bought a house in her name and paid large amounts to support her business: at [3]. After the relationship broke down he sought a transfer of title to the house and repayment of the money. The Victorian Court of Appeal held that the facts did not establish unconscionable conduct. The man’s infatuation and lavish spending did not constitute a special disadvantage making him unable to make decisions in his own best interests: at [77]. The Court distinguished Louth v Diprose (1992) 175 CLR 621. In the Louth case the recipient had created a false atmosphere of crisis. There was no similar circumstance in this case: at [79]. In Louth the solicitor had given away most of his assets though he had three dependent children: at [80]. In this case the plaintiff was wealthy and could easily afford to make these gifts: at [26]. The payments were not such a large proportion of his assets as to indicate an emotional dependence: at [82]. [7.920] In Bridgewater v Leahy (1998) 194 CLR 457, the High Court held that it was unconscionable for a nephew to retain the benefit of a deed of forgiveness executed by his uncle, in view of the uncle’s emotional attachment to and dependency upon the nephew: at [122]. 14

case [7.925] K lost over $20 million while gambling at a Victorian casino over a 14-month period. He had a compulsion to gamble, though he was able to control that compulsion. The High Court rejected 14

See A Finlay, “Can We See the Chancellor’s Footprint?: Bridgewater v Leahy” (1999) 14 Journal of Contract Law 265.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

his unconscionability claim against the casino. Gambling was a rare commercial activity in which each party inherently sought to cause financial damage to the other party: at [25]. Equity did not characterise as victimisation the ordinary operation of a lawful commercial activity: at [26]. If a casino encouraged a pensioner to cash their pension cheque for gambling purposes, that would constitute victimisation. If a gambler was drunk or under an incapacity, that could also constitute victimisation: at [30]. By contrast, K was a wealthy “high roller”. He did not suffer a constant compulsion that would have prevented him from staying away from the casino: at [23]. He was able to stay away from the casino when he so wished: at [33]. He had gone to great lengths to persuade the casino that his previous gambling problems were now past: at [36]. Equitable intervention required “proof of a predatory state of mind”, which had not been established here. Indifference to the welfare of the other party to an arm’s length commercial transaction was not enough. Victimisation or exploitation was required: Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [161]. 15 [7.926] The provisions of the Australian Consumer Law relating to unconscionable conduct are discussed in Chapter 17.

Guarantees by married women of their husbands' debts [7.930] A special principle of equity was applied to a guarantee given by a married woman to secure her husband’s business debts. If a married woman’s consent to become a guarantor for her husband’s debt was procured by her husband without her understanding its essential effect and the creditor accepted the guarantee without taking steps to inform the wife of her obligations, the guarantee could be set aside: Yerkey v Jones (1939) 63 CLR 649 at 683, 685. 16 There was considerable uncertainty whether this principle continued to apply, in view of the High Court’s decision in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. However, in Garcia v National Australia Bank Ltd (1998) 194 CLR 395, the majority of the High Court essentially affirmed this principle of equity. The facts of the Garcia case were as follows:

15

See R Bigwood, “Still Curbing Unconscionability: Kakavas in the High Court of Australia” (2013) 27 Melbourne University Law Review 463; LK Robinson, “The Conscience of the King: Kakavas v Crown Melbourne Ltd” (2013) 17 University of Western Sydney Law Review 87; W Swain, “The Unconscionable Dealing Doctrine: In Retreat?” (2014) 31 Journal of Contract Law 255; S Almonte, “Kakavas v Crown Melbourne Ltd: Is the High Court Restricting the Doctrine of Unconscionable Conduct?” (2014) 16 University of Notre Dame Australia Law Review 193.

16

See J O’Donovan, “The Retreat from Yerkey v Jones: From Status Back to Contract” (1996) 26 University of Western Australia Law Review 309; J Edelman and E Bant, “Setting Aside Contracts of Suretyship: The Theory and Practice of Both Limbs of Yerkey v Jones” (2004) 15 Journal of Banking and Finance Law and Practice 5; YN Vrodos, “Revisiting the ‘Wives’ Special Equity’: An Exploration of the Volunteer Requirement” (2015) 40 University of Western Australia Law Review 244.

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case [7.940] In November 1987, the appellant wife had signed a guarantee in favour of the respondent bank guaranteeing repayment to the bank of loans made to her husband’s gold trading company. The guarantee was secured by an “all moneys” mortgage over the family home. The mortgage had been given to the bank by the husband and wife some eight years prior to the wife signing the guarantee in dispute. In June 1990, the appellant wife commenced proceedings to have the guarantee and mortgage set aside. The respondent bank claimed $327,189.69 under the guarantee and sought possession of the mortgaged home. In the meantime, the husband’s company had been wound up and the couple divorced: at [1]-[6]. The High Court held that the guarantee and mortgage should be set aside: Garcia v National Australia Bank Ltd (1998) 194 CLR 395. 17 [7.950] Gaudron, McHugh, Gummow and Hayne JJ held that the principle expressed in Yerkey v Jones (1939) 63 CLR 649 was regarded as a particular application of accepted equitable principles which are still relevant. They said that the rationale of this principle was “not to be found in notions based on the subservience or inferior economic position of women” nor on their “vulnerability to exploitation because of their emotional involvement” but rather on the “trust and confidence” between marriage partners: at [20]-[21]. In a marriage relationship, one partner, often the wife, may well leave business judgments to the other partner. Accordingly, business decisions “may be made with little consultation between the partners” and the “explanation of a particular transaction” given by one spouse to the other may be “imperfect, incomplete” or “simply wrong”: at [21]. The majority considered that Yerkey v Jones made it “unconscionable” to enforce a guarantee in the following combination of circumstances (Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at [31]): (a)

the surety (that is, the wife) did not understand the effect of the transaction;

(b)

the surety was a volunteer (in the sense that she gained no financial benefit from the contract, the performance of which she agreed to guarantee);

(c)

“the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore … that the husband may not fully and accurately explain the … effect of the transaction” to her; and

(d)

“the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her”.

The position was summed up in the joint majority judgment by the statement that the principle in Yerkey v Jones: “… depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction’s purport and effect. To enforce the transaction against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself 17

See S Bogan, “Garcia v National Australia Bank Ltd: Resurrecting the Corpus of Yerkey v Jones” (1998) 21 University of New South Wales Law Journal 845; T Cockburn, “Yerkey v Jones: The Phoenix’s New Clothes” (1998) 9 Journal of Banking and Finance 308; S Hepburn, “The Yerkey Principle and Relationships of Trust and Confidence: Garcia v National Australia Bank” (1998) 4 Deakin Law Review 99; T Cockburn, “Garcia One Year On – A Softly Softly Approach” (2000) 4 Flinders Journal of Law Reform 251; E Stone, “The Distinctiveness of Garcia” (2006) 22 Journal of Contract Law 170; C Chew, “Rethinking the Special Equity Rule for Wives: Post Garcia, Quo Vadis, Where to From Here?” (2007) 19 Bond Law Review 62.

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explained the transaction, and does not know that a third party has done so, would be unconscionable”: Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at [33]. The contention by the respondent bank that Yerkey v Jones no longer applied because of the High Court’s decision in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 was rejected since there was nothing in Amadio’s case to suggest that it was intended to overrule Yerkey v Jones, and it was apparent from statements in Amadio’s case that it was not “intended to mark out the boundaries of the whole field of unconscionable conduct”: at [28[-[29]. Furthermore, the unconscionable conduct in Amadio’s case was very different from the principle in Yerkey v Jones which did not depend on the creditor having notice of some unconscionable dealing between the husband as borrower and the wife as surety at the time the guarantee was taken: at [30]-[31]. Significantly, the majority judgment foreshadowed the possibility of the principle in Yerkey v Jones being applied in the future to other relationships, that is, “to long term and publicly declared relationships short of marriage between members of the same or opposite sex” and where a husband acted as surety for his wife. However, it was stated that such potential extension of the principle was not a question which needed to be considered in the case before the court: at [22]. The Australian Capital Territory Court of Appeal subsequently declined to extend this principle to guarantees by parents of their children’s debts: Watt v State Bank of New South Wales Ltd [2003] ACTCA 7 at [20]. A creditor may avoid the operation of this equity by providing a sufficient explanation of the nature of the transaction. “The level of explanation needed to be undertaken by the creditor will depend on the nature of the transaction, the degree of risk associated with the transaction, the sophistication of the vulnerable party and the nature of the relationship that party enjoys with the spouse. The explanation need not disabuse the vulnerable party of all misapprehensions”: Schultz v Bank of Queensland Ltd [2015] QCA 208 at [33], [35] per Boddice J.

case [7.951] A wife guaranteed her husband’s debts relating to his investment in a tax minimisation scheme: Agripay Pty Ltd v Byrne [2011] 2 Qd R 501 at [2]. The husband and wife held a joint superannuation fund. The Queensland Court of Appeal held that the guarantee should be set aside. McMurdo P held that the wife was a volunteer. A guarantor will not be a volunteer where they will receive a benefit that is direct or immediate. In this case any possible benefit for the joint superannuation fund was indirect and remote in time. The tax minimisation benefits of the scheme were for the husband’s benefit: at [9]-[11]. The wife understood the concept of a guarantee: at [13]. However, she did not understand her actual potential liability under this particular guarantee. She was mistaken about the amount of the debt and the term of the loan. She was not aware of the large management fees payable: at [18]. She thus did not understand critical details of the transaction guaranteed: at [20]. She did not receive independent advice before signing the guarantee: at [18]. McMeekin J held that the wife was a volunteer, though there were indirect benefits for her from the transaction: at [75], [78]. In the case law spouses were relieved from their obligations under guarantees where they did not realise that the document was a guarantee or were mistaken “in a material way” about their obligations under the guarantee: at [102]. In this case the wife was unaware of all important details relating to the transaction: at [143]. The lender did not inform her of important matters relevant to her obligations, nor did it make sure that she was otherwise informed

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of those matters: at [132]. The lender could have ensured that the guarantee was valid by ensuring that she was properly informed: at [146].

Under the Australian Consumer Law [7.960] The Australian Consumer Law 18 contains important provisions prohibiting persons from engaging in “unconscionable conduct” (ss 20 – 22). These provisions are discussed in Chapter 17.

Under the National Credit Code [7.970] The National Credit Code is set out in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth). The Code provides for the reopening of a credit transaction where the court is satisfied that in the circumstances relating to the credit contract, mortgage or guarantee at the time it was entered into, it was unjust: National Credit Code, s 76(1). “Unjust” includes “unconscionable, harsh or oppressive”: National Credit Code, s 204(1). The provisions apply to all personal (that is, non-business credit): see further [19.590].

New South Wales Contracts Review Act 1980 Application of the Act [7.980] The basic purpose of this legislation is to enable persons who have entered into a contract containing harsh or excessively onerous terms to obtain relief on application to the court. 19 Thus, where a contract is found by the court to have been “unjust” (defined as including “unconscionable, harsh or oppressive”) in the circumstances relating to the contract at the time it was made, the court is empowered to grant the following kinds of relief: (a)

refuse to enforce any or all of the provisions of the contract;

(b)

declare the whole or part of the contract void;

(c)

vary the whole or part of any provision of the contract; or

(d)

order the execution of an instrument varying or terminating the operation of an instrument transferring title to land or creating an estate or interest in land: Contracts Review Act 1980 (NSW), s 7.

In determining whether a contract or a provision of a contract is “unjust”, the court is to have regard to the public interest and to all the circumstances of the case including, where relevant, the following matters: (a)

18 19

whether or not there was any material inequality in bargaining power between the parties to the contract; The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17. See generally TM Carlin, “The Contracts Review Act 1980 (NSW) – 20 Years On” (2001) 23 Sydney Law Review 125; B Zipser, “Unjust Contracts and the Contracts Review Act 1980 (NSW)” (2001) 17 Journal of Contract Law 76; FR Burns, “Statutory ‘Unconscionability’: The Application of the Contracts Review Act 1980 (NSW) to the Elderly” (2005) 21 Journal of Contract Law 51; H Saunders, “Relief from Unconscionable Contracts: The Contracts Review Act 1980 (NSW) and the ‘Unwritten Law’” (2007) 29 Australian Bar Review 290; M Tibbey, “Undoing Unjust Contracts: Developments in Jurisprudence under the Contracts Review Act 1980 (NSW)” (2009) 32 Australian Bar Review 182; W Covell, K Lupton and J Forder,Covell and Lupton’s Principles of Remedies (6th ed, LexisNexis, Sydney, 2015), Ch 16.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

(b)

whether or not prior to or at the time the contract was made its provisions were the subject of negotiation;

(c)

whether or not it was reasonably practicable for the party seeking relief under the Act to negotiate for the alteration of or to reject any of the provisions of the contract;

(d)

whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract;

(e)

whether or not – (i) any party to the contract (other than a corporation) was not reasonably able to protect their interests; or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom they represented – because of their age or the state of their physical or mental capacity;

(f)

the relative economic circumstances, educational background and literacy of – (i) the parties to the contract (other than a corporation); and (ii) any person who represented any of the parties to the contract;

(g)

where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed;

(h)

whether or not and when independent legal or other expert advice was obtained by the party seeking relief under the Act;

(i)

the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under the Act, and whether or not that party understood the provisions and their effect;

(j)

whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under the Act – (i) by any other party to the contract; (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract; or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract;

(k)

the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party; and

(l)

the commercial or other setting, purpose and effect of the contract: s 9(2).

A person is deemed to have represented a party to a contract for the purposes of (e) and (f) (above) if they represented or assisted the party to a significant degree in negotiations prior to or at the time the contract was made: s 9(3). The type of asset which is used as security has also been treated as relevant in determining whether a contract is unjust, such as where the asset is the borrower’s home rather than an investment property, as loss of a home generally gives rise to special hardships: Kowalczuk v Accom Finance (2008) 77 NSWLR 205 at [126]. In determining whether a contract or a provision of a contract is unjust, the court is not to have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time when the contract was made: s 9(4). However, in deciding whether to grant relief in respect of a contract or one of its terms that is found to be unjust, the court may have regard to the conduct of the parties in relation to the performance of the contract since it was made: s 9(5). The court may grant relief notwithstanding that the contract has been fully executed: s 14. The court may hold that a contract was unjust despite the other party being unaware of the circumstances that cause that injustice: Perpetual Trustee Co Ltd v Khoshaba (2006) 14 BPR 26 at

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[94]-[96]; Kowalczuk v Accom Finance (2008) 77 NSWLR 205 at [86]. A court may hold that a contract was unjust even though it does not violate any equitable principle, since relief is not restricted to equitable principles: Kowalczuk at [164]. The Supreme Court of New South Wales is empowered to give the relief provided by the Act. The District Court has also been invested with the same jurisdiction as the Supreme Court in respect of contracts where the consideration does not exceed the jurisdictional limits of the District Court: District Court Act 1973 (NSW), s 134B.

Restrictions on the grant of relief [7.990] The Crown, a public or local authority, or a corporation 20 cannot be granted relief under the Act: Contracts Review Act 1980 (NSW), s 6(1). Furthermore, a person who entered into the contract in question in the course of or for the purposes of a trade, business or profession carried on or proposed to be carried on by them cannot be granted relief under the Act: s 6(2). However, a person may be granted relief in respect of an unjust contract entered into for the purpose of a farming undertaking: s 6(2). In essence, then, the ordinary “consumer” of goods, services, or land for personal or domestic use and the unincorporated farmer can seek relief under the Act but not companies, traders or business people generally. The Act also does not apply to contracts of service to the extent that they are made in conformity with an industrial award: s 21(1). The Act does not operate where no contract was formed, such as where a party successfully invokes the plea of non est factum: Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at [91].

Other provisions [7.1000] Application for relief must be commenced within two years of the making of the contract, or within three months before or two years after the time for the exercise of performance of any power or obligation under the contract, or during the pendency of maintainable proceedings relating to the contract: Contracts Review Act 1980 (NSW), s 16. Rights under the Act cannot be excluded and it is an offence to submit for signature a contract which purports to exclude, restrict or modify the application of the Act: ss 17, 18. However, the Act does not apply to genuine compromises of claims for relief where the claim was asserted before the making of the contract: s 17(4). The remedies under the Act are additional to any other law providing relief against unjust contracts or unfair contract terms: s 22. Where on the application of the Minister or the Attorney-General the Supreme Court is satisfied that a person has embarked, or is likely to embark, on a course of conduct leading to the formation of unjust contracts, it may prescribe the terms upon which such person may enter into contracts of a specified class: s 10.

Examples of the application of the Contracts Review Act 1980 [7.1010] The following are examples of the extensive body of case law on applications for relief under the New South Wales Contracts Review Act 1980 (NSW):

20

Strata title corporate bodies and the like are excluded from the definition of “corporation” for the purposes of the Act where the structures involved are primarily intended to be occupied as dwellings. Accordingly, corporate bodies of this special kind can be granted relief under the Act.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

case [7.1020] K contracted to sell land “at a gross undervalue on inordinately generous terms” to S, a neighbour to whom K had turned for trust and friendship while undergoing an emotional crisis. The sale price was approximately half the true value of the land, with a 10-year mortgage back to K at a low rate of interest: at 228. This combined with K’s illiteracy, lack of adequate, independent advice and certain misconceptions as to what had been agreed, led the court to hold that the transaction was unjust and declare the contract void: Sharman v Kunert (1985) 1 NSWLR 225 at 230.

case [7.1030] W, a woman of limited business experience, gave a mortgage over her home to secure a loan made by AGC, a finance company, primarily to assist a business which employed her husband and which was in financial difficulty, and also to pay out an existing mortgage over the home which was in arrears. The business failed and other guarantors of the loan had been made bankrupt, so AGC sought repayment of the loan from W and, in particular, to enforce the mortgage she had given over her home: at 622-625. A majority of the New South Wales Court of Appeal held that in the circumstances the mortgage was not “unjust” within the meaning of the Act and refused to intervene. The fact that W had entered into the mortgage against the advice of an accountant (her son), and a barrister friend was of particular significance: West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 627.

case [7.1040] K orally agreed to guarantee a loan to her son-in-law’s company up to a limit of $100,000. However, the written contract of guarantee which she signed provided for an unlimited guarantee: at 483. At first instance, an order was made that the guarantee should not be enforced on the ground that it was misleading as to its true effect: at 490. On appeal, a majority of the New South Wales Court of Appeal allowed the appeal, upholding the validity of the guarantee up to the limit orally agreed by K: SH Lock (Aust) Ltd v Kennedy (1988) 12 NSWLR 482 at 487, 492.

case

[7.1050] The plaintiff, who was recently widowed, was a passenger on the defendant’s cruise ship which sank due to negligent navigation for which the defendant accepted liability. The plaintiff suffered physical injury and nervous shock as a result of the sinking. The defendant offered the plaintiff an ex gratia payment of $4,786 in settlement of her claim upon her signing a release form. The plaintiff accepted the settlement and executed the release, which included a release from personal injury claims. The plaintiff subsequently brought proceedings for personal injury and loss of baggage and personal effects. The New South Wales Court of Appeal, by a majority, upheld the trial judge’s decision that the release was “unjust” in the circumstances having regard, inter alia, to the substantial disparity between the settlement figure ($4,786) and the damages to which the plaintiff was found to be entitled ($56,182); the material inequality in bargaining power between the parties; and the diminution in the plaintiff’s capacity to protect her interests owing to her physical and emotional condition: at 9, 21. An order was made declaring the release void and awarding the plaintiff damages:

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Baltic Shipping Co v Dillon (1991) 22 NSWLR 1; this aspect of the case was not affected by the later decision of the High Court, Baltic Shipping Co v Dillon (1993) 176 CLR 344, see [12.240].

case [7.1060] K borrowed money for a short term with a very high interest rate applying where the borrower defaulted. The dramatic combined effects of the compounding of interest and the higher interest rate applying upon default are apparent in the following extract from the Court’s decision: “The provision for compounding of interest at monthly rests … is one that, particularly when applied at the higher rate, has the potential to be utterly crushing to a borrower. …. the amount of money actually advanced concerning the … loan was $766,650 … [the lender] Accom has received in return a total of $1,231,261.80 in the form of principal and interest within 10 months (in itself a full return of its capital and of the order of 60% profit over the 10 months) yet [the borrower] Kowalczuk still owed $5.1 million at the time of the hearing of this case …. There are some injustices too plain to need elaboration”: Kowalczuk v Accom Finance (2008) 77 NSWLR 205 at [175]. The Court held that the higher rate of interest applying upon default was unjust since the contract had otherwise already provided for the recovery of all losses and expenses resulting from a default. The higher rate of interest thus did not protect any legitimate interest of the lender: at [166], [169]. A provision for the compounding of interest was also unjust so far as it applied to the higher rate applying upon default: at [176].

case [7.1070] For many years Mr and Mrs Karamihos had operated a restaurant in Marrickville. They borrowed $1.2 million to refinance a loan secured over their house. They used the funds to pay out an existing loan. The remainder of the funds were used for their restaurant and as a gift to their daughter: at [1]. As they were in their early 70s and thus had a limited working life ahead of them, while seeking finance from the bank they indicated that their “exit strategy” was the sale of their Marrickville property. Their estimate of the value of that property greatly exceeded the amount that was eventually obtained: at [42]–[44]. After they defaulted on the loan the bank sought possession of their home and repayment of the outstanding debt: at [2]. The Court held that Mr and Mrs Karamihos had not proven that their estimate of the value of the property was incorrect when made. As borrowers seeking to be relieved from a loan obligation it was for them to prove any facts that were relied upon to show that the contract was unjust: at [52]. In the absence of evidence of the value of the property at the time of the loan it had not been shown that if the bank had verified the value of the property it would have realised that the exit strategy was not viable: at [64]. Furthermore, they had not followed their own exit strategy. Their decision to lease rather than sell the Marrickville property had been financially damaging: at [65]. Their age did not in itself indicate an inability to look after their own interests: at [63]. Bendigo and Adelaide Bank Ltd v Karamihos [2014] NSWCA 17 at [63]. The High Court refused special leave to appeal from this decision: Karamihos v Bendigo and Adelaide Bank Ltd [2014] HCASL 176.

chapter 7 Consent of Parties: Mistake, Misrepresentation and Unconscionable Contracts

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

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chapter 8

Legality of Object [8.20] Illegality under statute law ............................................................................................................................ 136 [8.170] Illegality at common law .............................................................................................................................. 140 [8.520] Consequences of illegal contracts and void contracts................................................................. 151

Introduction [8.10] A further essential element for a valid contract is the legality of its objective, that is, it must concern the doing of something which is not prohibited by law. Conversely, if the “contract” does involve doing something prohibited by law, then it is generally referred to as an “illegal” contract and, as such, is invalid and unenforceable. The illegality of a contract may arise from: (a) statute or (b) the common law. Contracts that are broadly referred to as “illegal” are generally recognised as falling into two categories: (a) those which are so serious as to be regarded as illegal in the strict or narrow sense (for example, a contract to commit a crime); and (b) those which are less reprehensible and are regarded as void (for example, a contract in restraint of trade). Whether a contract is categorised as illegal in the strict sense, or simply void, it is unenforceable. The topic of illegality and contracts is considered under the following headings: 1.

Illegality under Statute Law.

2.

Illegality at Common Law.

3.

Consequences of Illegal Contracts and Void Contracts.

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Illegality under statute law Contracts illegal by statute [8.20] Many business activities are regulated by statutory provision requiring, for example, a licence to be obtained before engaging in a particular activity. Often, non-compliance with such provisions is made an offence under the particular statute. The question which may then arise is the effect of such non-compliance on a contract entered into with another party, that is, is such contract prohibited by the statute in question? If it is, then “the court will not enforce a contract which is expressly or impliedly prohibited by statute”: St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 at 283. In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413, Gibbs ACJ outlined four different ways in which a statute may render a contract illegal: “(1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits”. See also Burmic Pty Ltd v Goldview Pty Ltd [2003] 2 Qd R 477 at [17].

Express prohibition [8.30] If a contract is expressly prohibited by statute then it is illegal and unenforceable.

case [8.40] A statutory order provided that a person was not to buy or sell or otherwise deal in linseed oil without a licence issued by a government official. The defendant told the plaintiff, untruthfully, that he had the necessary licence and contracted to purchase a quantity of linseed oil from the plaintiff. The defendant later refused to take delivery and the plaintiff sued him for damages for breach of contract. It was held that the plaintiff’s action failed. The order clearly prohibited the sale of linseed oil to an unlicensed purchaser and therefore expressly prohibited the contract in question. Accordingly, the contract was illegal and unenforceable. “The contract was absolutely prohibited; and in my view, if an act is prohibited by statute for the public benefit, the Court must enforce the prohibition, even though the person breaking the law relies upon his own illegality”: Re Mahmoud & Ispahani [1921] 2 KB 716 at 729 per Scrutton LJ; see also Chitts v Allaine [1982] Qd R 319 at 327.

Implied prohibition [8.50] It is common for a statute to require or proscribe certain conduct and provide a penalty for non-compliance. The problem is then to determine whether non-compliance was also intended to affect a contract involving such conduct: if so, then the contract may be regarded as being impliedly prohibited by the statute and therefore illegal and unenforceable. On the other hand, the statute may be construed as limiting the sanction for non-compliance to the penalty or fine specified in the statute but otherwise leaving the validity of a contract involving the conduct unimpaired.

chapter 8 Legality of Object

The issue arose for consideration by the High Court in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410:

case [8.60] The respondent company lent the first appellant $132,600, repayment of which was secured by a mortgage which incorporated a guarantee given by the other appellants. Default having been made in repayment of the loan, the respondent sued the appellants on the personal covenants in the mortgage. The appellants contended that the mortgage (including the guarantee) was illegal and void on the ground that the respondent had been carrying on the business of banking without authorisation under the Banking Act 1959 (Cth). The Act provided that a corporation was not to carry on a banking business unless it was authorised to do so and provided a penalty of $10,000 per day for contravention of this provision. It was agreed between the parties that the lender was carrying on the business of banking in contravention of the Act. The question to be determined was whether such offence rendered the contract between the parties illegal and unenforceable: at 412. The High Court held that having regard to the scope and object of the provision prohibiting the carrying on of any banking business without authority, and in particular to the heavy penalty provided for its contravention, the provision did not upon its proper construction either expressly or impliedly prohibit such a loan on mortgage. Accordingly, the respondent lender was entitled to enforce the mortgage: Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 415, 426, 430, 434, 436. [8.70] The validity of the contract is determined by statutory interpretation: Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at [11]]; Gnych v Polish Club Ltd (2015) 255 CLR 414 at [36]-[37]. In determining the effect on a contract of conduct proscribed by statute, the courts have regard to the intention of the legislation, that is, what it was intended to achieve. This is particularly so where it is apparent that the statute was aimed at protecting the public, or furthering some public policy objective.

case [8.80] A Queensland statute provided that it was an offence to sell a second-hand motor vehicle without a certificate of roadworthiness. It was agreed between the seller of a second-hand vehicle and the buyer that the seller need not obtain the requisite certificate but that the buyer would do so. The seller sought to recover the balance of the purchase price. The court said that the whole of the statute was concerned to ensure that motor vehicles for use on the road are roadworthy. The clear implication of the Act was to prohibit contracts for the sale of second-hand vehicles where a roadworthiness certificate had not been obtained. Accordingly, it was held that the contract was impliedly prohibited by the Act and therefore unenforceable: Buckland v Massey [1985] 1 Qd R 502 at 512.

case

[8.90] Another statute provided that it was an offence for a registered builder to perform general building construction when not registered as a general builder and a monetary penalty was prescribed for non-compliance. A registered builder performed work in breach of this provision: at 22. It was held that non-compliance with the statutory provision by the builder did not render void and

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unenforceable his contractual liability for the loss caused by his defective workmanship. The builder was liable for damages for his faulty workmanship. To have decided otherwise would not have been consistent with the “statutory purpose of protecting those for whom building work is performed”: Gaffney v Ryan [1995] 1 Qd R 19 at 23. [8.100] It was held that representations which constituted misleading or deceptive conduct in contravention of s 52 of the former Trade Practices Act 1974 (Cth) did not render a contract entered into as a result of such conduct illegal and unenforceable. The reason was that the Act itself provided a wide range of remedies for contravention of s 52, particularly s 87 which empowered the court to declare a contract which had come into existence as a result of such conduct to be void: Bank of America Australia Ltd v Ceda Jon International Pty Ltd (1988) 17 NSWLR 290 at 295-296. It is likely that the court will give a similar construction to the corresponding provisions in the Australian Consumer Law, ss 18 and 243 respectively.

case [8.105] State liquor legislation provided that a licensee must not lease any part of licensed premises except with the approval of the liquor authority: at [1]. Violation of this provision was punishable by a fine: at [83]. A licensee leased part of its premises to a restaurant without obtaining the approval of the authority: at [2]. The High Court held that this provision of the liquor legislation was directed at the licensee’s conduct in granting a lease, not the rights under the contract between the licensee and the restaurant: at [41]. The “adverse consequences” for the innocent party (the restaurant) was a factor weighing against attributing to the legislature an intention to render the contract void: at [45]. The offence under the liquor legislation occurred when the licensee granted the lease. Carrying out the lease was not prohibited: at [46]. The punishment for the transgression was a fine: at [47]. While the authority had power to cancel a liquor licence, it could leave the existing situation unchanged. If the violation of the statute “automatically” voided the lease, that would “pre-empt” the authority’s power of supervision of licensees: Gnych v Polish Club Ltd (2015) 255 CLR 414 at [53].

Contracts illegal as formed or performed [8.110] A statutory prohibition may make a contract: (a)

illegal as formed; or

(b)

illegal as performed.

Contracts illegal as formed [8.120] A contract will be illegal as formed where it was prohibited, either expressly or impliedly, from its inception. An example of a contract illegal as formed is Re Mahmoud & Ispahani [1921] 2 KB 716, see [8.40].

chapter 8 Legality of Object

Contracts illegal as performed [8.130] A contract may be legal at the time it was formed, that is, when it was made but become illegal because of the way in which it is performed. Thus, a contract will be illegal as performed where one or both of the parties intend to perform it in an illegal manner or for an illegal purpose.

case [8.140] The plaintiff manufacturers contracted with the defendant hauliers for the transportation of a large piece of engineering equipment. Subsequently, the lorry on which the equipment was being carried toppled over and the equipment was damaged. The plaintiffs sued the defendants for their loss. The relevant motor vehicle legislation provided that it was unlawful to use on the road a motor vehicle weighing more than 30 tons when loaded. Both the plaintiffs and the defendants were aware that the load exceeded the legal limit: at 831. It was held that the plaintiffs could not recover. Although the contract for the carriage of the equipment may have been lawful when it was made, it was illegal as performed and therefore unenforceable by either party: Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828 at 832, 836. [8.150] If the illegal conduct is only incidental to the way in which the contract is performed, it will not have the effect of making the contract unenforceable: Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 at 246, 249; St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 at 291.

Contracts void by statute [8.160] A contract which is illegal as a result of an express or implied statutory prohibition is void and unenforceable. However, a statute may not make a particular contract illegal but simply declare it void. Legislation in most Australian States provides that contracts or agreements by way of gaming or wagering are void and such contracts cannot be enforced in the courts. 1 Exception is made in respect of lawful forms of gambling such as a bet or wager made on a licensed racecourse with a bookmaker. 2 A contract will be void if it undermines a statutory purpose under which statutory rights are conferred in the public interest. The High Court has thus indicated that: “contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone. The courts will treat such arrangements as ineffective or void, even in the absence of a breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text”: Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129 at [46] per French CJ, Crennan, Kiefel and Bell JJ.

1

2

Unlawful Gambling Act 1998 (NSW), s 56 (“has no effect”); Gambling Regulation Act 2003 (Vic), s 2.4.1; Racing Act 2002 (Qld), s 341; Lottery and Gaming Act 1936 (SA), ss 50, 50A; Racing Regulation Act 2004 (Tas), s 103(1); Unlawful Gambling Act 2009 (ACT), s 47; Racing and Betting Act 1983 (NT), s 135; Gaming and Betting (Contracts and Securities) Act 1985 (WA), s 4. Unlawful Gambling Act 1998 (NSW), s 56(2); Gambling Regulation Act 2003 (Vic), s 2.4.1; Racing Act 2002 (Qld), s 342; Lottery and Gaming Act 1936 (SA), s 50; Racing Regulation Act 2004 (Tas), s 103(2); Unlawful Gambling Act 2009 (ACT), s 47; Racing and Betting Act 1983 (NT), s 135(1); Gaming and Betting (Contracts and Securities) Act 1985 (WA), s 5.

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Illegality at common law [8.170] The courts refuse to enforce agreements that are “contrary to public policy”. These contracts fall into two basic categories: (a)

contracts described as illegal because of their more reprehensible character; and

(b)

those simply described as void, rather than illegal, because of their less serious nature.

A contract which is illegal will also be void and unenforceable in the courts. The rationale for the distinction between contracts which are illegal, and those which are simply void, on grounds of public policy is said to be justified because of the more severe consequences which may ensue where the contract is illegal.

Contracts illegal at common law [8.180] Contracts that are illegal at common law on grounds of public policy are: (a)

contracts to commit a crime, a tort or a fraud on a third party;

(b)

contracts promoting sexual immorality;

(c)

contracts prejudicial to the administration of justice;

(d)

contracts tending to promote corruption in public life;

(e)

contracts prejudicial to the public safety; and

(f)

contracts to defraud the revenue.

Contracts to commit a crime, a tort or a fraud on a third party [8.190] A contract involving the commission of a crime, a tort or a fraud on third parties is illegal at common law and will not be enforced.

Contracts promoting sexual immorality [8.200] A contract which promotes, either directly or indirectly, the promotion of sexual immorality is illegal and unenforceable. This includes agreements for the letting of premises or the hire of vehicles for an immoral purpose: Upfill v Wright [1911] 1 KB 506 at 510, 512. On the other hand, the contract of employment of a receptionist at a brothel was not void for illegality and she was entitled to recover workers’ compensation for a broken arm sustained on her way to work: Barac (t/as Exotic Studios) v Farnell (1994) 53 FCR 193 at 207, 213, 216. The New South Wales Court of Appeal found it unnecessary to consider this issue in relation to an agreement to become the mistress of a wealthy business figure as the court found that there was no intention to be legally bound: Ashton v Pratt (2015) 88 NSWLR 281 at [218], [222]. Community standards of “immorality” are susceptible to change: Andrews v Parker [1973] Qd R 93 at 102.

case [8.210] This was recognised by the New South Wales Court of Appeal in Seidler v Schallhofer [1982] 2 NSWLR 80. In that case an agreement provided for the continuation of a de facto relationship for six months and for marriage or separation thereafter. In the event of separation, the plaintiff was to get a refund of her payments towards the purchase of a house in return for the transfer

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to the defendant of her half share as joint tenant in the property: at 82. It was held that the agreement was not void as being contrary to public policy: at 90, 95, 103.

Contracts prejudicial to the administration of justice [8.220] Agreements which are regarded as hindering the administration of justice are illegal at common law on grounds of public policy. This includes agreements to conceal offences, compromise prosecutions or to prevent or impede the justice system. Two categories of agreement require further consideration in this context: (a)

agreements to stifle a prosecution; and

(b)

agreements for the maintenance of a suit and champerty.

Agreements to stifle a prosecution [8.230] An example of such an agreement is the following:

case [8.240] The defendant guaranteed repayment of a loan advanced by the plaintiff credit union to his son on the understanding that the credit union would not report his son to police for misappropriation of moneys from the credit union. It was held that the guarantee was void for illegality as an agreement to stifle prosecution for an indictable public offence: Public Service Employees Credit Union Co-operative Ltd v Campion (1984) 56 ACTR 39 at 48. [8.250] To be contrasted with that case is the decision of the Supreme Court of Western Australia in Scolio Pty Ltd v Cote (1992) 6 WAR 475:

case [8.260] An auditor’s report disclosed evidence of misappropriation of moneys by the respondent, a manager of the appellant company. The manager signed a deed to repay the moneys by instalments, being given to understand that if he did not do so the auditor’s report would be referred to the police. The court held that it was not established that the manager had signed the deed under duress and there was no evidence of an “implicit agreement to stifle a prosecution”. Accordingly, judgment was entered against the respondent manager for the amount of the deed: Scolio Pty Ltd v Cote (1992) 6 WAR 475 at 482, 488.

Agreements for the maintenance of a suit and champerty [8.270] Maintenance is the act of a third party in encouraging litigation by rendering officious assistance, by money or otherwise, to another person in a suit in which that third person has no legal interest. All the aspects of a particular transaction have to be taken into consideration to determine whether: “[T]here is wanton and officious intermeddling with the disputes of others in which the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse”: Giles v Thompson [1994] 1 AC 142 at 164 per Lord Mustill.

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Champerty is the maintaining of a suit on the understanding that the person maintaining will receive some share of the benefits accruing to a party to such suit, and is thus really a sharing of the results of litigation. In several jurisdictions legislation provides that the abolition of the torts of maintenance and champerty does not affect the rules concerning the illegality of contracts that are tainted by maintenance or champerty. 3 The law as to maintenance and champerty is ripe for reconsideration and is in a state of development, particularly with the advent of litigation funding: see Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 at [66]–[95]; Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 at [25]–[26]. Furthermore, there are statutory exceptions to these principles. In most jurisdictions legislation provides that an agreement relating to legal costs may provide that the payment of some or all of the costs is conditional upon the successful outcome of the matter concerned. 4 Such agreements are known as “conditional costs agreements”.

Contracts tending to promote corruption in public life [8.280] A contract with a person to use their official position to obtain a benefit for another is illegal. For example, a contract to procure a title of honour for reward is illegal.

case [8.290] The secretary of a charity made an arrangement with the plaintiff that if he would make a donation to its funds it would take steps on his behalf and procure him at least a knighthood. He paid £3,000 and undertook to pay more when the knighthood was forthcoming. However, he did not receive a knighthood and sued for the return of the money. It was held that he was unable to recover because the contract was illegal as being contrary to public policy: Parkinson v College of Ambulance Ltd [1925] 2 KB 1 at 13, 16.

case [8.300] A, the agent for the owners of land, who was negotiating on their behalf for its sale to the Crown, entered into an agreement with B and C, who were members of the State Parliament and carried on business in partnership as land agents. Under the agreement, B and C for pecuniary consideration undertook to put pressure upon the government, of which they were supporters, to agree to purchase the land. The completion of the purchase and the earning of the reward were contingent upon the approval of the House of which they were members, so that the completion was or might be dependent upon their votes: at 93. It was held that the agreement was illegal as being contrary to public policy: Wilkinson v Osborne (1915) 21 CLR 89 at 94, 105.

3 4

Civil Liability Act 2002 (NSW), Sch 2, Item 2; Wrongs Act 1958 (Vic), s 32(2); Civil Law (Wrongs) Act 2002 (ACT), s 221(2)(a). Legal Profession Uniform Law (NSW), s 181, applied by Legal Profession Uniform Law Application Act 2014 (NSW), s 4; Legal Profession Act 2007 (Qld), s 323; Legal Profession Act 2007 (Tas), s 307; Legal Profession Uniform Law (Vic), s 181, applied by Legal Profession Uniform Law Application Act 2014 (Vic), s 4; Legal Profession Act 2008 (WA), s 283; Legal Profession Act 2006 (ACT), s 283; Legal Profession Act 2006 (NT), s 318.

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Contracts prejudicial to the public safety [8.310] Agreements in this category are of two types. First, trading agreements between a national and an enemy alien in wartime. Secondly, agreements which might rupture the existing friendly relationships between one country and another: Regazzoni v KC Sethia (1944) Ltd [1958] AC 301 at 318-319, 327. Such agreements are illegal and unenforceable.

Contracts to defraud the revenue [8.320] A contract which is designed to defraud the revenue whether national or local is illegal as being contrary to public policy: Alexander v Rayson [1936] 1 KB 169 at 176, 188.

Contracts void at common law [8.330] There are three categories of contract usually regarded as being void (rather than illegal) at common law as being contrary to public policy. These are: (a)

contracts to oust the jurisdiction of the courts;

(b)

contracts prejudicial to the status of marriage; and

(c)

contracts in restraint of trade.

Contracts to oust the jurisdiction of the courts [8.340] A provision in a contract which purports to prevent recourse to the courts in the event of dispute between the parties is void as being contrary to public policy. It has been stated in the High Court that: “No contractual provision which attempts to disable a party from resorting to the Courts of law was ever recognized as valid. It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the Courts to enforce them”: Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 at 652.

Contracts prejudicial to the status of marriage [8.350] A contract or a term of a contract which prejudices the status of marriage will be void as contrary to public policy, for example a pre-marriage agreement not to live together after marriage: Scott v Scott (1904) 25 ALT 174 at 175. One type of contract invalidated is that known as “marriage brokerage”, that is, an agreement to procure a marriage for a consideration: Hermann v Charlesworth [1905] 2 KB 123 at 130, 136, discussed at [8.640].

Contracts in restraint of trade [8.360] A contract in restraint of trade is one which restricts a person from freely exercising their trade, business or profession. 5 The most widely accepted definition of “restraint of trade” is that enunciated in Petrofina (Great Britain) Ltd v Martin [1966] Ch 146 at 180: “A contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in future to carry on trade with other persons not parties to the contract in such manner as he chooses.” 5

See generally JD Heydon, The Restraint of Trade Doctrine (3rd ed, LexisNexis Butterworths, Sydney, 2008); C Arup et al, “Restraints of Trade: The Legal Practice” (2013) 36 University of New South Wales Law Journal 1; N Rochow, “Toward a Modern Reasoned Approach to the Doctrine of Restraint of Trade” (2014) 5 Western Australian Jurist 25; D Thorpe, “The Restraint of Trade Doctrine in the Era of Digital Markets” (2015) 32 Journal of Contract Law 244.

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A contract which is in restraint of trade is prima facie void as being contrary to public policy but will be binding on the parties if the court is satisfied that it is reasonable in the circumstances. The main points in considering whether at common law a contract in restraint of trade is void or binding are: (a)

the restraint must be reasonable as between the parties, that is, must be no wider than is reasonably necessary to protect the person for whose benefit it is imposed; and

(b)

the restraint must be reasonable in the interest of the public, that is, it must be in no way injurious to the public.

In applying these tests the duration and extent of the area of the restraint are of particular importance. Contracts in restraint of trade at common law can conveniently be divided for the purposes of discussion into the following categories: (a)

those made when a business is sold to protect the purchaser’s goodwill in the business against undue competition by the vendor;

(b)

those made with an employee to restrain the employee after the termination of their employment from exercising their occupation in a certain area or for a certain time; and

(c)

other restrictive trading agreements, such as price maintenance agreements.

Each of these types of contractual restraint are considered separately at [8.370]–[8.481].

Contracts for the sale of a business [8.370] The vendor of a business is frequently restrained from competing with the purchaser for a specified period and, usually, within a defined area. Such a restraint is enforceable if it is reasonable in the circumstances for the protection of the purchaser’s goodwill in the business: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 548, 552, 558.

case [8.380] Where a contract for the sale of a shipbuilding business, specialising in the construction of luxury motor vessels, contained a restraint of trade clause restraining the vendors from engaging in “the business of shipbuilding of any description or any other business of a similar nature”, it was held that the clause constituted an unreasonable restraint of trade as not being reasonably necessary to protect the interests of the purchaser: Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 at 527.

case [8.390] A contract for the sale of a finance broking business provided that the vendor must not “solicit, canvass or secure the custom of a person who is at completion, or was within twelve months before completion, a customer”: Positive Endeavour Pty Ltd v Madigan (2009) 105 SASR 109 at [74]. The Court held that this clause went beyond what was reasonably necessary to protect the value of the purchased business. The clause applied in perpetuity to any loan for any purpose to any existing customer. Sufficient protection would have been given by a clause with a suitable time limitation or which applied to a limited class of customers or type of loan: at [24]–[25], [154].

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Contracts of employment [8.400] Contracts of employment sometimes contain covenants restraining the employee from exercising their profession or trade in a certain area or for a certain time after the termination of their employment. 6 Covenants in restraint of trade contained in contracts of employment will only be enforced so far as is necessary to prevent the employee using the knowledge, trade secrets or connections of their past employer in competition with that employer. It is not necessary for an employer to prove a risk that a former employee would intentionally use their connections with the employer’s clients. “[T]he influence in question can arise from attraction or attachment to, or fondness for, the employee rather than a conscious and deliberate attempt by the employee to manipulate the client”: Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657 at [27]. However, a restraint of trade clause may not be used to prevent the employee from using their own skill and knowledge in their trade or profession, even if acquired in the previous employer’s service: Attwood v Lamont [1920] 3 KB 571 at 580, 589-590. The law does not readily allow a person to contract out of their means of livelihood: Lindner v Murdock’s Garage (1950) 83 CLR 628 at 645. A certain number of restraints rest on the employee, however, quite independently of any express covenant. For example, a person can be restrained from disclosing a secret process which they have memorised: Amber Size Chemical Co v Menzel [1913] 2 Ch 239 at 248. A person can be prevented from using a list of their employer’s customers for the purpose of soliciting business for themselves: Robb v Green [1895] 2 QB 315 at 318-319. A person acquiring special skills with access to their employer’s secrets can be restrained from working for a competitor in their spare time: Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 at 179, 183. Such covenants will be construed much less favourably in the case of an employer and employee than in that of a vendor and purchaser of a business: Geraghty v Minter (1979) 142 CLR 177 at 185; EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2010] 2 Qd R 517 at [10]. These points can be demonstrated by the leading case of Herbert Morris Ltd v Saxelby [1916] 1 AC 688:

case [8.410] Saxelby had been employed by the appellant company for 12 years. He had made a covenant with the company that he would not, for seven years after the termination of his employment with the company, either in the United Kingdom or Ireland, carry on or engage in by himself or with others any business of a like nature to that of the appellant company: at 690. He left the company and joined the staff of competitors of the company. The House of Lords held that the covenant was void as a person should not be restrained from using their own skill in any particular trade. A person has a right to engage in competition with others engaged in that trade and the law will not enforce a covenant in restraint of employment if it is imposed on the former employee only to protect the employer against competition per se: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 702, 709, 717–718. [8.420] A restraint which is imposed simply for the purpose of preventing an ex-employee from using their own skill and knowledge in competition with their former employer will not be enforceable. However, a reasonable restraint designed to protect trade connections, confidential information, or trade

6

See A Brooks, “The Limits of Competition: Restraint of Trade in the Context of Employment Contracts” (2001) 24 University of New South Wales Law Journal 346.

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secrets acquired by the employee in the course of their employment will be enforceable: Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1479.

case [8.421] Jardin was the CEO of a subsidiary of Metcash, IGA Distribution, which distributed groceries to independent retailers: Jardin v Metcash Ltd (2011) 285 ALR 677 at [42]-[43]. Jardin’s contract of employment provided that he must not accept any other employment without the company’s permission, compete with the company, or hold investments of more than 5% of the issued investments of any class of another company: at [44]. Metcash decided to terminate his employment: at [2]. Jardin sought to take a majority shareholding in a competitor of Metcash: at [50]-[52]. The New South Wales Court of Appeal held that these contractual restraints were valid: at [107]. Metcash was entitled to protect itself from the risk that Jardin would use his connections with its customers to seek to entice them away to a competitor: at [97]. The evidence showed that over the 10 years of his employment Jardin had acquired knowledge and influence over customers that was sufficient to justify a restraint: at [98]. Confidential information about the terms of trade between IGA Distribution and its customers could be used to compete against IGA: at [102]. The 5% investment limit was justified because of the risk that Jardin would use his knowledge as CEO for the advantage of a competitor of IGA: at [104]. The deed releasing Jardin from his employment included a restraint for 12 months while he continued to be employed by Metcash. This restraint was also reasonable: at [106].

case [8.422] Pearson was employed in a senior role in a human resources firm, marketing the firm to possible clients: at [12]. His contract provided that he could not be employed by a business “similar to or competitive with” the firm for two years after ceasing employment with the firm. The contract also contained confidentiality and non-solicitation obligations: at [18]–[20]. The Full Federal Court upheld the restraint. The firm’s customer connections comprised a legitimate interest which could validly be protected by a restraint: at [46]. Pearson’s role had been to market the firm to potential customers: at [50]. The confidentiality and non-solicitation provisions were not sufficient to protect the firm’s customer connections: at [51]. The firm also had a legitimate interest in securing the full benefit of its bargain with Pearson during his employment through preservation of the goodwill and expansion of the business he generated: at [57]–[59]. The restraint was reasonably necessary to protect these interests: at [62]. This reasonableness was demonstrated by the allocation of shares in the company and the payment of his salary for 21 months of the two-year restraint period: Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187 at [63].

case [8.423] Money was employed by a firm of accountants. His employment contract provided that for a period of three years after leaving employment with the firm he may not provide accounting services to any client of the firm for whom he had worked within the three years before leaving the firm’s

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employment: at [21]. The contract further provided that if this restraint was breached, the ex-employee was liable to pay damages set at three-quarters of the fees payable by the client in the year before he ceased employment with the firm. The Victorian Court of Appeal upheld the restraint. The firm had a legitimate interest in guarding the goodwill of clients in relation to the ex-employee’s previous services to those clients: at [40]. The ex-employee’s knowledge of the client’s affairs encouraged the continued patronage of the firm: at [42]. The firm introduced the ex-employee to the client and it was through the firm’s facilities and supervision that the ex-employee had been able to create goodwill with the client. That goodwill was the property of the firm: at [76]. The duration of the restraint was reasonable: at [9]–[10], [84]. The damages clause was a genuine pre-estimate of loss and did not constitute a penalty: Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341 at [90]–[92]. [8.429] A covenant in a partnership agreement between certain insurance loss adjusters that on dissolution of the partnership, one of the partners would not carry on the same kind of business within a radius of 20 miles of the partnership premises for three years was held by the High Court to be reasonable, and therefore enforceable, to protect the remaining interest of the original partners in the business: at 182, 188, 194, 200. In that case Gibbs J expressed the view that had the covenantor been an employee instead of a partner, there was no doubt that a similar covenant would have been enforceable against him to protect the goodwill of the partnership against possible misuse of his acquaintance with the clients and trade connections of the business: Geraghty v Minter (1979) 142 CLR 177 at 185.

case [8.430] A chiropractor was appointed to work at a chiropractic practice. The chiropractor agreed that for two years after the termination of a contract, he would not practice within the town, or induce any client of the practice to become his own client: at [11]. This was not a contract of employment: at [20]. It was held that the covenant not to practice within the town for two years was unenforceable. To be reasonable the time period would have to be that reasonably required to break the connection between the chiropractor and the patients of the clinic. On the facts a two-year period was unreasonable: at [31]–[32], [63]. A one-year restraint upon practice would have been reasonable: at [38], [115]. One judge stated that “the longer the gaps between [chiropractic] treatments, the longer the justifiable period of restraint”: at [64]. The covenant not to induce clients of the practice to become his own clients was upheld. A lengthier period was reasonable in the case of inducement than in the case of setting up as a competitor, since inducement “strike[s] more directly” at the clinic’s goodwill: NE Perry Pty Ltd v Judge (2002) 84 SASR 86 at [45], [88], [126]. [8.440] The principles governing the operation of the restraint of trade doctrine have also been applied to provisions which seek to unduly limit the circumstances in which an employee may be relieved from the employment contract as the following case demonstrates:

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case [8.450] T, a professional footballer, contracted to play with the Balmain Rugby League Club. Under his contract, T could not transfer to any other club except with the consent of the Balmain Club which had refused to give its consent. Further, even if the Balmain Club agreed to put T on a transfer list, the amount of transfer fee which it could fix was within its own discretion: at 366-367. The High Court held that the rules relating to the retention and transfer of players were in restraint of trade and that appropriate orders could be granted to prevent the club from continuing to observe them: at 382. The Court stated: “[T]the rules … go beyond what is reasonable in two main respects. In the first place, they enable a club to prevent any professional who has played in one of its teams from playing with another club, notwithstanding that he has ceased to play for the club which retains him and no longer receives any remuneration from that club. There is no time limited for the exercise of this power … A second objection to the rules … is in relation to the question of transfer fees. Although a club does not wish to retain a player, and is prepared to see him go to another club, it may fix a transfer fee, most of which goes to the club itself, although it may be quite unrelated to any benefit which the player has received from his membership of … the club … The transfer fee may not only prevent a player from reaping the financial rewards of his own skill but it may impede him in obtaining new employment”: Buckley v Tutty (1971) 125 CLR 353 at 378. [8.460] In determining whether a restraint is reasonable, the court may also have regard to the relative bargaining positions of the parties. That is to say, where there is an inequality of bargaining power, the court will have regard to the fairness of the bargain in determining whether the restraint in question is reasonable in the circumstances.

case [8.470] A young songwriter entered into an agreement with a music publishing company on one of the company’s standard forms. Under the contract the company engaged his exclusive services as a songwriter for a period of five years, with provision for automatic extension for another five years if royalties exceeded £5,000. Copyright in all compositions created by the songwriter during the term of the contract was to be assigned to the company. The songwriter received no payment (apart from an initial £50) unless his work was published but the company was under no obligation to publish or promote his work. If the company did not publish, the songwriter had no right to terminate the agreement or to have copyright in his compositions reassigned to him. The company could terminate the agreement by one month’s notice but there was no corresponding provision for the benefit of the songwriter. The company also had complete power to assign its rights under the contract but the songwriter could not do so without the publisher’s written consent: at 1312-1313. The House of Lords held that the contract was in unreasonable restraint of trade and void as being contrary to public policy. In determining whether the court would relieve the song writer of his legal duty to fulfil his obligations it was necessary to “assess the relative bargaining power of the publisher and the songwriter at the time the contract was made and to decide whether the publisher had used his superior bargaining power to extract from the songwriter promises that were unfairly onerous to him”: at 1315. The relevant question to be answered is: “‘Was the bargain fair?’ The test of fairness, is … whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the

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contract”: at 1315-1316. On the facts, the contract did not satisfy this “test of fairness”: A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308 at 1314-1316. [8.480] The validity of a restraint is determined as at the time of entry into the contract: NE Perry Pty Ltd v Judge (2002) 84 SASR 86 at [98]; McHugh v Australian Jockey Club Ltd (2014) 314 ALR 20 at [4], [48], [65]. The covenantor’s subsequent unlawful conduct does not confer validity upon an invalid clause. Such a clause remains of no effect: Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg [2003] 1 Qd R 482 at [2], [25], [50].

Other restrictive trading agreements [8.481] Several cases concern restraint of trade clauses that applied after the end of a franchise agreement. A franchise agreement shares some characteristics with both contracts for the sale of a business and contracts of employment. Determining which category most closely fits a particular franchise agreement requires a consideration of the specific agreement: BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105 at [61].

case [8.482] Karioi operated two video rental stores under a Blockbuster franchise: BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105 at [3]. The franchise agreement provided that for two years after the end of the agreement Karioi would not operate a video rental store within 30 km of Karioi’s premises: at [43]-[44]. In its decision the New South Wales Court of Appeal considered both the sale of a business and employment lines of cases. In relation to the sale of a business cases, Blockbuster sought to justify the restraint as necessary to protect various interests subsumed under the concept of “goodwill”: at [50]. The Court held that Blockbuster was not entitled to protect the goodwill related to its wider business from competition by Karioi: at [66]. The protection of Blockbuster’s intellectual property and confidential information was sufficiently protected by other clauses of the agreement: at [68]-[69]. The location of the stores did not justify the restraint as Blockbuster had not exercised its right to acquire the leases of the premises. Karioi retained the right to occupy the premises under its leases: at [70]. Blockbuster did not have a legitimate interest in the patronage of the stores as there was no evidence that customers chose their video store based on customer service at a branch rather than the location or branding of the store: at [73]-[76]. In relation to the contract of employment cases, the Court observed that while Karioi was not employed by Blockbuster, in a general way it acted on behalf of Blockbuster: at [78]. There was no evidence that customers were likely to follow Karioi at the end of the franchise: at [82]. Blockbuster did not have a legitimate interest in relation to the patronage of the stores: at [85]. There was no justification for giving a new Blockbuster franchisee in the area time to become established as there was no evidence that customers would prefer Karioi’s store rather than a new Blockbuster store, except in relation to location: at [87]. There was no evidence that Karioi would have a competitive advantage over a new franchisee by reason of having previously been a Blockbuster franchisee: at [91]. The franchise agreement adequately protected confidential information related to Blockbuster’s operations, which would in any case quickly become outdated: at [94]-[95]. The restraint was not justified by the protection of confidential information: at [96].

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case [8.483] A clause in a franchise agreement provided that for six months after the end of the agreement an EzyDVD franchisee would not operate a competing business within 5 km of the store: EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2010] 2 Qd R 517 at [2]. When the agreement expired the franchisee destroyed or returned the intellectual property of EzyDVD. The franchisee began to operate a DVD store in the same location under a new name: at [8]. EzyDVD sought to justify the restraint as necessary for the protection of its intellectual property. The Queensland Court of Appeal held that the franchise agreement provided extensive protection for the intellectual property of EzyDVD: at [35]. It was unlikely that the franchisee would be able to remember the extremely detailed information contained in the EzyDVD product database: at [40]. The information in the database constantly changed so it became quickly outdated: at [41]. EzyDVD had not proven that the protection of its intellectual property necessitated the restraint: at [45]. [8.490] Many kinds of anti-competitive agreements are now proscribed by the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 18. However, it is still important to be aware of the common law restraint of trade doctrine since agreements not falling within the ambit of the Competition and Consumer Act 2010 (Cth) may be held unenforceable at common law as being in unreasonable restraint of trade. The Act provides that it “does not affect the operation of … the law relating to restraint of trade insofar as that law is capable of operating concurrently with this Act”: s 4M.

case [8.500] A was a professional Australian Rules football player with a Western Australian club. An offer was made to him to play for a South Australian club and he moved to South Australia. Under the rules of the National Football League which were binding on the Western Australian and South Australian Football Leagues, clubs and players, a player had to obtain a permit to play for a particular club. Before A was eligible to apply for a permit to play for the South Australian club, he had to obtain a clearance from the Western Australian Football League. A’s application for a clearance was refused: at 481, 485. A brought an action seeking relief based on the Trade Practices Act 1974 (Cth) and, alternatively, on the common law restraint of trade doctrine. His action under the Trade Practices Act 1974 failed. However, his claim for relief based on the restraint of trade doctrine succeeded, since it was held that the clearance and permit rules operated in unreasonable restraint of trade and hence could not be enforced against A or the South Australian club: Adamson v West Perth Football Club Inc (1979) 27 ALR 475 at 506-507. See similarly, Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 at 245, 282, 297; Avellino v All Australia Netball Association Ltd (2004) 87 SASR 504 at [115]. [8.510] In Australian Capital Territory v Munday (2000) 99 FCR 72, the Full Federal Court held that the “structure of trading society” test is the best criterion for determining which types of transactions are excluded from the common law restraint of trade doctrine: at [105]. Under this test, transactions are excluded from the restraint of trade doctrine because they “have become part of the accepted machinery of a type of transaction which is generally found acceptable and necessary, so that instead of being regarded as

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restrictive they are accepted as part of the structure of a trading society”: Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 at 335. In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 the High Court rejected another formulation of the test of exclusion from the restraint of trade doctrine: the “sterilisation of capacity” test (at [35]), also enunciated in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269. In that case, Lord Pearce had stated: “The doctrine does not apply to ordinary commercial contracts for the regulation and promotion of trade during the existence of the contract, provided that any prevention of work outside the contract, viewed as a whole, is directed towards the absorption of the parties’ services and not their sterilisation”: at 328. The High Court did not decide whether the structure of trading society test was appropriate: at [23]. The High Court also pointed out that the approach of the common law has been to strike down a restraint unless justification for the restraint is shown: at [37]. Citing s 4M of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)), as permitting the independent development of the common law of restraint of trade, the Court indicated that a restraint which does not contravene Pt IV of the Trade Practices Act 1974 (Cth) (now Pt IV of the Competition and Consumer Act 2010 (Cth)) may nonetheless constitute an invalid restraint at common law: Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at [32]. The Commonwealth Competition and Consumer Act 2010 (Cth) does not apply to the kinds of agreements discussed at [8.370] and [8.400] which are accordingly governed by the common law restraint of trade doctrine: s 51(2)(b), (d), (e).

Consequences of illegal contracts and void contracts [8.520] A distinction has been drawn between those contracts which are categorised as illegal in the strict or narrow sense and those which are regarded as simply void (rather than illegal). This distinction is maintained in the following discussion which considers the consequences of illegal and void contracts.

Consequences of illegal contracts [8.530] The consequences of illegality under either statute law or common law are basically the same. The general position is as follows:

The contract is totally void [8.540] The general effect of illegality in the formation of a contract is that the contract is void and neither party can sue on it.

Money paid cannot generally be recovered [8.550] Money paid or property transferred under an illegal contract is not generally recoverable. Should one of the parties seek to recover money paid under the contract, the defendant is in the stronger position where there is equal culpability. This means that a party cannot recover moneys paid under the illegal contract to the other if they are equally blameworthy. For example, in Parkinson v College of Ambulance Ltd [1925] 2 KB 1 (discussed at [8.290]) the plaintiff was unable to recover the £3,000 donation he had paid to a charity for a knighthood which did not eventuate: at 16.

Exceptions [8.560] A party can recover money paid or property transferred if that party was not “in pari delicto”, that is, not equally to blame. This will apply where under a contract prohibited by statute money is paid by

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the person whom the statute was designed to protect: Kiriri Cotton Co Ltd v Dewani [1960] AC 192 at 204. The parties are not “in pari delicto”, and accordingly recovery is allowed, where a person is induced to enter into the illegal contract by the exercise of fraudulent misrepresentation, duress or oppression.

case [8.570] The plaintiff, an English resident, agreed to purchase a house in Spain from the defendants who were English nationals resident in Spain. The defendants said that they were selling the house as agents for the owner. In fact they had no authority to sell the house. The plaintiff paid the defendants the purchase price. On discovering the true situation, the plaintiff sued the defendants. However, the defendants contended that the moneys paid by the plaintiff were irrecoverable on the ground that the transaction was illegal since it contravened the exchange control legislation : at 355. It was held that the plaintiff could recover since the parties were not in pari delicto. The defendants “were guilty of a swindle. It is only fair and just that they should not be allowed to keep the benefit of their fraud”: Shelley v Paddock [1980] QB 348 at 357. [8.580] It has also been held that where a fiduciary relationship exists between the contracting parties, as in the case of a solicitor or articled clerk entering into a contract with a client, the solicitor or articled clerk cannot raise the defence of illegality in an action by the client on the contract since the parties in such a case are not in pari delicto: Abdurahman v Field (1987) 8 NSWLR 158 at 162-164. A further exception is where a party who has paid money under an illegal contract repents of the illegal purpose before there has been any substantial performance of the contract; in such a case he or she can recover the money paid.

Related transactions void [8.590] The effect of an illegal contract may spread beyond the contract itself and affect related or collateral transactions which in turn become illegal. For example, a contract for the loan of money is illegal if it is made to enable the borrower to perform an illegal contract, or to pay a debt contracted under an illegal contract: Spector v Ageda [1973] Ch 30 at 44.

Severance and void contracts Extent of invalidity [8.600] Where a contract is void (but not illegal) the position is similar whether it is void under statute or at common law. The contract will be unenforceable only to the extent that its terms contravene the statutory or common law constraint. Accordingly, if the void part of the contract can be severed (separated from the rest), the remainder of the contract can still be enforced. Void words or parts of a clause may also be severed from the remainder of the clause: Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd (2009) 253 ALR 364 at [11], [13], [101]-[104], [110]; Positive Endeavour Pty Ltd v Madigan (2009) 105 SASR 109 at [43], [155]. [8.610] However, the court will not sever promises or terms of a contract if to do so would alter the whole nature of the contract: MacKinlay v Derry Dew Pty Ltd (2014) 46 WAR 247 at [152], [171]. Where severance is not possible, then the whole contract will be void: SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 at [51]. The Victorian Court of Appeal stated the test for determining whether void terms are severable as follows. First, “the impugned part must be capable of simply being removed … a court can remove words from a restraint clause but not rewrite it. Secondly, the part to be severed must be

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an independent covenant and capable of being removed without affecting the meaning of the remaining part”: Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657 at [94], [109]. A common situation in which the question of severance has arisen is in relation to restraint of trade clauses. This led to the inclusion of clauses imposing harsh restraints but also providing that if that restraint was unenforceable some lesser restraint should be adopted. The object was to ensure that if the court struck down the more onerous clause, they could be severed from the contract and the remaining restraints enforced. In New South Wales, the Restraints of Trade Act 1976 (NSW) was enacted to combat this development. The Act provides that a restraint of trade is valid to the extent to which it is not against public policy whether or not it is in severable terms: s 4(1). The general effect of the Act is to validate a restraint of trade to the extent that it imposes a reasonable restraint, that is, reasonable between the parties and reasonable in the interests of the public: Fleming Bros (Monaro Agencies) Pty Ltd v Smith [1983] ATPR 40-389 at 44,569; IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 425. 7

Severance and illegal contracts [8.620] The courts have held that severance also applies to contracts which are illegal in the strict sense: Carney v Herbert [1985] AC 301 at 317. In practice, the scope of severance in the case of illegal contracts tends to be limited, since the usual effect of failure to comply with a statutory prohibition is to make the whole contract illegal and void: Humphries v Proprietors “Surfers Palms North” Group Titles Plan 1955 (1994) 179 CLR 597 at 605, 609, 622; Day Ford Pty Ltd v Sciacca [1990] 2 Qd R 209 at 216.

Money paid recoverable [8.630] Money paid under a contract which is merely void (rather than illegal) is generally recoverable. It appears that this is so whether or not the party who has paid it can prove a total failure of consideration. This is illustrated by the case of a marriage brokerage contract:

case [8.640] The defendant agreed that he would introduce certain gentlemen to the plaintiff (an unmarried woman) with a view to matrimony for an initial fee of £52 and a later payment of £250 should a marriage take place. He introduced certain gentlemen to her but no marriage resulted. It was held that the plaintiff was entitled to the return of her £52 since the payment had been made under a void contract and was recoverable: Hermann v Charlesworth [1905] 2 KB 123 at 136, 138.

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

7

See generally A Moses, “Restraint of Trade in New South Wales” (2004) 1 University of New England Law Journal 199.

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Contents and Interpretation of the Contract [9.20] Express terms....................................................................................................................................................... 156 [9.220] Implied terms..................................................................................................................................................... 163 [9.320] Exemption clauses.......................................................................................................................................... 167

Introduction [9.10] Problems concerning the contents and interpretation of the contract not infrequently arise. There may be dispute as to the nature of the terms agreed. In some circumstances additional terms may be implied by law into the contract. The contract may contain terms excluding the liability of one party for loss resulting from the occurrence of certain contingencies. Accordingly, the matters to be considered in this chapter are: 1.

Express Terms.

2.

Implied Terms.

3.

Exemption (or Exclusion) Clauses.

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Express terms [9.20] Whenever any dispute arises as to the meaning of a contract it becomes necessary to construe (interpret) the terms of the contract in order to ascertain the intention of the parties. Where a contract is made orally, the express terms of the contract will be ascertained by determining the words actually used by the parties when the contract was made. This is essentially a question of fact. If the contract has been reduced to writing, the general rule is that the terms of the contract are to be found in the writing. Recitals at the beginning of a written contract form part of the contract and may be considered in interpreting the agreement: Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198 at [52]-[53]. Where a recital conflicts with an operative provision of the contract, the operative clause prevails: Canty v PaperlinX Australia Pty Ltd (2014) 9 BFRA 524; [2014] NSWCA 309 at [46]. The meaning of commercial documents is determined objectively; that is, by what a reasonable person in the position of the parties would have understood them to mean. See Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [4], [50], [322]; Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 at [35]. “The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions”: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [34]. The inquiry is thus “not a search for the uncommunicated subjective motives or intentions of the parties”: Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47 WAR 547 at [99]. Evidence of “actual intentions and expectations” is inadmissible: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [50]. The objective approach requires consideration, not only of the text of the documents, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. See Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]-[25]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46], [49], [109]. However, the conduct of the parties after the contract was entered into may not be relied upon in interpreting a written contract: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [35], [163]. Post-contractual conduct is admissible in relation to the question of whether the parties had in fact concluded a contract: Lederberger v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509 at [26], [31]. It is unclear whether post-contractual conduct is admissible in considering whether a contract incorporates an implied term: Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286 at [135]-[140]. A contract must contain all the essential terms if it is not to fail for uncertainty. An agreement that leaves essential terms for the future agreement of the parties does not constitute a contract. See Thorby v Goldberg (1964) 112 CLR 597 at 607; Uranium Equities Ltd v Fewster (2008) 36 WAR 97 at [127], [257]; Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 90 ALJR 770 at [31], [57], [266]. An agreement to agree is unenforceable. See Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604; Cosmopolitan Hotel (Vic) v Crown Melbourne Ltd (2014) 45 VR 771 at [65], [129], [206]; affirmed on this point Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 90 ALJR 770 at [58]-[59], [253]. The terms agreed between the parties must be “sufficiently cohesive and coherent to stand as a contract in their own right”: Kovan Engineering (Aust) Pty Ltd v Gold Peg International Pty Ltd (2006) 234 ALR 241 at [53]. For example, an undertaking to rent a residential unit to a person “for as long as you live or wish to stay” would not fail for uncertainty: Dayeian v Davidson (2010) 76 NSWLR 512 at [1], [60], [88].

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An ambiguous term will not be void for uncertainty unless it is so vague as to be meaningless: Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227 at [28]. The courts endeavour to uphold commercial agreements “wherever possible”: Brice v Chambers [2014] QCA 310 at [139]-[140]; see also Ashton v Pratt (2015) 88 NSWLR 281 at [92], [222]-[223]. However, the courts will not fashion an agreement for the parties where they have not agreed upon essential terms nor agreed upon a mechanism for determining those terms. “[W]here the parties have not agreed upon the content of essential terms and have not agreed upon the application of an objective standard to measure their obligations or to provide a mechanism to fix the content of essential terms (as by third party determination), it is no business of the courts to foist upon the parties a bargain which they have not made”: Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [123]. While the High Court reversed this decision on appeal, the High Court’s decision was not inconsistent with this statement of principle: Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486.

Parol evidence in relation to written documents [9.30] Where the parties have expressed their agreement in writing, the “parol evidence rule” will apply. 1 According to this rule, if the written document is intended by the parties to contain a complete record of their transaction, extrinsic evidence is not admissible to add to or vary the agreement contained in that written document. The rule has been stated as follows: “[W]here a contract is reduced into writing, where the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it, and evidence will not be admitted of any previous or contemporaneous oral agreement which would have the effect of adding to or varying it in any way”: Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252 at 262 per Innes J. Modern decisions have taken the view that the rule “does not operate until the terms which constitute the contract are determined”: Nicolazzo v Harb (2009) 22 VR 220 at [71]. The rule prevents the admission of parol evidence only where the contract is entirely in writing: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at [1], [4], [90]. The parol evidence rule is subject to the following exceptions: 1. Parol evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language of the written contract “is ambiguous or susceptible of more than one meaning”: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 per Mason J; McMahon v National Foods Milk Ltd (2009) 25 VR 251 at [9]. 2 On the other hand: “[E]vidence of surrounding circumstances may not be used, as part of an exercise in construction of a contract, to contradict unambiguous contractual stipulations”: GMA Garnet Pty Ltd v Barton International Inc (2010) 183 FCR 269 at [191] per Buchanan J. 2. Evidence may be given of the subject matter of the contract or of the identity of the parties to it: Abram v AV Jennings Ltd (2002) 84 SASR 363 at [44]. Such evidence is admissible in explanation of the terms used in the contract but must not alter those terms.

1

2

See generally T Cole, “The Parol Evidence Rule: A Comparative Analysis and Proposal” (2003) 26 University of New South Wales Law Journal 680; K Lindgren, “The Ambiguity of ‘Ambiguity’ in the Construction of Contracts” (2014) 38 Australian Bar Review 153. See T Prince, “Defending Orthodoxy: Codelfa and Ambiguity” (2015) 89 Australian Law Journal 491; D Reynolds, “Construction of Contracts After Mount Bruce Mining v Wright Prospecting” (2016) 90 Australian Law Journal 190.

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case [9.40] In a contract for the sale of land the purchaser was described in different parts of the document as “Mrs Kenny” and as “Mr Kenny”. The document was signed by “Mrs Kenny”. The High Court held that: “Extrinsic evidence was admissible to show, as it did, that Mrs Kenny, in agreeing to buy, was acting as agent for her husband as well as herself.” An order for specific performance of the contract by the vendor was granted: Giliberto v Kenny (1983) 48 ALR 620 at 623. [9.50] 3. Parol evidence may always be given to explain a trade custom or local usage applicable to the contract. Similarly, evidence of usage to explain the meaning of terms of art or technical words in a document is admissible. 4. A collateral verbal agreement relating to the same subject matter and not inconsistent with the writing may be proved.

case [9.60] A purchaser, before signing a contract for the purchase of a house, asked the vendor whether there were termites in the house. On receiving an assurance that there were not, the purchaser signed the contract which made no mention of termites. Several months later, the purchaser found termites. It was held that the purchaser could recover the cost of termite treatment and necessary repairs for breach of the vendor’s collateral agreement: Van Den Esschert v Chappell [1960] WAR 114 at 115–116; see also [9.100]. [9.70] 5. When the written document was not intended to embody all the terms of the transaction but was intended merely to be a note, receipt or the like, no inference can be drawn that the parties intended the document to be a record of their agreement and parol evidence may be given to show what the agreement was. Parol evidence is admissible “as to whether a document was intended to be operative as a contract”: Nicolazzo v Harb (2009) 22 VR 220 at [88]. 6. Parol evidence may always be given that the contract is not legally binding because of fraud, duress, undue influence and the like. 7. The common law parol evidence rule is not a barrier to the enforcement of the equitable doctrine of promissory estoppel: Saleh v Romanous (2010) 79 NSWLR 453 at [68]-[72].

Express term that parties “negotiate in good faith” [9.80] There is an increasing tendency for commercial agreements to contain a provision to the effect that the parties will “negotiate in good faith”. While there is some Australian authority to the effect that a promise to negotiate in good faith may be enforceable in certain circumstances, there is considerable uncertainty on the issue: Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 26; Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 129; Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236 at [98]; ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312 at [173]-[175].

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case [9.90] The litigants were parties to an engineering contract for the design and building of new rolling stock for a rail network. The contracts contained a dispute resolution clause which required senior representatives of each party to meet and undertake “genuine and good faith negotiations”. If the matters in dispute were not resolved by negotiations there was provision for arbitration. The New South Court of Appeal held that the clause was not vague, illusory or uncertain but imposed a real obligation with real content. “As a matter of language, the phrase ‘genuine and good faith’ in this context needs little explication: it connotes an honest and genuine approach to the task. This task, rooted as it is in the existing bargain, carries with it an honest and genuine commitment to the bargain (fidelity to the bargain) and to the process of negotiation for the designated purpose”: United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 at [71] per Allsop P. It was further held that the matter should proceed to arbitration.

Distinction between representations and terms of the contract [9.100] Not all statements made by a party in the course of negotiating a contract will be regarded as terms of the contract. Therefore, it is important to distinguish between statements that are simple or “mere” representations which induced the contract (for which the remedy of rescission for misrepresentation may be available) and statements which are regarded as terms of the contract itself, so that if they turn out to be untrue the appropriate remedies will be those available for breach of contract. The importance of the distinction is that damages cannot be awarded for a statement that merely constitutes an innocent (as opposed to a negligent or a fraudulent) misrepresentation inducing the contract, 3 whereas damages can be awarded for breach of a contractual term. For a statement to constitute a term of the contract, the party making the statement must have undertaken or promised that the statement was true in the sense of making it part of the contractual bargain. The question of whether a statement is a term of the contract depends on the intention of the parties as determined objectively from all the circumstances of the case.

case [9.110] The defendant traded in his old second-hand car to the plaintiff dealers in part payment for a new one. The defendant had described his old car as a 1948 Morris, this being the date of the first registration of the vehicle shown in its logbook. On this basis the plaintiff allowed him £290 trade-in. However, eight months later the plaintiff discovered that the vehicle was a 1939 model and not a 1948 model, the appearance of the models having remained the same in the intervening years. A previous owner of the vehicle must have fraudulently altered the date in the logbook: at 373.

3

But note that where the representation is made in connection with the supply of goods, services, or land, an action for damages may lie for contravention of the false representation provisions of the Australian Consumer Law. The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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The plaintiff dealers sought to recover £115 as damages, being the difference in value between a 1939 and a 1948 model, on the ground that the defendant’s representation constituted a term of the contract. However, a majority of the Court of Appeal held that the plaintiff’s claim failed since the defendant’s statement was a “mere” representation and not a term of the contract: Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 377-378.

Collateral contracts [9.120] A further possibility is that a statement, although not an actual term of the contract, may be treated by the court as a collateral contract, that is, collateral to the main contract, and damages may be recovered for breach of that collateral contract. The term “collateral warranty” is sometimes used interchangeably with “collateral contract”. This device has been used particularly where the main contract has been reduced to writing. In such a case it may not be possible for an oral statement to take effect as an actual term of the contract because of the parol evidence rule. However, where it can be shown that the statement was intended to have contractual effect, the courts will treat it as a collateral contract. The oral statement constitutes a collateral contract, the consideration for which is the entering into the main written contract between the parties. [9.130] However, the collateral contract must not be inconsistent with the terms of the main contract. That is because the consideration for the collateral contract is entry into the main contract. If the collateral contract was inconsistent with the main contract, that “would detract from the very consideration which is alleged to support the promise”: Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 at 517 per Dixon CJ, Fullagar and Taylor JJ.

case [9.140] The defendant sub-leased certain premises to the plaintiff. The written sub-lease contained a proviso entitling the defendant to terminate it on giving four weeks’ notice in writing. The defendant subsequently terminated the sub-lease. The plaintiff claimed damages for breach of a verbal promise, given by the defendant prior to the sub-lease being signed, that he would not terminate it unless required to do so by the head lessors. It was held that the defendant’s verbal agreement not to terminate the sub-lease and the proviso in the written sub-lease giving him an unqualified right to terminate it were inconsistent; therefore, the verbal agreement was unenforceable: Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 139–140, 147–148; see also Adicho v Dankeith Homes Pty Ltd [2012] NSWCA 316 at [26]–[27]. [9.150] It needs to be emphasised that a court will only treat a statement or representation as a collateral contract where it is satisfied that the statement was intended to have contractual effect. This is clearly demonstrated by the following decision of the High Court:

case [9.160] B was contemplating purchasing a motor boat from S who built and sold boats. During the negotiations B sought the written advice of S as to various engines which might be used to power the boat. In his letter of reply, S commented on three types of engines and recommended one in particular, stating it to have an “Estimated speed [of] 15 mph”. Relying on this statement B contracted to buy

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the boat with the engine recommended by S. The contract contained no reference to the capacity of the boat to achieve any particular speed. When the boat’s maximum speed proved to be only 12 mph, B sued S for damages for breach of an alleged collateral warranty in respect of the statement concerning the estimated speed. The High Court held that B’s claim failed since S’s statement, although inducing B to enter into the contract, constituted a representation only and not a collateral warranty. Thus, the question was whether there was “a promise by [S] that the boat would in fact attain the stated speed if powered by the stipulated engine, the entry into the contract to purchase the boat providing the consideration to make the promise effective”. In the court’s view it was not sufficient simply to show that one party would not have entered into the contract but for the statement made by the other since: “Such a fact is but a step in some circumstances towards the only conclusion which will support a collateral warranty, namely, that the statement so relied on was promissory and not merely representational”: JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442. [9.170] The High Court added that when B received S’s letter recommending the particular engine, the negotiations for the construction of the boat were still incomplete. Accordingly, B could have adopted one of three courses, namely: (a)

he could have required the attainment of the speed of the boat to be inserted as a term of the contract; or

(b)

he could have sought a promise from S – “however expressed, whether as an assurance, guarantee, promise or otherwise” – that the boat would attain the speed as a prerequisite to his ordering the boat; or

(c)

he could have formed his own judgment as to the most suitable engine, relying on the opinion of S whose reputation and experience in the field he held in high regard: JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442–443.

“Only the second course would give rise to a collateral warranty”: at 443. The court said there was nothing in the evidence to support (a) or (b). The only conclusion open was that B had taken course (c), that is, he had accepted S’s estimate of speed to form his own judgment as to which engine should be ordered for the boat: at 443. A merger clause provides that the written agreement constitutes the entire agreement between the parties. 4 Such a clause leaves “no room for a submission that the terms of the contract were not fully embraced within its four walls”: Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd (2012) 37 VR 486 at [108]. A merger clause “exclude[s] evidence of extrinsic terms” but not proof of a collateral contract, unless the clause is clearly worded to exclude proof of a collateral agreement: McMahon v National Foods Milk Ltd (2009) 25 VR 251 at [37]–[38].

case [9.175] Crown leased space in its casino to two restaurants. The parties negotiated a new lease. The term was five years. The lease required the tenants to undertake major refurbishments of the 4

See E Peden and JW Carter, “Entire Agreement – and Similar – Clauses” (2006) 22 Journal of Contract Law 1; IM Jackman, “Some Judicial Fallacies Concerning Entire Agreement Clauses” (2015) 89 Australian Law Journal 791.

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restaurants. The tenants were concerned that they might not recoup the cost of the refurbishments within five years. They sought the inclusion of a right to renew the lease for a further five years. Crown was unwilling to agree to such term. During the negotiations, a representative of Crown assured the tenants that they would be “looked after at renewal time””. The tenants entered into the lease and underook the major refurbishment. Towards the end of the term of the new lease Crown refused to renew the lease: at [4]–[9], [13]. The court held that Crown was not bound by a collateral contract to offer a renewal of the lease. French CJ, Kiefel and Bell JJ held that Crown’s statement was not a binding contractual promise, but was “no more than ‘vaguely encouraging’”: at [23]. It was not “a contractual promise of any kind”: at [28]. There had been no agreement about essential terms of a renewed lease: at [31]. The tenants had not argued that Crown’s statement was a commitment that the tenants would not be left “out of pocket” in relation to the refurbishments: at [29]. Keane J held that there was no binding agreement to make an offer to renew the lease: at [126]. There was no agreement as to the terms of a new lease: at [128]. It had not been argued that the statement that the tenants would be “looked after at renewal time” involved a commitment to compensate the tenants for any loss incurred from the refurbishment: at [129]. No agreement had been made, since in negotiating a renewal of the lease Crown was free to set terms that would be unacceptable to the tenants: at [130]. The suggested agreement was illusory: at [131]–[132]. Nettle J held that a reasonable person would not have understood Crown to make a binding offer to renew the lease. The parties never agreed the terms of any renewed lease: at [196]. Furthermore, a promise to make an offer for a lease for a rent to be determined by the landlord was illusory: Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 90 ALJR 770 at [199].

Conditions and warranties [9.180] A distinction is made between those terms which constitute conditions of the contract and those which are categorised as warranties. A condition is an essential term of the contract. It is a stipulation which “goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract … a thing different in substance from what the defendant has stipulated for”: Bettini v Gye (1876) 1 QBD 183 at 188. A warranty, although a term of the contract, is regarded as subsidiary or collateral to the main purpose of the contract, that is, it is of lesser significance or importance than a condition. The reason for distinguishing between terms which constitute conditions and those constituting warranties is that breach of a condition entitles the innocent party to rescind, that is, terminate, the contract and/or claim damages, whereas a breach of warranty entitles the innocent party to damages only for the loss they have suffered as a result of the breach and does not give them a right to terminate the contract.

case

[9.190] G, the director of an opera company, contracted for the exclusive services of B as a singer in opera and concerts for a period of three months. The contract contained a provision that B would be in London at least six days before the commencement of his engagement for rehearsals. B, through illness, only arrived two days earlier, whereupon G refused to accept his services and treated the contract as at an end: at 185.

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It was held that in the circumstances the term was not a condition but a warranty and, accordingly, although G was entitled to damages for loss (if any) he had suffered for B’s breach of contract, he had not been entitled to treat the contract as terminated: Bettini v Gye (1876) 1 QBD 183 at 189.

case [9.200] In contrast, B contracted to prepare a weekly drawing relating to a cartoon character, “Ginger Meggs”, for the plaintiff newspaper company which in turn undertook to present the drawing each week as a full page feature on the front page of the comic section of its Sunday newspaper. As a result of problems arising from a newsprint shortage, B’s “Ginger Meggs” cartoon appeared on page three of the comic section of the newspaper instead of on page one as provided by the contract between the parties. This occurred on three consecutive Sundays, whereupon B wrote to the plaintiff to the effect that he no longer regarded himself as bound by the contract because of the plaintiff’s breach: at 333–334. In an action by the plaintiff company, the High Court held that its undertaking to publish B’s cartoon on the front page of the comic section constituted a condition of the contract, breach of which entitled B to treat the contract as at an end: Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 339. [9.210] Whether a term of a contract is a condition or warranty depends essentially on determining the intention of the parties to the contract. Ascertaining that intention, and thus deciding whether the term is to be treated as a condition or warranty, is often no easy matter as the cases at [9.190]–[9.200] demonstrate. In some cases it may be more appropriate to look at the nature and effect of the breach in deciding what remedy should be available to the innocent party, rather than determining the remedy by simply asking whether it is a condition or warranty of the contract that has been breached. However, that issue is better considered in the context of the termination of a contract by breach: see [11.210]. In the case of contracts for the sale of goods, the dichotomy between conditions and warranties has received statutory recognition by virtue of the State Sale of Goods Acts: see [14.210].

Implied terms [9.220] In addition to the express terms agreed upon by the parties, other terms may be implied in the contract. 5 In appropriate circumstances terms may be implied by: (a)

the court;

(b)

custom or trade usage; or

(c)

statute.

Terms implied by the court [9.230] Terms which may be implied by the court can be subdivided into two categories: (a) those implied to give “business efficacy” to the contract, and (b) those implied in specific kinds of contract. 5

JW Carter and W Courtney, “Implied Terms in Contracts: Australian Law” (2015) 43 Australian Business Law Review 246; JW Carter et al, “Terms Implied in Law: “Trust and Confidence”’ in the High Court of Australia ” (2015) 32 Australian Law Journal 203.

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Terms implied to give “business efficacy” to the contract [9.240] The courts will “readily imply” a term that the parties must co-operate to “ensure the performance of their bargain”: Famestock Pty Ltd v Body Corporate for No 9 Port Douglas Road Community Title Scheme 24368 [2013] QCA 354 at [13]. Occasionally the parties, through inadvertence or poor drafting, may have failed to incorporate terms to cover a situation which had they thought about it, they would certainly have provided for. In such a case the court may imply appropriate terms so as to give “business efficacy” to the contract in accordance with the presumed intention of the parties. This principle was recognised in the case of The Moorcock (1889) 14 PD 64:

case [9.250] The defendant wharfingers contracted to allow the plaintiff to use their jetty to unload his ship. The ship was damaged at low tide by settling on a ridge of hard ground which lay beneath the river mud. It was held that the defendants were liable for the damage since the parties must have intended to contract on the basis that the berth would be safe for the plaintiff’s ship at low tide. The defendants were thus in breach of an implied term that they would take reasonable care to see that the berth was safe for the vessel. In the words of Bowen LJ: “In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen”: The Moorcock (1889) 14 PD 64 at 68. [9.260] The most frequently cited test for determining whether a term should be implied in a contract is as follows: “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, ‘Oh, of course’”: Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227 per MacKinnon LJ. The power to imply terms in a contract is used sparingly by the courts. In BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266, the Privy Council said that the term implied must be: (a)

reasonable and equitable;

(b)

necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c)

so obvious that “it goes without saying”;

(d)

capable of clear expression; and

(e)

must not contradict any express term of the contract: at 283.

case [9.270] In the BP Refinery case, the appellant company, a wholly owned subsidiary of BP Australia Ltd, had entered into an agreement with the State of Victoria to build and maintain an oil refinery on a site within the municipal district of the respondent council. The appellant was empowered under the agreement to dispose of its rights under the agreement to a company in which BP Australia Ltd held at least 30 per cent of the issued capital.

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The appellant company was granted preferential rate concessions by the respondent council under the provisions of the Local Government (Decentralised Industries) Act 1963 (Vic). The preferential rating agreement was expressed to cover a period of 40 years but contained no express provision enabling the appellant to assign the benefit of the agreement to any other company. Some five years later, following a decision to reorganise the corporate structure of BP Australia Ltd, the appellant company went into a members’ voluntary liquidation. The appellant’s liquidator transferred the refinery site and plant to BP Australia Ltd. The respondent council contended that the preferential rating agreement with the appellant lapsed on such reorganisation taking place and assessed normal rates on the site on the basis that the preferential rating agreement did not apply to BP Australia Ltd. The liquidator of the appellant company subsequently obtained a court order for the winding up of the appellant to be stayed. BP Australia Ltd then leased the refinery to the appellant for three years at no rent, the appellant agreeing as lessee to carry out such refinery processes on the site as would be directed by BP Australia Ltd as lessor. The appellant company then claimed the benefit of the preferential rate agreement with the council which refused the claim and levied rates at the normal level. The appellant brought an action claiming it was entitled to the preferential rate concessions in accordance with the original agreement with the respondent council. The Privy Council held that no term could be implied in the rating agreement that it was to remain in force only so long as the refinery site remained in the appellant’s occupation. It was apparent that a group of companies such as the BP Group might wish to make changes to its corporate structure during the period of 40 years envisaged by the rating agreement. Such possibility was specifically recognised in the related agreement for the construction and maintenance of the refinery, while the identity of the particular member of the BP Group occupying the refinery site could not have been of the least importance to the respondent council: at 284. The Privy Council added that, judged by the officious bystander test any such implied term would have been rejected at once by the appellant company at the time of negotiating the agreement and such an implied term would not only have operated inequitably but also have failed to give business efficacy to the agreement: at 285. On the contrary, the Privy Council held that a term should be implied making the rating agreement accord with the refinery agreement and thus provide that the rights of the appellant company under the rating agreement could be assigned or otherwise disposed of to a company in which BP Australia Ltd held 30 per cent or more of the issued capital: at 285–286. Such an implied term would be “both reasonable and equitable. It is capable of clear expression. It does not contradict any express term of a contract, but adds to it; and it gives business efficacy to the contract. In the light of the provisions of the refinery agreement it was something so obvious that it went without saying, and if an officious bystander had asked whether that was the common intention of the parties the answer would have been ‘Of course’”: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266 at 286. [9.280] By way of contrast, where a company contracted with a State Rail Authority to excavate tunnels for a new railway line, it being assumed by the parties that the work would proceed on the basis of three eight-hour shifts per day, six days a week, the High Court refused to imply a term in the contract that the company would be granted a reasonable extension of time when an injunction was obtained by a resident restraining the company from performing construction work between 10 pm and 6 am: at 344, 355-356,

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375, 392, 405. However, the High Court found that the changed circumstances were such as to frustrate the contract and granted appropriate relief to the company on this alternative ground: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337: on the latter point see [11.420]. The High Court later reaffirmed the view that where it is contended that a term should be implied to give business efficacy to a contract, it must be shown that “the term sought to be implied must be necessary to make the contract work and must be so obvious that it goes without saying”: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 241; see also Vita Pacific Ltd v Heather (2001) 10 Tas R 334 at [14], [59].

Terms implied in specific kinds of contract [9.290] Certain terms are implied in various types of contract at common law. For example, in a contract for the hire of goods there is an implied condition that the goods will be reasonably fit for the purpose for which they are hired: Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633 at 656, 659. Similarly, in a contract for the supply of materials there are implied terms that the materials used will be reasonably fit for the purpose intended: Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 at 8, 15. The Australian Consumer Law 6 implies similar terms in such contracts. In cases not falling within the scope of the latter legislation, the terms implied at common law remain important. The terms implied in a contract at common law can be excluded by the parties.

Terms implied by custom or trade usage [9.300] Where parties have contracted in a particular trade, the customs or usages of that trade may be implied into the contract. However, in order for this to occur, the custom or usage must be notorious, certain and reasonable and not contrary to the express terms of the contract. The relevant principles have been stated by the High Court as follows: 1.

The existence of a custom or usage that will justify the implication of a term is a question of fact.

2.

There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract: Nelson v Dahl (1879) 12 Ch D 568 at 575; Thornley v Tilley (1925) 36 CLR 1 at 8.

3.

A term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement.

4.

A person may be bound by a custom notwithstanding the fact that they had no knowledge of it: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 236-237.

Terms implied by statute [9.310] In certain classes of contract terms are implied by statutory provision. For example, the Australian Consumer Law provides for statutory guarantees in contracts for the supply of goods and services to consumers. These include guarantees as to title, correspondence with description, acceptable quality and fitness for purpose. Conditions as to title, quality and fitness of the goods are implied into contracts for the sale of goods by the State and Territory Sale of Goods Acts. 6

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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Exemption clauses [9.320] An exemption or exclusion clause is a term of the contract which limits, or excludes altogether, a liability to which one party to the contract would otherwise be subject. The function of exemption clauses is to limit or exclude liability for breach of an express or implied contractual obligation, or negligence in the performance of the contract. The courts have endeavoured to alleviate the position of the party prejudiced by the use of exemption clauses by construing the document in which they are contained in their favour wherever possible. Since exemption clauses may take a variety of forms, it is virtually impossible to lay down, in advance, universal rules as to those provisions that will be upheld and those which will not. However, the following general rules would seem to be established: [9.330] 1. The person seeking to rely on an exemption clause must show first that it has in fact become part of the contract He or she can do this in one of the following ways: (a)

By showing that it was included in a contract signed by the other party. In such a case the clause will be binding, in the absence of fraud or misrepresentation, irrespective of whether the contract was read or understood: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165:

case [9.340] In that case a company manager signed, without reading, an application for credit that contained an exemption clause. The application prominently stated: “Please read ‘Conditions of Contract’ (Overleaf) prior to signing”. It was held that the signature was binding. The unanimous High Court explained this principle as follows: “to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, … whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it”: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]. (b)

By showing, in the absence of a signed document, that the exemption clause was brought to the notice of the other party before or at the time the contract was made. Often there is no signed document to refer to but an exemption clause may be contained either in a notice on the premises where the contract is made, or in a document which is simply handed over, for example in a ticket, voucher or receipt.

[9.350] The basic principle in these situations is that the exemption clause will form part of the contract if the party seeking to rely on it can show that they had taken steps which were reasonably sufficient in the circumstances to give notice of the exemption clause to the other contracting party. The following cases illustrate the point:

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case [9.360] The plaintiff booked for a cruise on the defendants’ cruise ship. It was stipulated on the “Booking Form” that the “Contract of carriage for travel … will be made only at the time of the issuing of tickets and will be subject to the conditions and regulations printed on the tickets. These conditions and regulations are available to all passengers at any CTC Cruises offices …” [emphasis added]: at 23. The ticket subsequently issued to the plaintiff, some six weeks after full payment for the cruise and two weeks before departure, contained conditions limiting the defendants’ liability for loss of baggage or personal injury. The plaintiff lost her belongings and suffered personal injury when the cruise ship sank owing to negligent navigation of the vessel. The defendants relied on the conditions in the ticket limiting the amount recoverable from them. It was held by a majority of the New South Wales Court of Appeal that the defendants could not rely on the conditions on the ticket since they had not been sufficiently brought to the plaintiff’s attention and therefore did not form part of the contract: Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 8-9, 25. This aspect of the case was not affected by the later decision of the High Court (Baltic Shipping Co v Dillon (1993) 176 CLR 344, see [12.240]).

case [9.370] T drove up to the defendants’ automatic car park. He was stopped by a red traffic light and a machine issued him a ticket. When he took the ticket, the light turned green allowing him to proceed into the garage where his car was parked by mechanical means. The ticket contained in small print on the bottom left hand corner the words “issued subject to conditions … displayed on the premises”. A set of printed conditions displayed in a panel on a pillar opposite the machine included a provision exempting the defendants from liability for injury to a customer. T was injured when he returned to collect his car: at 167. In an action for damages, the defendants sought to rely on the exemption clause. It was held that the clause did not exempt the defendants from liability since they had not done what was reasonably sufficient to bring it to T’s notice: Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 at 170, 173-174. [9.380] The exemption clause must be brought to the notice of the contracting party before or at the time the contract is made. If notice of the exemption clause is given after the contract has been made, it will have no effect.

case [9.390] The plaintiff and her husband booked into the defendant’s hotel. They went up to their room where on one of the walls a notice was displayed stating that: “The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody”: at 542. The plaintiff’s furs were stolen from the room as a result of negligence on the part of the hotel staff. It was held that the defendants were liable for the loss since the exemption clause was not incorporated in the contract. Thus, the contract had already been made before the plaintiff and her husband went up to their room and so the notice could not thereafter affect her rights: Olley v Marlborough Court Ltd [1949] 1 KB 532 at 548-549.

chapter 9 Contents and Interpretation of the Contract

[9.400] Furthermore, if the document handed over is one which a reasonable person would not expect to contain contractual terms, that is, would regard it merely as a receipt or voucher, then an exemption clause contained in it cannot be relied upon to exclude liability.

case [9.410] C took a dress for dry cleaning to B and received at the time of deposit a docket on the face of which appeared printed conditions purporting to exempt the firm from liability for loss or injury. When the frock was returned to C, it was found to be damaged. The court, in deciding that B was liable for damages and had not discharged the onus of proving that the printed conditions modified the contract, took into account: (i)

the docket was one which might reasonably be understood to be only a voucher for the customer to produce when collecting the frock, and not as containing conditions exempting the firm from their common law liability for negligence: at 6;

(ii)

the onus was on the firm of proving that the person receiving the docket was aware, or ought to be treated as aware, that it was delivered not merely as a voucher or receipt, but was intended to convey to him the knowledge of the special conditions upon it and that the person delivering it intended to modify the effect of the contract: Causer v Browne [1952] VLR 1 at 7.

[9.420] (c)

By showing that the parties had intended to contract on the same basis as the terms used in a previous course of dealing which had included an exemption clause: Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 at 90, 113. However, it would seem that the implication of an exemption clause in a later contract by virtue of a previous course of dealing between the parties may be narrowly confined and require proof that the party against whom the exemption clause is invoked had actual knowledge of it: Eggleston v Marley Engineers Pty Ltd (1979) 21 SASR 51 at 62, 66. Where an invoice containing an exemption clause was sent after each previous contract was performed, the clauses on the invoice were not incorporated into a subsequent contract between the parties. The invoice was a claim for payment rather than a contract document: La Rosa v Nudrill Pty Ltd [2013] Aust Contract Reports 90-383; [2013] WASCA 18 at [47], [88], [93].

[9.430] 2. If the nature of an exemption clause is misrepresented to the other party who does not read it, the party seeking to rely on the exemption clause will not be permitted to do so

case [9.440] B took a dress to A to be cleaned and was asked to sign a receipt which contained, among other terms, a clause that the article “is accepted on condition that the company is not liable for any damage howsoever arising”. B asked why she had to sign and was told that A would not accept liability for damage to beads or sequins. B then signed. The dress was returned stained. It was held that A could not rely on the clause because B’s signature was obtained by misrepresentation as to the effect of the document: Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805 at 808-809; see also Liaweena (NSW) Pty Ltd v McWilliams Wines Pty Ltd [1991] ASC 56-038 at 56,621 (NSWCA). [9.450] 3. An exemption clause will be construed strictly and any ambiguity resolved against the person seeking to rely on it

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This is known as the “contra proferentum” rule. For example, exclusion of liability for breach of warranty will not exclude liability for breach of condition: Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 at 396-397. Furthermore, exclusion from liability for breach of implied conditions and warranties will not protect a party from breach of an express term of the contract: Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17 at 23, 25.

case [9.460] The conditions of sale at an auction provided that “as all lots are available for inspection previous to the commencement of sale, the same are sold with all faults, if any”: at 635. It was held that the operation to be given to the words “with all faults” was restricted by the earlier words, so that the “faults” referred to were only faults which would be revealed by an inspection and did not extend to exclude liability for latent, that is, hidden, defects in the goods purchased: Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 at 641, 643. [9.470] 4. An appropriately worded exemption clause can exclude a party from liability for negligence Exemption clauses may limit or exempt liability for negligence: Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 at 649; Neill v Fallon [1995] Aust Torts Reports 81-321 at 62,131-62,132. A properly worded exemption clause need not expressly mention liability in negligence in order to exclude such liability. For example, a clause that excluded liability for “all claims and demands whatsoever in respect of the contract” was held to be exclude liability for negligence: MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 at [87]–[88]. [9.480] 5. Exemption clauses will not normally be construed as limiting or excluding liability for acts done outside the terms or scope of the contract In Council of the City of Sydney v West (1965) 114 CLR 481, the High Court said that it is a question of interpretation of the contract as a whole whether or not a particular exemption clause is wide enough to exclude liability for the alleged breach of contract.

case [9.490] In Council of the City of Sydney v West (1965) 114 CLR 481 the plaintiff parked his car at a parking station and received a ticket which contained the following: “The council does not accept any responsibility for the loss or damage to any vehicle … however such loss, damage … may arise or be caused”, together with a statement that the ticket must be presented before taking delivery of the vehicle. The evidence suggested that an unauthorised person obtained a duplicate ticket by falsely representing that he had lost the original, and that, by presenting the duplicate ticket, obtained possession of the plaintiff’s car: at 487–488. It was held that the clause did not protect the council as the release of the car was not merely a negligent act but was a delivery not authorised by the contract: at 489–490, 504. [9.500] The House of Lords had occasion to apply these principles in Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827:

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case [9.510] The defendant company, Securicor, contracted to provide a night patrol service to the plaintiff’s factory. While one of Securicor’s employees was on patrol at the factory one night, he deliberately started a small fire by throwing a match onto some cartons. The fire got out of control and ultimately destroyed a large part of the factory. The plaintiff sued Securicor for damages on the ground that they were liable for the act of their employee. Securicor relied on an exemption clause in the contract which provided that “under no circumstances” were they to be “responsible for any injurious act … by any employee of the company unless such act … could have been foreseen and avoided by the exercise of due diligence … nor … any loss suffered by the customer through … fire … except … as … solely attributable to the negligence of the company’s employees acting within the course of their employment”: at 840. The House of Lords held that the question whether an exemption clause applied when there was a “fundamental breach” or any other breach turned on the construction of the whole contract including any exemption clause: at 842-843. Although Securicor was in breach of their implied obligation to operate their service with due and proper regard to the safety and security of the plaintiff’s factory, the exemption clause was clear and unambiguous and protected Securicor from liability: Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827at 846, 851. [9.520] The Australian High Court reaffirmed the approach it had taken in Council of the City of Sydney v West (1965) 114 CLR 481 (see [9.490]) in its decision in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 509:

case [9.530] In that case a contract between a broker and his client in respect of dealings on the futures commodities market contained a clause excluding liability by the broker to the client. The clause provided: “The Client finally acknowledges that the Agent will not be responsible for any loss arising in any way out of any trading activity undertaken on behalf of the Client whether pursuant to this Agreement or not …”. The contract further contained a clause limiting the liability of the broker, in the cases where liability had not been totally excluded, to damages which “shall not in any event (and whether or not such liability results from or involves negligence) exceed one hundred dollars”: at 505-506. The broker was proved to have exceeded his authority under the contract to act for the client in respect of certain dealings. The High Court held (1) that the clause excluding liability when properly construed did not protect the broker since it related only to transactions undertaken with the client’s authority, but (2) the limitation clause was effective to limit the extent of the broker’s liability for the substantial losses suffered by the client as a result of the broker’s unauthorised dealings: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 511.

Further reading SA Christenson and WD Duncan, Commercial Contracts – Principles and Construction (Federation Press, Sydney, 2014).

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K Lewison and D Hughes, The Interpretation of Contracts in Australia (Thomson Reuters, Sydney, 2012). J Thomson, K Martin and L Warnick, Commercial Contract Clauses: Principles and Interpretation (Thomson Reuters, Sydney, 2012). See also contract texts listed at the end of Chapter 2.

chapter 10

Operation of the Contract [10.20] Privity of contract ............................................................................................................................................ 174 [10.80] Liability for inducing a breach of contract........................................................................................... 176 [10.100] Assignment of contracts.......................................................................................................................... 177

Introduction [10.10] We pass next to a consideration of the operation of a contract, that is, the rights and liabilities under a contract. In particular, the following topics are considered: 1.

Privity of Contract.

2.

Liability for Inducing a Breach of Contract.

3.

Assignment of Contracts.

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Privity of contract General principle [10.20] The doctrine of privity of contract means that a contract cannot confer rights or impose obligations on any person except the parties to the contract. In other words, the general rule is that only the parties to a contract: (a)

acquire rights under it; and

(b)

incur liabilities under it.

In certain circumstances rights and liabilities may pass to persons other than the original parties either by their own act (that is, by assignment) or by operation of law: see [10.100]. The basic principle, then, is that “a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations”: Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 478. Thus, if A agrees with B to do something for the benefit of X, X cannot sue A if A fails to fulfil his promise. 1 However, although a third person, X, cannot sue A on her or his promise to B, B may have a remedy against A for breach of contract. The application of these principles can be seen in the leading case of Beswick v Beswick [1968] AC 58.

case [10.30] B transferred his coal merchant business to his nephew who promised in return to pay B an annuity during B’s lifetime and after B’s death to pay a slightly smaller annuity to B’s widow. Following B’s death, the nephew failed to make the promised payments to B’s widow: at 70. The widow brought an action against the nephew both in her personal capacity and as administratrix of B’s estate: at 71. The House of Lords held that the widow could not succeed in her personal capacity as she was not a party to the contract between B and his nephew: at 72-73, 81, 83, 92-93, 95. However, it was further held that she could succeed in her capacity as B’s administratrix, that is, as the legal representative of B who would have been entitled to sue the nephew for breach of contract: at 73, 81-82, 88. Accordingly, in her capacity as administratrix of B’s estate, B’s widow obtained an order for specific performance of the nephew’s promise to B to pay her the annuity: Beswick v Beswick [1968] AC 58. [10.40] There is an exception to the doctrine of privity of contract where it can be established that a contracting party entered into the contract as agent of the third party, since in such a case the third party would be a party to the contract: Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300 at 304–305 (PC). A further exception is where a contracting party constituted themselves a trustee for the third party of the rights given by the contract. However, it has usually proved difficult to establish a trust relationship since “the intention to constitute the trust must be affirmatively 1

This is no longer the position in Queensland where by virtue of the Property Law Act 1974 (Qld), s 55 a promise by A to B for valuable consideration, to do something for the benefit of a third party beneficiary X is, on acceptance by X, enforceable by X against A. There are similar provisions in Western Australia (Property Law Act 1969 (WA), s 11(2), (3)) and the Northern Territory (Law of Property Act 2000 (NT), s 56).

chapter 10 Operation of the Contract

proved”, that is, there must be a clear expression of intention to create a trust and such intention cannot necessarily be inferred from general words in a contract: Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70 at 79 (PC). In the absence of an agency or trust relationship, the doctrine of privity of contract is capable of working hardship by preventing a third party from enforcing a benefit to which they appear to be entitled under the contract.

The decision of the High Court in Trident's case [10.50] In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, a majority of the High Court held that the doctrine of privity of contract does not apply to contracts of insurance. 2 However, the real importance of the case lies in its potential application to other kinds of contract. The facts were as follows:

case [10.60] T Ltd entered into an insurance contract with B Ltd, to provide cover against liability in respect of alterations being carried out at the latter’s limestone crushing plant. The public liability policy was expressed as extending not only to B Ltd and all its related companies but also to all contractors, subcontractors and suppliers. M Ltd, the principal contractor at the plant, was held liable for injuries sustained by a crane driver employed by one of its subcontractors. M Ltd sought an indemnity under the insurance policy between T Ltd and B Ltd. T Ltd refused the claim on the ground that M Ltd was not a party to the contract and had given no consideration. It was held by a majority of the High Court (4:3), affirming the decision of the New South Wales Court of Appeal, that T Ltd was bound to indemnify M Ltd under the insurance policy with B Ltd: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. [10.70] The majority of the court was critical of the general operation of the doctrine of privity of contract, as well as its particular application to insurance contracts. Mason CJ and Wilson J commented that: “There is much substance in the criticisms directed at the traditional common law rules as questions debated in the cases reveal”: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 118. Toohey J recognised that it would be “unreal” to think that the decision “would not have implications for privity of contract in other situations”: at 163. Gaudron J went further than the other members of the court in saying that in her view: “[A] promisor who has accepted an agreed consideration for a promise to benefit a third party comes under an obligation to the third party to fulfil that promise and the third party acquires a right to bring an action to secure the benefit of that promise”: at 173. On the other hand, the dissenting minority were firmly of the view that the “settled and fundamental” doctrine of privity was too entrenched to be overturned by the court: at 128. Accordingly, there is uncertainty as to the extent to which Australian courts will continue to strictly adhere to the doctrine of privity of contract. Applying the doctrine of privity of contract, in Jones v Bartlett (2000) 205 CLR 166 the High Court held that the child of a tenant could not enforce the lease against the landlord, since the child was not a party to the lease. The terms sought to be enforced were the landlord’s 2

The Commonwealth Insurance Contracts Act 1984 (Cth), s 48 effectively abrogated the common law doctrine of privity of contract in its application to insurance contracts to which the Act applies: see [25.730]. However, the facts of Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 occurred before the coming into operation of the Act, and hence the Act did not apply to the facts of the case.

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statutory obligations to repair and maintain. Gummow and Hayne JJ pointed out that none of the exceptions or qualifications discussed in the Trident decision applied in this case: at [140].

Liability for inducing a breach of contract [10.80] Although no right of action in contract generally exists against a person who is not a party to a contract, the law, on principles of tort liability, will make such third person liable to an action if, without sufficient justification, they induce a party to a contract to commit a breach of existing obligations. 3 Inducing a party to lawfully terminate a contract does not constitute inducing a breach of contract: Sanders v Snell (1998) 196 CLR 329 at [23]. Intentionally, and without justification, inducing a person to break a contract with another is a tort. It must be proved that the breach was knowingly and intentionally procured: Woolley v Dunford (1972) 3 SASR 243 at 266, 268; Australian Development Corporation Pty Ltd v White (2001) 189 ALR 266 at [89]. “Wilful blindness” or “reckless indifference” will satisfy the knowledge requirement: LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 at [1], [47]–[54], [96]. Interference with contractual rights may be justified where there is just cause for the interference. However, it is generally difficult to establish such justification. An illustration of a case where justification was held not to exist is Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530:

case [10.90] Z had entered into an agency agreement with TOC. Under the agreement, Z was required to sell memberships in an “Olympic Club”. The Organising Committee for the Sydney Olympics (SOCOG) induced TOC to terminate its contract with Z. SOCOG sought to justify its inducement of the termination on the ground that it was required by contract to protect intellectual property rights relating to the Olympics. Z had used that intellectual property without authorisation. The High Court held that to justify inducement of a breach of contract the defendant must show that they were protecting a “superior legal right”: at [138]. That superior right must be of a proprietary nature (such as real or personal property) or be conferred by statute: at [144]. A right to contractual performance is not a superior legal right but is merely an equal right: at [160]. An equal right will not provide justification: at [139]. An inducement is only justified where the defendant’s actions go no further than is reasonably necessary to protect its rights: at [161]. On the facts, SOCOG’s actions in inducing the breach went further than would have been reasonably necessary, since less drastic alternative courses of action had been available: Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at [164], [166].

3

See P Edmundson, “Sidestepping Limited Liability in Corporate Groups Using the Tort of Interference with Contract” (2006) 30 Melbourne University Law Review 62; JJW Pembroke-Birss, “The Defence of Justification to the Tort of Inducing Breach of Contract: An Australian Perspective” (2010) 24(4) Commercial Law Quarterly 3; C Bailey, “Facilitation or Manipulation: What Conduct gives rise to Liability for Inducing or Procuring a Breach of Contract?” (2014) 22 Tort Law Review 22.

chapter 10 Operation of the Contract

Assignment of contracts [10.100] In order to enforce rights or to incur liabilities under a contract, a person must be one of the parties to such contract. However, in certain circumstances, the original contracting parties may assign their rights and liabilities to assignees who may then enforce, or be bound by, the terms of the agreement. 4

Assignor [10.110] An assignor is the one who assigns or transfers to another.

Assignee [10.120] An assignee is the one to whom an assignment is made.

Assignment [10.130] An assignment of a contract is the act by which one party to a contract substitutes another person for themselves as a party to that contract either for all the purposes of the contract or for some purposes only.

Assignment of liabilities [10.140] A person liable under a contract may not transfer their liability to another person without the consent of the other party to the contract and the consent of the “transferee”. However, there are certain rare exceptions to the general rule. 5 For example, as regards the holder of shares in a limited company, there is a contract between that shareholder and the company – an obligation is placed upon the shareholder to pay calls whilst the shareholder receives benefits by way of dividends. Provision is made by the Corporations Act 2001 (Cth) whereby a member may transfer their shares to another person and in such a case the transferor passes over to the transferee their obligations to pay to the company the amount remaining unpaid on their shares. Other than this manner of assignment of liabilities, there exists the method of “novation”, whereby obligations under a contract may be assigned by a party to the contract to another person not a party, so that “a new contract takes the place of the old”: ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338 at [12]. “Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made; it involves the extinguishment of one obligation and the creation of a substituted obligation in its place…intention is crucial to show a novation, although intention may be express or implied from the circumstances”: Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 at [112] per Rares J. Novation can thus occur by express words or by implication: Hillam v Iacullo (2015) 90 NSWLR 422 at [50]-[51]. 6

Assignment of rights [10.150] Although at one time at common law debts and other choses in action were not assignable in the true legal sense (unless they were represented by negotiable instruments) they are now made assignable by 4

See generally GJ Tolhurst, “The Efficacy of Contractual Provisions Prohibiting Assignment” (2004) 26 Sydney Law Review 161; GJ Tolhurst, “Assignment of Contractual Rights: The Apparent Reformulation of the Personal Rights Rule” (2007) 29 Australian Bar Review 4; GJ Tolhurst and JW Carter, “Prohibitions on Assignment: A Choice to be Made” (2014) 73 Cambridge Law Journal 405.

5 6

See MP Furmston, “The Assignment of Contractual Burdens” (1998) 13 Journal of Contract Law 42. See J Bailey, “Novation” (1999) 14 Journal of Contract Law 189.

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virtue of special statutory provisions in force in each State. A cause of action may be assigned where the assignee has a genuine commercial interest in the enforcing the assignor’s claim: Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd (2013) 101 IPR 484 at [27].

Assignments by statute [10.160] These provisions 7 allow an assignee of a debt or other legal chose in action to take action against the debtor in the assignee’s own name provided that: (a)

the assignment is absolute and not merely by way of charge;

(b)

the assignment is in writing; or

(c)

express notice of the assignment is given in writing to the debtor.

In order for notice of an assignment to be effective, it is necessary that the debtor actually receive such notice. Accordingly, where notice of an assignment of a margin loan was sent by post by a bank but not received by the debtor, there was no effective notice of the assignment. Further, a generalised message on the bank’s website that the majority of its margin loans were transferred was not effective notice to the debtor of assignment of his loan to a third party: Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 at [148]–[149]. The assignee takes their rights “subject to equities” and cannot obtain a better title than that of the transferor. Provision is also made whereby a person liable can, if there is a dispute between the assignor and assignee, pay the money into court. It will be noticed that the assignment must be absolute and not merely by way of charge. Unless this was the case the debtor would be in doubt as to whom he or she should pay, or what amount the debtor would be required to pay to the original creditor and to the assignee. As the assignment must be absolute, the debtor is not under any obligation to make inquiries on the due date as to how the arrangements stand between the assignor and the assignee. However, a mortgage of rights in the usual form used under basic property law concepts, that is to say an assignment by the assignor (in consideration of a loan made by the assignee) to the assignee of the right to the debt coupled with a provision that on repayment of the loan the assignee will reassign to the assignor, is regarded as being absolute and not by way of charge. There are certain other statutes which make provision for the assignment of the particular types of chose in action with which those statutes deal. The more important of these for our purposes are life, fire and marine insurance policies (see Chapter 25), and company shares: see Chapter 27. In addition, negotiable instruments form a special class of assignable contracts: see Chapter 23. Although the common law did not recognise true assignments prior to these statutes, a transfer of rights was nevertheless possible by novation on the same kind of basis as the novation of liabilities previously referred to. A novation is not strictly an assignment, as the original creditor does not simply assign their rights to the new creditor. There is a rescission of one contract with the substitution of a fresh one under which the same rights and obligations as are contained in the first contract are to be performed by different parties. This is known as a “tripartite agreement”, and involves the three parties, the debtor, the old creditor and the new creditor (assignee). This has the effect of an assignment agreed to by the debtor, who through this agreement becomes bound to the new creditor. A transfer of rights in this way is still used in appropriate cases. 7

Conveyancing Act 1919 (NSW), s 12; Property Law Act 1958 (Vic), s 134; Property Law Act 1974 (Qld), s 199; Law of Property Act 1936 (SA), s 15; Property Law Act 1969 (WA), s 20; Conveyancing and Law of Property Act 1884 (Tas), s 86; Civil Law (Property) Act 2006 (ACT), s 205; Law of Property Act 2000 (NT), s 182.

chapter 10 Operation of the Contract

Assignments in equity [10.170] Courts of equity apply different rules from those of the common law relating to assignment and, accordingly, assignments of choses in action are recognised and enforced by them. This applies not only to equitable but also to legal choses in action.

Legal chose in action [10.180] A legal chose in action is a right of action that can be enforced in a court of law, for example action on a bill of exchange or to recover a debt due under a contract.

Equitable chose in action [10.190] An equitable chose in action is a right of action that can only be enforced in a court of equity, for example an interest in a trust fund or legacy. An equitable assignment of a chose in action (which may be itself either a legal chose or an equitable chose) may be effected without writing, no particular form of words being necessary, so long as the intention is shown that the chose in action is to be transferred or appropriated to the use of the assignee. The following points concerning an equitable assignment should be noted: 1.

Notice is not necessary to complete the assignee’s equitable right as against the original creditor or the latter’s representatives, including assignees in bankruptcy, but the claims of competing assignees rank as between themselves not according to the order in date of the assignments, but according to the dates at which they have respectively given notice to the debtor: Dearle v Hall (1828) 3 Russ 1; 38 ER 475 at 20-21 (Russ); 482-483 (ER). This rule applies to give priority over the assignee in bankruptcy of the assignor even though the bankruptcy of the assignor occurred before the date of the assignment: Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 at 626–627, 635. It applies even though an assignee knew of the earlier assignment when he gave notice but not if he knew of the earlier assignment when he took his assignment. Verbal notice is sufficient but it is advisable for it to be in writing.

2.

The assignee takes “subject to equities”, that is, subject to such defences that the debtor might have raised against the assignor. In other words, the assignee can only receive such title as the assignor is able to give and cannot be in a better position.

3.

The question whether valuable consideration is necessary to support an equitable assignment is by no means clear, but it has been held that it is necessary in order to support an equitable assignment of a legal chose in action (Bruce v Tyley (1916) 21 CLR 277 at 295) and an equitable assignment of future property such as book debts: Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999 at 209 (HLC); 1006 (ER).

However, lack of valuable consideration is fatal only when the donor has failed to perform some act which he or she could have performed to pass legal title. If the donor has done everything possible on their part they have made a perfect gift sufficient to pass an equitable title.

Assignment by operation of law [10.200] Another form of assignment occurs in the transfer of the rights under a contract by operation of law. The most common examples are:

Death [10.210] The estate of a deceased person passes to their executor or administrator on a grant of probate or letters of administration and with it rights under contracts. The liabilities of a deceased person under

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contracts made by her or him also devolve on the executors or administrators but the extent of the liability is limited to the assets that come into their hands as such executors or administrators. There is an exception to the rule that the rights and liabilities of a person under contract devolve on their personal representative in the case of contracts requiring the personal skill or services of the deceased. On the death of one of the persons by whom a joint promise has been made, the liability devolves on the survivors, the representatives of the deceased being under no liability. In the case of a promise by partners, equity construes the promise as joint and several. On the death of one of the several joint promisees the right of action on the promise vests in the survivors.

Bankruptcy [10.220] The estate of a bankrupt passes to the Official Trustee in Bankruptcy unless and until a registered trustee is appointed in which event the bankrupt’s estate will vest in the registered trustee: see Chapter 31.

Contracts for personal services not assignable [10.230] A contract with a person having special qualification is of a personal nature and probably would not be able to be performed by another person to the satisfaction of the other original party and for this reason it is not assignable; for example a contract between publisher and author is not assignable.

Further reading A Guest, Guest on the Law of Assignment (2nd ed, Sweet & Maxwell, London, 2015). M Smith and N Leslie, The Law of Assignment (2nd ed, Oxford University Press, Oxford, 2013). G Tolhurst, The Assignment of Contractual Rights (2nd ed, Hart, Oxford, 2016). See also contract texts listed at the end of Chapter 2.

chapter 11

Termination of a Contract [11.20] Termination by performance..................................................................................................................... 182 [11.30] Termination by agreement......................................................................................................................... 182 [11.160] Termination by breach............................................................................................................................... 185 [11.310] Termination by frustration ...................................................................................................................... 190 [11.510] Termination by operation of law........................................................................................................... 196

Introduction [11.10] In this chapter we consider how a contract may be terminated, that is, brought to an end. A contract may be terminated in the following ways: 1.

Performance – fulfilment of its provisions.

2.

Agreement between the parties.

3.

Breach – where one of the parties fails to fulfil their obligations under the contract.

4.

Frustration – where some supervening event prevents further performance of the contract.

5.

By operation of law.

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Termination by performance [11.20] When the parties to the contract fulfil their obligations to one another, the contract is terminated, that is, comes to an end, by performance. Complete performance in strict accord with the terms of the contract is necessary, otherwise a breach of contract results.

Termination by agreement Termination under the original contract Express power to terminate [11.30] A contract may be terminated through the happening of an event as provided for in the original agreement itself. For example, a contract of loan with a bank may provide that the bank can terminate its contractual arrangements with the borrower in the “Event of Default” by the borrower and declare that the moneys lent are immediately due and payable: Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 170 ALR 579 at [35]–[36] (HC). A further common illustration is a stipulation in the contract that it will terminate at the expiration of a specified period, for example a contract for a lease for a specified number of years. At the end of the time stipulated the lease will automatically come to an end.

Implied right to terminate [11.40] Where a contract does not contain a provision as to its duration, the court may imply a right to terminate on giving reasonable notice to the other party. For example, where a distributorship agreement was silent as to its duration, the New South Wales Court of Appeal held that a period of six months’ notice prior to terminating the contract was appropriate. The contract would otherwise have been of indefinite duration: Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 441, 453.

Termination by subsequent agreement [11.50] A contract is the result of agreement and by means of a further agreement the contract may be terminated. A subsequent agreement must be valid in order to modify a prior contract. A void agreement cannot rescind or vary a valid earlier contract: Coghlan v Pyoanee Pty Ltd [2003] 2 Qd R 636 at [9], [32]. A subsequent agreement may be: (a)

to cancel the original contract; or

(b)

to vary the terms of the original contract.

(a) Cancellation of original contract Mutual termination [11.60] This occurs where both parties agree to cancel the original contract. However, such an agreement can only operate as a termination of the original contract where there is still something to be done by each party under the original contract. In such a case the promise by one party to abandon their rights under the original contract would be given in consideration of the other party’s promise to do likewise.

chapter 11 Termination of a Contract

Release [11.70] If one party has completed their undertaking and the other has not, then the only method of cancelling the contract is by agreement under seal to release the defaulting party or by the giving of some further consideration for the release by the party still under an obligation. This consideration must not be something that the party is already legally bound to do.

Accord and satisfaction [11.80] In the case of cancellation of the contract by agreement to release, where the release involves the giving of some further consideration, the principle is often referred to as that of accord and satisfaction. 1 This principle applies where there is an agreement (accord) between two parties that the debtor shall do or pay something in satisfaction of the cause of action and that the claimant will accept the same. When the payment or performance is completed and satisfaction obtained, then such discharge of the original right of action has been effected by accord and satisfaction. This principle of accord and satisfaction also covers the case of the discharge of a cause of action for breach of the contract. Thus it frequently happens that after a breach of contract has taken place, the party entitled to bring an action in respect of the breach agrees to accept something else from the party who broke the contract other than performance of the outstanding obligations. The fresh contract is intended to satisfy the outstanding obligations of the earlier one. This operates as a discharge of the old contract. There must exist accord (agreement) and satisfaction. “The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of [their] cause of action. What [the plaintiff] takes is a matter depending on [their] own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired”: Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 114. The party in default must agree to do something different from that which they were bound to do under the original contract. For example, if A owes B $20 and sends him $10 “which is to be taken in full satisfaction of my debt”, such a condition would not bind B as payment of a smaller amount than is owing is not a discharge: Foakes v Beer (1884) 9 App Cas 605 at 613, 623, 629. In order to operate as a discharge the payment of a smaller amount must be accompanied by some further consideration that A is not already legally bound to furnish. This further consideration given by A may comprise a different mode of performance, for example in addition to paying part of the balance, A may also give B an autographed book which B takes in full satisfaction of his rights. The consideration may also be payment before the due date. Again, the further consideration may simply take the form of a different method of payment.

(b) By substituted agreement [11.90] A new agreement may be made providing for an alteration in the terms of the original contract so that a new contract is substituted for the old one. The simplest example of a contract being terminated by the formation of a new contract is novation: see [10.140]. If a new contract is made with a view to discharging an existing one the rule is that the new contract need not necessarily be in the same form as the original one. A simple contract may be terminated by word of mouth even if the original contract was required by law to be in writing providing the intention to rescind, as distinct from an intention to vary, is clear: Morris v Baron & Co [1918] AC 1 at 11, 18, 26, 38–39. 1

See generally S Currie, “Accord and Satisfaction by Way of Full Settlement Cheque” (2011) 27 Journal of Contract Law 119.

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A contract in writing may be varied by an oral agreement if it is not of a class required by law to be in writing. But if it is desired to vary the terms of a simple contract required to be in writing it is necessary that the variation be in writing. If such variation is not in writing it will be ineffective and the original contract will remain enforceable. This, as noted before, is not the rule when the contract is cancelled. The reason for the difference between cancellation and variation is that those statutes that require writing in the making of a contract do not require writing as a formality for the cancellation of such a contract. Where the parties intend by a subsequent agreement to substitute a new agreement for their original contract, this will have the effect of terminating the original contract but the new agreement must comply with the statutes to be enforceable. A contract made by deed may be varied or terminated by a subsequent simple contract for valuable consideration. Although at common law an obligation arising under a deed could not be varied or discharged except by another deed, equity took a different view. Since the rules of equity prevail in the event of conflict with the rules of the common law, it is a good defence at law to an action on a deed to show that the obligation under the deed has been varied or discharged by a subsequent simple contract for valuable consideration: Berry v Berry [1929] 2 KB 316 at 319-320.

Contingent conditions [11.100] The parties to a contract may make the performance of their contract conditional upon the occurrence of a specified event. They may also make performance of their contract conditional upon an event not occurring. Such contingent conditions may take the form of a condition precedent or a condition subsequent.

Conditions precedent [11.110] A distinction must be made between: (a)

a condition precedent to the formation or existence of a contract; and

(b)

a condition precedent to the performance of a party’s obligations under a contract.

As explained by Mason J in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 551: “There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non-fulfilment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate.” By way of example:

case [11.120] A contract for the sale of land contained the following clause: “This contract is subject to and conditional upon the approval of the [local council] to a plan of subdivision … within six calendar months from the date hereof. In the event that such approval is not obtained then the purchaser may at their option cancel this contract.” Approval was not obtained and the purchaser waived this condition but the vendor refused to complete: at 156-157.

chapter 11 Termination of a Contract

The High Court held that the approval referred to was expressed in the form of a condition precedent to the obligation to complete the contract and not as a condition precedent to the formation of the contract: at 157. The “plain implication” of the condition was “that if the purchaser [did] not choose to cancel the contract the vendor [had] no right to treat it as being at an end”: at 158. Accordingly, the purchaser had the option to choose to allow the contract to remain on foot when the condition was not satisfied, and since he had elected to waive the condition was entitled to specific performance of the contract: Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 at 161-162.

case [11.130] Another case involved negotiations for the lease of a service station. The respondent’s offer stated that the appellant was to “provide an environmental site assessment prior to the execution of the proposed lease”. This was not done. The South Australian Full Court held that there was no binding contract between the parties: at [82]. The respondent was not prepared to enter into a lease until the assessment was provided: at [80]. Provision of the assessment was a condition precedent to the formation of a contract: at [81], [107]. This condition was never satisfied and therefore there was no contract: Whittle v Parnell Mogas Pty Ltd (2006) 94 SASR 421. [11.140] Generally, the court will tend to favour a construction leading to the conclusion that a particular stipulation is a condition precedent to the performance of the contract since: “In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion”: Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 552 per Mason J.

Condition subsequent [11.150] A condition subsequent is a condition contained in a contract upon the happening of which at a subsequent time the contract will be terminated. In such a case the parties’ obligation to perform the contract is immediately binding but will come to an end should the event specified in the condition occur. For example, in a charter-party an owner agrees to make the voyage on certain terms, “act of God, dangers of the seas, etc” excepted. If one of the excepted risks occurs, the owner is relieved from performing the contract: Geipel v Smith (1872) LR 7 QB 404 at 412.

Termination by breach [11.160] We now consider the circumstances in which a breach of contract by one party may entitle the other party to terminate the contract. A right to terminate a contract is by no means an invariable consequence of breach. There are some breaches of contract that do not give the innocent party the right to terminate the contract but merely entitle them to sue for damages. There are two basic situations to consider: (a)

where one party repudiates the whole contract by act or deed; and

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(b)

where one party breaks a term of the contract. 2

Repudiation of the contract [11.170] An innocent party has the right to terminate the contract where the other party repudiates their obligations under the contract, that is, demonstrates an absence of willingness or ability to perform their obligations under the contract.

Repudiation before the contract is due for performance: anticipatory breach of contract [11.180] Where a contract is entirely unperformed on both sides, for example, where the time for performance has not yet arrived and one party repudiates the contract, the other can treat the contract as terminated and sue immediately for damages for such breach. This is known as anticipatory breach of contract. It should be noted that the contract must be entirely repudiated. It would seem that the doctrine of anticipatory breach does not apply where the party not in default has fully performed all their obligations under the contract: MacKenzie v Rees (1941) 65 CLR 1 at 15. In such a case, the party who has fully performed their obligations cannot terminate the contract and claim damages for an anticipatory breach by the other party but must wait until there is an actual breach by the other party and then claim damages for that breach: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 44.

Conduct amounting to repudiation [11.190] The most obvious case of repudiation is where a party to a contract expressly states that they are unwilling or unable to perform the contract. In the absence of an express statement, a party’s words or conduct may indicate that they are repudiating the contract. Furthermore, a party may repudiate a contract by putting it out of their power to perform the contract, for example where the seller of an antique car sells the car to a third person. In such a case, the original buyer can treat the seller as having repudiated the contract for the sale of the vehicle. Repudiation is determined by an objective test. It is concerned with the conduct of the repudiating party not their subjective state of mind. It is irrelevant that the party repudiating the contract believed that their action was justified under the contract: Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127 at [9], [11], [112], [115].

Effect of repudiation [11.200] It should be observed that the mere fact that one party to a contract repudiates their obligations does not of itself automatically terminate the contract and discharge the other person from liability under it, since to permit such a result would mean that a contract could be terminated unilaterally. Repudiation gives to the other party to the contract an option either to ignore the breach and to insist upon performance when due, or to accept the repudiation and treat themselves as discharged from any further obligation under the contract. If the innocent party elects to treat themselves as discharged, he or she can immediately sue the defaulting party for damages whether or not the time for performance is due. On the other hand, if the 2

See generally JW Carter and Y Goh, “Concurrent and Independent Rights to Terminate for Breach of Contract” (2010) 26 Journal of Contract Law 103; JW Carter, Carter’s Breach of Contract (LexisNexis Butterworths, Sydney, 2011).

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innocent party does not elect to treat themselves as discharged, then the contract remains on foot for the benefit of both parties. The innocent party remains subject to all their own obligations and liabilities under the contract. The defaulting party has an opportunity not only to complete the contract but also, notwithstanding their previous repudiation of it, to take advantage of any intervening circumstance which would entitle her or him to decline to complete it: Avery v Bowden (1855) 5 E & B 714; 119 ER 647 at 727-728 (E & B), 652-653 (ER).

Breach in fulfilling terms of contract [11.210] A breach in performance usually involves not a complete and conscious repudiation of the whole contract but rather a breach of certain obligations under it. Whether the breach is so serious as to entitle the innocent party to treat the contract as repudiated, or whether he or she is bound to regard the contract as still on foot and is merely entitled to sue for damages, is a difficult question. The basic principle is that a breach in actual performance by one party entitles the other party to terminate the contract if one of two situations exists, namely: (a)

if the acts or omissions by the defaulting party are such as to show an intention to repudiate the whole contract, or to carry it out only in a manner inconsistent with their obligations under it; or

(b)

if there has been a breach of some “essential” or fundamental obligation under the contract.

Acts or omissions indicating an intention not to be bound [11.220] With the first rule the renunciation is not express but has to be implied from fragmentary acts and omissions. In Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625 Gibbs CJ stated that: “[A] contract may be repudiated if one party renounces his liabilities under it – if he evinces an intention no longer to be bound by the contract … or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way … In such a case the innocent party is entitled to accept the repudiation, thereby discharging himself from further performance, and sue for damages.”

case [11.230] Eleven breaches of contract had been committed, none in itself sufficiently serious to be regarded as amounting to a repudiation. However, the court said that it was entitled to look at the breaches as a whole in determining whether the contract had been repudiated. In holding that there had been a repudiation, the court said it was clear that the party in breach only intended to fulfil the contract in a manner substantially inconsistent with his obligations under it: Hudson Crushed Metals Pty Ltd v Henry [1985] 1 Qd R 202 202 at 205, 208. [11.240] Where the lessee had committed a number of breaches of a lease including causing physical damage to the premises and a failure to repair the damage, subletting the premises without the consent of the lessor and a failure to pay rent, the High Court held that while the failure to pay rent may not have been sufficient on its own, this together with the other breaches amounted to a repudiation which justified the lessor terminating the lease: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 34-37; see also Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623.

Mutual abandonment [11.250] A contract may be discharged through mutual abandonment. This occurs where the conduct of both parties shows that they intend to put an end to the contract: Wallera Pty Ltd v CGM Investments Pty

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Ltd [2003] FCAFC 279 at [2], [40], [58]. Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd (2015) 18 BPR 35511; [2015] NSWCA 16 at [22], [98], [111]. Where a contract has been partly performed before abandonment, the courts presume that abandonment operates prospectively in order to protect accrued rights: Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd (2014) 45 VR 79 at [19].

Breach of an essential term [11.260] As regards the second rule, it is difficult to determine whether the party in breach has broken an essential obligation under the contract such as to entitle the other party to treat the contract as terminated, or whether the breach is of a less serious nature entitling the party not in default to damages only. On this point the High Court has said: “Whether a term of a contract is essential or not is a question of construction which is to be answered with due regard to the general nature of the contract considered as a whole and to its particular terms. See Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642, where Jordan CJ said: ‘The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. … If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight’”: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 430-431. For example, the failure by the purchaser of land to pay a deposit in accordance with the terms of the contract of sale was held to constitute a breach of an essential or fundamental term of the contract entitling the vendor to rescind it. Payment of the deposit as stipulated by the contract was “an essential term going to the very root of the contract, the breach of which would immediately entitle the vendor to terminate the contract” and similarly, it was “a fundamental term the failure to perform which goes to the root of the contract and entitles the vendor to renounce further performance”: Brien v Dwyer (1978) 141 CLR 378 at 393 per Gibbs J. On the other hand, it would seem that consistently late payment of rent, without more, does not constitute repudiation of a lease: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 627. This brings us to the matter of conditions and warranties.

Conditions and warranties [11.270] A condition is a term of a contract that is of such basic importance that breach of it gives rise to a right to treat the contract as at an end. A warranty is subsidiary to the main purpose of the contract so that its breach confers merely a right to sue for damages. If there is a breach of condition and the other party does not treat the contract as terminated, the condition sinks to the level of a warranty only. In some cases statute declares that certain conditions and warranties are implied in a contract, for example in the case of a sale of goods: see Chapter 14. Here there is no difficulty. In other cases the parties may expressly declare that a term of the contract is a condition or essential to the contract, for example by a stipulation that it is the basis or of the essence of the contract. However, the mere fact that the parties have used the word “condition” in their contract does not necessarily mean that they have used it in the strict technical sense that a breach of the term can be treated as a repudiation of the contract. The court may find that the parties have used the word “condition” in a non-technical sense as simply meaning a term of the contract and did not intend that breach of the term should have the effect of entitling one party to treat the contract as at an end: L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 250,

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258, 264-265. In other cases the contract, without expressly saying so, may indicate that the parties attached sufficient importance to the stipulation to make it a condition of its validity. Where these guides from the intention of the parties are absent, the courts still look at the matter in terms of the distinction between condition and warranty but decide it on the nature of the whole contract and the relative importance of the term broken.

case [11.280] A lease provided that the payment of rent was an essential term. The lessee fell behind in paying the rent. The lessor terminated the lease before the end of its term. The lessor sought to recover arrears of rent due at the date of termination and loss of bargain damages for the remainder of the term of the lease. The High Court held that normally a covenant to pay rent would not be treated as a condition entitling termination for any breach. However, it is open to a lessor to provide that the obligation to pay rent is an essential term: at [42]. As a matter of construction, the lease at issue in this case treated the covenant to pay rent as an essential one: at [47]–[48]. An innocent party may terminate the contract for breach of a condition and sue for loss of bargain damages. An express contractual provision may provide that a term is a condition entitling the innocent party to sue for damages for loss of bargain: at [58]. Under this lease the undertaking to pay rent was a condition and loss of bargain damages could be recovered for its breach. A lessor can only obtain loss of bargain damages if they have tried without success to find a new tenant who will pay the same rent: Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237 at [56]. [11.290] In commercial contracts the general rule is that stipulations as to time, except as to time of payment, are essential conditions. For further illustrations of the distinction between conditions and warranties, see [9.180].

Intermediate terms [11.300] In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] QB 26, it was said that not all contractual undertakings fell into one of the two categories of “condition” and “warranty”: at 69, 71. 3 The more basic test was whether the breach had given rise to a situation where the party not in default had been deprived of substantially the whole benefit which they were entitled to expect from the contract. The Australian High Court adopted this approach in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561-562: “… a term in a contract may stand somewhere between a condition and a warranty. Such an intermediate or innominate term, it has been held, is capable of operating, according to the gravity of the breach, as either a condition or a warranty. In Hongkong Fir the obligation of seaworthiness was readily classified as innominate because a breach of the obligation might be trivial, making damages an adequate remedy, or grave, in which event it should have effect as a breach of condition. … nothing less than a serious breach of an innominate term entitles the innocent party to treat the contract as at an end.” In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the majority of the High Court described the Hongkong Fir doctrine as being part of the “mainstream law of contract” in Australia: at [50]. 3

See JW Carter, GJ Tolhurst and E Peden, “Developing the Intermediate Term Concept” (2006) 22 Journal of Contract Law 268.

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In New South Wales, a similar approach has been adopted in respect of contracts for the sale of goods by the Sale of Goods Act 1923 (NSW). Section 4(5) of the Act provides: “Nothing in this Act shall be construed as excluding a right to treat a contract of sale as repudiated for a sufficiently serious breach of a stipulation that is neither a condition nor a warranty but is an intermediate stipulation.”

Termination by frustration [11.310] After a contract has been made, some unforeseen event may occur which results in such a fundamentally different situation from that contemplated by the parties at the time of entering into the contract that the law regards them as being discharged from any further obligation under the contract. In such a case the contract is said to have been “frustrated”. For the unforeseen event to have this effect, it must have been of such a serious nature as to make further performance of the contract illegal, impossible, or radically different from that contemplated by the parties: Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 729. Mere hardship, inconvenience, or material loss will not in themselves justify the application of the principle. The application of the principle or doctrine of frustration to particular cases has been by no means an easy matter as the following comment in the High Court demonstrates: “… the various expositions of the true basis of the doctrine of frustration leave imprecise its actual operation when applied to the facts of particular cases. How dramatic must be the impact of an allegedly frustrating event? To what degree or extent must such an event overturn expectations, or affect the foundation upon which the parties have contracted, or, again, how unjust and unreasonable a result must flow or how radically different from that originally undertaken must a contract become (to use the language of some of the various expositions), before it is to be regarded as frustrated? The cases provide little more than single instances of solutions to these questions. These difficulties of application of the doctrine of frustration … are, perhaps, inevitable in questions of degree arising when a broad principle must be applied to infinitely variable factual situations”: Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 at 162-163 per Stephen J. Similarly, the Victorian Court of Appeal has pointed out the difficulty of applying such flexible principles: “One difficulty with general conceptions of that kind is that they do not provide much guidance as to the degree or extent an event must overturn expectations, or affect the foundation upon which the parties contracted, or how unjust and unreasonable a result must follow, or how radically different from that originally undertaken must a contract become, before the contract is taken to be frustrated”: oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 at [66] per Nettle JA, with whom Redlich and Weinberg JJA agreed.

Application of the doctrine [11.320] The following are examples of circumstances that have been held to frustrate a contract:

Supervening illegality [11.330] Where a subsequent change in the law renders further performance illegal the contract will be terminated: Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260 at 267, 276, 285.

Death or illness [11.340] Where the contract is one of personal service and the party to perform the service dies or suffers from some serious disability or illness making performance of the contract impossible the contract will be terminated: Robinson v Davison (1871) LR 6 Ex 269 at 274, 278.

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Destruction of subject matter [11.350] Where performance of the contract is rendered impossible by the physical destruction of the subject matter before performance falls due, the contract is terminated. A contract for the hire of a building for a concert at a future date was held to be terminated by the building being burnt down: Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 at 839–840 (B & S); 314–315 (ER).

Common objective no longer attainable [11.360] When the happening of some particular event can be regarded as the real basis of the contract, then if that event fails to eventuate without the fault of either party the parties are discharged.

case [11.370] For the coronation of Edward VII a flat on the route of the coronation procession was hired for two specified days. When the procession was postponed the lessee refused to complete. It was held that the contract was frustrated by the cancellation of the coronation: Krell v Henry [1903] 2 KB 740 at 750, 755. [11.380] Contrast with the latter case the following decision by the same court:

case [11.390] The HB Company agreed to hire a boat to H to view the naval review at the coronation and to cruise around the fleet. Owing to the King’s illness the naval review was cancelled but the fleet was assembled and the boat might have been used for the intended cruise. It was held that H was not discharged from performance as the naval review was not the sole basis of the contract: Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 at 689, 691-692.

Governmental intervention [11.400] Where government interference is such that it would make the subsequent carrying out of the remainder of the contract radically different from that envisaged by the parties, then they are absolved from further performance:

case [11.410] D contracted with the Metropolitan Water Board to construct a dam within six years, subject to a proviso that if the contractors should be delayed or impeded in the completion of the contract it would be lawful for the engineer to grant an extension of time. The Ministry of Munitions, exercising wartime powers, appropriated the machinery of the company and work on the dam ceased. It was held that the interruption suffered was of such duration and character as to alter the contract on resumption, and therefore the contract had ceased to be operative: Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119 at 130, 135, 139.

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Other supervening circumstances resulting in radical difference in performance [11.420] The basis of the doctrine of frustration is that performance of the contract has become radically different from that undertaken by the contract. This can be illustrated by Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337:

case [11.430] Codelfa contracted to excavate tunnels and do concrete work in connection with a railway. Various stages of the work were to be completed by certain dates. The whole of the work was to be completed within 130 weeks of the date of notice to proceed. Time was made of the essence of the contract. The work generated considerable noise and vibration. A resident obtained an injunction to restrain Codelfa from performing construction work between 10 pm and 6 am. Codelfa contended that the changed working conditions necessitated by the injunction resulted in frustration of the contract: at 395-396. The dispute was referred to arbitration under the terms of the contract. The arbitrator found that the work could not be carried out as agreed except on the basis of three shifts per day, and that “neither party … foresaw the possibility of restrictions being imposed on the hours of work” as a result of the injunction: at 397. A majority of the High Court held that the situation produced by the grant of the injunction was such as to make it impossible lawfully to perform the contract in a manner that would have complied with its requirements. Accordingly, performance had become a thing radically or fundamentally different from that undertaken by the contract resulting in frustration of the contract: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 345, 362-363, 376, 380.

Changes in circumstances not amounting to frustration [11.440] There have been many cases in which the courts have held that the change in circumstances did not give rise to frustration of the contract.

case [11.450] The appellants entered into a number of contracts with the respondents for the installation of neon advertising signs on the respondent’s hotels and the respondent agreed to hire the signs for a period, and to pay the rentals whether or not the signs were used or operated. The signs were conspicuous even when not illuminated. During the currency of the contract and after the signs had been operated for a substantial period, the use of lighted signs outside any building was prohibited by State order because of the outbreak of war with Japan: at 183-184. The High Court held that the making of the State order did not frustrate the contracts and that the respondent remained liable for the rental payments. In the court’s view, there was no ground for concluding that the lighting of the signs was the basis on which the parties had contracted: at 202, 216-217, 231. The court also rejected the contention that a term should be implied providing for the termination of the contract in the events which had happened: Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 at 197-198, 230.

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[11.460] An interesting example of the occurrence of an event that in the particular circumstances was held not to frustrate the contract arose in consequence of the closing of the Suez Canal as a result of hostilities in 1956:

case [11.470] On 4 October 1956, the appellants agreed to sell to the respondents Sudanese groundnuts for shipment from Port Sudan to Hamburg during November-December 1956. On 2 November the Suez Canal was closed. The alternative route via the Cape of Good Hope would have increased the length of the voyage by four weeks and also increased the appellant’s costs of shipment: at 110. No delivery date in Hamburg and no particular route had been specified in the contract, while extra expense does not in itself justify a finding of frustration: at 115, 118, 128. It was held by the House of Lords that although the route via the Cape would have involved a change in the method of performance of the contract than that originally contemplated by the parties, it was not such a fundamental change as to entitle the appellant sellers to say that the contract was frustrated: Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 at 115, 119, 133.

case [11.471] A licence agreement allowed the licensee to maintain a large advertising billboard on the roof of an office building. The construction of another office building subsequently impaired the visibility of the billboard. The licensee’s advertising revenue was drastically reduced. The Victorian Court of Appeal held that the contract was not frustrated. It was foreseeable at the time the agreement was concluded that the visibility of the billboard was at risk of being reduced by construction of a building: at [80]. Since this risk was foreseeable it was difficult for the licensee to claim that the continuation of the same level of visibility of the sign was the common assumption of the parties when making their agreement: at [114]. The licensee could have insisted upon the inclusion of a clause providing for termination of the agreement in the event the visibility of the sign was reduced: oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 at [113].

Effect of frustration [11.480] When frustration of a contract occurs it automatically terminates the contract: Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154 at 163. Furthermore, the effect of frustration is to bring the whole contract to an end and not just some part of it: Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202 at 207. A frustrated contract is not void ab initio (that is, from the beginning) but is determined by the supervening impossibility. The future obligations of the parties are discharged, but rights and liabilities that have already accrued are not discharged: Renehan v Leeuwin Ocean Adventure Foundation Ltd (No 3) (2006) 17 NTLR 83 at [77]. The contract is brought to an end as a result of the frustrating event that has arisen since the formation of the contract. This rule that the contract is not void ab initio is subject to the exception that money paid under a contract where the consideration wholly fails may be recovered. In other words, where one party to the contract has paid money (such as a deposit) under a contract and, because of frustration, there is a total failure of consideration, the other party is under a duty to refund the money to the person paying it. This

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may cause hardship where a party to a contract has performed part of the work preparatory to performing their promise, as by manufacturing machinery in readiness for delivery, and tends to nullify the protection of obtaining a deposit. In Fibrosa Spolka Akcyjna v Fairbairn, Lawson, Combe, Barbour, Ltd [1943] AC 32 at 49 Viscount Simon LC in the House of Lords said: “[The law] cannot be regarded as dealing fairly between the parties in all cases, and must sometimes have the result of leaving the recipient who has to return the money at a grave disadvantage. He may have incurred expenses in connection with the partial carrying out of the contract, which are equivalent, or more than equivalent, to the money which he prudently stipulated should be prepaid but which he now has to return for reasons which are no fault of his. He may have to repay the money, though he has executed almost the whole of the contractual work, which will be left on his hands. These results follow from the fact that the English common law does not undertake to apportion a prepaid sum in such circumstances.” There is earlier Australian High Court authority to the effect that where a contract was frustrated, progress payments which had been made prior to the frustrating event were not recoverable even where the consideration for the payments had totally failed: Re Continental C & G Rubber Co Ltd (1919) 27 CLR 194 at 201, 204. However, it is probable that the High Court would now follow the contrary decision on this issue in Fibrosa Spolka Akcyjna v Fairbairn, Lawson, Combe, Barbour, Ltd [1943] AC 32 in preference to its own earlier decision.

Victoria [11.485] In Victoria the Australian Consumer Law and Fair Trading Act 2012 (Vic) provides that all sums paid to any person before the time of the discharge through frustration are recoverable: s 36(1). This extends the effect of Fibrosa Spolka Akcyjna v Fairbairn, Lawson, Combe, Barbour, Ltd [1943] AC 32 in that a complete failure of consideration is not necessary. However, if the payee incurred expenses for the purposes of the contract before the time of discharge, the court hearing the case may allow the payee to retain the whole or part of the money paid, up to the amount of the expenses incurred: s 37. If one party to the contract has by reason of anything done by the other party obtained a valuable benefit (other than a payment of money) before the time of discharge, the other party may recover such sum as the court considers just (up to the value of the benefit): s 38(1) – (2). The court may have regard to the amount of expenses incurred before discharge by the benefited party in performance of the contract and the effect, in relation to such benefit, of the circumstances giving rise to frustration of the contract: s 38(3). If the contract contains a provision that is intended to continue to have effect in the event of frustration of the contract the court must give effect to that provision. The court may give effect to the frustrated contracts provisions of the Act only to the extent that is consistent with the provisions of the contract: s 41. These provisions do not apply to a charter-party, any other contract for the carriage of goods by sea or a contract of insurance (subject to certain exceptions): ss 36(3), 40. On the other hand, these provisions apply to the situation where under the Goods Act 1958 (Vic) a contract for the sale of goods is avoided by the goods perishing before the property passes to the buyer: Australian Consumer Law and Fair Trading Act 2012 (Vic), s 35(1)(c).

New South Wales [11.490] In New South Wales the Frustrated Contracts Act 1978 (NSW) similarly adjusts the rights of the parties where a contract has been frustrated. In essence, the Act provides for: (a)

the repayment of moneys paid before frustration;

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(b)

payment for any benefit which a party has obtained from what another party has done under the contract; and

(c)

payment of one-half of the reasonable costs incurred by a party for the purpose of performing the contract.

However, where the court is satisfied that as regards the particular contract before it, the scheme of adjustment provided by the Act is manifestly inadequate or inappropriate, then the court may exclude the contract from the statutory scheme and substitute such adjustments in money or otherwise as it considers proper: s 15. The Act does not apply to contracts of insurance, contracts for the carriage of goods by sea, charter-parties and, perhaps most importantly, any other contract in which the parties have excluded the operation of the Act: s 6(1). The Act applies to the situation where under the Sale of Goods Act 1923 (NSW) a contract for the sale of goods is avoided by the goods perishing before the property passes to the buyer: Frustrated Contracts Act 1978 (NSW), s 5(1).

South Australia [11.500] In South Australia, the Frustrated Contracts Act 1988 (SA) provides that the frustration of a contract discharges the parties from all contractual obligations, with the exception of: (a)

an obligation that according to the proper construction of the contract is to survive frustration; or

(b)

a right of action for damages for breach of contract which arose before frustration, although in assessing damages the fact that the contract has been frustrated is to be taken into account: s 6.

On frustration there is to be an adjustment between the parties so that no party is unfairly advantaged or disadvantaged in consequence of the frustration: s 7(1). The formula for working out an adjustment between the parties is as follows: (a)

the value of contractual benefits received by each party up to the date of frustration are to be assessed and the values aggregated;

(b)

the value of the contractual performance of each party up to the date of frustration (including the costs incurred in carrying out, or preparatory to carrying out, contractual obligations) is to be calculated and the values aggregated; then

(c)

the aggregate amount under (b) is to be subtracted from the aggregate amount under (a), and the remainder notionally divided between the parties in equal shares: s 7(2).

Where the court considers that, in the circumstances of a particular case, there is a more equitable basis for making an adjustment between the parties then the court can make an adjustment on that basis rather than the one outlined above: s 7(4). In effecting an adjustment between the parties, the court is given wide powers to make orders for: the payment of money; the sale of property; the creation of a charge on property or the appointment of a receiver: s 7(5). Importantly, the Act is subject to any provision in the contract itself as to the consequences of frustration. The Act does not apply to a charter-party; a contract for the carriage of goods by sea; an insurance contract; a contract under which an association is constituted; or a partnership agreement: s 4(2). The Act applies (unless excluded by the contracting parties) to a case where under the Sale of Goods Act 1895 (SA) a contract for the sale of goods is avoided by the goods perishing before the risk is passed to the buyer: Frustrated Contracts Act 1988 (SA), s 3(2).

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Termination by operation of law [11.510] A contract may be terminated independently of the wishes of the parties by operation of law.

Bankruptcy [11.520] If a party liable under a contract becomes bankrupt they are personally relieved of the contract and the other party may prove in the bankrupt’s estate. There are also other provisions in the Bankruptcy Act 1966 (Cth) under which a trustee in bankruptcy may adopt or rescind certain contracts into which the bankrupt has entered. When the affairs of the bankrupt have been wound up, the bankrupt is given a certificate of discharge by the court, which releases the bankrupt from all debts provable in bankruptcy but the bankrupt is not released from liability in respect of certain types of debts, such as liability for fraud: see Chapter 31.

Merger [11.530] A deed may in certain cases displace a simple contract (which is then terminated) and the relations and rights of the parties are governed by the deed. When that happens the simple contract becomes merged in, and is extinguished by, the deed. The first agreement is terminated because the rights in the lesser contract merge by the operation of law into the greater. In order that merger of a simple contract in a deed may take place, the following conditions must be fulfilled: (a)

the parties to the two agreements must be the same;

(b)

the subject matter must be the same; and

(c)

the second security must be of a higher value than the first.

Another but different type of merger is that which takes place when a party recovers judgment upon a cause of action for breach of contract. Here the cause of action merges in the judgment.

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

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Remedies [12.20] Remedies depend on the nature of the breach................................................................................ 198 [12.70] The remedy of damages .............................................................................................................................. 199 [12.290] Penalties and liquidated damages...................................................................................................... 205 [12.340] Specific performance.................................................................................................................................. 209 [12.400] Injunction .......................................................................................................................................................... 210 [12.410] Limitation of actions.................................................................................................................................... 210 [12.430] Restitution........................................................................................................................................................ 212 [12.440] The basis of restitution.............................................................................................................................. 212 [12.450] Circumstances where restitution applies ....................................................................................... 213

Introduction [12.10] This brings us to a discussion of the principles concerning the remedies available where the contract is not performed in the way agreed between the parties. This chapter is divided into two main parts. The first part is concerned with the remedies available to an innocent party where there has been a breach of contract. An award of damages, that is, monetary compensation, is the basic common law remedy for a breach of contract. In certain circumstances, the equitable remedies of specific performance and injunction may be available. The second part of this chapter discusses restitution. A remedy in restitution is imposed by law independently of contract. An action in restitution is usually brought either because there is no express contract between the parties or such contract is void or unenforceable. Accordingly, an action in restitution may provide a remedy where otherwise there would be none.

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Remedies depend on the nature of the breach [12.20] The remedies available to an innocent party on breach of the contract by the other party largely depend upon the nature of the breach. Accordingly, it is useful to outline the basic remedies available to an innocent party in the event of a breach of contract where: (a)

the contract is terminated for the breach; and

(b)

the contract is not terminated for the breach.

Termination of the contract must be distinguished from repudiation of the contract. The party in default may have repudiated the contract, whereas the innocent party may have the right to terminate for breach of the contract: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [45].

Remedies where the contract is terminated for breach [12.30] If there has been a serious breach of contract such as a breach of a condition, that is, an essential term of the contract, the innocent party may elect to terminate the contract. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 the majority of the High Court accepted that a “sufficiently serious breach of a non-essential term” can also justify termination of the contract where that breach goes to the “root of the contract”: at [49], [53]-[54]: such a breach deprives the injured party of a substantial part of the benefit to which they are entitled under the contract: at [55].

case [12.40] In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the Land Council entered into a joint venture with Sanpine for the development and sale of land. The development did not eventuate. An administrator was appointed. Among other breaches, Sanpine had not kept adequate financial records and was unable to inform the administrator of the true financial position of the joint venture: at [68], [70]. The High Court held that while the individual terms breached would not justify termination for any breach, Sanpine’s breaches were gross and had serious consequences. The breaches went to the “root of the contract” and justified termination since they deprived the Land Council of a substantial part of the benefit to which it was entitled under the contract: at [71]. [12.50] If the innocent party does elect to terminate the contract for the breach then the contract comes to an end and the parties are released from further performance of their obligations under the contract: Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147 at [193]. In such a case, the innocent party can also sue for damages for the loss they have suffered in consequence of the breach.

Remedies where the contract is not terminated for breach [12.60] The breach may not be of such a serious nature as to entitle the innocent party to terminate the contract. This will be the case where there was only a breach of warranty. Alternatively, the breach may have entitled the innocent party to treat it as discharged but they have elected not to do so. In either situation the contract remains on foot and the parties remain liable to perform their obligations under the contract. In both these situations the innocent party is entitled to sue for damages for the breach of

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contract. In other words, at common law, any breach of an obligation under a contract by one party entitles the innocent party to seek monetary compensation by way of an award of damages for the loss they have suffered in consequence of the breach.

The remedy of damages [12.70] An award of damages, that is, monetary compensation, is the basic common law remedy for a breach of contract. The object of awarding damages for breach of contract is to compensate the innocent party for the loss resulting from such breach.

Principles applying to the assessment of damages [12.80] The common law has developed a number of basic principles concerning the assessment of damages. These are considered under the following headings: (a)

the general principle;

(b)

the damage must not be too remote; and

(c)

the duty to mitigate the loss.

The general principle [12.90] The general principle underlying an award of damages is that damages for breach of contract are awarded to place the innocent party, as far as money can do so, in the same position as they would be in if the contract had been performed: Robinson v Harman (1848) 1 Ex 850; 154 ER 363 at 855 (Ex), 365 (ER); Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [13]. The decision of the High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 established the following propositions: 1.

In most cases, the plaintiff is compensated for the loss of the benefits (usually the loss of profit) that it expected to receive in exchange for its own promise (described as “expectation damages”). The onus of proving such loss is on the plaintiff: at 80.

2.

Where it is not possible for a plaintiff to demonstrate whether, or to what extent, the performance of the contract would have resulted in a profit, the plaintiff can seek to recover the expenses (that is, the “wasted expenditure”) he or she reasonably incurred in reliance on the defendant’s promise to perform its obligations under the contract (such damages are referred to as “reliance damages” or “damages for wasted expenditure”): at 81, 104, 126-127, 154. 1

3.

If a plaintiff’s expenditure would not have been fully recovered if the contract had been performed, the plaintiff is entitled to damages only for an amount equivalent to that which would have been earned if the contract had been performed: at 84. The onus of proving that the plaintiff’s expenditure would not have been recouped even if the contract had been performed lies on the defendant.

case [12.100] In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, the respondent entered into a contract with the Commonwealth to conduct aerial coastal surveillance for three years. To 1

See G Ng, “The Onus of Proof in a Claim for Reliance Damages for Breach of Contract” (2006) 22 Journal of Contract Law 139.

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enable it to perform the contract, the respondent spent a substantial amount in acquiring specially equipped aircraft. The Commonwealth purported to terminate the contract but the notice it served was invalid. This amounted to a repudiation of the contract entitling the respondent to elect to terminate the contract and sue for damages. The High Court held that the respondent was entitled to recover the amount it had expended in preparing to perform the contract (that is, the respondent’s wasted expenditure was recoverable as “reliance damages”). It was not possible in the circumstances of the case to determine whether, or to what extent, the performance of the contract would have resulted in a profit for the respondent. This was particularly so in that performance of the contract would have put the respondent in a favourable position to obtain a renewal of the contract for coastal surveillance for a further term: at 94, 144-145.

case [12.110] A tenant of an office building carried out substantial renovations to the foyer without the consent of the landlord as required under the lease. The High Court held that the landlord had a contractual right to the preservation of the leased building against alterations to which it had not given its consent. The measure of damages was the cost of restoring the foyer to the state it would have been in had the tenant not breached its contractual obligation: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [15], [20].

case [12.111] When business assets were sold a substantial proportion of the assets did not comply with the contract. The purchaser had to buy suitable assets from an alternative source. The High Court held that the measure of damages was the value of what the purchaser would have received if the contract had been performed: at [10], [25], [106]. In this case that was the “loss to the purchaser of the value of the stock”, which was to be assessed as at the date of the breach: at [13], [24], [75], [109]. It was irrelevant that the damages were thereby higher than the contract price: Clark v Macourt (2013) 253 CLR 1 at [13], [135]. 2

The damage must not be too remote [12.120] The consequences flowing from a breach of contract might be completely unexpected and unforeseen. In such circumstances, the common law considered that it would be neither just nor practicable for the party in breach to be liable for every conceivable loss that might arise in consequence of their breach of contract. Accordingly, the principle was developed that the damages recoverable are limited to those that are not too remote. That is to say, the loss suffered, to be compensable by an award of damages, must have been within the reasonable contemplation of the parties as likely to result from the breach of contract. The party who is in breach of contract is liable in damages to the other contracting party for: (a)

2

loss arising naturally from the breach, that is, loss occurring in the usual or normal course of things from the breach of contract; or See JW Carter, “Issues of Principle in Assessing Contract Damages” (2014) 31 Journal of Contract Law 171; JW Farinha, “Damages for Breach of Contract: Clark v Macourt” (2014) 28(2) Commercial Law Quarterly 47.

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(b)

loss which is actually contemplated as a probable result of the breach, that is, loss occurring as a result of special or exceptional circumstances where such were made known to the party in breach so that they could have reasonably contemplated the likelihood of exceptional loss if the contract was broken: Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 at 354 (Exch), 151 (ER). 3

The effect of these rules on the question of the remoteness of damage was explained by the House of Lords in Koufos v Czarnikow Ltd [1969] 1 AC 350. In that case it was held that damage in the reasonable contemplation of the parties must be “a serious possibility”, “a real danger”, “liable to result” or “not unlikely” to occur: at 388, 406, 410, 414-415, 425. In particular, Lord Reid said that: “The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation”: at 385.

case [12.130] The plaintiffs ordered a bulk food storage hopper from the defendants for the purpose of storing pignuts for feeding their pig herd. When the defendants installed the hopper they failed to ensure that the ventilator at the top of the hopper was open. The result was that the pignuts became mouldy and caused the outbreak of an intestinal infection in the pigs and 254 of them died. The plaintiffs brought an action for substantial damages. It was held by the United Kingdom Court of Appeal that the plaintiffs were entitled to recover their loss. The court said that damages for breach of contract were recoverable in respect of injury or loss where the parties, at the time of the contract, would have “contemplated as a serious possibility the type of consequence, [though] not necessarily the specific consequence” that would ensue in the event of a breach of the contract: at 813. On the particular facts, it must have been within the contemplation of the parties that injury to the pigs was a serious possibility if, in breach of the contract, the hopper was unfit for storing nuts suitable to be fed to the plaintiffs’ pigs: H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791 at 805, 813.

case [12.140] The appellant flooring contractors were engaged by the respondents to resurface a parquetry floor in a house they were renovating. The appellants’ work was so defective that the floor had to be replaced. There had also been considerable delays in completion of the work. It was held that the respondents were entitled to damages for the cost of replacing the floor: at 210. However, the respondents’ claim for loss of rent was rejected since the appellants were never informed of the respondents’ intention to let the house; such loss was “not a loss in the ordinary course of things nor was it one which should have been reasonably contemplated by the appellants”: Day v O’Leary (1992) 57 SASR 206 at 212.

The duty to mitigate the loss [12.150] The law imposes a duty upon a person claiming damages to take all reasonable steps to mitigate, that is minimise, the loss caused by the breach of contract. A person who fails to mitigate their loss cannot 3

See A Tettenborn, “Hadley v Baxendale Foreseeability: a Principle Beyond Its Sell-by Date?” (2007) 23 Journal of Contract Law 120.

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recover any part of the loss that is attributable to their failure to do so. The question whether a person claiming damages has failed to take reasonable steps to mitigate their loss is one of fact dependent upon the particular circumstances. The burden of proving that there has been a failure to mitigate the loss rests upon the person from whom the damages are claimed.

case [12.160] For example, under a contract to deliver goods by instalments, payment to be made within one month of each delivery, less 2.5 per cent discount, the buyers failed to make a punctual payment of the first instalment. The seller wrongly treated this as sufficient to repudiate the contract but offered to continue deliveries at the contract price if the buyers would pay cash at the time of each order. This offer was rejected. The price of the goods having risen, the buyers sued for breach of contract: at 581-582. It was held that the seller was liable for damages since the failure to make a punctual payment in respect of the first instalment did not amount to a breach on the part of the buyers sufficient to entitle the seller to treat the contract as repudiated: at 584. On the other hand, it was held that the buyers should have mitigated their loss by accepting the seller’s offer, and that the damages recoverable were not to be measured by the difference between the contract and market price but by the loss that would have been suffered had the offer been accepted: Payzu Ltd v Saunders [1919] 2 KB 581 at 589. [12.170] A person suing for damages for breach of contract is only required to act reasonably in mitigating their loss and is not required to take undue steps, expose themselves to risk, or spend money which they cannot afford simply to reduce the amount of their loss. This is particularly so where the plaintiff’s financial difficulties were primarily the consequence of the defendant’s breach of contract: Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 658-660 per Gibbs CJ.

case [12.180] A purchaser of land terminated the contract for breach of a contractual provision regarding time for completion. The vendor offered to complete the contract under judicial supervision. The New South Wales Court of Appeal held that the purchaser had failed to mitigate its loss by accepting the vendor’s offer: at [54]. An innocent party who was entitled to terminate may act unreasonably by not mitigating its loss by completing the contract: Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 at [79], [81], [83].

case [12.181] When business assets were sold a substantial proportion of the assets did not comply with the contract. The purchaser had to buy suitable assets from an alternative source. The buyer charged their customers for the cost of acquiring the assets from the alternative supplier. The High Court held that the purchase of the replacement assets left the buyer no better or worse off than before the replacement purchase: at [19], [37]. If the purchaser had been better off, that would have been a mitigation of their loss: Clark v Macourt (2013) 253 CLR 1 at [21].

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Difficulty of quantifying damages no bar to recovery [12.190] In certain circumstances it may be difficult to quantify or assess the loss in monetary terms resulting from the breach of contract, particularly where the loss is of a speculative nature. However, mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can: Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at [38]. In fact, it has been said that the “assessment of damages … does sometimes, of necessity involve what is guesswork rather than estimation”: Jones v Schiffmann (1971) 124 CLR 303 at 308 per Menzies J. It has been held that damages may be awarded for the loss of a chance or an opportunity to secure a benefit where there is a legal obligation to provide the chance or opportunity:

case [12.200] In Howe v Teefy (1927) 27 SR (NSW) 301, a racehorse was leased by the defendant to the plaintiff trainer for three years. Three months later, in breach of the contract, the defendant retook possession of the horse. The plaintiff brought an action claiming damages for the loss of profits he would have made from his own bets on the horse and supplying information for reward to other persons. The jury awarded the plaintiff £250 damages. The defendant appealed on the grounds that the prospective winnings of the plaintiff from bets and stable commissions were too remote to be recovered as damages, and that there was no evidence on which the jury could have assessed such winnings: at 303-404. The New South Wales Full Supreme Court dismissed the defendant’s appeal. In the court’s view, the plaintiff had been deprived of his right to make what profit he could from the use of the horse and that right was capable of assessment in monetary terms: at 307. Street CJ said: “[I]f a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty”: at 306.

Damages not usually recoverable for disappointment or distress [12.210] The general rule is that damages are not recoverable for disappointment, distress, injured feelings or mere inconvenience arising from a breach of contract: Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 361, 368–369, 380–381, 394–395, 404–405.

case [12.220] The defendant retail merchant contracted with the plaintiff, a householder, to supply and install an oil heater in the plaintiff’s home. The defendant installed the heater and engaged an electrician to connect it. The electrician informed the plaintiff that a new power point was necessary and that it would cost an extra $5. The plaintiff refused to pay and so the electrician did not complete the wiring. Some months later, the plaintiff ran a temporary lead from a power point in the kitchen to provide electricity to the heater: at 448. The plaintiff sued the defendant claiming damages for the cost of the electrical installation and for the inconvenience he had suffered. It was held that the contract was an ordinary commercial contract for breach of which the plaintiff was not entitled to recover damages for inconvenience and mental distress. The measure of damages

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was limited to the cost involved in remedying the breach by the defendant to fully install the heater (by then, $11): Falko v James McEwan & Co Ltd [1977] VR 447 at 452-453. [12.230] An exception to the general rule is that damages are recoverable for distress or disappointment arising from breach of an express or implied term that the promisor will provide the promisee with pleasure, enjoyment or personal protection, or where the distress or disappointment is consequent upon the suffering of physical injury or physical inconvenience: Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 363, 371-372, 381, 383, 405.

case [12.240] In Baltic Shipping Co v Dillon (1993) 176 CLR 344, the respondent paid $2,205 in advance for a 14-day cruise in the South Pacific. The object of the contract was to provide an enjoyable and relaxing holiday experience and there was an implied term to this effect. However, after eight days the ship struck a rock and sank. In an action against the appellant owners and operators of the vessel, the respondent was awarded $5,000 for disappointment and distress in addition to compensatory damages for loss of belongings and personal injuries including the trauma she suffered in the shipwreck. The High Court affirmed the $5,000 damages awarded for the respondent’s disappointment and distress: at 366, 383, 387, 406. The High Court further held that the respondent was not entitled to recover the whole of the cruise fare since there had not been a total failure of consideration, the respondent having enjoyed the benefits of the first eight days of the cruise: at 353, 367, 372, 378, 383, 386, 392. In the court’s opinion to award full restitution of the fare in addition to damages for breach of contract would have been to give the respondent excessive compensation: at 366, 379-380, 383, 406.

Damages and contributory negligence [12.250] Under the apportionment legislation of the various States, the damages awarded to a successful plaintiff suing in tort are reduced by the extent of any contributory negligence on the part of the plaintiff. However, in Astley v Austrust Ltd (1999) 197 CLR 1, the High Court held that the apportionment legislation of South Australia required apportionment for contributory negligence only in a tort action, not in an action for breach of contract. The Court held that the South Australian apportionment legislation was directed only to claims in tort, and not to claims in contract: at [89]. The apportionment legislation of the other States was in similar terms. Consequently, the case would have been of application throughout Australia. However, all jurisdictions subsequently amended their apportionment legislation to permit the apportionment of damages for breach of contractual duty of care in cases of contributory negligence. 4

4

See Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9; Wrongs Act 1958 (Vic), s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA), ss 3A–4; Wrongs Act 1954 (Tas), s 4; Civil Law (Wrongs) Act 2002 (ACT), s 102; Law Reform (Miscellaneous Provisions) Act 1956 (NT), s 16.

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Ordinary, nominal and exemplary damages Ordinary damages [12.260] The damages we have so far considered in this chapter are variously referred to as ordinary, actual or compensatory damages, that is, the damages flowing from the breach of contract to compensate the innocent party for the actual loss suffered. These are by far the most important kind of damages. To be distinguished from such damages are two other kinds of damages, namely, nominal damages and exemplary damages.

Nominal damages [12.270] Where there has been an infringement of a legal right, for example a breach of contract, but the plaintiff is unable to establish that they have suffered any actual loss, only nominal damages will be awarded, that is a token sum of, say, $1: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 301, 305, 312.

Exemplary damages [12.280] Exemplary damages are not only awarded as a means of compensation but to punish the party in default in view of the intentional or flagrant nature of the breach. They are only awarded in exceptional circumstances.

Penalties and liquidated damages [12.290] In the normal case damages are “unliquidated”, that is, no amount is mentioned in the contract, and the matter is left for the court to determine. If there is an amount fixed in the contract as to what should be paid in the event of a breach, then the damages are said to be “liquidated”. Where an amount is mentioned in the contract as the amount to be paid by a defaulting party on a breach of contract, it will be construed as liquidated damages if the amount is a genuine pre-estimate of damages for loss sustained through breach of the contract. Otherwise it will be construed as a penalty, that is to say a sum inserted merely in terrorem in order to deter the other party from a possible breach. A penalty is not directed to the consequences of a breach, but seeks to “coerce performance”: Fermiscan v James (2009) 261 ALR 408 at [145]. “If, as a matter of substance, the provisions of an agreement operate, in the case of breach or non-performance, to impose some additional or different financial obligation in the nature of a punishment (as distinct from a genuine pre-estimate of damage or withdrawal of a mere incentive), they will prima facie impose a penalty …”: Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 at 520 per Deane J. If the amount stated is held to be a penalty, then only the actual loss sustained can be recovered. If the sum named is held to be liquidated damages, then that sum is recoverable, whether it exceeds or is less than the actual loss.

case [12.300] In the leading case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, manufacturers sold certain motor car tyres and other accessories to the defendants who agreed not to sell at a figure below certain listed prices. The defendants also agreed to pay £5 by

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way of liquidated damages for every breach of the agreement. They sold a tyre in breach of this clause: at 85. It was held that the sum was not a penalty and was recoverable as it was intended as a genuine pre-estimate of estimated loss: at 88, 97, 99, 105. [12.310] The significance of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 lies in the guidelines set down by Lord Dunedin in determining whether the sum stipulated in the contract as being payable in the event of breach constitutes a penalty or liquidated damages. He said: (a)

It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. …

(b)

It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid. …

(c)

There is a presumption (but no more) that it is a penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage”.

… On the other hand: (d)

It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility: at 87-88.

It is frequently difficult to determine whether an amount expressed in a contract to be payable on a breach is actually a penalty or liquidated damages. The issue arose for consideration before the High Court in O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 374-375, 383, 393, 404:

case [12.320] The appellant lessees entered into a leasing contract with the respondent company for a prime mover. The agreement provided for a lease of the vehicle “for a period of 36 months at an entire rental of $39,550.32”, which sum was stated to be due on the signing of the lease with the proviso that if the lessees duly performed all the conditions of the lease and punctually paid the instalments, the lessor would not enforce payment of the entire rent other than by the stipulated monthly instalments of $1,098.62. The lease contained a further clause to the effect that if the lessee defaulted in the punctual payment of any monthly rental instalment, the lessor could immediately retake possession of the vehicle and on such event “all moneys due for unexpired terms shall become immediately due and payable”. The lease further provided that on the goods coming into the lessor’s possession either at the end of the lease, or on the lessor’s repossession of the goods, the lessees were to be liable for the difference between the best price obtainable by the lessor for the goods and the appraisal value (that is, the estimated residual value of the goods) stated in the lease. There was no provision requiring the lessor to account to the lessees for any amount received on a resale of the goods even in the event that the price obtained on the resale exceeded the stated appraisal or residual value of the goods. The lessees duly paid the monthly rental under the lease for seven or eight months when they defaulted in payment. The lessor retook possession of the vehicle and sold it for $20,000, the appraisal value stated in the schedule to the agreement being only $13,300. The lessor then brought

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an action against the lessees claiming, inter alia, the difference between the total rent payable under the agreement, that is, the total rent payable for 36 months less the amount of the instalments paid – the sum claimed under this head being $31,436.04. No provision was made in the agreement for a rebate or discount on the balance of the instalments by reason of their having become immediately payable: at 364-366. It was held by the High Court that the amount sought to be recovered by the lessor under the terms of the lease constituted a penalty and not a genuine pre-estimate of damage, and hence the terms of the lease providing for the recovery of such sum was unenforceable. Gibbs CJ said: “The [lessor] became entitled under the contract to receive the accelerated payments of the rental without any rebate and to receive back the vehicle sooner than would otherwise have been the case without giving credit for its value, and, in these circumstances, the amount receivable by the (lessor) was manifestly excessive in comparison with the greatest loss that it could possibly suffer as a result of the default in payment of the instalments. … I have no doubt in principle that the provisions requiring the payment of the entire rent amount to a penalty”: at 369. Accordingly, the lessor was only entitled to recover the arrears of rental up to the time of repossession, certain other incidental costs, and damages for the actual loss they could establish resulting from the lessees’ breach of contract: O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 374-375, 383, 393, 404. [12.330] In Ringrow Pty Ltd v BP Australia (2005) 224 CLR 656, the High Court held that mere disproportion to the likely damage was not sufficient to render a clause a penalty. The Court unanimously stated that, to be a penalty, the amount “must be judged ‘extravagant and unconscionable in amount’. It is not enough that it should be lacking in proportion. It must be ‘out of all proportion’”: at [32]. In Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 the appellants challenged various bank “exception fees” as penalties. The Federal Court held that most of these fees did not operate as a consequence of a breach of contract by the customer: at [21]-[22]. The High Court held that the application of the law of penalties was not restricted to situations where there had been a breach of contract or where a party was obliged to avoid the occurrence of a certain event: at [45], [84]. The Court also held that the law of penalties was not solely a common law rule as it derives from equity: at [51], [63]. The case was returned to the Federal Court to determine whether the fees at issue were penalties: at [83]. 5

case [12.331] A bank charged a substantial fee for late payment of the minimum monthly amount required under a customer’s credit card: at [1]. The High Court held that this late payment fee was not a penalty. The bank had three legitimate interests that were protected by the late payment fee. The first interest was the operational costs of seeking payment by customers: at [59]. The second interest was provisioning costs, since the risk of default by customers increased with late payment: at [63],

5

See A Gray, “Contractual Penalties in Australian Law After Andrews: An Opportunity Missed” (2013) 18 Deakin Law Review 1; R Manly, “Breach No Longer Necessary: The High Court’s Reconsideration of the Penalty Doctrine” (2013) 41 Australian Business Law Review 314; S Harder, “The Relevance of Breach to the Applicability of the Rule Against Penalties” (2013) 30 Journal of Contract Law 52; P Easton, “Penalties Percolating Through the Construction Industry: Andrews v Australia and New Zealand Banking Group Ltd” (2013) 29 Building and Construction Law Journal 233.

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[99]. The third interest was increased regulatory capital costs, since an increase in the risk of default by customers increased the amount of regulatory capital that the bank was required to maintain: at [58], [100]. Kiefel J held that the interests that may be protected by a contractually required sum payable upon breach were not restricted to the amount that would be recoverable in an action for breach of contract: at [26], [41]. These interests “may be of a business or financial nature”: at [29]. The customer had called evidence in relation to the bank’s operational costs, but not in relation to the other interests protected by the fee. It had thus not been shown that the fee was a penalty: at [68]. French CJ agreed with Kiefel J: at [2]. Gageler J also held that the interests that may be protected were not limited to the amount that would be recoverable for breach of contract: at [161]-[162]. One factor that suggested that the fee could be a penalty was the fact that the amount payable was the same irrespective of the amount overdue and for how long it was overdue. However, other factors outweighed that consideration. The minimum amount was payable monthly and was a small percentage of the full debt. The customer controlled the transactions made using the card and was able to cancel the card: at [168]. The bank’s provisioning costs and regulatory capital costs arising from a breach would not have been recoverable in an action for breach of contract: at [171]. However, both of those costs were commercial interests of the bank: at [172]. When those interests were taken into account, the late payment fee was not “grossly disproportionate” to the bank’s costs arising from a breach: at [173]. Keane J also held that the bank’s legitimate interests were not limited to its operational costs in seeking payment of the overdue amount: at [216]. A genuine pre-estimate of damage could include losses that would not be recoverable in an action for breach of contract. Recovery of such losses did not have a punitive purpose: Paciocco v Australia and New Zealand Banking Group Ltd (2016) 90 ALJR 835 at [283].

Forfeiture of deposits [12.332] A contract may provide for the payment of a deposit as “an earnest of performance which, on default, may be retained and credited against the damage suffered”: NLS Pty Ltd v Hughes (1966) 120 CLR 583 at 589 per Barwick CJ.

case [12.333] A property owner entered into a contract with a fencing manufacturer to install a fence and gates. The contract price was $47,300 with a deposit of $17,300. At the time they entered into the contract the parties had not discussed the details of the gates. The manufacturer was unable to manufacture gates of the width sought by the property owner, but was able to manufacture and install the fence. The property owner told the fencing manufacturer that its services were no longer required as he had contracted with a different company to manufacture and install the fence and gates. The fencing manufacturer did not refund the deposit: at [5]–[7]. The Victorian Supreme Court held that the deposit had been forfeited by the property owner’s unilateral repudiation of the contract and the retention of the deposit by the manufacturer was not unconscionable: Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd (2011) 34 VR 257 at [69].

chapter 12 Remedies

Specific performance [12.340] A decree of specific performance is an order of the court requiring a party to perform the obligations under the contract. It is a remedy directed towards enforcing the carrying out of the contract as originally agreed to by the parties. Specific performance is an equitable remedy and is entirely within the discretion of the court. An application for a decree of specific performance will only be granted in circumstances where damages do not provide an adequate remedy for breach of contract. It is mainly granted with respect to contracts for the sale of land 6 and also in contracts where the goods are unique, for example, rare works of art. Specific performance will not be granted in the following cases:

(a) Where damages are an adequate remedy [12.350] It is for this reason that specific performance of a contract for the sale of goods will not normally be ordered. An award of damages is usually a sufficient remedy to compensate for the breach of contract, for example the buyer can go out into the market and buy equivalent goods. However, in exceptional circumstances, for example where the contract is for the sale of rare or unique items that cannot be readily purchased elsewhere, specific performance of the contract may be granted.

(b) Where the contract is for personal services [12.360] Specific performance will not be ordered to enforce a contract for personal services.

(c) Where the contract would require constant supervision by the court [12.370] Specific performance will not be ordered where constant supervision by the court would be necessary to ensure compliance with the order: JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 at 297-298 per Dixon J.

case [12.380] The lessor of a block of flats agreed to provide a porter who was to be “constantly in attendance” and perform specified duties. The porter appointed by the lessor was also employed as a chef in a nearby club and during his absence for several hours each day, his duties were performed by other persons. One of the tenants sought an order for specific performance of the obligation: at 118. It was held that specific performance could not be ordered since the court could not guarantee by its order that the porter would remain in constant attendance without constantly supervising such attendance: Ryan v Mutual Tontine Westminster Chambers Assoc [1893] 1 Ch 116 at 123, 125, 128.

(d) Where the order is not mutually available [12.390] Specific performance will not generally be granted unless it is available to both parties: Boyd v Ryan (1947) 48 SR (NSW) 163 at 165.

6

See K Yin, “Specific Performance in Favour of a Purchaser under a Contract for the Transfer of Land — An Analysis of the Present Australian Position” (2015) 41 Australian Bar Review 79.

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Where the circumstances do not fall within one of the exceptions discussed at [12.350]–[12.390], specific performance may be ordered. However, since it is an equitable remedy, the court has discretion whether or not to grant an application for the remedy. Accordingly, specific performance will be refused if its effect would be to cause unfairness or undue hardship to the defendant. Such circumstances include where there has been a mistake on the part of the defendant; undue delay in seeking the remedy; or breach by the plaintiff of her or his contractual obligations in circumstances where the grant of specific performance would be unjust to the defendant. A threatened refusal to perform a contract is sufficient to entitle the other party to apply for an order for specific performance: Turner v Bladin (1951) 82 CLR 463 at 472.

Injunction [12.400] An injunction is an order of a court restraining a person from doing a wrongful act. In the present context, an injunction is an order restraining (prohibiting) a party from breaching their contractual obligations. It is usually granted to prevent a party from doing something that he or she has promised not to do. An injunction will not be granted where its effect would be to compel a person to do something that he or she would not have been ordered to do by a decree of specific performance. An injunction will not be granted where its effect would be to require a contract for personal services to be specifically performed: Page One Records Ltd v Britton [1968] 1 WLR 157 at 167. On the other hand, if the injunction sought would not necessarily have the effect of forcing the defendant to perform their contract for personal services, then an injunction may be granted: Warner Bros Pictures Inc v Nelson [1937] 1 KB 209 at 219-220; Warner Bros Pictures Inc v Ingolia [1965] NSWR 988 at 992. Like a decree of specific performance, an injunction is a discretionary remedy and accordingly is likely to be refused where, for example, the plaintiff has been guilty of delay or is in breach of their obligations under the contract. Furthermore, again like a contract of specific performance, an injunction will not usually be granted if in the particular circumstances, damages would be an adequate remedy.

Limitation of actions [12.410] Certain Acts, generally referred to as the “Statutes of Limitations”, limit the periods during which legal proceedings may be taken to enforce a right under a contract. 7 The statutes do not in general affect the rights of the parties under the contract but merely their remedies, that is, the statutes prevent parties suing on such contracts after the expiration of a certain time. 7

Limitation Act 1969 (NSW): simple contracts (6 years), s 14(1)(a); torts (6 years), s 14(1)(b); specialties (12 years), s 16; recovery of land by persons other than Crown (12 years), s 27(2); recovery of land by Crown (30 years), s 27(1). Limitation of Actions Act 1958 (Vic): simple contracts (6 years), s 5(1)(a); specialties (15 years), s 5(3); recovery of land (15 years), s 8. Limitation of Actions Act 1974 (Qld): simple contracts (6 years), s 10(1)(a); specialties (12 years), s 10(3); recovery of land (12 years), s 13. Limitation of Actions Act 1936 (SA): simple contracts (6 years), s 35(a); specialties (15 years), s 34; recovery of land (15 years), s 4. Limitation Act 2005 (WA): simple contracts (6 years), s 13; deeds (12 years), s 18; recovery of land (12 years), s 19. Limitation Act 1974 (Tas): simple contracts (6 years), s 4(1)(a); specialties (12 years), s 4(3); recovery of land by persons other than Crown (12 years), s 10(2); recovery of land by Crown (30 years), s 10(1). Limitation Act 1985 (ACT): simple contracts (6 years), s 11(1); deeds (12 years), s 13; mortgages (12 years), ss 23 – 24. Limitation Act 1981 (NT): simple contracts (3 years), s 12(1)(a); deeds (12 years), s 14(1); mortgages (12 years), ss 26 – 27.

chapter 12 Remedies

The object of these statutes is to prevent the possibility of litigation continuing indefinitely. If such a statute were not in operation, a person might find it necessary to defend an action a considerable number of years after an alleged breach of contract, when perhaps they would be unable to secure evidence and witnesses might be dead. Briefly, the effect of the Statutes of Limitations is to prevent an action being brought: (a)

(b)

in the case of specialty contracts (contracts under seal), after the expiration of: (i)

12 years (New South Wales, Queensland, Tasmania, Western Australia, Australian Capital Territory and Northern Territory);

(ii)

15 years (Victoria and South Australia) from the date upon which the cause of action arose;

in the case of simple contracts, after six years from the cause of action arising (three years in the Northern Territory).

On the expiration of the period prescribed, the right of taking proceedings is barred although the actual debt itself may still exist. For example, where a simple debt has been ignored for six years, the creditor would not be able to recover the amount by legal action, although if the creditor held goods or other property as security for the debt the statute does not affect in any way their right of lien on these. Nor, if the situation arose that the creditor came to owe money to the debtor, would it prevent the creditor deducting from the amount of such money the statute-barred debt. 8 The time limitation begins to run from the date when an action can be first instituted, for example, where goods have been delivered on the condition that they are to be paid for on the expiration of 60 days from date of invoice, the right of action does not arise until the expiration of the period of credit. The commencement of the operation of the Statutes of Limitations is suspended where certain disabilities attach to the parties (for example, minority or insanity) at the time when the cause of action arises. In these circumstances the period runs from the time when the disability ceases. An important point to note is that, except in New South Wales, if the period once begins to run, it cannot be stopped or affected by any subsequent disability. 9 In cases where fraud has been perpetrated, the period runs from the discovery of the fraud or from the time when, with the exercise of reasonable diligence, it might have been discovered.

Acknowledgment of statute-barred debts [12.420] The right of action on a contract may be revived either by acknowledgment or part payment. 10 8

It is doubtful whether in New South Wales a statute-barred debt may now be revived by an acknowledgment or part payment. Section 54 of the Limitation Act 1969 (NSW) which deals with acknowledgments or “confirmations” applies only after the limitation period has commenced to run but before it has expired. Section 63 provides that upon the expiration of the limitation period the right title and interest of the person who formerly had the cause of action is extinguished. Notwithstanding the provisions of s 63, s 68 preserves the debt where the creditor has a possessory lien, but only in such cases.

9

In New South Wales, the Limitation Act 1969 (NSW) provides that if, after the limitation period has commenced to run, the person having the cause of action suffers a disability as defined in s 11(3) the running of the limitation period is suspended for the duration of the disability: s 52. It is doubtful whether in New South Wales a statute-barred debt may now be revived by an acknowledgment or part payment. Section 54 of the Limitation Act 1969 (NSW) which deals with acknowledgments or “confirmations” applies only after the limitation period has commenced to run but before it has expired. Section 63 provides that upon the expiration of the limitation period the right title and interest of the person who formerly had the cause of action is extinguished. Notwithstanding the provisions of s 63, s 68 preserves the debt where the creditor has a possessory lien, but only in such cases.

10

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Provided sufficient acknowledgment or part payment is received after the expiration of the statutory period the right of action will be revived for a further period. Should the acknowledgment or part payment be made before the expiration of the statutory period the time begins to run again from the date of that event. 11 In order to constitute a valid acknowledgment of a simple contract, 12 there must exist in the written notice of the debtor an express or implied promise to pay and in order to sue for the total amount owing there must be an unconditional promise to pay the whole amount. The kind of acknowledgment needed has been described as follows: “There must be one of these three things to take the case out of the statute. Either there must be an acknowledgment of the debt, from which a promise to pay is to be implied; or, secondly, there must be an unconditional promise to pay the debt; or, thirdly, there must be a conditional promise to pay the debt, and evidence that the condition has been performed”: Re The River Steamer Co, Mitchell’s Claim (1871) LR 6 Ch App 822 at 828 per Mellish LJ. Should the debtor, for example, write to their creditor stating, “You may as well be satisfied as you will not be paid another cent”, there is no revival of the debt as no promise to pay the balance can be implied. However, it has been held that a statement by the debtor of their inability to pay at the present time is sufficient to constitute a revival provided a promise to pay the balance can be inferred.

Restitution [12.430] The term restitution refers to the remedies provided by the law to compel the payment of money by A to B where it would be unjust to allow A to retain the benefit of money, goods or services which A has received at the expense of B. A remedy in restitution is imposed by law independently of contract. An action in restitution is usually brought either because there is no express contract between the parties or such contract is void or unenforceable. Accordingly, an action in restitution may provide a remedy where otherwise there would be none.

The basis of restitution [12.440] Some case law has regarded the remedy of restitution as based on unjust enrichment. That is, the defendant is ordered to restore money or other benefit (or its value) that they have received from the plaintiff because otherwise the defendant would be unjustly enriched at the plaintiff’s expense. The concept of unjust enrichment has been described as “a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair 11

12

In New South Wales s 54 of the Limitation Act 1969 (NSW) provides that where after a limitation period has commenced to run but before it has expired the person against whom the cause of action lies confirms the cause of action, the time prior to the date of confirmation shall not thereafter count in the reckoning of the limitation period in respect of the cause of action confirmed. It is doubtful whether in New South Wales a statute-barred debt may now be revived by an acknowledgment or part payment. Section 54 of the Limitation Act 1969 (NSW) which deals with acknowledgments or “confirmations” applies only after the limitation period has commenced to run but before it has expired. Section 63 provides that upon the expiration of the limitation period the right title and interest of the person who formerly had the cause of action is extinguished. Notwithstanding the provisions of s 63, s 68 preserves the debt where the creditor has a possessory lien, but only in such cases. However, acknowledgments or “confirmations” and payments are still of importance since if given or made before the expiration of a limitation period they, in effect, start a fresh period of limitation running. For the purpose of the New South Wales Act, a person “confirms” a cause of action if, but only if, he or she: (a) acknowledges in writing signed by her or him to the person having the cause of action, the right or title of the person having the cause of action; or (b) makes to the person having the cause of action a payment in respect of that cause of action.

chapter 12 Remedies

and just restitution for a benefit derived at the expense of a plaintiff”: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256-257 per Deane J. 13 However, the High Court has recently emphasised that unjust enrichment is not a “definitive legal principle” and is “not a principle supplying a sufficient premise for direct application in a particular case”: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at [73] per Hayne, Crennan, Kiefel, Bell and Keane JJ, see also at [139] per Gageler J. Restitution will usually be awarded only where: (a)

the defendant has received some form of benefit (that is, has been “enriched”);

(b)

that benefit or “enrichment” was at the plaintiff’s expense;

(c)

it would be “unjust” to permit the defendant to retain the benefit; and

(d)

there are no defences available to the defendant, for example change of position, estoppel, incapacity or illegality. It is a defence to restitution that the recipient of a mistaken payment has in good faith changed their position to their detriment in reliance upon the mistaken payment: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at [27], [77], [84], [157]. For example, not taking legal action to enforce a debt and continuing to trade with the debtor may constitute such a change of position: at [28], [93], [166]. 14

Circumstances where restitution applies [12.450] There are two basic situations in which restitution may provide an appropriate remedy: (a)

where the plaintiff is claiming the return of money, for example because of a total failure of consideration, or where it was paid under a mistake; and

(b)

where the plaintiff is claiming a “reasonable remuneration” for work done or services provided and there is no enforceable contract between the parties.

Recovery of money paid [12.460] Restitution may provide a remedy for the recovery of money paid where: (a)

there is a total failure of consideration;

(b)

it is paid under a mistake of fact;

(c)

it is paid under a mistake of law; or

(d)

it is paid under compulsion or duress.

Money paid where there is a total failure of consideration [12.470] Where the plaintiff has paid money under a contract that has been discharged by reason of the defendant’s breach, the plaintiff can recover such moneys in an action for restitution provided that there has been a total failure of consideration, that is, where the plaintiff has received no benefit under the contract. The money is recoverable by the plaintiff in such a case because, otherwise, the defendant would be unjustly enriched: see Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at [20], 13

See generally R Andrew, “The Fabrication of Unjust Enrichment in Australian Law: Pavey & Matthews v Paul Reassessed” (2010) 26 Building and Construction Law Journal 314.

14

See E Bant and P Creighton, “The Australian Change of Position Defence” (2002) 30 University of Western Australia Law Review 208; A Duke, “The Knowing Receipt ‘Knowledge’ Requirement and Restitution’s ‘Good Faith’ Change of Position Defence: Two Sides of the Same Coin?” (2010) 35 University of Western Australia Law Review 49.

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[173], [199]. 15 Conversely, the provision of good consideration by the payee is a defence to a restitutionary claim: Adrenaline Pty Ltd v Bathurst Regional Council (2015) 322 ALR 180 at [79]-[83].

Money paid under a mistake of fact [12.480] Where money has been paid under a fundamental mistake of fact, the recipient is bound prima facie to repay the amount received. 16 However, an agent who receives money for their principal will have a good defence to an action if the agent either paid the money to the principal, or on the principal’s behalf, before learning that the money had been paid under a fundamental mistake. This was decided by the High Court in Australia & New Zealand Banking Group Ltd v Westpac Banking Corp (1988) 164 CLR 662:

case [12.490] ANZ made a telegraphic transfer of a sum of money on behalf of a customer to a Westpac customer. As a result of a clerical error, $100,000 more was transferred than should have been. ANZ informed Westpac of the mistake three days later. In the meantime, Westpac had paid cheques of its customer totalling some $83,000 out of the $100,000 overpayment. Westpac’s customer subsequently went into liquidation and ANZ sought to recover the overpayment from Westpac: at 668, 677. It was “common ground … that, if ANZ had demanded repayment of the $100,000 immediately after the transfer of funds had been received and before Westpac had … dealt with the money, Westpac would have been liable to repay the $100,000 to ANZ on the ground that it was money paid [under] a fundamental mistake”: at 671. However, on the particular facts, the High Court held that since Westpac had received the transfer from ANZ as an agent or intermediary for its customer, its liability to ANZ was limited to $17,000, the rest of the overpayment having already been paid out by Westpac on behalf of its customer before it received notice of the overpayment: Australia & New Zealand Banking Group Ltd v Westpac Banking Corp (1988) 164 CLR 662 at 674-675, 684.

case [12.500] An arbitrator ordered the Commonwealth government to pay the appellant lessee $215,000 in respect of the value of improvements made to certain land by the lessee and which was being resumed by the Commonwealth under the terms of the lease. The Commonwealth government paid the lessee the $215,000 awarded without deducting the sum of $75,000 which had previously been paid to the lessee as an advance against any sum found to be due to the lessee arising out of the arbitration. The High Court held that the full award of $215,000 had been paid under a mistake of fact and the Commonwealth was entitled to recover the $75,000 overpayment: McCormack v Commonwealth (1984) 155 CLR 273 at 275. 15

16

See generally J Tarrant, “Total Failure of Consideration” (2006) 33 University of Western Australia Law Review 132; TH Wu, “Unjust Enrichment within a Valid Contract: A Close Look at Roxborough v Rothmans of Pall Mall Australia Ltd” (2007) 23 Journal of Contract Law 201; K Raghavan, “Total Failure of Consideration as a Basis for Quantum Meruit Following a Repudiatory Breach of Contract” (2016) 42 Journal of Contract Law 179. For a criticism of this rule, T Camp, “Restitution on a Partial Failure of Basis” (2016) 28 Bond Law Review 21. See generally K Dharmananda, “Pleading Claims to Recover Money Paid by Mistake in Australia” (2008) 30 Australian Bar Review 337.

chapter 12 Remedies

Money paid under a mistake of law [12.510] The High Court has held that money paid under a mistake of law is prima facie recoverable: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 376.

Money paid under duress or compulsion [12.520] A person who has paid money to another under duress or compulsion is entitled to recover the moneys so paid in an action for money had and received: J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 41 ALR 539 at 555. Similarly, money paid under compulsion of a statutory provision that is later held to be constitutionally invalid is recoverable: Mason v New South Wales (1959) 102 CLR 108 at 117, 129–30, 133, 146.

Recovery of a “reasonable remuneration” [12.530] A plaintiff who does work for, supplies goods or provides services to, the defendant but for some reason has no contractual entitlement to payment may recover a “reasonable remuneration”. A claim for payment in such circumstances is generally referred to as an action on a quantum meruit. The expression quantum meruit literally means “for as much as he or she has earned”. The essence of a quantum meruit action is that the defendant has received some benefit from the plaintiff and that the defendant would be unjustly enriched if they were not required to pay a reasonable sum for the benefit accepted.

Recovery where the contract is unenforceable [12.540] Quantum meruit has proved to be a useful remedy where a person has provided work or services to another under a contract which is unenforceable, for example because of the absence of writing required by some statutory provision, and the party who has accepted the benefit sets this up by way of defence to a claim for payment. 17 The nature of an action on a quantum meruit in such circumstances was examined by the High Court in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221:

case [12.550] In New South Wales the Builders Licensing Act 1971 (NSW), s 45(1) provided that a contract under which a licensed builder undertakes to carry out any building work is not enforceable against the other party to the contract unless it is in writing and signed by each of the parties. The appellant builder orally agreed to carry out certain renovations for the respondent. On the work being completed, the respondent refused to pay further moneys to the builder and when sued by the builder raised this statutory provision by way of defence: at 224-225. The High Court held that the builder could recover a reasonable sum for the work he had carried out by way of an action on a quantum meruit. The court said that such action was based on a claim to restitution or unjust enrichment arising from the purchaser’s acceptance of the benefit accruing to her from the builder’s performance of the unenforceable oral contract: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 227, 262-263.

17

See R Andrew and S Kirton, “Quantum Meruit and Unjust Enrichment: Changing Jurisprudence in the High Court” (2008) 24 Building and Construction Law Journal 370.

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case [12.551] A family entered into a contract with a builder for the construction of a house. Unknown to the family, the work was mainly carried out by a sub-contractor. The family paid the contracted builder for the construction. The High Court held that the family was not liable to pay the sub-contractor on a quantum meruit as there had been no express or implied request by the family for the sub-contractor’s services. The request for the sub-contractor’s services came from the builder with whom the family had contracted: Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at [126]. 18

case [12.555] In Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 Rural Finance lent large sums to investors under unenforceable loan agreements. Rural Finance was controlled by the promoters of an investment scheme to which the loan agreements related. No prospectus had been issued for the investment scheme, in contravention of company law. The loan agreements were thus unenforceable as they were entered into in furtherance of an illegal purpose: at [27]. The right to sue under the loan agreements was later assigned to Equuscorp, which sought to recover the funds that had been lent. The High Court held that Equuscorp could not recover the loan moneys in an action for money had and received. French CJ, Crennan and Kiefel JJ held that the illegality that resulted in the unenforceability of the agreements deprived Rural Finance of the right to recover funds lent under the agreements: at [3]. The policy of the prospectus requirements was to protect the public by requiring promoters of investment scheme to disclose information that was relevant to the decision whether to invest: at [22]. Where benefits have been received under a contract that is unenforceable for illegality, the success of a restitutionary claim for those benefits will depend upon the “scope and purpose” of the statute that renders the agreement unenforceable. It is relevant that the statute seeks to protect the persons against whom the restitutionary claim is brought. It is also relevant whether the claimant is an innocent third party: at [34]. If Rural Finance had a right to recover the funds under restitution, that would enable it to recover what the policy of the law denied it in relation to the loan agreements. Rural Finance was controlled by the promoters of the scheme. The loan agreements were in furtherance of the illegal purpose of attracting investors without providing them with the benefit of a prospectus. The failure of consideration invoked by the assignee Equuscorp was the consequence of Rural Finance’s illegal conduct. Rural Finance did not have a right to recover the funds which could be assigned to Equuscorp: at [45]. In a separate judgment Gummow and Bell JJ held that the “scheme and purpose” of the statute was inconsistent with a right to recover for money had and received: at [99]. Here the statute did not

18

See M Bryan, “Lumbers v W Cook Builders Pty Ltd (in Liq): Restitution for Services and the Allocation of Contractual Risk” (2009) 33 Melbourne University Law Review 320; M Riley, “The Conceptual Relationship between Contract Law and Unjust Enrichment and the Decision in Lumbers v Cook” (2011) 28 Journal of Contract Law 267; A O’Brien, “The Relationship Between the Laws of Unjust Enrichment and Contract: Unpacking Lumbers v Cook” (2011) 32 Adelaide Law Review 83.

chapter 12 Remedies

expressly render illegal the agreement to repay the loan moneys. If the statute had been in those terms, it would have expressly precluded a restitutionary claim: at [100]. In this case the key issue was whether the policy of the statute precluded recovery: at [103]. The statute treated the prospectus requirement as serious enough to justify a five-year term of imprisonment for its breach: at [111]. To permit recovery in these circumstances would frustrate the policy of the statute. 19

Recovery where the contract is discharged [12.560] An action on a quantum meruit will also lie, as an alternative to an action for damages, where the plaintiff has done work under a contract which the other party has broken in such a way as to entitle the plaintiff to treat it as discharged. However, a plaintiff who only partially fulfilled their obligations under a contract, and did not complete performance owing to default on their part, will not usually be able to recover in an action on a quantum meruit for the work done: Sumpter v Hedges [1898] 1 QB 673 at 674-676. To be able to recover in such a case, the plaintiff would need to show not only that the defendant had received a benefit but also had undertaken a new obligation to pay by entering into a new contract on the basis of the part performance: Steele v Tardiani (1946) 72 CLR 386 at 394. Where work is carried out on a project by two parties on the assumption that a contract will be entered into but the project is later unilaterally abandoned by one of the parties, reasonable remuneration for the work carried out by the other party may be recoverable by way of an action on a quantum meruit depending on the particular circumstances: Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880 at 902-903. Where there is a contract for the sale of goods or the supply of services but no precise sum is fixed, the person accepting the goods or services is bound to pay a reasonable price for them which obligation can be enforced by an action on a quantum meruit.

Further reading Contractual Remedies K Barnett and S Harder, Remedies in Australian Private Law (Cambridge University Press, Port Melbourne, 2014). W Covell, K Lupton and J Forder, Covell and Lupton’s Principles of Remedies (6th ed, LexisNexis, Sydney, 2015). DSK Ong, Ong on Specific Performance (Federation Press, Sydney, 2013). D Wright, Remedies (2nd ed, Federation Press, Sydney, 2014). Restitution K Barker and R Grantham, Unjust Enrichment (LexisNexis Butterworths, Sydney, 2008). 19

See M Borsky, “Contracts and Restitution: Restitution of Benefits Derived from Illegal Contracts as Money Had and Received: Equuscorp Pty Ltd v Haxton” (2012) 40 Australian Business Law Review 303.

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J Edelman and E Bant, Unjust Enrichment (2nd ed, Hart, Oxford, 2016). S Erbacher, Restitution Law (2nd ed, Cavendish, Sydney, 2002). J Glover, Equity, Restitution and Fraud (LexisNexis Butterworths, Sydney, 2004). K Mason, JW Carter and GJ Tolhurst, Mason and Carter's Restitution Law in Australia (3rd ed, LexisNexis Butterworths, Sydney, 2016).

Internet site Restitution and Unjust Enrichment Legal Resources http://www.ucc.ie/law/restitution

Journal Restitution Law Review

PART PT 3 COMMERCIAL TRANSACTIONS

Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22 Chapter 23 Chapter 24 Chapter 25

Agency Sale of Goods International Sales Contracts The Law of Electronic Commerce Consumer Protection Restrictive Trade Practices Credit Law Guarantees Bailments Property Negotiable Instruments I: Bills of Exchange Negotiable Instruments II: Cheques Insurance

chapter 13

Agency [13.20] Definition of agency........................................................................................................................................ 222 [13.90] Creation of agency .......................................................................................................................................... 223 [13.200] Nature and scope of an agent's authority....................................................................................... 226 [13.270] Duties of an agent........................................................................................................................................ 230 [13.390] Rights of agents ............................................................................................................................................ 233 [13.470] Liabilities of agents...................................................................................................................................... 236 [13.670] Termination of agency............................................................................................................................... 242 [13.790] Particular types of agents ....................................................................................................................... 244 [13.860] Statutory regulation of agents .............................................................................................................. 246

Introduction [13.10] Many business matters are conducted through the instrumentality of an agent. The relationship of agency generally arises as a result of agreement between the principal and the agent, and the rights and liabilities of each are based upon this original agreement. An agent is usually employed to bring about a contractual relationship between the principal and a third party. A principal will be bound by what the agent does on the principal's behalf provided that the agent acted within the scope of her or his authority. The general position is that where the agent acts within the scope of their authority and accordingly brings about a contractual relationship between the principal and a third party, such contract is between the principal and the third party. The agent is not a party to that contract.

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Definition of agency [13.20] Agency is the relationship existing between two parties whereby one (the agent) is authorised by the other (the principal) to do, on the principal’s behalf, certain acts which affect the principal’s rights and duties in relation to third parties. An agent, therefore, is a person who has authority (either express or implied) to act for a principal with the general object of bringing the principal into legal relations with a third party. However, in the business world the word “agency” is by no means so restricted and is often used in a much wider sense: International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 at 652. In other words, the mere use of the word “agent” is not conclusive of the existence of an agency relationship in law.

Agency distinguished from other relationships [13.30] Agency overlaps with two other relationships which appear at first sight to be somewhat similar, namely, that of employer and employee and that between an independent contractor and the person with whom he or she contracts. Employees and independent contractors are mutually exclusive classes. The former comprises persons employed on such terms that they are subject to control regarding the manner in which their work is to be carried out. Independent contractors, on the other hand, exercise their own discretion as to the manner in which they carry out the work they undertake to perform. The difference may be further illustrated by distinguishing between a person employed under a contract of service (an employee) and a person engaged under a contract for services (an independent contractor). Some independent contractors are agents for those who employ them and some employees are general agents for their employers but it is not true to say that all employees or all independent contractors are agents for their employers. This is obvious in the case of the independent contractor but it is also true in relation to the employee. The essence of agency is that it should be within the scope of the employment that the person employed brings the employer into a legal relationship with a third party. In the case of some types of employee this will be readily implied, for example a shop assistant employed to sell goods is an agent. On the other hand a domestic servant is not generally an agent of the employer. An auctioneer (an independent contractor) retained to sell goods is an agent but not an employee. An agent should also be distinguished from a trustee. Both act in a similar manner, that is, on behalf of other persons. However, although a trustee exercises their powers on behalf of beneficiaries, a trustee is not the agent of the beneficiaries. Thus, a trustee does not bring the beneficiaries of the trust into a contractual relationship with third parties which is the normal function of an agent. In dealing with matters relating to the trust, the trustee is considered a principal not an agent.

Capacity to act as principal and agent [13.40] There is a marked distinction between a person’s capacity to act as a principal and their capacity to act as an agent. Generally speaking, only those persons with full contractual capacity may employ an agent, the rule being that anyone may appoint an agent to do any act which he or she has capacity to do themselves. Any person can be employed as an agent and can exercise any of the rights and powers conferred by the contract of agency even though they may not have the necessary contractual capacity to

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bind themselves in similar negotiations. For example, although a minor is not able to bind herself or himself to certain contracts, a minor may be employed as an agent, and consequently may bind the principal to contracts he or she has entered into as agent. In respect of contracts to which a minor is able by law to bind herself or himself, it is permissible for the minor to appoint an agent for such purpose. A minor’s capacity to act through an agent is coextensive with the minor’s capacity to do the act which he or she purports to delegate. An agent cannot have greater powers conferred upon them than the principal possesses; and, if the principal is under some disability, the powers of the agent are equally limited according to the nature of such disability. Where the alleged principal is in fact incapable of giving authority to an agent to act on their behalf, an agent who represents that he or she has such authority is liable to the third party for breach of warranty of authority.

Classification of agents [13.50] A general classification of agents is as follows: (a)

special agents;

(b)

general agents; and

(c)

universal agents.

These classifications have no special legal significance apart from illustrating the varying authorities of the agents mentioned. The real problem is the actual extent of the agent’s authority.

Special agents [13.60] A special agent is one who is appointed for the performance of some special act, or to represent the principal in some particular transaction, such act or transaction not being in the ordinary course of the agent’s trade, profession, or business as an agent. For example, P appoints A his agent for the purpose of procuring a truck suitable for towing; the only authority given to A as agent, is that necessary to procure the type of truck mentioned.

General agents [13.70] A general agent is an agent who has authority: (a)

to act for the principal in all matters, or in all matters concerning a particular trade or business, or of a particular nature; or

(b)

to do some act in the ordinary course of their trade, profession or business as an agent on behalf of the principal, for example where a solicitor or broker is employed as such.

Universal agents [13.80] A universal agent is one whose authority is unlimited to do such things which the principal may do through the instrumentality of another. Such types of agents are rare in practice and, when they do exist, they are appointed by extensive powers of attorney. The only limits which are imposed upon the authority of a universal agent are those which the law imposes with regard to the legality of the objects and the capacity of the parties in relation to contracts in general.

Creation of agency [13.90] The relationship of principal and agent may be created in the following ways: (a)

expressly (that is, by agreement)

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(i)

by deed;

(ii)

by writing;

(iii)

by word of mouth;

(b)

holding out or estoppel;

(c)

ratification; or

(d)

operation of law (i)

agency of necessity;

(ii)

agency arising by cohabitation.

Expressly By deed [13.100] The appointment of an agent by deed (that is, instrument under seal) is necessary where the agent is required to execute any instrument under seal on behalf of their principal, in which case the document creating the power is termed a power of attorney. 1 A power of attorney is often given where a principal is going abroad and desires to leave another in charge of their affairs.

By writing [13.110] An agent is often appointed in writing. In some cases the appointment is required by statute to be in writing. For example, in most States agents employed to sell or buy land and agents employed to sell or buy businesses cannot sue for remuneration, that is, commission, unless the appointment of the agent is in writing: see further, [13.440].

By word of mouth [13.120] A verbal offer followed by acceptance in writing or verbally is sufficient to conclude a contract of agency for most purposes other than those mentioned at [13.110]. In practice, it is usually desirable that the appointment of an agent be in writing.

Holding out or estoppel [13.130] The relationship of principal and agent may arise between two persons by virtue of one, by words or conduct “holding out” that the other is their agent or permitting the latter to do so. That is, where P, either by words or conduct, leads others to believe that A is P’s agent, then P will not be allowed to subsequently deny the authority of A to act as P’s agent where a third person has entered into an agreement with A on the faith of the representation that A was the agent of P: Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 498, 503. The question whether one person has led third parties to believe that another person is their agent is a question of fact to be decided upon the circumstances of each particular case: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 at 78, 81; Derham v Amev Life Assurance Co Ltd (1981) 56 FLR 34 at 49. 1

Powers of attorney to enable attorneys to deal with land under the Torrens system of registration in force may require registration or deposit of copy. See Real Property Act 1886 (SA), s 156; Transfer of Land Act 1893 (WA), ss 143, 144. As to dealings with land under the general law by attorneys, see Powers of Attorney Act 2014 (Vic), Pt 2; Land Title Act 1994 (Qld), ss 132 – 135; Registration of Deeds Act 1935 (SA), s 35; Property Law Act 1969 (WA), s 85; Powers of Attorney Act 2000 (Tas), ss 11-18, requiring registration of powers to validate such dealings. See generally GE Dal Pont, Powers of Attorney (2nd ed, LexisNexis Butterworths, Sydney, 2014); GE Dal Pont, “Agency and Powers of Attorney — Union or Intersection?” (2014) 32 Journal of Contract Law 1.

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Ratification [13.140] The relationship of agency may also arise as a result of “ratification”. Where one person acts on behalf of another, without having authority to do the particular act, the person on whose behalf the act is done may, by “ratifying” it, render the act as valid and effectual as if it had been done by their duly authorised agent. This may arise where an agent has exceeded their authority. For example, where an estate agent enters into a contract for a lease for a term longer than the principal has stipulated, the principal may adopt the transaction and thus bind themselves to the unauthorised act of the agent. In order that the ratification may be effectual, the following rules should be observed: 1.

The acts must have been done as agent for and on behalf of the supposed principal: Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 at 82. For the legal position where an agent does not disclose to the third party that he or she is acting as an agent, see [13.550].

2.

The ratification may only be by a principal who was in existence at the time of the making of the contract. However, s 131(1) of the Corporations Act 2001 (Cth) 2 provides that where a nonexistent company purports to contract and the company is within a reasonable time subsequently formed, the company may then ratify the contract.

3.

The principal must have the capacity to make the contract both at the date of the contract and at the date of ratification.

4.

Ratification must be of the whole contract. A principal cannot ratify that which is beneficial and reject the remainder: Cox v Mosman [1909] QSR 45 at 61.

5.

Ratification must be with “full knowledge” of what has been done so that “the inference may properly be drawn that the principal intended to take upon” themselves “the responsibility for such acts”: Marsh v Joseph [1897] 1 Ch 213 at 246-247. “Silence or acquiescence” is not ratification unless there is “proof of a knowing acceptance” that may be regarded as assent: Lederberger v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509 at [74].

Where the rules set out above are satisfied, ratification operates retrospectively to validate a previously unauthorised act. The position is the same as if the agent had been vested with authority at the outset.

Operation of law [13.150] An agency can arise by operation of law, that is, irrespective of assent or intention, in two main situations; namely, in cases of: (a)

necessity; and

(b)

arising out of cohabitation.

Agency of necessity [13.160] The common law recognises that an emergency situation may occur which allows one person to bind another without the authority of that other. In such a case an agency of necessity arises, not through any contract or agency agreement but from the relationship of the parties in the particular case. Four factors are essential to establish such an agency of necessity: 1. 2

A person must have been entrusted with another’s property. See further, [27.340].

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2.

An immediate expense must be required for the preservation of the property, or there must be some commercial necessity for the action, that is, there must be an emergency.

3.

It must be “commercially impossible, or extraordinarily difficult, … to communicate with the owner” of the property: Sachs v Miklos [1948] 2 KB 23 at 35.

4.

The agent must act bona fide in the interest of the principal.

case [13.170] The plaintiff railway company agreed to deliver the defendant’s horse to a particular railway station. However, on arrival at the station at night there was no-one to take possession of the horse on the defendant’s behalf. Accordingly, the plaintiff’s stationmaster sent the horse to a nearby livery stable. Subsequently, the plaintiff paid the stablekeeper his charges: at 135. It was held that the plaintiff had acted reasonably in placing the horse in the livery stable and was entitled to recover from the defendant the expense it had incurred in doing so: Great Northern Railway Co v Swaffield (1874) LR 9 Exch 132 at 136-139. [13.180] Another example of an agency of necessity is where the master of a ship is compelled to pledge (hypothecate) the ship in order to effect essential repairs to preserve the ship, or to sell damaged cargo which would be ruined if there was further delay. On the other hand, the fact that property (for example, a parked car) may be causing a person inconvenience does not mean that such an emergency has arisen which compels its disposal: Munro v Willmott [1949] 1 KB 295 at 297-298.

Agency arising by cohabitation [13.190] In the case of a married woman cohabitating with her husband, and even in the case of an unmarried woman cohabitating with a man, the law presumes that she has his authority to pledge his credit for necessaries in all domestic matters ordinarily entrusted to a wife. It is possible for the man to rebut the presumption of such authority in various ways, for example, by showing that he had expressly warned the tradesman not to supply his wife or de facto wife, that he had expressly forbidden her to pledge his credit or that he had provided her with a sufficient allowance to pay for necessaries: Debenham v Mellon (1880) 5 QBD 394 at 402-403. The common law also recognised that a wife left without adequate means of support by her husband, for example in the case of desertion, had the authority to pledge the husband’s credit for goods that she reasonably required for her maintenance. In New South Wales, South Australia, the Australian Capital Territory and the Northern Territory the common law doctrine enabling a wife to pledge her husband’s credit has been abolished. 3

Nature and scope of an agent's authority [13.200] The principal will only be bound by those acts of the agent which fall within the scope of the agent’s authority. The principal will not be affected by what the agent does in excess of her or his authority, unless the principal subsequently ratifies the unauthorised act of the agent. Furthermore, if the agent acts outside their authority, the agent may be liable to the principal for breach of the contract of agency or to third parties for breach of implied warranty of authority. 3

In New South Wales, the Married Persons (Equality of Status) Act 1996 (NSW), s 7 provides: “A married person does not, by reason only of the person’s status as a spouse, have authority to pledge the credit of the other spouse for necessaries or to act as agent for the other spouse for the purchase of necessaries.” See similarly, Law of Property Act 1936 (SA), s 104; Married Persons Property Act 1986 (ACT), s 5; Married Persons (Equality of Status) Act 1989 (NT), s 5.

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The authority of an agent may be: (a)

actual authority; or

(b)

apparent or ostensible authority.

Actual authority [13.210] The general nature and effect of the actual authority of an agent was explained by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502-503 as follows: “An ‘actual’ authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the ‘actual’ authority, it does create contractual rights and liabilities between the principal and the contractor.” The actual authority of an agent can be express or implied. That is to say, the actual authority of an agent is either: (a)

actual express authority; or

(b)

actual implied authority.

Actual express authority [13.220] The express authority of an agent is the authority the principal has expressly given the agent in words or writing, for example where the principal gives the agent specific instructions to enter into a contract on the principal’s behalf to purchase a particular piece of land at a stipulated price, or to sell a specific item. In other words, the agent’s authority may be specifically created and limited by the terms of the agreement which gives rise to the agency relationship.

Actual implied authority [13.230] In addition to the express authority contained in the agency agreement, the agent may have a further implied authority to do whatever is necessarily incidental to carrying out the principal’s express instructions. For example, where an agent is expressly authorised to buy certain shares, the agent will also have implied authority to do everything in the usual course of business to complete the transaction. Furthermore, where a person employs a particular type of agent to carry out some act on behalf of the principal, the agent will have such implied authority as agents of that class normally have, that is, the agent will have the usual authority which agents of that particular profession or calling normally have to carry out their functions. For example, when the board of directors of a company appoints one of their number to be managing director: “They thereby impliedly authorise him to do all such things as fall within the usual scope of that office”: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583.

case [13.231] The respondent’s accountant sent a shareholders agreement to the appellants for signature. The respondents did not sign the agreement. The appellants argued that the accountant had authority to make an offer on the respondent’s behalf by sending the contract for their signature. It was held that the accountant did not have actual authority to bind the respondents. The respondents had told

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their accountant to “do whatever [is] necessary”: at [33]. The Court held that such an instruction related only to ascertaining the necessary actions and preparing the necessary documents, not binding the respondents: at [47]. The expectation that the respondents would need to have signed the agreement in order to be bound could only have been displaced by clear evidence of the accountant’s authority to bind them: Hopcroft v Edmunds (2013) 116 SASR 191 at [55]. [12.235] Implied authority is regarded as an aspect of an agent’s actual or real authority since such implications of implied authority are made on the basis that the principal has consented to the agent having authority to act in such a manner. If there is evidence that the principal has not so consented, for example where the board of directors specifically limited the managing director’s authority in some respect, then to the extent of such limitation an implication of implied authority cannot be made. However, it may well be that in such a case the third party can rely on the agent’s apparent authority to enter into the particular transaction.

Apparent (or ostensible) authority [13.240] Apparent (also known as ostensible) authority is “the authority of an agent as it appears to others”: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583 per Lord Denning MR. Thus, where a principal represents either by words or conduct that an agent has authority to contract on the principal’s behalf, the principal will be bound by those acts of the agent which fall within that represented authority. The agent in such a case is said to act within the scope of their apparent or ostensible authority. This principle applies whether or not the agent has any actual authority, or such actual authority has been limited. The principal may specifically represent to the third party that a person has authority to act on the principal’s behalf, for example where the principal tells the third party that a particular person has been authorised to negotiate for the purchase of goods on behalf of the principal. More often, however, the representation which creates the apparent or ostensible authority is representation by conduct, for example by the principal permitting a person to act in the management or conduct of the principal’s business so that the third party is led to believe that such person has authority to contract on behalf of the principal. The courts have taken the view that if a principal allows or acquiesces in an agent occupying a particular position, for example where the board of directors of a company permits one of the directors to act as a managing director without having been formally appointed, the agent will have apparent or ostensible authority to deal with third parties in a manner consistent with the functions and duties normally falling within the usual authority of the holder of such position. The leading case on this point is Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480:

case

[13.250] K and H formed the defendant company to acquire and develop certain land. The board of directors comprised K, H and a nominee of each. The development of the land was left to K who, with the knowledge of the board of directors, acted as managing director although he had never been formally appointed to the position. K employed the plaintiff firm of architects who later sued the company for payment of their fees for work they had done. It was held by the Court of Appeal that the defendant company was liable for the plaintiffs’ fees. Thus, the contract of employment entered into by K with the plaintiffs fell within the scope of K’s

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apparent or ostensible authority. It was the kind of contract which was within the usual authority of a managing director to enter into on behalf of a company: Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 497-498, 509-510. [13.260] Where a person is appointed to a particular position such person will have as part of their apparent authority all the usual authority of a person occupying that position. For example, it was held that a company secretary has apparent authority to hire vehicles and the company is bound to pay the cost of such hire even where the vehicles are used for the secretary’s own purposes: Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 at 717-718. A principal is bound by those acts of an agent which fall within the scope of the agent’s apparent authority even though the agent acted outside the terms of their actual authority. Where an agent occupies a particular office, or exercises a particular profession or calling the agent, by virtue of the position he or she holds, may have both implied actual authority and apparent authority to do a particular act binding on the principal. That is to say, although actual authority and apparent authority are independent of each other, in certain circumstances they may co-exist and coincide in the same person. In such a case, the agent’s ostensible authority is likely to be wider than their actual authority (whether express or implied) which may be limited by the terms of the agreement between the agent and the principal: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583 per Lord Denning MR. An employer may hold out that an employee has authority if the employer/principal permits the employee to act in a particular way, for example in signing documents without taking appropriate precautions. In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 the High Court said that: “A kind of representation that often arises in business dealings is one which flows from equipping an officer of a company with a certain title, status and facilities … The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation”: at [38]. In those circumstances it may be unjust to permit the employer to depart from a reasonable assumption based upon that misrepresentation: at [44]. The basis of apparent (or ostensible) authority is that there has been a representation of authority of the agent on which the third party relied. However, the representation of authority can only be made by someone who has authority to make the representation. For example, in the case of a company, the representation must have been made by a person or persons who had actual authority (not only apparent or ostensible authority) to manage the business of the company: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 at 80. It has been held that the apparent authority of a solicitor includes authority to compromise a dispute on behalf of their client. Accordingly, the client will generally be bound by a compromise entered into by the solicitor with a third party, notwithstanding that the solicitor’s actual authority to compromise on behalf of the client had been withdrawn: Waugh v HB Clifford & Sons Ltd [1982] Ch 374 at 387. Even where the solicitor mistakenly exceeds the client’s instructions as to the amount of a proposed settlement the client will generally be bound, unless it would be unconscionable for the party seeking to enforce the compromise to rely on it: Buseska v Sergio (1990) 102 FLR 157 at 161-162. Where the plaintiff’s solicitor exchanged identical signed contracts that included terms to which the plaintiff had not agreed at the time of signature, it was held that the plaintiff’s solicitor possessed ostensible authority to bind the plaintiff: Zhang v VP302 SPV (2009) 223 FLR 213 at [34], [51]. A third party will generally rely on the apparent or ostensible authority of an agent when contending that the principal is bound by the acts of the agent, since:

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(a)

the third party will usually be unaware of the terms of the agreement between the principal and the agent, and therefore be unaware of the extent of the agent’s actual authority; and

(b)

the agent’s apparent or ostensible authority will be unaffected by limitations on the agent’s actual authority (whether express or implied) of which the third party was unaware. In other words, it is usually easier for the third party to establish that the agent acted within the scope of their apparent authority, rather than the agent’s actual authority.

Duties of an agent [13.270] Every agent owes certain duties to their principal which vary in degree according to the nature of the agency or according to the express terms of the contract of agency. These duties include the: (a)

duty to follow the principal’s instructions;

(b)

duty to act in person;

(c)

duty to act in good faith;

(d)

duty to make full disclosure of any personal interest;

(e)

duty not to make a secret profit;

(f)

duty to exercise reasonable care and skill; and

(g)

several other duties.

Each of these duties will be examined in turn.

Duty to follow principal's instructions [13.280] The primary duty of every agent is to follow the principal’s instructions, written or verbal. An agent must comply with the provisions of the contract of agency before he or she will be entitled to remuneration. Failure to comply with the principal’s instructions, except where they are illegal, will render the agent liable for the loss suffered by the principal as a result of the breach.

Duty to act in person [13.290] Every agent must act in person and, apart from the express or implied authority of the principal, or from particular usage, an agent has no authority to delegate their duties as agent to another. This is expressed in law by the maxim “Delegatus non potest delegare”, that is, a person to whom authority has been given cannot delegate that authority to another. Owing to the exigencies of business, this rule is relaxed in order to enable the agent in certain cases to delegate their powers and appoint a sub-agent. The authority of an agent to delegate their duties may be implied in the following situations: 1.

Where by the usage of a trade an agent usually acts through other agents; for example a country solicitor may employ a city agent whose acts will bind the client. However, where the principal forbids the employment of a sub-agent, the agent has no authority to delegate.

2.

Where the duties to be performed by the agent are purely ministerial, and do not involve the exercise of any discretion or skill on the part of the agent in person; for example, collecting rents.

3.

Where from the nature of the transaction it is clear that the parties intended, or may be reasonably presumed to have known, that it might be necessary to act through a sub-agent.

4.

Where unforeseen circumstances arise which necessitate the agent delegating. The necessity must be urgent and the sub-agent must be appointed with discretion.

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Duty to act in good faith [13.300] An agent occupies what is called a fiduciary position. A fiduciary relationship exists between one person and another where the former is bound to exercise rights and powers in good faith for the latter. An agent’s duty to make full disclosure of any personal interest and not to make a secret profit, discussed separately at [13.340], are really aspects of the agent’s basic duty to act in good faith. The agent is under a duty in all cases to act in the interests of the principal and must not allow their own interests to conflict with those of the principal.

case [13.310] The respondent purchaser had bought property from the appellant vendor on the advice of an agent to whom the purchaser had paid a fee for the advice. Unknown to the purchaser, the agent had been retained by the vendor to market the property. The Supreme Court of Victoria, Appeal Division, held that the purchaser was entitled to rescind the contract of sale with the vendor. “[T]he vendor could not properly sell its property through its agent, knowing that the agent was retained to advise the purchaser on the purchase, without knowing also that the dual allegiance of the agent was disclosed to the purchaser”: Lintrose Nominees Pty Ltd v King [1995] 1 VR 574 at 576. [13.320] The proper course to be adopted by every agent upon entering into an agreement to act on behalf of another is to consider whether he or she has any personal interest in the matter which might conflict with the duty owed to the intended principal and, if so, he or she should decline to act as agent.

Duty to make full disclosure of any personal interest [13.330] An agent must disclose to the principal all the material circumstances of which they are aware which might influence the principal in entering into any negotiation. If the agent fails to make such disclosure he or she is not entitled to commission: Dargusch v Sherley Investments Pty Ltd [1970] Qd R 338 at 345–347. Any profit received by the agent resulting from non-disclosure is recoverable by the principal on learning the true facts: Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 at 836, 847. Should any question arise as to the validity of any transaction on this score, the onus lies upon the agent to prove that they acted bona fide and also that they made full disclosure of all material facts. After the termination of their employment, an agent may not use information acquired in the course of the agency in a manner prejudicial to the interests of the principal: Robb v Green [1895] 2 QB 315 at 316-317.

Duty not to make a secret profit [13.340] A fundamental duty of an agent is not to use their position to make a gain for themselves without the knowledge and assent of the principal. In the case of Parker v McKenna (1874) 10 Ch App 96 at 124–125, James LJ said: “[N]o agent in the course of his agency, in the matters of his agency can be allowed to make any profit without the knowledge of his principal; … that rule is an inflexible rule, and must be applied inexorably by this court, which is not entitled, in my judgment, to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact, by reason of the dealing of the agent.”

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Directors of companies are agents of their companies and are under a duty not to make a secret profit: Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 154. Directors are also subject to statutory provisions which are in addition to their duties under the general law. The Corporations Act 2001 (Cth) provides that a director of a company who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of the interest: s 191(1). A person who obtains information because they are, or have been, a director must not improperly use the information to gain an advantage for themselves or someone else, or to cause detriment to the corporation: s 183(1). Should the agent receive a secret commission or profit the principal may recover it as well as dismiss the agent without notice. Where the agent desires to act for both vendor and purchaser and to obtain commission from both, the agent must make full disclosure to each party of her or his intention to act for and receive payment from the other, and must obtain the assent of each party for so acting: Fullwood v Hurley [1928] 1 KB 498 at 502. This general principle applies unless a special usage or custom which is notorious, certain and reasonable is proved to the contrary. Thus, it has been held that a firm of stock and sharebrokers were entitled as a matter of custom, which had been established to be sufficiently notorious and certain and which was reasonable in the circumstances of the case, to “marry” or cross certain selling and buying orders for shares without express reference to the respective clients. Where such custom is established, it would seem that the sharebroker is entitled to commission from both the seller and the buyer of the shares: Jones v Canavan [1972] 2 NSWLR 236 at 242, 251.

Duty to exercise reasonable care and skill [13.350] An agent who is employed for remuneration is presumed to have and is bound to exercise such skill, care and diligence in the performance of the undertaking as is usual or necessary for the ordinary or proper conduct of the profession or business in which the agent is employed, or is reasonably necessary for the proper performance of the duties. If the agent fails to exercise the requisite care and skill in carrying out the terms of the contract of agency, the agent will be liable to the principal for the loss sustained by the latter as a result of the agent’s breach of duty.

case [13.360] An insurance broker was instructed by a client to obtain unqualified insurance cover against damage caused by storm and flood. Unknown to the client, the broker obtained insurance cover excluding flood caused by the sea. Subsequently the client suffered loss as a result of flooding by the sea in a cyclone but the insurance company avoided liability by virtue of the exclusion clause. The broker was held liable because of his failure to exercise reasonable care and skill in effecting the insurance: Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365 at 373. [13.370] It has also been held that a real estate agent owes the vendor, by whom the agent is employed to sell property, the duty to inform the vendor as soon as practicable that the purchaser has avoided the contract of sale. If the agent fails to do so, he or she will be liable to the vendor for the loss the vendor suffers as a result of the delay: Havas v Cornish & Co Pty Ltd [1985] 2 Qd R 353 at 360-361. So far as directors of companies are concerned, their duty is the subject of statutory provisions, without prejudice to any duty which they might have under the general law. The Corporations Act 2001 (Cth)

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provides that a director must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation’s circumstances; and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer: s 180(1). The Corporations Act 2001 further provides that a director or other officer of a corporation must exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose: s 181(1). A person who acts as agent gratuitously on behalf of another is not presumed to have any special knowledge of the subject matter of the transaction but is bound to exercise such knowledge and skill as he or she does possess in the best interests of the principal and must show as much care and diligence in performing the undertaking as he or she would in conducting their own affairs. A gratuitous agent is not bound to carry out the terms of an undertaking into which he or she has entered gratuitously. However once such person commences to fulfil the office of agent they will be liable, in the event of performing their duties negligently, for any damage or loss the principal thereby sustains.

Further duties [13.380] Further duties of the agent are: (a)

to take such care in keeping the property (which includes money) of the principal as a reasonably prudent person would take in caring for their own property;

(b)

to keep all moneys and property of the principal separate from their own;

(c)

to keep separate accounts of all dealings on behalf of the principal, and to have such accounts ready for inspection by the principal, and, subject to the agent’s right of lien, to hand over to the principal, if so required, all moneys, papers and documents relating to the principal’s affairs; and

(d)

to preserve confidentiality in all matters coming to their knowledge whilst acting as agent: Weld-Blundell v Stephens [1920] AC 956 at 966-967.

Rights of agents Right to remuneration [13.390] The amount of remuneration for an agent depends upon the agreement made between the principal and the agent. In commercial transactions remuneration often takes the form of a percentage commission on the value of the transaction. In order to determine the agent’s right to commission, the terms and circumstances of the appointment must be examined as the agent may be entitled to remuneration only if he or she completes the sale, or again, in special cases, commission may be payable if the agent simply brings the parties together. Further, there may exist a time limit for the completion of the contract or the remuneration may be of a continuous nature payable on all further business arising from the same source.

Agent must be effective cause of sale [13.400] The transaction in relation to which the agent claims remuneration must not only come within the scope of the agent’s authority but the transaction must have resulted from the services he or she has rendered. The agent must, in effect, have been the means whereby the two contracting parties were brought together and entered into a legally binding contract: Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 123-124.

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That is to say, the agent must have been the effective cause of the sale to be entitled to remuneration. This principle is illustrated by the following cases:

case [13.410] The respondent company was the owner of a property in Sydney and engaged the appellant real estate agent to find a purchaser for it. The appellant introduced the property to Company A which made several unsuccessful offers to purchase it. Meanwhile, the respondent was negotiating for the sale of the property to Company B which the appellant had not introduced. On Companies A and B learning of each other’s interest in the property, they entered into a joint venture agreement for the purpose, inter alia, of avoiding the risk of forcing up the price by competing bids. The joint venture agreement provided that each company would continue to negotiate upon agreed terms and conditions with the respondent, and that upon one of the companies becoming the purchaser, that party would complete the purchase and carry out the redevelopment of the site with the other on an equal basis. Neither the appellant estate agent nor the respondent owner were then aware of the joint venture agreement. The property was eventually sold by the respondent owner to Company B. The appellant then sued the respondent to recover commission. It was held by a majority of the High Court that the appellant estate agent was not entitled to recover any commission as it had not been an effective cause of the sale to Company B, nor of any sale of any interest in the property to Company A: L J Hooker Ltd v W J Adams Estate Pty Ltd (1977) 138 CLR 52 at 60, 69, 77.

case [13.420] The vendor of land agreed to pay commission to a real estate agent, A, “if you find a purchaser who enters into a valid and enforceable contract of sale confirmed by me/us for such property and who completes such sale”. A introduced a purchaser who signed a contract for the purchase of the property subject to obtaining approval for bank finance by a certain date, otherwise the transaction would be void. The purchaser was unable to obtain bank finance by the date stipulated and, accordingly, the contract of sale was rescinded. Shortly afterwards, the purchaser signed another contract for the purchase of the property through a second real estate agent, B, who was able to arrange finance for the purchaser from a finance organisation which generally only did business through B: at 576. The first agent, A, claimed commission from the vendor. It was held that A was not entitled to commission simply because of the purchaser’s completion of the contract of sale through B. Thus, there had been a break in the necessary causal connection between A’s actions (in introducing a purchaser who had signed a contract for the purchase of the property) and the actual sale which eventually took place through B. The sale could not have occurred had it not been for the engagement of B who had been able to arrange the necessary finance. Accordingly, A was not the effective cause of the sale and therefore was not entitled to the commission claimed: Rasmussen & Russo Pty Ltd v Gaviglio [1982] Qd R 571 at 578.

Estate agent's entitlement to commission [13.430] There is a considerable body of reported case law concerning disputes between a vendor and an estate agent employed to sell the vendor’s property on whether the estate agent had done sufficient within the precise terms of the agency agreement to be entitled to commission. Each case depends on the

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construction of the terms of the agency contract between the vendor and the estate agent and the particular circumstances of the case. The general principles were stated in Midgley Estates Ltd v Hand [1952] 2 QB 432 at 435 as follows: “The question depends on the construction of each particular contract, but prima facie the intention of the parties to a transaction of this type is likely to be that the commission stipulated for should only be payable in the event of an actual sale resulting. … That is, broadly speaking, the intention which, as a matter of probability, the court should be disposed to impute to the parties. … this does not mean that the contract, if its terms are clear, should not have effect in accordance with those terms even if they do involve the result that the agent’s commission is earned and becomes payable although the sale in respect of which it is claimed, for some reason or another, turns out to be abortive.” It has been held that where the agency agreement provides for the payment of commission on the estate agent “finding a purchaser” or “introducing a person who shall become a purchaser”, the agent is not entitled to commission unless he or she introduces a purchaser who, at the vendor’s price and on the vendor’s terms: (i) is ready and willing to purchase; (ii) is able to purchase; and (iii) in fact purchases by entering into a binding contract to purchase: Gerlach v Pearson [1950] VLR 321 at 326; Turnbull v Wightman (1945) 45 SR (NSW) 369 at 373-374. Where the contract of agency provides on its proper construction for the payment of commission on the occurrence of some other event, for example on a person being “introduced to the property” either by the agent or the vendor and “as a result” of such introduction the property is sold, the agent will be entitled to commission on the occurrence of the specified event: Max Christmas Real Estate v Schumann Marine Pty Ltd [1987] 1 Qd R 325 at 330, 335. If the contract fails to stipulate the event on which the agent’s right to commission arises, commission becomes payable only on completion of the sale by the purchaser (unless the failure to complete is the vendor’s fault) and not at the time of the purchaser signing the contract of sale. Accordingly, if in such a case the purchaser fails to complete after entering into the contract of sale, the vendor is not liable to pay commission to the agent: RJ Mabarrack Pty Ltd v King (1971) 1 SASR 313 at 318-319, 325-326. Should the vendor refuse to complete the sale, the agent will still be entitled to her or his commission: Christie Owen & Davies Ltd v Rapacioli [1974] QB 781 at 789-790.

Statutory restrictions on right to remuneration [13.440] In some cases the agent is debarred by statute from suing for commission unless the agent’s engagement or appointment to act is in writing signed by the person to be charged. In Victoria and Western Australia this applies to agents employed to sell or buy land and to agents employed to sell or buy businesses, in South Australia to land agents, and in Tasmania to real estate agents and auctioneers, and in Queensland to resident letting agents, property agents, chattel auctioneers, motor dealers, and debt collectors. 4 The Victorian provision applies to the recovery of commissions by “ongoing” real estate businesses but not to “one off transactions”: P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 at [93]-[94], [105], [107]. The writing need not make “specific reference to the very transaction out of which the claim for commission arises”, but need only be “in respect of such transaction”. This ensures that agents are able to rely on general appointments, rather than having to seek a new appointment with each new contract: Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 at [155]. 4

Estate Agents Act 1980 (Vic), ss 49A, 50; Motor Dealers and Chattel Auctioneers Act 2014 (Qld), ss 88, 132; Property Occupations Act 2014 (Qld), s 89; Debt Collectors (Field Agents and Collection Agents) Act 2014 (Qld), s 26; Land Agents Act 1994 (SA), s 6(2); Real Estate and Business Agents Act 1978 (WA), s 60; Property Agents and Land Transactions Act 2005 (Tas), s 18.

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In New South Wales, it is provided that a “licensee” under the Property, Stock and Business Agents Act 2002 (NSW) is not entitled to any commission unless the agreement was in writing and signed by the licensee and the person for whom the services were performed: s 52(1). A copy of the agreement must have been served by the licensee on the person to be charged within 48 hours after signature by that person: s 52(2). Furthermore, a licensee cannot commence an action for the recovery of remuneration until the expiration of 28 days after a written statement of claim has been served on the person to be charged: s 36(1). 5 Service of a statutory demand does not constitute service of a statement of claim: Investmentsource Corporation Pty Ltd v Knox Street Apartments Pty Ltd (2002) 56 NSWLR 27 at [48]-[49].

Right to indemnity and reimbursement [13.450] Every agent is entitled to be indemnified against all losses and liabilities sustained, and to be reimbursed for all expenses lawfully incurred in the carrying out of the principal’s instructions. Attention is drawn to the word “lawfully” for where the agent has acted outside the scope of her or his authority, or has engaged in an unlawful act, or suffered loss through their own negligence or default, the agent has no claim to be reimbursed or indemnified.

Right of lien [13.460] An agent has what is called a particular lien on such property of the principal as comes into the agent’s hands for the due payment of all expenses and remuneration lawfully incurred by the agent in transacting the principal’s affairs. However, the transactions must relate to the property over which the agent desires to exercise a lien. The agent may have a general lien extending to all claims arising out of the agency either by express contract or by usage: see [19.1330].

Liabilities of agents [13.470] An agent may incur liability: (a)

to the principal; and

(b)

to third parties.

Liability of agent to principal [13.480] The general position is that the agent is an intermediary who is employed to negotiate some transaction on behalf of one person with another in order to effect the completion of a contract between them. Generally the agent incurs no liability to the principal in regard to the contract. However, where the agent disobeys the principal’s instructions, the agent will be liable for the loss suffered by the principal as a result of the breach of the contract of agency. Furthermore, where the agent is negligent in carrying out their duties, the agent will be liable to make good the damage suffered by the principal as a consequence of the agent’s negligence: Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365 at 374. Any confidential knowledge acquired by an agent during the course of the agency should not be used by the agent or made available to third parties, and should the agent do so, he or she may be liable in an action for damages. 5

Property, Stock and Business Agents Act 2002 (NSW), ss 36(1), 52.

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Liability of agent to third parties [13.490] The agent’s liability towards third parties depends upon the agent’s method of contracting and in particular as to whether: 1.

The agent discloses the name of the principal.

2.

The agent does not disclose the name of the principal but does disclose the existence of the principal.

3.

The agent does not disclose the existence of any agency, that is, where the agent acts as if he or she were a principal.

Name of principal disclosed [13.500] Where the agent discloses the name of the principal, the contract is deemed to be that of the principal, and the agent is not liable on the contract except: (a)

where the agent contracts outside the scope of their actual or apparent authority, in which case the agent will be liable to the third party in damages for breach of warranty of authority (discussed at [13.580]);

(b)

the agent agrees to be liable;

(c)

usage or custom makes the agent liable;

(d)

the agent contracts by deed in their own name; or

(e)

where the principal is in fact non-existent.

In terms of the latter, where a person professes to contract on behalf of a principal and the principal is a fictitious or non-existent person, the person so professing to contract is presumed to have intended to contract personally, unless a contrary intention is proved; and where the contract is in writing, such contrary intention cannot be proved by oral evidence, but must appear from the terms of the contract or from the surrounding circumstances. The words “professes to contract on behalf of a principal” are the critical ones, for if the person were to sign a document, not as agent, but, in effect, as the principal, the rule would have no operation. The distinction is shown by the following cases:

case [13.510] In Kelner v Baxter (1866) LR 2 CP 174 the promoters of a company entered into a contract to buy goods, the contract being signed by them “on behalf of the proposed Gravesend Royal Alexandra Hotel Company”. It was held that, as the contract was not contingent upon the company being formed, the only persons who could be liable were the promoters: at 183, 185.

case [13.520] By contrast, in Black v Smallwood (1966) 117 CLR 52 a contract for the sale of land was signed “Western Suburbs Holdings Pty Limited, Robert Smallwood, J Cooper, Directors”. It was held that the two persons who purported to sign the contract as directors put their signatures on the contract not as agents but as part of the act of authenticating the signature for “Western Suburbs Holdings Pty Limited”. This being so, they did not purport or profess to act as agents and were accordingly not liable: at 60-61.

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[13.530] The fundamental question in such cases must be what the parties intended, or must be fairly understood to have intended; thus, where the intention is that the contract be made by the company, and the person who signs “For and on behalf of” the company does not purport to contract as agent, he or she will not be personally liable on the contract: Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506 at 518-519. Under the Corporations Act 2001 (Cth), a company comes into existence upon registration: s 119. If a person purports to enter into a contract on behalf of a company before it is registered, the company becomes bound by the contract if the company is registered and ratifies the contract within the time agreed to by the parties to the contract; or if there is no agreed time, within a reasonable time after the contract is entered into: s 131(1). The person is liable to pay damages to the other party to the pre-registration contract if the company is not registered, or the company is registered but does not ratify the contract within the time agreed to by the parties; or if there is no agreed time, within a reasonable time after the contract is entered into: s 131(2). The amount of damages is the amount the company would be liable to pay to the party if the company had ratified the contract and then did not perform it at all. The court may do anything that it considers appropriate in the circumstances, including ordering the company to do one or more of the following: (a)

pay all or part of the damages that the person is liable to pay;

(b)

transfer property that the company received because of the contract to a party to the contract; or

(c)

pay an amount to a party to the contract: s 131(3).

Existence but not name of principal disclosed [13.540] The general rule is that where the agent discloses the fact that a principal exists but not the name of the principal, the agent’s liability, provided he or she contracts as agent, is similar to the cases where the name of the principal is disclosed. If the third party contracts knowing there is a principal and yet does not ascertain the principal’s name, the third party cannot sue the agent: Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232 at 241. In other words, the agent’s liability is the same, provided he or she contracts as agent, whether or not the principal’s name is disclosed. This principle may alter where the custom of trade makes the agent personally liable. However, the particular circumstances may disclose an intention that the agent alone is a party to the contract. Thus, where the principals would be drawn from a known class (the agent’s clients) but the agent had not selected any particular client at the time the contract was made, the agent was held to have contracted as principal: Carminco Gold & Resources Ltd v Findlay & Co Stokbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472 at [25].

Existence of principal not disclosed [13.550] Sometimes an agent does not disclose to the third party that he or she is acting as an agent. Accordingly, the third party believes that the person they have been negotiating with is the other party to the contract, whereas in reality such person is acting on behalf of an undisclosed principal. In such a case either the undisclosed principal or the agent can sue or be sued on the contract, unless the contract between the agent and the third party expressly or impliedly excludes the rights of persons other than the agent to be a party to the contract: Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 at 149-150. However, the legal rights and obligations of the undisclosed principal only arise where the agent was in fact her or his agent at the time of the transaction, that is, where the agent had actual authority from the principal to enter into the contract. An undisclosed principal cannot purport to ratify as the act of their

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agent a transaction entered into without their authority by one who purports at the time to be a principal and does not disclose that he or she is an agent: Keighley, Maxsted & Co v Durant [1901] AC 240 at 250. While some contracts by their nature cannot be entered into by an agent for an undisclosed principal, a rental agreement was able to be entered into by a photocopier company as agent on behalf of an undisclosed principal, in this case a finance company: White v Baycorp Advantage Business Information Services Ltd (2006) 200 FLR 125 at [86]-[87]. The general principles applying to undisclosed principals were summarised in Siu Yin Kwan (Administratrix of the Estate of Chan Ying Lung, Decd) v Eastern Insurance Co Ltd [1994] 2 AC 199 at 207 per Lord Lloyd as follows: “(1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.” While at the outset it is open to the third party to hold either the agent or the undisclosed principal liable on the contract, once the third party has elected to hold liable either the agent or the principal, the third party is then irrevocably bound by the election and cannot afterwards charge the other on the contract. Where the third party sues and recovers judgment against the agent on the contract, the third party is conclusively deemed to have elected to hold the agent liable and cannot thereafter sue the undisclosed principal. Where the third party has not sued the agent to judgment the question whether the third party has so elected or not is a question of fact depending on the circumstances of the particular case; the mere fact that the third party has commenced an action against the agent is not of itself conclusive although it may be some evidence of an election.

case [13.560] The plaintiffs supplied to the defendant goods and services. The defendant did not disclose that he was not acting as a principal. Prior to the transaction, the plaintiffs had done business of a similar nature with the defendant on several occasions, always as a principal. Subsequently the plaintiffs were informed that the defendant had acted as agent for a company in the transaction. The plaintiffs’ solicitors wrote to both the defendant and the company, in each case threatening proceedings unless the amount due was forthcoming. Payment not having been made, the plaintiffs’ solicitors wrote to the company stating that they had been instructed to proceed to “obtain judgment” against it, and a writ was subsequently issued against the company. When the company went into liquidation, the plaintiffs did not proceed further against the company but issued a writ against the defendant. It was held that the institution of proceedings against the company was not a binding election so as to bar proceedings against the defendant, although if the plaintiffs had obtained judgment against the company they could not thereafter have proceeded against the defendant: Clarkson, Booker Ltd v Andjel [1964] 2 QB 775 at 793-794. [13.570] The undisclosed principal may intervene and sue on the contract unless the contract is such as to be entirely inconsistent with agency. The undisclosed principal may be met with any right of set-off which the third party has acquired against the agent before the third party discovered the existence of the principal.

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Where an agent contracts in such a manner as to make themselves personally responsible, the agent will be liable whether the principal was or was not known at the time of the contract, for example where the agent signs a bill of exchange in their own name instead of on behalf of the principal.

Breach of warranty of authority [13.580] So long as the agent does not exceed their authority the agent will not be personally liable to persons with whom he or she deals. It is a complete answer for the agent to show that he or she acted only as an agent as the other party well knew, and that everything they did was within the scope of their authority. Where an agent represents, either expressly or impliedly, that he or she has authority to enter into a particular transaction and a third party relies on that representation of authority, the agent is taken to warrant that such representation is true. If it is in fact untrue, the agent is liable in damages for breach of warranty of authority. The measure of damages is the actual loss sustained by the third party. It will be no defence that the agent acted innocently or in mistake as to the precise extent of the authority conferred upon her or him. A person who purports to act as an agent impliedly warrants that they have authority and is liable for breach of that warranty even though their authority has come to an end by reason of facts of which they have no knowledge or means of knowledge: Yonge v Toynbee [1910] 1 KB 215 at 227. However, the agent is not liable where the other party knew of the agent’s lack of authority: Weigall & Co v Runciman & Co (1916) 85 LJKB 1187 at 1189-1190.

Liability of principal and agent for misrepresentations [13.590] Where an agent is engaged to sell property, it will normally fall within the scope of the agent’s ostensible authority to describe the nature and quality of the property the agent is selling on behalf of the principal. Accordingly, if the agent’s representations are untrue, the vendor will be liable to the purchaser for the loss suffered by the purchaser as a result of relying on the agent’s representations: Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-873 at 49,445. Where the agent made a negligent misrepresentation which was relied on by the purchaser, the agent will be liable in damages to the purchaser for the loss suffered. For example, a real estate agent for the vendor of a business was held liable to the purchaser for negligent misrepresentations made by the agent as to earnings of the business: Roots v Oentory Pty Ltd [1983] 2 Qd R 745 at 757-758; cf Norris v Sibberas [1990] VR 161 at 171. A principal is vicariously liable for a tort committed by an agent where the agent has acted within the scope of their actual or apparent authority. The liability of the principal includes liability for the negligent misrepresentations of their agent. For example, the vendor of a building was held vicariously liable to the purchaser for damages because of the negligent misrepresentation made by the vendor’s agent as to the “lettable” floor space of the building: Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548 at 562. In that case the agent was also held liable to the purchaser; furthermore, the vendor was entitled to an indemnity from the agent in respect of the vendor’s liability to pay damages to the purchaser. The representations of an agent may also constitute, in an appropriate case, misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law 6 (formerly s 52 of the Commonwealth Trade Practices Act 1974 (Cth)): Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-873 at 49,444 (see further, [17.40]). 6

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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Where an agent’s representation to a third party comprises information provided to the agent by their principal, the agent will be entitled to an indemnity from the principal in the event of the agent being liable to the third party because the representation proves to have been untrue. In such a case, the agent would have the ordinary right of indemnity of an agent against a principal where the agent has acted within the scope of their authority.

Liability of principal and agent for wrongful acts [13.600] An agent is liable for their tortious acts but the principal will also be liable for any tort committed by the agent where the agent has acted within the scope of their actual or apparent authority, whether the tort was committed for the benefit of the principal or of the agent. The liability of the principal includes liability for the negligence or negligent misrepresentations of their agent (see previous section). The principal will also be liable for the fraudulent conduct of their agent or employee where such was committed within the scope of the agent’s apparent authority or the employee’s course of employment.

case [13.610] An insurance agent persuaded K to enter into certain life assurance proposals. K paid the agent an initial premium and was given a receipt for the amount by the agent from a receipt book provided by the insurance company. Some months later, the agent again approached K and invited him to invest moneys on loan with the insurance company. The agent told K that a deposit of moneys with the company would return a higher rate of interest and give K the right to obtain from the company a loan on mortgage for the purchase of a house. K paid the agent $2,000 and was again given a receipt from the agent’s receipt book. The agent misappropriated the money and disappeared and K sued the insurance company for the $2,000. It was held that the agent had received the money from K in the course of his employment by the insurance company which was accordingly liable to K for the agent’s fraud: Royal Globe Life Assurance Co Ltd v Kovacevic (1979) 22 SASR 78 at 83. [13.620] Thus the principal may be liable in tort for damages if the agent is guilty of a wrong or deceit or fraudulent misrepresentation. The fraud may be the fraud of the principal in instructing the agent that a certain fact is true, whereas it is actually untrue; or it may be the fraud of the agent in taking upon themselves to say that it is true whereas the agent knows that it is untrue. In either case the principal is liable. However, it is not permissible to “add together” the knowledge of the principal and that of the agent, where both are innocent, in an action for fraudulent misrepresentation.

case [13.630] Skinner was a member of a firm of estate agents employed by the defendant to sell his bungalow. Skinner made a statement which was in fact untrue but which he believed to be true. The defendant vendor knew that such a statement was untrue but did not authorise Skinner to make the statement and did not know he was going to make it. It was held that the purchaser was unable to recover damages against the defendant for fraudulent misrepresentation since no fraudulent intention had been established on the part of either Skinner or the defendant: Armstrong v Strain [1952] 1 KB 232 at 244, 248.

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[13.640] A principal will not be liable for the fraud of an agent where the agent was not authorised to do the act; where the act was not within the class of acts that an agent in their position is usually authorised to do; and the principal has done nothing to represent that the agent had authority to do the act: Armagas Ltd v Mundogas SA [1986] AC 717 at 783. Similarly, a principal will not be liable for other wrongful acts of an agent which are outside the agent’s actual or apparent authority, for example where an agent commits an unauthorised assault upon third parties:

case [13.650] D conducted a hotel in which it employed B as a barmaid. P, a customer in the hotel, acted in an offensive manner and B asked him to go away. In the course of an altercation B threw in P’s face a glass of beer and then the glass. It was held that, whether or not B had been provoked as D alleged, B was not acting within the scope of her employment in doing what she did and that accordingly D was not liable to P in damages: Deatons Pty Ltd v Flew (1949) 79 CLR 370 at 379, 381, 386, 388. [13.660] A principal (or employer) will not be liable for the negligence of an agent (or employee) who acts without any authority and in their own interests and not on behalf of the principal (or employer): Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 at 475 (PC).

Termination of agency [13.670] The time when, and the circumstances upon which, the relationship of principal and agent will end depend upon the terms of the original contract of agency.

Performance or completion of agency [13.680] Where the agent is appointed either for the performance of one specific act, or for the duration of a definite period, then the authority of the agent will extend only until such act has been done, or the specified period has expired.

Impossibility of performance [13.690] Where it becomes impossible for the agent to carry out their obligations, for example where the subject matter of the agency is destroyed, the authority of the agent must cease there and then, for example where the building which an agent has been instructed to sell is destroyed by fire.

Agreement [13.700] Whilst the agency is still current both the principal and agent may mutually agree to its termination.

Revocation [13.710] In considering the rights of the principal to revoke the agent’s authority or the right of the agent to renounce, it must be borne in mind that in any contract of agency, unless some express stipulation has been made to the contrary, there is an implied term that either party may terminate it upon notice. But neither notice of revocation nor notice of renunciation will affect any rights or liabilities which may have been created between the principal and third parties prior to the notice. The right of the principal to revoke the agent’s authority may be limited or affected by the rights of:

chapter 13 Agency

(a)

third parties; and

(b)

the agent.

Rights of third parties [13.720] The principal may be liable to third parties even after the principal has validly revoked the authority of the agent, where such parties have had previous dealings with the agent and continue to deal with the agent without notice of the withdrawal of the agent’s authority. An example would be where a commercial traveller had authority to collect the debts of their firm and was dismissed without the firm notifying the customers of the termination of the traveller’s authority. The traveller continues to call and receive from the old customers, payment of their accounts supposedly for the firm. The traveller’s action would bind the firm as payment to the traveller would be held as good payment to the firm as regards customers unaware of the traveller’s dismissal.

Rights of the agent [13.730] The right of the principal to revoke the authority of their agent may be limited by the principal’s obligation to indemnify the agent against any loss or damage the agent may have suffered as a result of their employment, for example expenses in advertising, etc, connected with the agency. Further, the agent may be entitled to claim for loss of commission in certain cases depending upon the nature of the agency, the terms upon which commission is payable and the circumstances existing at the time the principal revoked the agent’s authority. For instance, the principal cannot capriciously or without reasonable grounds refuse to enter into a contract and determine the agency when the agent has found and introduced a purchaser ready, willing and able to buy at the stipulated price: George Trollope & Sons v Martyn Bros [1934] 2 KB 436 at 451-452.

By death [13.740] The death (or in the case of a corporation, the liquidation) of either principal or agent immediately puts an end to the agency. Accordingly, an agent’s authority to draw on the principal’s bank account terminates on the principal’s death: Noonan v Martin (1987) 10 NSWLR 402 at 408. The general rule is that the death of the principal terminates the authority of the agent even though the agent is unaware of and had no means of ascertaining the fact. Consequently the agent becomes personally liable to third parties for having made any contract entered into by the agent after the death of the principal and on behalf of the deceased principal, and may be sued by such party for breach of warranty of authority even though the agent was ignorant of the principal’s death. The estate of the principal is not liable under such a contract though the personal representative (for example, the executor) may confirm the contract. In some States every act done in good faith within the scope of a power of attorney after the death of the donor and before the receipt of notice thereof is valid and the donee of such power is not liable. 7

By insanity [13.750] Once insanity has overtaken either principal or agent, the contract of agency, with its attendant rights and liabilities, is at an end: Yonge v Toynbee [1910] 1 KB 215 at 229-230. However, a third party is entitled to treat the authority of the agent as subsisting until they receive notice of the insanity in cases where the principal, before becoming insane, had held out the agent as having authority. 7

Powers of Attorney Act 2014 (Vic), ss 14 – 15, 75; Powers of Attorney and Agency Act 1984 (SA), s 12; Property Law Act 1969 (WA), s 85(2); Powers of Attorney Act 2000 (Tas), s 52.

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Bankruptcy Of the agent [13.760] The bankruptcy of the agent determines their authority, except where the bankruptcy does not affect their capacity to contract as agent. Thus where the duties of the agent are merely formal, the agent’s bankruptcy would not necessarily affect their authority.

Of the principal [13.770] The bankruptcy of the principal also determines the relationship of principal and agent. However, an agent, even after notice of the principal’s bankruptcy, may do such acts as are necessary to complete some transaction which was already binding on the principal before the bankruptcy.

Renunciation by the agent [13.780] The agent may renounce the agency at any time but must compensate the principal for any loss occasioned by such renunciation.

Particular types of agents Factors and mercantile agents [13.790] A factor is considered at common law to be an agent employed to sell goods, the possession or control of which has been entrusted to the factor’s care by the principal. A factor has been generally recognised as possessing certain powers which apply in the absence of any special instructions from the principal to the contrary. Thus a factor may sell goods in their own name as though he or she was the principal. Consequently, with regard to third parties dealing with factors, the purchaser and factor stand in exactly the same relation to each other as any other purchaser and vendor – provided the purchaser was not aware that the factor was not in fact the principal. Consequently, the purchaser may set off against the purchase money any personal liability which may exist between the factor and the purchaser. Further, by custom a factor is entitled to receive payment for the goods from the purchaser and the purchaser is absolutely protected provided he or she had no notice from the principal requiring payment to the principal personally. In the various States there exist Acts 8 relating to factors and mercantile agents. They define a mercantile agent as “an agent having in the customary course of his business as such agent authority either to sell goods, or to consign goods for the purpose of sale or to buy goods, or to raise money on the security of goods”. The Acts further provide that when a mercantile agent is, with the consent of the owner, 9 in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition of the goods made by 8

9

Factors (Mercantile Agents) Act 1923 (NSW); Goods Act 1958 (Vic), ss 65–72; Factors Act 1892 (Qld); Mercantile Law Act 1936 (SA); Factors 1842 Imperial Act 5 & 6 Vict, c 39 (WA); Factors’ Acts Amendment Act 1878 (WA); Factors Act 1891 (Tas). In New South Wales the Factors (Mercantile Agents) Act 1923 (NSW), s 5 does not state “with the consent of the owner” but in Cook v Rodgers (1946) 46 SR (NSW) 229 at 232, it was held that the words in the Act “entrusted with possession” had in substance the same meaning, as a mercantile agent could not be “entrusted” with goods unless he or she obtained possession of them “with the consent of the owner”.

chapter 13 Agency

her or him when acting in the ordinary course of business of a mercantile agent shall be as valid as if he was expressly authorised by the owner of the goods to make the same; provided that the person taking under the disposition acts in good faith, and has not, at the time of the disposition, notice of the want of authority. 10 Another provision of the Acts covers the position where the authority of the agent has been revoked by the principal before the sale, pledge or disposition was made. When a mercantile agent has, with the consent of the owner, been in possession of goods or of the documents of title to goods, any sale, pledge or other disposition which would have been valid if the consent had continued, is valid notwithstanding the determination of the consent provided that the person taking under the disposition does not have notice that the consent has been determined.

Del credere agents [13.800] This type of mercantile agent undertakes to make good any loss incurred, as regards payment only, with respect to persons with whom he or she contracts on behalf of the principal, that is, a del credere agent undertakes the payment for goods accepted by the customers he or she procures upon the buyer’s failure to pay; a del credere agent does not guarantee that customers will not repudiate contracts in some other manner such as by refusal to accept goods. Such an agent is usually paid an extra commission known as del credere commission. A del credere agent is not primarily the debtor. On the contrary, the principal may sue the buyer in her or his own name notwithstanding the del credere commission so that the latter amounts to no more than consideration for a guarantee.

Brokers [13.810] A broker is a general agent who buys and sells goods for a principal without being entrusted either with the possession or control of the goods or of their documents of title. Often a broker does little more than bring the parties together, and when a contract is concluded takes their commission and entirely drops out of the transaction. The general practice of brokerage is for the broker, upon making the contract, to enter a note in their book signed by the broker, and send a note or memorandum to both parties. The one sent to the purchaser is called the “bought note”, that to the vendor is the “sold note”.

Partners [13.820] Each partner is a general agent of the other with regard to partnership matters, and the partnership is bound by any act done by one of its members in the course of the firm’s business, unless the partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom the partner is dealing either knows that he or she has no authority or does not know or believe her or him to be a partner: see Chapter 26.

Directors [13.830] Subject to the qualification that they must act together as a board, directors are agents for their company, and a company is liable in respect of all contracts made on its behalf by directors acting within the scope of the authority given to them by the rules of the company. 10

It should be noted that the onus of proving: (a) the ostensible authority of the mercantile agent; and (b) that the purchaser was unaware that the transaction was outside the scope of the actual authority of the mercantile agent, lies on the purchaser: Buckland v Clarke (1956) 56 SR (NSW) 185 at 188.

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Estate agents [13.840] Generally the term “estate agent” is used in statutes to include agents entrusted with the duty of buying or selling land, or of buying or selling businesses, on behalf of principals. Sometimes, however, the statutes differentiate between “land agents” or “real estate agents” and “business agents”.

Auctioneers [13.850] An auctioneer is an agent for the sale of property at a public auction: see [14.1110].

Statutory regulation of agents [13.860] In most jurisdictions auctioneers and estate agents have to be licensed. 11 In most States repossession and debt collecting agents (referred to as “commercial agents”) are also subject to licensing requirements. 12 Finance brokers (that is, agents who negotiate loans for other persons) are required to be licensed and are subject to certain obligations in the conduct of their business under the national scheme established by the Commonwealth National Consumer Credit Protection Act 2009 (Cth) (see further Chapter 19). In all States and Territories “uniform” legislation formerly required the licensing of travel agents and regulated their operations. One of the conditions to be satisfied before a licence would be granted was that the applicant be a participant in the Travel Compensation Fund which was established to compensate travellers who suffered loss as a result of misappropriations by travel agents. However, these licensing requirements were repealed in all jurisdictions and the Compensation Fund was closed. 13 Employment agents may also be subject to licensing requirements. 14

Further reading G Dal Pont, Law of Agency (3rd ed, LexisNexis Butterworths, Sydney, 2014). S Fisher, Agency Law (Butterworths, Sydney, 2000). 11

12

13

14

Estate Agents Act 1980 (Vic), s 12; Motor Dealers and Chattel Auctioneers Act 2014 (Qld), s 33; Property Occupations Act 2014 (Qld), s 26; Land Agents Act 1994 (SA), s 6(1); Real Estate and Business Agents Act 1978 (WA), s 26; Property Agents and Land Transactions Act 2005 (Tas), s 5; Auction Sales Act 1973 (WA), s 6; Agents Act 2003 (ACT), s 18; Auctioneers Act 1935 (NT), s 4; Agents Licensing Act 1979 (NT), s 17. The National Competition Review “concluded that the benefits of licensing auctioneers of goods are outweighed by the costs”: Victorian Hansard (Assembly), 5 April 2001, p 761. As a result of this recommendation, the Victorian Auction Sales Act 1958 (Vic) was repealed: Auction Sales (Repeal) Act 2001 (Vic), s 3. Fair Trading Act 1987 (NSW), ss 60, 60C; Debt Collectors (Field Agents and Collection Agents) Act 2014 (Qld), s 14; Security and Investigation Industry Act 1995 (SA), s 6; Debt Collectors Licensing Act 1964 (WA), s 5; Security and Investigations Agents Act 2002 (Tas), s 4; Commercial and Private Agents Licensing Act 1979 (NT), s 5. The Travel Agents Act 1986 (NSW) was repealed by the Travel Agents Repeal Act 2014 (NSW). The Travel Agents Act 1986 (Vic) was repealed by the Travel Agents Repeal Act 2014 (Vic). The Travel Agents Act 1988 (Qld) was repealed by the Construction and Tourism (Red Tape Reduction) and Other Legislation Amendment Act 2014 (Qld), s 52. The Travel Agents Act 1986 (SA) was repealed by the Travel Agents Repeal Act 2014 (SA). The Travel Agents Act 1985 (WA) will expire under Travel Agents Amendment and Expiry Act 2014 (WA), s 7. The Travel Agents Act 1987 (Tas) was repealed by the Travel Agents Repeal Act 2014 (Tas). The Consumer Affairs and Fair Trading Act 1990 (NT), Pt 11, was repealed by the Consumer Affairs and Fair Trading Amendment Act 2014 (NT), s 6. The Agents Act 2003 (ACT), s 21 was repealed by the Justice and Community Safety Legislation Amendment Act 2014 (ACT), Sch 1 Pt 1.1 item 1.3. Employment Agents Registration Act 1993 (SA), s 6; Employment Agents Act 1976 (WA), s 12; Agents Act 2003 (ACT), s 22.

chapter 14

Sale of Goods [14.20] Contract of sale of goods ............................................................................................................................. 249 [14.210] Terms of the contract................................................................................................................................. 254 [14.420] Transfer of property .................................................................................................................................... 262 [14.630] Title of transferee ......................................................................................................................................... 269 [14.760] Performance of the contract .................................................................................................................. 272 [14.840] Remedies for breach of the contract of sale .................................................................................. 277 [14.1110] Auctioneers and auction sales........................................................................................................... 286

Introduction [14.10] The principles of the common law relating to the sale of goods were codified in the United Kingdom Sale of Goods Act 1893 (UK), and each of the Australian States and Territories passed legislation practically identical to the United Kingdom Act. 1 The common law continues to apply to contracts for the sale of goods where it is not inconsistent with the Acts. 2 Relevant common law rules include those relating to agency, fraud, misrepresentation, mistake and duress. The Acts apply to all contracts for the sale of goods whether it is a commercial contract between two companies involving the supply of goods worth many thousands of dollars, or to the sale of everyday items such as food and clothing to consumers. The provisions of the Australian Consumer Law 3 dealing specifically with consumer sales are considered separately in Chapter 17. The present chapter deals with the provisions of the State and Territory Sale of Goods Acts. In Victoria and Tasmania the sale by description, fitness for a particular purpose and sale by sample provisions of the Sale of Goods Act do not apply to contracts of supply to which the consumer guarantees provisions of the Australian Consumer Law apply (Div 1, Part 3-2). A reference to a condition in the formation of the contract provisions of the Sale of Goods Act includes a consumer guarantee under the Australian Consumer Law. Except as expressly provided by the consumer guarantees provisions of the Australian Consumer Law, those provisions do not affect the application of the Sale of Goods Act to a

1 2

3

Sale of Goods Act 1923 (NSW); Goods Act 1958 (Vic); Sale of Goods Act 1896 (Qld); Sale of Goods Act 1895 (SA); Sale of Goods Act 1895 (WA); Sale of Goods Act 1896 (Tas); Sale of Goods Act 1954 (ACT); Sale of Goods Act 1972 (NT). Sale of Goods Act 1923 (NSW), s 4(2); Goods Act 1958 (Vic), s 4(2); Sale of Goods Act 1896 (Qld), s 61(2); Sale of Goods Act 1895 (SA), s 59(2); Sale of Goods Act 1895 (WA), s 59(2); Sale of Goods Act 1896 (Tas), s 5(2); Sale of Goods Act 1954 (ACT), s 62(1); Sale of Goods Act 1972 (NT), s 4(2). The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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contract for the supply of goods and services. 4 In Western Australia where the consumer guarantees provisions of the Australian Consumer Law are inconsistent with the Sale of Goods Act, the Australian Consumer Law prevails. 5

4 5

Australian Consumer Law and Fair Trading Act 2012 (Vic), s 31; Australian Consumer Law (Tasmania) Act 2010 (Tas), s 45. Fair Trading Act 2010 (WA), s 35.

chapter 14 Sale of Goods

Contract of sale of goods Formation of the contract [14.20] A contract of sale of goods is defined by the Sale of Goods Act as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. 6 The ordinary elements of a contract must be present, that is, offer and acceptance, consideration, etc, but it will be noticed that in every contract for the sale of goods there must be present three main matters: “goods”, “money consideration”, and “transfer of property”.

Goods [14.30] The term “goods” includes all chattels personal other than things in action and money; it includes emblements 7 and things attached to or forming part of land which are agreed to be severed before sale or under the contract of sale. 8 Therefore, the term “goods” embraces a wide field including clothes, food, motor cars, machinery, furniture and growing crops. Timber is also included if it is to be cut down before the title of it is to pass to the buyer. A contract for the removal of a house in its entirety from its original site to another location has been held to constitute a sale of goods: Symes v Laurie [1985] 2 Qd R 547 at 549–550. However, the term does not include land or any interest in land, nor does it include shares or debentures. It has been held that an agreement for the sale of a computer system comprising three items of computer hardware and two items of software is a sale of goods within the meaning of the Sale of Goods Act: Toby Constructions Products Pty Ltd v Computer Bar Sales Pty Ltd [1983] 2 NSWLR 48 at 54. However, it has been held that a software package supplied as an online download does not constitute “goods” and is not a sale of goods within the meaning of the Act: Gammasonics Institute for Medical Research Pty Ltd v Comrad Medical Systems Pty Ltd (2010) 77 NSWLR 479 at [12], [42], [47].

Money consideration [14.40] In order to constitute a sale of goods under the Act there must exist some money consideration for the sale. If the goods are given away free or transferred by means of barter, that is, exchanged for other goods, the Sale of Goods Act would not apply to the transaction.

Transfer of property [14.50] By transfer of property is meant the transfer of ownership in the goods. The principles governing the transfer of property or ownership in goods the subject of a contract of sale are considered at [14.420].

Contracts of sale and for work and materials [14.60] Some agreements, although providing for the delivery of an article, are not contracts for the sale of goods but for work and labour and the supply of materials. Each case must be decided on its individual 6

Sale of Goods Act 1923 (NSW), s 6; Goods Act 1958 (Vic), s 6; Sale of Goods Act 1896 (Qld), s 4; Sale of Goods Act 1895 (SA), s 1; Sale of Goods Act 1895 (WA), s 1; Sale of Goods Act 1896 (Tas), s 6; Sale of Goods Act 1954 (ACT), s 6; Sale of Goods Act 1972 (NT), s 6.

7

The term “emblements” refers to industrial crops such as wheat, potatoes and hay.

8

Sale of Goods Act 1923 (NSW), s 5; Goods Act 1958 (Vic), s 3; Sale of Goods Act 1896 (Qld), s 3; Sale of Goods Act 1895 (SA), s 60; Sale of Goods Act 1895 (WA), s 60; Sale of Goods Act 1896 (Tas), s 3; Sale of Goods Act 1954 (ACT), s 5; Sale of Goods Act 1972 (NT), s 5.

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merits but broadly speaking if it can be shown that the main substance of the agreement is the transfer of title to a chattel then the contract is for the sale of goods. On the other hand, where the main substance of the agreement is the skill and experience to be displayed by one of the parties in performance and the transfer of title to the materials used is only ancillary, then the contract is for work and labour and the supply of materials. In a Victorian case it was said that the “substance of the contract” test for determining whether a contract is one for the sale of goods or for work and labour is “illogical and unsatisfactory” and that the more satisfactory test is whether the contract when carried out would result in the sale of a chattel; if so, the contract is one for the sale of goods: Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 181-186. The distinction between contracts for the sale of goods and contracts for work and labour and the supply of materials is of importance, since the statutory requirements for a contract for the sale of goods to be enforceable do not apply to contracts of work and the supply of materials.

Capacity to buy and sell [14.70] The capacity to buy and sell goods is governed by the general law concerning the capacity to contract: see Chapter 6. Where necessaries are sold and delivered to minors, or to persons who by reason of their mental incapacity or drunkenness are incompetent to contract, they must pay a reasonable price for them. 9

Sale and agreement to sell [14.80] The term “contract for the sale of goods” includes: (a)

a sale of goods (an executed contract); and

(b)

an agreement to sell goods (an executory contract). 10

A “sale” occurs where the ownership of the goods is transferred to the buyer at the time of the contract. For example, B goes to a sports store, selects and purchases a particular cricket bat. The thing sold immediately becomes the property of the buyer and the transaction is known as a “sale”. The goods are agreed upon at the time of the sale and there is nothing further required of the seller to transfer the ownership. An “agreement to sell” arises where the ownership of the goods is to be transferred at a future time, or subject to some condition. An agreement to sell becomes a “sale” when the time elapses or the conditions are fulfilled. For example, A phones B and orders 10 litres of “red paint” to be made up and delivered to his store. Until the particular goods are delivered to A’s store the contract is an agreement to sell. When the goods are delivered, the agreement becomes executed and constitutes a sale. A contract to sell unascertained goods is not a sale but an agreement to sell. “There must be added to it some act which completes the sale, such as delivery or the appropriation of specific goods to the contract by the assent, express or implied, of both buyer and seller”: Jansz v GMB Imports Pty Ltd [1979] VR 581 at 586-587. The distinction between a sale and an agreement to sell has an important effect on the rights of the parties. These rights are briefly summarised at [14.90]. 9

10

Sale of Goods Act 1923 (NSW), s 7; Goods Act 1958 (Vic), s 7; Sale of Goods Act 1896 (Qld), s 5; Sale of Goods Act 1895 (SA), s 2; Sale of Goods Act 1895 (WA), s 2; Sale of Goods Act 1896 (Tas), s 7; Sale of Goods Act 1954 (ACT), s 7; Sale of Goods Act 1972 (NT), s 7. This is not the usual sense of the words “executory” and “executed”; in the case of a sale the property passes at once but the contract may still be executory in the sense that the buyer may still have to pay the price. However, these meanings have been adopted by common usage in the case of the topic of sale of goods.

chapter 14 Sale of Goods

Rights under a sale [14.90] The seller has a right to sue the buyer for the price of the goods. The buyer has the right to sue the seller for damages if the seller defaults, and also for conversion 11 if the seller wrongfully disposes of the goods. The risk of any loss to the goods after a sale is with the buyer as the ownership has passed to her or him. For example, if a person purchases a ready-made suit from a tailor the property passes to him, and he must bear any later loss or destruction of the suit.

Rights under an agreement to sell [14.100] The seller has a right to sue the buyer for damages in the event of default. The buyer, where the seller defaults, can only sue for damages as the property in the goods has not passed to the buyer. The risk of any loss to the goods in an agreement to sell is with the seller as ownership has not passed to the buyer. For example, if a buyer is measured for a suit and during its making there is a fire which damages the suit, the loss must be borne by the tailor.

Classification of goods [14.110] The goods which form the subject matter of a contract of sale may be:

Existing goods [14.120] Existing goods are those owned or possessed by the seller at the time of the contract, for example a particular car.

Future goods [14.130] Future goods are those to be manufactured or acquired by the seller after the making of the contract of sale. It is also necessary to observe the meanings of “specific” and “unascertained” goods.

Specific goods [14.140] Specific goods 12 are goods identified and agreed upon at the time the contract of sale is made; for example a 2006 Holden Commodore, a specific piece of Dresden china, “Oscar” the champion merino ram.

Unascertained goods [14.150] Unascertained goods are goods sold under a description where no particular goods were identified and agreed upon (that is, “earmarked”) at the time when the contract was made; for example a contract for the sale of generic goods such as “100 tonnes of best quality wheat”.

Distinction between specific and unascertained goods [14.160] The distinction between specific and unascertained goods is important for the purpose of determining when the property in the goods and the risk passes to the buyer. 11

12

Conversion is the tort committed by a person who wilfully interferes with a chattel in a manner constituting a denial of the title of the person who has the right to its possession. It is essentially conduct which deprives another of their property permanently or for an indefinite time: see Chapter 28. Sale of Goods Act 1923 (NSW), s 5; Goods Act 1958 (Vic), s 3; Sale of Goods Act 1896 (Qld), s 3; Sale of Goods Act 1895 (SA), s 60; Sale of Goods Act 1895 (WA), s 60; Sale of Goods Act 1896 (Tas), s 3; Sale of Goods Act 1954 (ACT), s 5; Sale of Goods Act 1972 (NT), s 5.

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In a sale of specific (or ascertained goods) the property passes to the buyer at such time as the parties to the contract intend it to be transferred, taking into account the terms of the contract, the conduct of the parties, and the circumstances of the case. The property in unascertained goods does not pass until the goods become ascertained and being in a deliverable state are appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller. Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. 13 Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish before the risk passes to the buyer, the agreement is avoided. 14 In these circumstances, legislation in Victoria (the Australian Consumer Law and Fair Trading Act 2012 (Vic)); New South Wales (the Frustrated Contracts Act 1978 (NSW)) and South Australia (the Frustrated Contracts Act 1988 (SA)) provides for the adjustment of the rights and liabilities of the parties: see [11.490]-[11.500].

The price [14.170] The price of the goods may be fixed by the contract or in some manner agreed upon, or by the dealings between the parties. The contract may be complete and binding although no price is stated, and in such circumstances the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent upon the circumstances of each particular case. 15 Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and the third party cannot or does not make the valuation, the agreement is avoided. However, if the goods have been taken by the buyer he or she must pay a reasonable price for them and where the third party is prevented from making the valuation by the fault of the seller or buyer, the party not at fault may maintain an action for damages against the other. 16 The price of the goods, unless otherwise provided, is to be paid upon the delivery of the goods, and it should be paid in legal tender unless arranged otherwise. Delivery and payment are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods. 17 13

14

15

16

17

Sale of Goods Act 1923 (NSW), s 11; Goods Act 1958 (Vic), s 11; Sale of Goods Act 1896 (Qld), s 9; Sale of Goods Act 1895 (SA), s 6; Sale of Goods Act 1895 (WA), s 6; Sale of Goods Act 1896 (Tas), s 11; Sale of Goods Act 1954 (ACT), s 11; Sale of Goods Act 1972 (NT), s 11. Sale of Goods Act 1923 (NSW), s 12; Goods Act 1958 (Vic), s 12; Sale of Goods Act 1896 (Qld), s 10; Sale of Goods Act 1895 (SA), s 7; Sale of Goods Act 1895 (WA), s 7; Sale of Goods Act 1896 (Tas), s 12; Sale of Goods Act 1954 (ACT), s 12; Sale of Goods Act 1972 (NT), s 12. Sale of Goods Act 1923 (NSW), s 13; Goods Act 1958 (Vic), s 13; Sale of Goods Act 1896 (Qld), s 11; Sale of Goods Act 1895 (SA), s 8; Sale of Goods Act 1895 (WA), s 8; Sale of Goods Act 1896 (Tas), s 13; Sale of Goods Act 1954 (ACT), s 13; Sale of Goods Act 1972 (NT), s 13. Sale of Goods Act 1923 (NSW), s 14; Goods Act 1958 (Vic), s 14; Sale of Goods Act 1896 (Qld), s 12; Sale of Goods Act 1895 (SA), s 9; Sale of Goods Act 1895 (WA), s 9; Sale of Goods Act 1896 (Tas), s 14; Sale of Goods Act 1954 (ACT), s 14; Sale of Goods Act 1972 (NT), s 14. Sale of Goods Act 1923 (NSW), s 31; Goods Act 1958 (Vic), s 35; Sale of Goods Act 1896 (Qld), s 30; Sale of Goods Act 1895 (SA), s 28; Sale of Goods Act 1895 (WA), s 28; Sale of Goods Act 1896 (Tas), s 33; Sale of Goods Act 1954 (ACT), s 32; Sale of Goods Act 1972 (NT), s 31.

chapter 14 Sale of Goods

Formalities [14.180] Formerly, the position in all Australian States and Territories was that a contract for the sale of goods of the value of $20 or upwards was not enforceable unless: (a)

some note or memorandum in writing of the contract was made and signed by the party to be charged or her or his authorised agent; or

(b)

the buyer accepted part of the goods so sold and actually received the same; or

(c)

the buyer had given something in earnest to bind the contract, or given something in part payment.

However, this requirement has been repealed in New South Wales, Victoria, Queensland, South Australia, the Australian Capital Territory and the Northern Territory. 18 Accordingly, in these States and Territories there are no special formalities to be observed before a contract of sale becomes enforceable. Such a contract may be made in writing, by word of mouth, or by implication from the conduct of the parties. However, the formality requirement referred to above still applies in Western Australia and Tasmania. 19 It applies to contracts for the sale of goods of the value of $20 and upwards. The following explanation of the requirement is relevant only to these jurisdictions.

Note or memorandum [14.190] The note or memorandum must show: (a)

the names of the parties;

(b)

the quantity and description of the goods sold;

(c)

the price and terms as to mode or time of payment if they have been agreed upon; and

(d)

the signature of the party to be charged or that of their authorised agent.

These particulars may appear in one document or may be comprised in a series of documents, provided that they are connected or related to each other so that they constitute all the terms of the bargain and give a sufficient description of the subject matter. The memorandum may be good even though no price is mentioned, for where no price is agreed upon the buyer is bound to pay a reasonable price. If, however, a price had been agreed upon, a memorandum which omitted to state the agreed price would be defective. The omission from the note or memorandum of an agreed date for delivery of the goods will render the note or memorandum insufficient: JB & BL Nominees Pty Ltd v McCormack [1982] WAR 258 at 260, 268.

Acceptance [14.200] The word “acceptance” has two distinct meanings under the Sale of Goods Act, one relating to the enforceability of the contract of sale and the other to performance of the contract. For a discussion on the latter see [14.870]. As regards the former, one of the alternative formality requirements of an enforceable contract for the sale of goods of $20 or upwards, in the absence of a note or memorandum of the contract, is that the buyer accept part of the goods and actually receive them. There must be an acceptance and a receipt. “Acceptance” has a particular meaning. The Acts state: 18

Sale of Goods (Amendment) Act 1988 (NSW); Sale of Goods (Vienna Convention) Act 1987 (Vic), s 9; Statute of Frauds 1972 (Qld), s 3; Statutes Amendment (Enforcement of Contracts) Act 1982 (SA), s 4; Sale of Goods Act 1954 (ACT), s 2; Sale of Goods Amendment Act 1999 (NT), s 2.

19

Sale of Goods Act 1895 (WA), s 4; Sale of Goods Act 1896 (Tas), s 9.

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There is an acceptance of goods within the meaning of this section when the buyer does any act in relation to the goods which recognises a pre-existing contract of sale, whether there be an acceptance in performance of the contract or not. 20 It is to be noted that the act of acceptance need not be an acceptance of the goods as conforming to the contract; it is sufficient if the act relied upon is consistent only with the recognition of an existing contract. An example would be where the buyer makes an effort to resell the goods before their actual receipt, for example by using a sample. The question is whether the buyer has done anything which amounts to an admission that he or she had contracted to buy the goods.

case [14.205] The appellant purchased a Ferrari. After delivery of the car he became convinced that it was not a new vehicle: at [2]. In response to the purchaser’s complaints, the dealer ensured that extensive repairs were made under warranty. Over four years after delivery of the car the purchaser purported to rescind the contract of purchase: at [17]. The South Australian Full Court held that the purchaser had accepted the car and it was too late to rescind the contract. The purchaser had accepted major warranty repairs and used the car for more than four years: at [19]. Rescission must take place within a reasonable time: at [11]. The period in which goods may be accepted or rejected is “relatively short” in view of the commercial need for finality in transactions: Russo v Belcar Pty Ltd (2011) 111 SASR 459 at [96]. [14.207] In addition to acceptance there must be an “actual receipt” of the goods. Where there has been an acceptance and receipt of the goods or part of them by the buyer, the contract is enforceable by the seller against the buyer, or by the buyer against the seller despite the absence of a note or memorandum of the contract in writing: Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 188.

Terms of the contract [14.210] A “condition” is a term that is vital to the existence of the contract, a breach of which gives the innocent party a right to rescind the contract and claim for such damages as he or she may have sustained. Instead of rescinding the contract the innocent party may bring an action for damages only. A “warranty” is a term of lesser importance, the breach of which merely gives rise to a claim for damages but not a right to repudiate the contract and reject the goods. In New South Wales the Act has introduced the concept of an “intermediate stipulation”, that is, a term which is neither a condition nor a warranty. Whether breach of such an intermediate stipulation constitutes a repudiation of the contract will depend on the seriousness of the breach. Thus, s 4(5) of the Sale of Goods Act 1923 (NSW) provides that nothing in the Act is to be construed “as excluding a right to treat a contract of sale as repudiated for a sufficiently serious breach of a stipulation that is neither a condition nor a warranty but is an intermediate stipulation”. Under the Sale of Goods Act certain implied conditions and warranties are applicable to contracts for the sale of goods but the parties themselves can also make specific conditions or warranties. An express condition or warranty does not negative an implied condition or warranty stipulated by the Act unless inconsistent with it, in which case the express stipulation prevails. Whether a stipulation in a contract for the sale of goods is a condition or a warranty is a matter of construction, and a stipulation may be a condition although called a warranty in the contract. As a general 20

Sale of Goods Act 1895 (WA), s 4(3); Sale of Goods Act 1896 (Tas), s 9(3).

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rule stipulations as to time of payment are not deemed to be conditions of the sale, and whether any other stipulation as to time is of the essence of the contract depends upon the terms of the contract. 21 However, stipulations as to time for delivery of the goods are considered essential terms unless a contrary intention is clearly shown. A breach of a condition may be treated by the innocent party as a breach of warranty, thus enabling the contract to be carried out but giving her or him the right to claim damages against the party defaulting. A warranty must be distinguished from a representation amounting to an expression of opinion. Such a representation is more in the nature of sales “puffing” and may be a mere expression of opinion by the seller on a matter of which the buyer may also be expected to have an opinion. Should an expression of opinion prove incorrect there is no right of action unless there has been fraud on the part of the seller, in which case the buyer may either set aside the contract or permit the contract to continue and claim damages. A warranty must also be distinguished from a representation of fact which induces but does not form part of the contract.

Conditions implied in contracts of sale [14.220] The Sale of Goods Act implies certain important terms in all contracts for the sale of goods unless the circumstances of the contract are such as to show a different intention. The terms implied are conditions as to title, correspondence with description, quality, and fitness of goods supplied under the contract of sale. Each of these conditions is now considered in turn.

Condition as to title [14.230] In a contract of sale, there is an implied condition on the part of the seller that he or she has a right to sell the goods and, in the case of an agreement to sell, that they will have a right to sell the goods at the time when the property is to pass. 22 This condition relates to the title of the seller and amounts to a guarantee of undisturbed possession. Should the buyer’s title be avoided by reason of the fact that the seller had no title to the goods transferred, the buyer is entitled to a refund from the seller of any money paid to the seller for the goods, notwithstanding that the buyer may have had temporary use or enjoyment of them: Rowland v Divall [1923] 2 KB 500 at 504, 506. This is because in the case of a contract for the sale of goods the main purpose of the contract is to transfer the property or title to goods. Accordingly, if the seller has no title, there has been a total failure of consideration. However, where a seller who has no title to goods they purport to sell subsequently acquires a good title before the buyer rescinds the contract, the seller can hold the buyer to the contract. The reason is that the subsequently acquired title goes to “feed”, that is, cure, the previously defective title of the seller and will in turn pass to the buyer: Patten v Thomas Motors Pty Ltd [1965] NSWR 1457 at 1459. The following warranties as to title are also implied by the Sale of Goods Act: 1.

21

22

That the goods are free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made. Sale of Goods Act 1923 (NSW), s 15; Goods Act 1958 (Vic), s 15; Sale of Goods Act 1896 (Qld), s 13; Sale of Goods Act 1895 (SA), s 10; Sale of Goods Act 1895 (WA), s 10; Sale of Goods Act 1896 (Tas), s 15; Sale of Goods Act 1954 (ACT), s 15; Sale of Goods Act 1972 (NT), s 15. Sale of Goods Act 1923 (NSW), s 17; Goods Act 1958 (Vic), s 17; Sale of Goods Act 1896 (Qld), s 15; Sale of Goods Act 1895 (SA), s 12; Sale of Goods Act 1895 (WA), s 12; Sale of Goods Act 1896 (Tas), s 17; Sale of Goods Act 1954 (ACT), s 17; Sale of Goods Act 1972 (NT), s 17.

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2.

That the buyer will have and enjoy quiet possession of the goods. This amounts to an indemnity against the consequences of a defective title and of any disturbance which might result.

Correspondence with description [14.240] Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description. 23 If the goods do not conform to their description in the contract the buyer is entitled to reject them for breach of the implied condition or, alternatively, sue for damages, since the buyer would not have received what he or she bargained for. For the condition to apply the goods must be sold “by description”. This requirement is satisfied in all cases where the buyer has not seen the goods but is relying on the description alone: Varley v Whipp [1900] 1 QB 513 at 516. In addition, however, goods may be bought by description even where the buyer has seen and examined the goods provided the buyer bought them as corresponding to a description: Beale v Taylor [1967] 1 WLR 1193. The implied condition of correspondence with description applies (in contrast to the implied conditions of merchantable quality and fitness for purpose) even though the goods are not sold by a dealer, that is, it also applies to private sales. Statements made about the goods only form part of the description under which the goods are sold where they are used to identify the goods and, in general, statements merely relating to the quality of the goods do not form part of their contractual description for the purpose of determining whether there has been a breach of the implied condition as to correspondence with description: Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 467, 489. It is, however, often not easy to distinguish between statements which essentially concern the identity of the goods as distinct from their quality as the following case demonstrates:

case [14.250] P was the owner of a bull which was bought by M for stud purposes at an auction sale of stud cattle at the Royal Easter Show in Sydney. The bull subsequently proved to be sterile. M had bid $21,000 for the bull and it had been knocked down to him at that price, whereas its value for slaughtering purposes was only $500. It was held that the sale of the bull between P and M was a sale by description, the description being “a breeding bull”; there was implied in the contract by virtue of the Sale of Goods Act a condition that the bull would correspond with that description: at 642. Since there had been a breach of that implied condition as a result of the bull’s sterility, the purchaser M was entitled to recover from the seller the price he had paid for the bull less its value for slaughtering purposes: Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 at 650.

23

Sale of Goods Act 1923 (NSW), s 18; Goods Act 1958 (Vic), s 18; Sale of Goods Act 1896 (Qld), s 16; Sale of Goods Act 1895 (SA), s 13; Sale of Goods Act 1895 (WA), s 13; Sale of Goods Act 1896 (Tas), s 18; Sale of Goods Act 1954 (ACT), s 18; Sale of Goods Act 1972 (NT), s 18.

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[14.260] The Sale of Goods Act further provides that where there is a sale by sample as well as by description, there is an implied condition that the goods must correspond both with the sample and the description. It is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. 24 (For sale by sample only, see [14.380].)

Merchantable quality [14.270] Where goods are bought by description from a seller who deals in goods of that description (whether the seller is the manufacturer or not), there is an implied condition that the goods are of merchantable quality provided that, if the buyer has examined the goods, there is no implied condition as regards defects which such examination ought to have revealed. 25 The expression “merchantable quality” means, in essence, that the goods are commercially saleable under the description they were sold; that is, fit for a purpose for which goods of that description are normally used, having regard also to the price paid for the goods and the other circumstances of the sale: Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 at 75 per Lord Reid. The meaning of “merchantable quality” has also been described as follows: 26 “The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms”: Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 at 418 per Dixon J. For the condition of merchantable quality to be implied in the contract, the goods must be bought by description but this requirement has been broadly interpreted by the courts. Goods may be bought by description even where the buyer has seen and examined the goods provided the buyer bought them as corresponding to a description. “It may also be pointed out that there is a sale by description even though the buyer is buying something displayed before him on the counter; a thing is sold by description, though it is specific, so long as it is sold not merely as the specific thing but as a thing corresponding to a description; for example, woollen undergarments, a hot-water bottle, a second-hand reaping machine – to select a few obvious illustrations”: Grant v Australian Knitting Mills Ltd (1936) 54 CLR 49 at 61 per Lord Wright (PC). Accordingly, goods sold by description over the counter must be of merchantable quality.

24

25

26

Sale of Goods Act 1923 (NSW), s 18; Goods Act 1958 (Vic), s 18; Sale of Goods Act 1896 (Qld), s 16; Sale of Goods Act 1895 (SA), s 13; Sale of Goods Act 1895 (WA), s 13; Sale of Goods Act 1896 (Tas), s 18; Sale of Goods Act 1954 (ACT), s 18; Sale of Goods Act 1972 (NT), s 18. Sale of Goods Act 1923 (NSW), s 19; Goods Act 1958 (Vic), s 19; Sale of Goods Act 1896 (Qld), s 17; Sale of Goods Act 1895 (SA), s 14; Sale of Goods Act 1895 (WA), s 14; Sale of Goods Act 1896 (Tas), s 19; Sale of Goods Act 1954 (ACT), s 19; Sale of Goods Act 1972 (NT), s 19. There have been numerous judicial interpretations of the meaning of merchantable quality. One eminent judge expressed the view that: “I do not think that it is possible to frame, except in the vaguest terms, a definition of merchantable quality which can apply to every kind of case”: BS Brown & Sons Ltd v Craiks [1970] 1 WLR 752 at 754 per Lord Reid.

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case [14.280] W went to the shoe department of a retail store and asked for a pair of comfortable walking shoes. She was shown three pairs and purchased a particular pair which she had tried on. On the third occasion of wearing them, the heel of one of the shoes came off and as a result W fell and broke her leg. The evidence showed that the shoes were a “very bad job” and that the heels had not been properly fastened. The High Court held that there was evidence upon which the jury was entitled to find that the shoes had been bought by description, and that there had been a breach of the implied condition of merchantable quality: David Jones Ltd v Willis (1934) 52 CLR 110 at 118–119, 123–124, 130–131. [14.285] If the buyer examines the goods before the contract is made, the condition is not implied as regards defects which such examination ought to have revealed: Thornett & Fehr v Beers & Son [1919] 1 KB 486 at 489-490.

case [14.286] A prawn wholesaler purchased black tiger prawns from a prawn farmer for onsale to Woolworths. The prawns supplied were not suitable for sale to Woolworths as they did not meet that company’s quality specifications. The wholesaler had visited the farm and tasted three prawns out of a 50-tonne consignment. The Federal Court held that the implied condition of merchantable quality had been breached. The superficial examination conducted by the wholesaler could not have revealed the latent defects that made a large proportion of the prawns unsuitable for onsale to Woolworths: Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908 at [171].

Fitness for purpose [14.290] Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether the seller is the manufacturer or not) there is an implied condition that the goods are reasonably fit for such purpose; provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose. 27 From a strict reading of the provision it would appear that this implied condition applies only when the buyer makes known to the seller the particular purpose for which the goods are required. However, there have been cases which decided that the seller need not be informed of the particular purpose when such purpose is the ordinary use for which such goods are used. For example, when a milk vendor supplies his customer regularly it would not be necessary to inform him that the milk was required for human consumption. Where, however, the proposed use is not the only or ordinary use to which the goods are normally put, it remains necessary for the buyer to bring home to the mind of the seller the particular purpose contemplated and also to bring home to the seller the fact that the buyer is relying on the seller. Although it 27

Sale of Goods Act 1923 (NSW), s 19; Goods Act 1958 (Vic), s 19; Sale of Goods Act 1896 (Qld), s 17; Sale of Goods Act 1895 (SA), s 14; Sale of Goods Act 1895 (WA), s 14; Sale of Goods Act 1896 (Tas), s 19; Sale of Goods Act 1954 (ACT), s 19; Sale of Goods Act 1972 (NT), s 19.

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is necessary for the buyer to inform the seller in such cases of the use contemplated and to indicate to the seller that the buyer relies on the seller’s skill and judgment, it is not necessary that there be any reference to such matters in the contract itself; it is sufficient if the matters are adverted to during the course of negotiations which precede the making of the contract of sale.

case [14.300] A shire council requested its engineer to inspect a tractor and see whether it was suitable for roadwork. The engineer went to the company’s showroom where he introduced himself to the company’s managing director as the Shire Engineer of the council and told him that he had been instructed to give a report on the tractor with a view to its purchase. After inspecting the tractor the engineer informed the managing director that the tractor was required for roadwork and asked whether it could perform such work which he described. The engineer reported to the Shire Clerk that the tractor seemed to have plenty of horsepower and was big enough to do the work; he did not however report what had passed between the managing director and himself. The Shire President instructed the Shire Clerk to make the purchase, relying upon the report made by the engineer. It was held that the engineer, having disclosed the proposed purpose for which the tractor was required, had acted on the skill and judgment of the managing director of the company. The council had relied upon the company’s skill and judgment and, consequently, as the tractor was unsuitable for roadwork the council was entitled to damages: Ashford Shire Council v Dependable Motors Pty Ltd (1960) 104 CLR 139 at 147-148 (PC). [14.310] In the following cases the implied condition that the goods were reasonably fit for a particular purpose was considered:

case [14.320] G purchased woollen underwear from M, a retailer whose business it was to sell goods of that description, and after wearing the garments G developed an acute skin disease. It was held that the goods were not reasonably fit for their only proper use and G was entitled to damages against the retailer: Grant v Australian Knitting Mills Ltd (1936) 54 CLR 49 at 60-61 (PC).

case [14.330] In 1983, the plaintiff wine maker bought 500,000 corks from the defendant cork merchant. It was later found that a significant proportion of the bottles of wine sealed with the corks had been contaminated and were unsaleable. It was held that the defendant was liable for breach of the implied condition of fitness. Given the background of many other transactions between the parties over a number of years, it had been established that the plaintiff had made known to the defendant that it was relying on the latter’s skill and judgment to deliver corks which were not contaminated in some way unobservable to visual examination and which would cause a deleterious effect upon wine. It was further held that the corks were not of merchantable quality and that provisions purporting to exclude the defendant’s liability had not been sufficiently brought to the plaintiff’s attention. Damages for breach of the implied conditions were assessed at $2,080,892: McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd [1988] ASC 55-695 at 58,254; Liaweena (NSW) Pty Ltd v McWilliams Wines Pty Ltd [1991] ASC 56-038 at 56,621 (NSWCA).

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case [14.340] The owner of a house built on a site exposed to the weather requested the appellant manufacturer to supply replacement aluminium windows for wooden ones which leaked. The appellant ordered the windows in turn from the respondent manufacturer who was told: “There is nothing between this job and the South Pole”. The windows supplied were totally unsuited to the site: at 58,879-58,880. In the New South Wales Court of Appeal, Meagher JA (with whom Samuels JA agreed) said: “The buyer, if he relies on s 19(1) [implied condition of fitness], must establish two elements. He must establish purpose and he must establish reliance. He can establish reliance as an inference from his statement of purpose or it may be established by some other evidence” at 58,888. On the facts the appellant had made known to the respondent the particular purpose for which the windows were required; reliance on the respondent’s skill and judgment was established as an inference from the appellant’s statement of purpose: Expo Aluminium (NSW) Pty Ltd v WR Pateman Pty Ltd [1990] ASC 55-978 at 58,889.

case [14.345] A prawn wholesaler purchased black tiger prawns from a prawn farmer for onsale to Woolworths. The farmer knew that the prawns were to be onsold to Woolworths. The prawns supplied were not suitable for sale to Woolworths as they did not meet that company’s quality specifications. The prawns had to be sold for a lower price to a seafood distributor. The wholesaler sued the farmer for the difference between the price Woolworths would have paid and the price that was ultimately obtained. The Federal Court held that the implied condition of fitness for purpose had been breached. The parties had agreed that the prawns would comply with the Woolworths specifications: at [152]. Given the huge size of the order (50 tonnes) and the difficulty of testing frozen perishable items without spoiling them, the wholesaler had no practical choice but to rely on the farmer’s skill and judgment: at [161]. Judgment was given for the amount claimed: Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908 at [173]–[174]. [14.350] It is sufficient if the buyer relies only partially on the skill and judgment of the seller provided that the matters of which the buyer complains are matters in respect of which the buyer relied on the seller.

case

[14.360] The plaintiff, a compounder of animal foodstuffs, contracted with the defendant mink farmer to compound and supply to him certain mink food in accordance with a formula supplied by the defendant. One of the ingredients in the formula was herring meal which the plaintiff purchased from a third party. However, the herring meal supplied had become contaminated by a substance produced by a chemical reaction following the use of a preservative. The substance was highly toxic to mink and the defendant suffered heavy losses on feeding his mink with the compound. The plaintiff sued the defendant for the price of the mink food and the defendant counterclaimed for damages. The House of Lords held that the plaintiff was liable for breach of the implied condition of fitness for purpose because, although the defendant had relied on his own judgment as to the suitability of

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the compound for mink food, he relied on the plaintiff seller to select and acquire good quality ingredients of the kind set out in the formula: at 468-469, 477-478, 485, 496-497. It was further held that the third party supplier of the herring meal was liable to the plaintiff for breach of the implied condition: Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441. [14.370] The mere fact that an article sold is described in the contract by its trade name does not necessarily make it a sale “under a trade name” so as to prevent the condition of fitness for a particular purpose from being implied. It all depends on the circumstances. Basically, the trade name proviso applies only where the buyer orders the goods under their trade name in such a way as to show that the buyer does not rely on the seller’s skill and judgment: Baldry v Marshall [1925] 1 KB 260 at 266-267, 270. A condition or warranty as to quality or fitness for a particular purpose may be annexed by the custom or usage of trade. However, before such term will be implied, the custom or usage must be notorious (that is, generally known throughout the trade), certain, and reasonable.

Sale by sample [14.380] Where the sale is by sample only, there is an implied condition that: (a)

the bulk will correspond with the sample in quality;

(b)

the buyer will have a reasonable opportunity of comparing the bulk with the sample; and

(c)

the goods will be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample. 28

The goods must be free from any defect rendering them unmerchantable which is not apparent from a reasonable examination of the sample: James Drummond & Sons v Van Ingren & Co (1887) 12 App Cas 284 at 287-288, 291. A contract of sale is a contract for sale by sample where there is a term in the contract express or implied to that effect.

Exclusion of the terms implied by the Sale of Goods Acts [14.390] The implied conditions and warranties may be, and frequently are, excluded or varied by express or implied agreement between the parties to the sale. It is provided by the Sale of Goods Act that where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties or by usage, if the usage is such as to bind both parties to the contract. 29 An exclusion clause which provided that “[a]ll statutory and implied conditions and warranties except as to title are excluded” was effective to exclude the supplier’s liability for breach of the implied conditions of merchantable quality and fitness for purpose: Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty Ltd (2012) 34 VR 397 at [1], [9], [43], [52]. A clause may be included in the contract excluding liability as follows: “All conditions, warranties and liabilities implied by statute, common law or otherwise are excluded”. Such a clause does not protect the 28

29

Sale of Goods Act 1923 (NSW), s 20; Goods Act 1958 (Vic), s 20; Sale of Goods Act 1896 (Qld), s 18; Sale of Goods Act 1895 (SA), s 15; Sale of Goods Act 1895 (WA), s 15; Sale of Goods Act 1896 (Tas), s 20; Sale of Goods Act 1954 (ACT), s 20; Sale of Goods Act 1972 (NT), s 20. Sale of Goods Act 1923 (NSW), s 57; Goods Act 1958 (Vic), s 61; Sale of Goods Act 1896 (Qld), s 56; Sale of Goods Act 1895 (SA), s 54; Sale of Goods Act 1895 (WA), s 54; Sale of Goods Act 1896 (Tas), s 59; Sale of Goods Act 1972 (NT), s 57. In the ACT, the former Sale of Goods Act 1954 (ACT), s 58 was omitted by the Fair Trading Legislation Amendment Act 2001 (ACT), s 27.

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seller against any express warranty which may be included in the contract: Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17 at 23, 25. It is for the party seeking to rely upon the exclusion clause to establish that the clause excludes their liability: Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty Ltd (2012) 34 VR 397 at [1], [39].

When a condition is to be treated as a warranty [14.400] Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or may elect to treat the breach of such condition as a breach of warranty and not as a ground for treating the contract as repudiated; 30 for example where goods sold by description are of a different description: Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 at 395. Where a contract of sale is not severable and the buyer has accepted the goods or part of them, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is an express or implied term of the contract to that effect. 31 In Russo v Belcar Pty Ltd (2011) 111 SASR 459 the South Australian Full Court held that the purchaser had accepted the car and it was too late to rescind the contract. In these circumstances any breach on the part of the seller was a breach of warranty and there was no ground for rejecting the goods: at [21].

Caveat emptor [14.410] Apart from the conditions and warranties referred to at [14.220], there are no implied warranties or conditions at common law as to the quality or fitness for any particular purpose of goods supplied and the maxim “caveat emptor” or “let the buyer beware” applies. However, the position of a consumer purchasing goods has been considerably strengthened by the Australian Consumer Law: see Chapter 17.

Transfer of property [14.420] We have discussed the formalities attaching to the formation of a contract of sale and the terms implied in such contract. It is now necessary to consider the following important matters connected with the transfer of the goods: (a)

the distinction between property in and possession of goods;

(b)

the rules covering the transfer of the ownership or property in goods;

(c)

the right of reserving disposal, that is, the seller deferring the transfer of the property; and

(d)

the risk of loss of or injury to goods.

30

31

Sale of Goods Act 1923 (NSW), s 16; Goods Act 1958 (Vic), s 16; Sale of Goods Act 1896 (Qld), s 14; Sale of Goods Act 1895 (SA), s 11; Sale of Goods Act 1895 (WA), s 11; Sale of Goods Act 1896 (Tas), s 16; Sale of Goods Act 1954 (ACT), s 16; Sale of Goods Act 1972 (NT), s 16. See previous footnote. The Sale of Goods Act further provided that the buyer lost the right to reject goods for breach of condition of a contract for the sale of specific goods once the property in the goods had passed to the buyer. However, this provision has been repealed in New South Wales (Sale of Goods (Amendment) Act 1988 (NSW)), South Australia (Misrepresentation Act 1972 (SA), s 11) and in the Australian Capital Territory (Sale of Goods Act 1954 (ACT), s 3). Therefore, in those States and Territory the buyer will only lose the right to reject where he or she has accepted the goods or part of them.

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Property and possession [14.430] There is a vast difference between “property” in and the “possession” of goods. Property relates to ownership or title, whilst possession refers to the custody or control of goods. Thus, one person may have the possession of certain goods, whilst another may have the property in, or ownership of, such goods. For example, A leaves his damaged car with B for repair. The ownership of the car is in A but the possession is in B. Also, goods may be in the possession of a third person, for example a carrier, and although the property has passed on a sale to the buyer, the carrier is entitled to possession of them until the carrier’s charges are paid.

Transfer of ownership or property in goods [14.440] It is important to be able to ascertain the exact time when the ownership of or property in goods passes from the seller to the buyer as the risk of loss vests in the owner. This question arises where goods are stolen, or destroyed by fire, or upon the bankruptcy of either party. The primary rule for ascertaining when the ownership of goods passes to the buyer is: (a)

in the case of specific or ascertained goods, the property passes at such time as the parties intend it to pass taking into account the terms of the contract, the conduct of the parties and the circumstances of the case; and

(b)

in the case of unascertained or future goods, no property can pass unless and until the goods become ascertained. 32

Subject to these two basic rules, the following sub-rules set out in the Sale of Goods Act 33 apply and, in the absence of a contrary intention, they are the rules for ascertaining the time at which the property in the goods is to pass to the buyer:

Rule 1 [14.450] Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, are postponed.

case [14.460] A contract for the sale of office furniture, computers and other equipment provided for the purchase price to be paid by a deposit of $10,000 and the balance of $360,000 by 10 monthly instalments of $36,000. The New South Wales Court of Appeal held that, since there was no contrary intention in the contract, property passed to the buyer under this rule at the time when the contract was made. Accordingly, the seller was not entitled to recover the goods when the buyer became insolvent after payment of the fifth instalment and thereby unable to pay the balance of the purchase price in full: Bodilingo Pty Ltd v Webb Projects Pty Ltd [1990] ASC 56-001 at 59,026-59,027.

32

33

Sale of Goods Act 1923 (NSW), ss 21–22; Goods Act 1958 (Vic), ss 21–22; Sale of Goods Act 1896 (Qld), ss 19–20; Sale of Goods Act 1895 (SA), ss 16–17; Sale of Goods Act 1895 (WA), ss 16–17; Sale of Goods Act 1896 (Tas), ss 21–22; Sale of Goods Act 1954 (ACT), ss 21–22; Sale of Goods Act 1972 (NT), ss 21–22. For the meaning of “future”, “specific” and “unascertained” goods, see [14.130]-[14.150]. Sale of Goods Act 1923 (NSW), s 23; Goods Act 1958 (Vic), s 23; Sale of Goods Act 1896 (Qld), s 21; Sale of Goods Act 1895 (SA), s 18; Sale of Goods Act 1895 (WA), s 18; Sale of Goods Act 1896 (Tas), s 23; Sale of Goods Act 1954 (ACT), s 23; Sale of Goods Act 1972 (NT), s 23.

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[14.470] Goods are said to be in a deliverable state when they are in such a state that the buyer is bound under the contract to take delivery of them.

Rule 2 [14.480] Where there is a contract for the sale of specific goods, and the seller is bound to do something to the goods for the purpose of putting them in a deliverable state, the property does not pass until such thing is done and the buyer has notice of it – there is no immediate passing of property.

Rule 3 [14.490] Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice of it.

Rule 4 [14.500] Where goods are delivered to the buyer on approval, or on “sale or return”, or other similar terms, the property in them passes to the buyer: (a)

when the buyer signifies their approval or acceptance to the seller, or does any other act adopting the transaction; or

(b)

if the buyer does not signify their approval or acceptance to the seller, but retains the goods without giving notice of the rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact.

Rule 5 [14.510] (a)

Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made. The Act provides that the “assent” may be express or implied. Therefore if the seller notifies the buyer of an appropriation and the buyer does not object within a reasonable time, the property may be deemed to pass on the implied assent of the buyer.

(b)

Where in pursuance of the contract the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer and does not reserve the right of disposal, the seller is deemed to have unconditionally appropriated the goods to the contract. Where the agreement covers by description unascertained or future goods, the property in such goods does not pass to the buyer until goods answering that description and in a deliverable state are unconditionally appropriated to the contract by one party with the assent of the other. A common form of appropriation of the goods by the seller occurs when the seller delivers them to a

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carrier for the purpose of transmission to the buyer. There is no appropriation if the seller reserves a right of disposal (see [14.540]), but if this right is not reserved the property passes to the buyer on delivery by the seller to the carrier.

case [14.520] The plaintiff wholesaler agreed to buy 600 cartons of frozen ox kidneys from the defendant importer. The cartons were held in a cold store. When the plaintiff’s carrier arrived at the cold store at 8 am he found the cartons stacked on the pavement outside. The carrier handed over the delivery note and loading commenced but was not completed until 12 noon. The carrier did not turn on the refrigeration unit in his lorry until 10 am. Around 11 am the carrier noticed that some of the cartons on the pavement were dripping. Cooling of the lorry was not effective until 1 pm. The carrier delivered the cartons to Scotland where the kidneys were found to be unfit for human consumption. The plaintiff sued for damages for breach of the implied condition of merchantable quality and the defendant counterclaimed for the price of the kidneys. The Court of Appeal held that property in the cartons of kidneys, and therefore the risk of their deterioration, passed to the plaintiff buyer on the carrier handing over the delivery note at the cold store. It appeared that the kidneys were in good condition at that time and their deterioration occurred subsequently. Accordingly, the plaintiff’s action failed and the plaintiff held liable for the price of the kidneys: Wardar’s (Import & Export) Co Ltd v W Norwood & Sons Ltd [1968] 2 QB 663 at 671, 673. [14.530] The buyer may appropriate goods to the contract by selecting certain goods to satisfy her or his order.

case [14.535] CMA entered into a contract for the sale of several thousand metric tons of scrap metal to THC. CMA was unable to supply the full amount of metal from its own yard, and obtained the shortfall from a third party. CMA placed the shortfall metal in a separate pile in its yard. CMA was placed under administration before the shortfall metal was picked up by THC. The administrator sold the shortfall: at [1]-[5], [36]-[37]. The New South Wales Supreme Court held that the shortfall metal was ascertained when it was placed in a separate pile for the purpose of filling THC’s order: at [83]. Property in the shortfall metal passed thus passed to THC before CMA was placed under administration: THC Holdings Pty Ltd v CMA Recycling Pty Ltd (2014) 101 ACSR 202 at [87]. [14.537] The New South Wales Act makes special provision for the sale of goods forming part of a bulk quantity, such as contracts for the sale of grain: Sale of Goods Act 1923 (NSW), s 25A. This provision applies to a contract for the sale of a specified quantity of unascertained goods of which some or all form part of a single bulk quantity of goods. The bulk must be identified by the contract and the buyer must have paid for some or all of the goods forming part of the bulk. Unless the parties agree otherwise, property in an undivided share in the bulk is transferred to the buyer, and the buyer becomes an owner in common of the bulk. The Victorian and South Australian Acts also make similar provision in relations to goods forming part of a bulk: Goods Act 1958 (Vic), s 25A; Sale of Goods Act 1895 (SA), s 20A.

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Reservation of right of disposal [14.540] In a contract for the sale of specific goods or a later appropriation of unascertained goods to the contract, the seller may by the terms of the contract or appropriation reserve the right of disposal of the goods until certain conditions are fulfilled. 34 In such case, notwithstanding the delivery of the goods to the buyer or to a carrier, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. For example, the buyer may be required to accept certain bills of exchange or pay cash before obtaining the goods.

“Romalpa” clauses [14.550] In recent years reservation of title clauses in contracts for the sale of goods have become increasingly sophisticated in the attempt to preserve for the seller rights in respect of the goods sold until the seller has been paid the purchase price in full. The purpose of the clauses is to enable the seller to recover the goods (or the proceeds of sale where resold by the buyer) in the event of the buyer’s insolvency and thereby prevent the goods from becoming part of the property or assets of the buyer available for distribution amongst the buyer’s other creditors. Such clauses are commonly referred to as “Romalpa” clauses after the decision of the United Kingdom Court of Appeal in Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 at 685. 35

case [14.560] The decision of the High Court in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 demonstrates the viability of “Romalpa” clauses under Australian law. In this case, a “Romalpa” clause in a contract of sale provided as follows: “In the event that the [buyer] uses the goods … in some manufacturing … process … then the [buyer] shall hold such part of the proceeds of such manufacturing … process … as relates to the goods … in trust for the [seller]. Such part shall be deemed to equal … the amount owing by the [buyer] to the [seller] at the time of the receipt of such proceeds”. Section 266 of the former Corporations Law provided that an unregistered “charge” was void against the liquidator or administrator of a company. The Court held that the trust created by the Romalpa clause did not constitute an unregistered charge, and was thus not rendered void against the liquidator by s 266: at [48]. The Romalpa clause could be effective to create a trust over the proceeds in the amount owing to the seller. However, on the facts, the seller had not established that the buyer had received the “proceeds” of the manufacturing process, an essential precondition for the creation of a trust under the Romalpa clause: at [48]. The Court also indicated that it was an implied term of the contract that the buyer’s debt to the seller would be discharged by the constitution of a trust under the Romalpa clause: at [45]–[46]. 36

34

35

36

Sale of Goods Act 1923 (NSW), s 24; Goods Act 1958 (Vic), s 24; Sale of Goods Act 1896 (Qld), s 22; Sale of Goods Act 1895 (SA), s 19; Sale of Goods Act 1895 (WA), s 19; Sale of Goods Act 1896 (Tas), s 24; Sale of Goods Act 1954 (ACT), s 24; Sale of Goods Act 1972 (NT), s 4. See generally D Ong, “Romalpa Clauses and the Issues Concerning (i) the Meaning of ‘the Proceeds’ Received by the Buyer; (ii) the Buyer’s Credit Period; and (iii) the Charge/Trust Dichotomy in Relation to ‘the Proceeds’” (2000) 12 Bond Law Review 148. See TM Carlin, “Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd: A Commentary and Analysis” (2002) 30 Australian Business Law Review 106.

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case [14.570] A Romalpa clause provided that the buyer of goods was permitted to sell them, but until the purchase price was paid, the buyer acted as agent for the seller when selling the goods. The clause also provided that the proceeds of sale would be held in a separate account in trust for the buyer. It was held that the buyer’s obligation to pay the purchase price would not be discharged until the full price was held in that separate account: Rondo Building Services Pty Ltd v Casaron Pty Ltd [2003] 2 Qd R 558 at [13]; see also BHP Steel Ltd v HH Robertson (Australia) Pty Ltd [2002] NSWSC 336 at [2]. [14.580] A further example of the effect of a Romalpa clause is Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (2006) 95 SASR 21:

case [14.590] Hardy supplied wines to Tasman, a Victorian wholesaler. Tasman onsold Hardy wines to Eaglehawk, a Tasmanian business. A credit agreement between Hardy and Tasman contained a Romalpa clause by which Hardy retained ownership until payment. The invoice for every consignment of wine also contained a Romalpa clause. After the credit agreement was entered into, the delivery arrangements for the wine were changed. Instead of Hardy dispatching wine to Tasman which would send it to Eaglehawk, Hardy dispatched the wines directly to Eaglehawk. Each consignment of goods sent to Eaglehawk was accompanied by a delivery docket containing a retention of title clause. When Tasman became insolvent it had not made payment for eight consignments of Hardy wines. The South Australian Full Court held that the change in delivery arrangements had no effect upon the Romalpa clause. In the absence of payment, title over the wines had not passed and Hardy retained title: Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (2006) 95 SASR 21 at [40], [56]. [14.600] However, retention of title clauses of the kind discussed in these cases are likely to constitute a “security interest” for the purposes of the Personal Property Securities Act 2009 (Cth) and require registration in the national Personal Property Securities Register to be enforceable against third parties.

Risk [14.610] The risk of loss or damage to the goods and the question of ownership of goods are linked together, and it is often important to know who is really the owner of goods as a loss of such goods must be borne by the person who owns them: that is the risk of loss prima facie passes with property. The Sale of Goods Act provides: Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery is made or not. 37

37

Sale of Goods Act 1923 (NSW), s 25; Goods Act 1958 (Vic), s 25; Sale of Goods Act 1896 (Qld), s 23; Sale of Goods Act 1895 (SA), s 20; Sale of Goods Act 1895 (WA), s 20; Sale of Goods Act 1896 (Tas), s 25; Sale of Goods Act 1954 (ACT), s 25; Sale of Goods Act 1972 (NT), s 25.

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As was previously explained, ownership of goods does not necessarily vest in the buyer simply because he or she has possession of them. Further, the buyer may own the goods although they have not gained possession of them. The loss of specific goods which have been destroyed at the time the parties enter into an agreement falls upon the seller and the contract is void. The Sale of Goods Act provides: Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. Where there is an agreement to sell specific goods, and subsequently the goods without any fault on the part of the seller or buyer perish before the risk passes to the buyer, the agreement is thereby avoided. 38 A contract for the sale and delivery of an indivisible parcel of goods may be avoided if part of the goods is not forthcoming. For example, the sale of a specific parcel of 700 bags of Chinese nuts was avoided when it was found that there were only 591 bags: “The result is that the parties were contracting about something which, at the date of the contract, without knowledge or fault of either party, did not exist. To compel the buyer in those circumstances to take 591 bags would be to compel him to take something which he had not contracted to take, and would in my judgment be unjust”: Barrow, Lane & Ballard v Phillip Phillips & Co [1929] 1 KB 574 at 583 per Wright J. It will be noticed that the above provisions relate to specific goods, that is, goods identified and agreed upon, and therefore, if these goods are destroyed, the contract becomes impossible of performance. If the stock from which a seller intended to fulfil a contract of sale of unascertained goods has perished at the time of the contract of sale, there is no ground for an avoidance of the agreement and the seller would be required to find other goods to tender in performance of the contract. Where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault. 39

case [14.620] A seller sold a quantity of linseed meal in his store to a buyer, property in the goods passing to the buyer on the making of the contract of sale. In breach of contract, the seller declined to deliver part of the goods within the agreed period. Later the goods were destroyed by fire while still in the seller’s store. It was found that the loss might not have occurred but for the seller’s breach of contract. It was held the buyer was not only relieved from liability to pay for the goods but was also entitled to recover damages for the seller’s failure to deliver since the buyer had been forced to buy equivalent goods in the market at a considerably higher price: Allied Mills Ltd v Gwydir Valley Oilseeds Pty Ltd [1978] 2 NSWLR 26 at 29.

38

39

Sale of Goods Act 1923 (NSW), ss 11, 12; Goods Act 1958 (Vic), ss 11, 12; Sale of Goods Act 1896 (Qld), ss 9, 10; Sale of Goods Act 1895 (SA), ss 6, 7; Sale of Goods Act 1895 (WA), ss 6, 7; Sale of Goods Act 1896 (Tas), ss 11, 12; Sale of Goods Act 1954 (ACT), ss 11, 12; Sale of Goods Act 1972 (NT), ss 11, 12. Sale of Goods Act 1923 (NSW), s 25; Goods Act 1958 (Vic), s 25; Sale of Goods Act 1896 (Qld), s 23; Sale of Goods Act 1895 (SA), s 20; Sale of Goods Act 1895 (WA), s 20; Sale of Goods Act 1896 (Tas), s 25; Sale of Goods Act 1954 (ACT), s 25; Sale of Goods Act 1972 (NT), s 25.

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Title of transferee [14.630] The general rule is that the transferee of goods cannot obtain a better title to such goods than that of the transferor. This is usually referred to as the nemo dat rule (the full expression is nemo dat quod non habet, that is, no-one can pass to another a better title than he himself has). Accordingly, where goods are sold by a person who is not the owner of them and who does not sell them under the authority or with the consent of the owner, the buyer does not acquire a good title. For example, the buyer does not obtain a good title to goods which have been stolen or lost. Where goods are stolen the property in the goods remains in the owner notwithstanding any intermediate dealing. Where the goods have been obtained by wrongful means not amounting to theft, for example as the result of a contract induced by fraud, they will not re-vest in the owner by reason only of the conviction of the offender. There are, however, certain exceptions to the nemo dat rule, namely: (a)

a sale where the owner is estopped from denying the authority of the seller;

(b)

a sale by a mercantile agent or a sale under special common law or statutory power of sale;

(c)

a sale by a person having a voidable title; or

(d)

a sale by a seller or buyer in possession after the sale.

Estoppel [14.640] Where the owner of goods is by their conduct precluded from denying the seller’s authority to sell, the buyer obtains a good title. 40 To permit goods to go into the possession of a person in circumstances which make it appear that such person has authority to sell the goods may estop (prevent) the owner from upsetting a purchase of the goods by a buyer in good faith and for value.

case [14.650] The respondent financier lent money to a borrower on the security of a mortgage over a motor vehicle. By mistake, the financier wrote a letter to the borrower stating that the loan had been finalised and that the financier no longer had an interest in the vehicle. In fact, only two of 48 payments had been paid in reduction of the loan. The borrower purported to sell the vehicle to the appellant motor dealers. The latter, by a search of the Register of Encumbered Motor Vehicles established under the Chattel Securities Act 1987 (WA), ascertained the existence of the financier’s mortgage but relied on the letter as supporting the borrower’s claim that the mortgage debt had been paid in full. The financier sued the motor dealers in conversion for the value of the vehicle: at 261. The Western Australia Full Supreme Court held that under the Sale of Goods Act 1895 (WA), s 21(1) the respondent financier was precluded, that is, estopped by its conduct from denying the borrower’s authority to sell the vehicle. The appellant motor dealers therefore acquired a good title to the vehicle: Big Rock Pty Ltd v Esanda Finance Corp Ltd (1992) 10 WAR 259 at 273, 278. [14.660] Merely parting with possession of goods will not in itself raise an estoppel against the true owner. There must usually have been conduct on the part of the true owner amounting to a representation that the person in possession of the goods was entitled to sell them. 40

Sale of Goods Act 1923 (NSW), s 26; Goods Act 1958 (Vic), s 27; Sale of Goods Act 1896 (Qld), s 24; Sale of Goods Act 1895 (SA), s 21; Sale of Goods Act 1895 (WA), s 21; Sale of Goods Act 1896 (Tas), s 26; Sale of Goods Act 1954 (ACT), s 26; Sale of Goods Act 1972 (NT), s 26.

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“An owner may be precluded from denying the seller’s authority by reason of his conduct which, expressly or impliedly, constitutes an unambiguous representation to the buyer that the seller has his authority to make the sale. … In some cases, the omission of the owner to take steps to prevent the sale may also estop him from asserting his title. But inaction, silence, or even gross carelessness in the protection of property is not of itself enough to preclude an owner from asserting his title”: Thomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd (1985) 3 NSWLR 452 at 469 per McHugh JA.

Sale by mercantile agent or by person under special power [14.670] When goods are sold by a mercantile agent to a person who takes them bona fide, such person obtains a good title to the goods, notwithstanding that the principal may have revoked the agent’s authority to sell. Sales made under any special common law or statutory power of sale (for example, sheriffs, innkeepers, and landlords) also pass the title to the buyer.

Sale under a voidable title [14.680] Where the seller of goods has a voidable title, for example a title gained through fraud, but the title has not been avoided at the time of the sale, the buyer acquires a good title to the goods provided he or she buys them in good faith and without notice of the seller’s defect of title. 41 Where the seller’s title is void then the buyer gains no title unless one of the other exceptions applies.

case [14.690] A man entered a shop and purchased a ring valued at £450, stating that he was Sir George Bullough, a well-known person. He gave the address of Sir George, which the jeweller verified by reference to a directory, and thus assumed he actually was the person represented. The person took the ring and later pawned it for £350. It was held that the property passed to the swindler so as to enable him to give a good title to any person who gave value and acted bona fide without notice as his title, which had been obtained by fraud, was voidable not void: Phillips v Brooks Ltd [1919] 2 KB 243 at 248-249; see similarly, Vassallo v Haddad Import & Export Pty Ltd (2004) 2 DCLR (NSW) 123 at [70], [86]-[87].

Sale by seller or buyer in possession after sale Sale by seller in possession [14.700] The Sale of Goods Act provides that, where a seller having sold goods continues in possession of the goods or of the documents of title to the goods, the delivery or transfer by the seller of the goods or documents of title under any sale, pledge or other disposition to a person receiving them in good faith and without notice of the previous sale has the same effect as if the transaction was authorised by the owner, that is the original purchaser. 42 In other words, where this provision applies, the bona fide purchaser of goods from a seller who has continued in possession of the goods after their sale to the original purchaser 41

42

Sale of Goods Act 1923 (NSW), s 27; Goods Act 1958 (Vic), s 29; Sale of Goods Act 1896 (Qld), s 25; Sale of Goods Act 1895 (SA), s 23; Sale of Goods Act 1895 (WA), s 23; Sale of Goods Act 1896 (Tas), s 28; Sale of Goods Act 1954 (ACT), s 27; Sale of Goods Act 1972 (NT), s 27. Sale of Goods Act 1923 (NSW), s 28; Goods Act 1958 (Vic), ss 30, 31; Sale of Goods Act 1896 (Qld), s 27; Sale of Goods Act 1895 (SA), s 25; Sale of Goods Act 1895 (WA), s 25; Sale of Goods Act 1896 (Tas), s 30; Sale of Goods Act 1954 (ACT),

chapter 14 Sale of Goods

will acquire a good title to the goods as against the original purchaser: Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd [1965] AC 867 at 882, 888.

Sale by buyer in possession [14.710] Similar provision is made in the case of a buyer in possession. Where a person having bought or agreed to buy goods obtains possession of the goods with the consent of the seller, the delivery or transfer by the buyer of the goods or documents of title under any sale, pledge or other disposition to some other person receiving the same in good faith and without notice of the rights of the original seller has the same effect as if the buyer was a “mercantile agent” entrusted by the owner with the goods or documents of title. 43 In substance, the bona fide purchaser of goods from a buyer who obtained possession of the goods with the consent of the original seller obtains a good title to them.

case [14.720] G, a motor vehicle wholesaler, agreed to sell certain vehicles to E, a retail dealer. The contract of sale provided that property in the vehicles was not to pass to E until G had been paid in full. E was given possession of the vehicles but G was never paid. E had entered into a floor plan agreement with N, a finance company. The agreement provided for the purchase by N of vehicles acquired by E, with E retaining possession of them as bailee for N pending their sale in the course of E’s retail business. E purported to sell to N, under the terms of the floor plan, the vehicles he had previously “bought” from G. G, not having been paid, seized possession of the vehicles from E. N brought an action against G to recover the vehicles or their value. It was held by a majority of the High Court that N had acquired a good title to the vehicles. Thus, when E sold them to N under the terms of the floor plan agreement there had been a constructive delivery of the vehicles to N. Accordingly, E was a person who, having agreed to buy the vehicles from G, had obtained possession of them with G’s consent, and their delivery (albeit constructive rather than actual) under the sale to N had the effect of vesting a good title in N: Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 at 250, 256, 264. [14.730] The bona fide purchaser of goods from a buyer who obtained possession of the goods with the consent of the original seller will only obtain a good title to the goods under the statutory provision where the original seller was lawfully entitled to sell the goods.

case [14.740] The plaintiff finance company leased a truck to a lessee under a leasing agreement. In breach of the agreement, the lessee employed a dealer to sell the truck for him. The dealer, who knew that the plaintiff finance company was the owner of the truck, purported to sell it to R, who in turn

43

s 29; Sale of Goods Act 1972 (NT), s 28. See J Mo, “‘Physical Possession’’ versus ‘Constructive Delivery’’ in Section 28 of the Sale of Goods Act 1923 (NSW)” (1993) 16 University of New South Wales Law Journal 513; G Pearson, “Constructive Possession and Constructive Delivery in Transfer of Title to Goods” (2003) 26 University of New South Wales Law Journal 159. Sale of Goods Act 1923 (NSW), s 28; Goods Act 1958 (Vic), ss 30, 31; Sale of Goods Act 1896 (Qld), s 27; Sale of Goods Act 1895 (SA), s 25; Sale of Goods Act 1895 (WA), s 25; Sale of Goods Act 1896 (Tas), s 30; Sale of Goods Act 1954 (ACT), s 29; Sale of Goods Act 1972 (NT), s 28.

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purported to sell it to the defendant. The plaintiff finance company sued the defendant for damages in conversion and the defendant contended that he had acquired a good title as a bona fide purchaser from the buyer in possession, namely, R. However, it was held that the statutory provision only applied where the original seller (that is, the dealer employed by the lessee to sell the truck) was lawfully entitled to sell the goods and, since such was clearly not the case on the facts, the defendant had not acquired a good title and, accordingly, was liable for conversion of the truck to the plaintiff finance company. A subsequent purchaser of the truck was similarly held liable to the finance company: Ford Credit Australia Ltd v Auto Trade Auction Pty Ltd [1982] VR 795 at 797. [14.750] A purchaser from a buyer in possession only acquires a good title under the statutory provision where the purchaser receives the goods in good faith and without notice of the rights of the original seller of the goods (assuming, of course, that the other requirements of the section are satisfied). The onus of proving such is on the purchaser. Notice in this context means actual not constructive notice, that is, it is not sufficient for the original seller to contend that by making further inquiries the purchaser could have discovered that the buyer in possession of the goods who had purported to sell the goods to the purchaser had no right to do so, unless of course there was something obviously suspicious such as to put the purchaser on inquiry: Robinson Motors Pty Ltd v Fowler [1982] Qd R 374 at 379. Where the good being sold is a motor vehicle which is subject to a security interest, the legal position of the bona fide purchaser will depend on whether the security interest has been registered in the national Personal Property Securities Register established under the Personal Property Securities Act 2009 (Cth) (see [19.1380]).

Performance of the contract [14.760] It is the duty of the seller to deliver the goods and that of the buyer to accept and pay for them in accordance with the terms of the contract. 44 Delivery may be actual or constructive. Apart from any agreement to the contrary, in all sales payment and delivery are concurrent conditions, so that the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready to pay the price in exchange for possession of the goods. 45 Unless otherwise agreed, the price should be paid in legal tender and the buyer has no right to have possession of the goods until he or she pays the price. If the goods are sold on credit and nothing is said as to the time of delivery, the buyer is entitled to immediate possession and the property as well as possession passes to the buyer, liable only to be defeated under the rule of stoppage in transitu where the buyer becomes insolvent before the goods reach her or his actual possession.

44

45

Sale of Goods Act 1923 (NSW), s 30; Goods Act 1958 (Vic), s 34; Sale of Goods Act 1896 (Qld), s 29; Sale of Goods Act 1895 (SA), s 27; Sale of Goods Act 1895 (WA), s 27; Sale of Goods Act 1896 (Tas), s 32; Sale of Goods Act 1954 (ACT), s 31; Sale of Goods Act 1972 (NT), s 30. Sale of Goods Act 1923 (NSW), s 31; Goods Act 1958 (Vic), s 35; Sale of Goods Act 1896 (Qld), s 30; Sale of Goods Act 1895 (SA), s 28; Sale of Goods Act 1895 (WA), s 28; Sale of Goods Act 1896 (Tas), s 33; Sale of Goods Act 1954 (ACT), s 32; Sale of Goods Act 1972 (NT), s 31.

chapter 14 Sale of Goods

Rules as to delivery [14.770] The Sale of Goods Act sets out the following general rules as to the delivery of goods under a contract of sale: 46 1.

Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer, is a question depending in each case on the contract between the parties. Apart from any contract the place of delivery is the seller’s place of business or, if the seller has no place of business, the seller’s residence. If the contract is for specific goods and the parties know that they are in some other place, then that place is the place of delivery unless otherwise agreed. If the seller agrees to deliver goods to the buyer’s premises and, without negligence, delivers them there to a person apparently authorised to receive them and the person receiving them misappropriates them, the loss must fall on the buyer and not on the seller: Galbraith & Grant Ltd v Block [1922] 2 KB 155 at 157.

2.

Where goods are to be delivered but no time for sending them is fixed, the seller is bound to send them within a reasonable time.

3.

Where the goods at the time of sale are in the possession of a third person, there is no delivery unless the third person acknowledges to the buyer that he or she holds the goods on the buyer’s behalf.

4.

Demand or tender of delivery must be made at a reasonable hour.

5.

Unless otherwise agreed, the expenses of putting the goods into a deliverable state must be borne by the seller.

6.

Where the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier for the purpose of transmission to the buyer is, prima facie, deemed to be a delivery of the goods to the buyer.

7.

The general rule is that the seller must make the arrangements with the carrier for the transit but this rule is subject to any agreement to the contrary. If the seller omits to make all reasonable arrangements with the carrier, the buyer may decline to treat the delivery to the carrier as a delivery to herself or himself, or the buyer may do so and hold the seller responsible and sue for damages.

8.

If the goods are to be forwarded by a route involving sea transit, it is generally the duty of the seller to notify the buyer so that the buyer may insure the goods and if the seller defaults in giving such notice the goods will be at the seller’s risk during the sea transit.

9.

When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods, the buyer is liable to the seller for any loss occasioned by the buyer’s neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods.

10.

The preceding rule does not affect the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.

Constructive or symbolical delivery [14.780] In certain cases delivery may not amount to an actual transfer of the goods after sale but it may be construed from the circumstances. This is known as “constructive” or “symbolical delivery”. For example, where A has a motor launch locked in a boatshed and sells it to B and hands B the key of the shed 46

Sale of Goods Act 1923 (NSW), ss 32, 35; Goods Act 1958 (Vic), ss 36, 39; Sale of Goods Act 1896 (Qld), ss 31, 34; Sale of Goods Act 1895 (SA), ss 29, 32; Sale of Goods Act 1895 (WA), ss 29, 32; Sale of Goods Act 1896 (Tas), ss 34, 37; Sale of Goods Act 1954 (ACT), ss 33, 36; Sale of Goods Act 1972 (NT), ss 32, 35.

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so that he may take delivery at his convenience, constructive or symbolical delivery has taken place. A delivery of documents of title, for example a bill of lading, amounts to symbolical delivery of the goods. To be valid, constructive delivery must have the effect of immediately subjecting the goods to the control of the person to whom delivery has to be made.

Delivery of wrong quantity or mixed goods [14.790] Where the seller delivers to the buyer a quantity of goods less than the seller contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered the buyer must pay for them at the contract rate. 47 Where the seller delivers to the buyer a quantity of goods larger than the seller contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or the buyer may reject the whole. If the buyer accepts the whole of the goods so delivered the buyer must pay for them at the contract rate. Where the seller delivers to the buyer the goods the seller contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest, or the buyer may reject the whole: London Plywood Ltd v Nasic Oak Ltd [1939] 2 KB 343 at 344. The above provisions are subject to any usage of trade, special agreement, or course of dealing between the parties; for example, the contract may contain a clause approximating the quantity such as “more or less” or say “about” a definite number in order to allow for a reasonable variation. Where the excess or deficiency in quantity is trifling or negligible and not sufficient to influence a buyer, the variation is not a ground for rejecting the contract.

Instalment deliveries [14.800] Unless otherwise agreed, the buyer of goods is not bound to accept delivery by instalments. Where the contract provides for instalment delivery and each delivery is to be paid for separately and the seller makes defective deliveries or the buyer makes default in respect of one or more instalments, it is a question in each case depending on the terms of the contract whether the breach is a repudiation of the whole contract, or whether it is a severable breach, giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated. 48 If the default in instalment delivery amounts to a slight breach of the contract only and persistent breach or repudiation of the contract is not contemplated, then the failure to a minor degree of delivery would not amount to a repudiation of the whole contract. The main test usually applied in such cases is to consider “first, the ratio quantitatively which the breach bears to the contract as a whole, and secondly, the degree of probability or improbability that such a breach will be repeated”: Maple Flock Co v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 at 157 per Lord Hewart CJ.

47

48

Sale of Goods Act 1923 (NSW), s 33; Goods Act 1958 (Vic), s 37; Sale of Goods Act 1896 (Qld), s 32; Sale of Goods Act 1895 (SA), s 30; Sale of Goods Act 1895 (WA), s 30; Sale of Goods Act 1896 (Tas), s 35; Sale of Goods Act 1954 (ACT), s 34; Sale of Goods Act 1972 (NT), s 33. Sale of Goods Act 1923 (NSW), s 34; Goods Act 1958 (Vic), s 38; Sale of Goods Act 1896 (Qld), s 33; Sale of Goods Act 1895 (SA), s 31; Sale of Goods Act 1895 (WA), s 31; Sale of Goods Act 1896 (Tas), s 36; Sale of Goods Act 1954 (ACT), s 35; Sale of Goods Act 1972 (NT), s 34.

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case [14.810] Where a manufacturer agreed to supply 200,000 yoyos to a buyer to be used in an advertising campaign and approximately 80 per cent of 85,000 yoyos delivered in a number of separate consignments were found to be defective, it was held that the buyer was entitled to rescind the contract so far as future deliveries were concerned rather than submit to the risk of being sent further unsatisfactory consignments: Hammer and Barrow v Coca-Cola [1962] NZLR 723 at 726-727.

FOB and CIF contracts [14.820] The terms “FOB” (Free on Board) and “CIF” (Cost, Insurance and Freight) are commonly used in connection with contracts for the sale of goods which are to be carried by sea or shipped to the buyer. Where the goods have been quoted “FOB” it is the seller’s duty to put the goods on board the ship at the port of shipment and to pay all expenses incurred in doing so, the buyer being responsible for subsequent charges such as freight and insurance. Delivery is complete once the goods have been put aboard the ship and the seller has no further control over the goods and has parted with the possession and property in them. It is the duty of the seller to notify the buyer of the shipment to enable the buyer to insure, otherwise the goods are at the seller’s risk. The Sale of Goods Act makes provision for this duty as follows: Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable the buyer to insure them during their sea transit, and if the seller fails to do so, the goods shall be deemed to be at the seller’s risk during such sea transit. 49 It was held in Wimble, Sons & Co v Rosenberg & Sons [1913] 3 KB 743 that this subsection applied to a contract for the sale of goods FOB: at 749, 752. When the goods have been quoted “CIF” the seller’s duties are: (a)

to make arrangements for the transport of the goods;

(b)

to ship the goods paying the costs thereof;

(c)

to effect upon the terms current in the trade an insurance of the goods and to pay the premium; and

(d)

to tender, within a reasonable time after shipment, the shipping documents (bill of lading, policy of insurance and invoice) to the buyer.

In both types of contract the general rule is that once the goods are placed on board ship the risk is on the buyer and he or she must rely on insurance for protection against loss. The essential difference between a CIF contract and an ordinary contract for the sale of goods rests in the fact that performance of the bargain in the former is primarily to be fulfilled by delivery of documents and not by the actual physical delivery of goods by the vendor. All that the buyer can call for is delivery of the customary documents. The buyer cannot refuse the documents and ask for the tender of the goods they represent. On presentation of the documents, the buyer is bound to pay the price; this is so even though the goods, to the seller’s knowledge, have already been lost at sea: Manbre Saccharine Co Ltd v Corn Products 49

Sale of Goods Act 1923 (NSW), s 35; Goods Act 1958 (Vic), s 39; Sale of Goods Act 1896 (Qld), s 34; Sale of Goods Act 1895 (SA), s 32; Sale of Goods Act 1895 (WA), s 32; Sale of Goods Act 1896 (Tas), s 37; Sale of Goods Act 1954 (ACT), s 36; Sale of Goods Act 1972 (NT), s 35.

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Co Ltd [1919] 1 KB 198 at 202, 204. Once the documents have been handed over to the buyer, he or she can claim under the contract of carriage and sue on the policy of insurance should the goods have been damaged or lost in transit. At the time of handing over the documents the buyer takes the property in the goods subject to a condition, that is, that the goods are in accordance with the contract. Actually the buyer’s rights under these types of contract fall into two categories: (a)

a right to reject the documents, and

(b)

a right to reject the goods.

The two rights are quite distinct. “[T]he right to reject the documents arises when the documents are tendered, and the right to reject the goods arises when they are landed and when after examination they are found not to be in conformity with the contract”: Kwei Tek Chao v British Traders and Shippers Ltd [1954] 2 QB 459 at 481 per Devlin J. The property in the goods passes to the buyer when the documents are handed over but it is conditional property, that is, the buyer can reject the goods if upon examination the buyer finds that they are not in accordance with the contract.

“Acceptance” of the goods [14.830] As previously mentioned, it is the duty of the seller to deliver the goods and that of the buyer to accept and pay for them in accordance with the terms of the contract. 50 So far we have considered the duty of the seller in respect of the delivery of the goods. We must now consider the duty of the buyer to accept and pay for the goods. Failure by the buyer to accept the goods renders the buyer liable for breach of contract unless the buyer has a right to reject them for breach of condition. Acceptance in the present context has a different meaning from the use of the word in connection with the formalities for an enforceable contract of sale: see [14.200]. Here the expression relates to the acceptance of the goods in performance of the contract and the transfer of ownership. A buyer is deemed to have accepted the goods: (a)

when the buyer intimates to the seller that he or she has accepted them; or

(b)

when the goods have been delivered to the buyer and the buyer does any act in relation to them which is inconsistent with the ownership of the seller, for example where the buyer re-sells them; or

(c)

when the buyer retains the goods after the lapse of a reasonable time without intimating to the seller that he or she has rejected them. 51

The Sale of Goods Act also provides that where the buyer has not previously examined the goods, the buyer is entitled to a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract before the buyer is deemed to have accepted them. 52 There is a possibility of conflict between this provision and the circumstances in which the buyer is deemed to have accepted the 50

51

52

Sale of Goods Act 1923 (NSW), ss 30–31; Goods Act 1958 (Vic), ss 34–35; Sale of Goods Act 1896 (Qld), ss 29–30; Sale of Goods Act 1895 (SA), ss 27–28; Sale of Goods Act 1895 (WA), ss 27–28; Sale of Goods Act 1896 (Tas), ss 32–33; Sale of Goods Act 1954 (ACT), ss 31–32; Sale of Goods Act 1972 (NT), ss 30–31. Sale of Goods Act 1923 (NSW), s 38; Goods Act 1958 (Vic), s 42; Sale of Goods Act 1896 (Qld), s 37; Sale of Goods Act 1895 (SA), s 35; Sale of Goods Act 1895 (WA), s 35; Sale of Goods Act 1896 (Tas), s 40; Sale of Goods Act 1954 (ACT), s 39; Sale of Goods Act 1972 (NT), s 38. Sale of Goods Act 1923 (NSW), s 37; Goods Act 1958 (Vic), s 41; Sale of Goods Act 1896 (Qld), s 36; Sale of Goods Act 1895 (SA), s 34; Sale of Goods Act 1895 (WA), s 34; Sale of Goods Act 1896 (Tas), s 39; Sale of Goods Act 1954 (ACT), s 38; Sale of Goods Act 1972 (NT), s 37.

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goods in (b) above: that is, the buyer may have done an act inconsistent with the ownership of the seller in, for example re-selling the goods, before the buyer has had an opportunity of examining them: Hardy & Co v Hillerns and Fowler [1923] 2 KB 490 at 496, 499. This is no longer a problem in New South Wales, Victoria, South Australia and the Australian Capital Territory where the provision setting out the circumstances in which a buyer is deemed to have accepted the goods in (b) above is now expressed to be subject to the provision whereby the buyer is not deemed to have accepted the goods until the buyer had a reasonable opportunity of examining them. 53 In New South Wales, it is further provided that the buyer’s acceptance of the goods does not preclude rescission of the contract for an innocent misrepresentation, unless the acts constituting acceptance amount to affirmation of the contract: Sale of Goods Act 1923 (NSW), s 38(2). In South Australia, the Misrepresentation Act 1972 (SA), s 6(1)(b) provides that, where a misrepresentation has been made by reason of which a party to a contract would, but for the fact that the contract has been performed, be entitled to rescind, that party shall have the right to rescind. The Full Federal Court held that the effect of this provision is to keep open a purchaser’s right to rescind even after the goods have been “accepted” by the purchaser under the State Sale of Goods Act: JAD International Pty Ltd v International Trucks Australia Ltd (1994) 50 FCR 378 at 385. The effect was that the purchaser of a truck was held entitled to rescind the contract of sale for innocent misrepresentation as to the vehicle’s engine on becoming aware of the true facts some 12 months after purchasing the vehicle. Where the buyer in accordance with her or his rights refuses to accept the goods, the buyer is not bound, unless otherwise agreed, to return them to the seller: it is sufficient if the buyer intimates to the seller that he or she refuses to accept them. 54

Remedies for breach of the contract of sale [14.840] The Sale of Goods Act deals separately with: (a)

the remedies of the unpaid seller of goods; and

(b)

the remedies of the buyer for the seller’s breach of the contract of sale.

Remedies of the unpaid seller [14.850] The seller of goods is deemed to be an unpaid seller where: (a)

the whole of the price has not been paid or tendered; or

(b)

the bill of exchange or other negotiable instrument has been received as conditional payment, and the condition has not been fulfilled by reason of the dishonour of the instrument or otherwise. 55

The unpaid seller has two classes of rights: (a)

against the goods; and

(b)

against the buyer.

53 54

55

Sale of Goods Act 1923 (NSW), s 37(1); Goods Act 1958 (Vic), s 41(1); Sale of Goods Act 1895 (SA), s 34(1); Sale of Goods Act 1954 (ACT), s 38(1). Sale of Goods Act 1923 (NSW), s 39; Goods Act 1958 (Vic), s 43; Sale of Goods Act 1896 (Qld), s 38; Sale of Goods Act 1895 (SA), s 36; Sale of Goods Act 1895 (WA), s 36; Sale of Goods Act 1896 (Tas), s 41; Sale of Goods Act 1954 (ACT), s 40; Sale of Goods Act 1972 (NT), s 39. Sale of Goods Act 1923 (NSW), s 41; Goods Act 1958 (Vic), s 45; Sale of Goods Act 1896 (Qld), s 40; Sale of Goods Act 1895 (SA), s 38; Sale of Goods Act 1895 (WA), s 38; Sale of Goods Act 1896 (Tas), s 43; Sale of Goods Act 1954 (ACT), s 42; Sale of Goods Act 1972 (NT), s 41.

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Rights of the unpaid seller against the goods [14.860] The unpaid seller may have any of the following rights against the goods: (a)

a lien (when ownership has passed to the buyer but possession is with the seller);

(b)

withholding delivery (when ownership and possession are still with the seller);

(c)

stoppage of goods in transit (when ownership has passed to the buyer but possession is not with either party); or

(d)

resale (when ownership may be with either party but possession is with the seller).

Lien [14.870] A seller’s lien is a right to retain possession of the goods until the price is paid or tendered and it attaches when default is made by the buyer either through insolvency or otherwise. The seller has no lien unless he or she has actual possession of the goods. When the seller loses possession of the goods, the seller has the right either to stop the goods whilst they are in transit or to sue the buyer for the price if the buyer has gained possession. The unpaid seller may exercise their lien when: (a)

the goods have been sold without any stipulation as to credit; or

(b)

the goods have been sold on credit but the term of credit has expired; or

(c)

the buyer becomes insolvent. 56

The seller will lose their lien: (a)

when the goods are delivered to a carrier for the purpose of transmission to the buyer, without reserving the right of disposal of the goods; or

(b)

when the buyer or her or his agent lawfully obtains possession of the goods; or

(c)

by waiver; for example, by handing over to the buyer the documents of title relating to the goods, or assenting to a resale by the buyer.

When an unpaid seller has made part delivery of the goods they may exercise their rights of lien on the remainder, unless part delivery has been made under such circumstances as to show an agreement to waive the lien. 57

56

A person is deemed to be insolvent within the meaning of the Sale of Goods Act when that person has either ceased to pay their debts in the ordinary course of business, or cannot pay their debts as they become due, whether having committed an act of bankruptcy or not: Sale of Goods Act 1923 (NSW), s 5; Goods Act 1958 (Vic), s 3; Sale of Goods Act 1896 (Qld), s 3; Sale of Goods Act 1895 (SA), s 60; Sale of Goods Act 1895 (WA), s 60; Sale of Goods Act 1896 (Tas), s 3; Sale of Goods Act 1954 (ACT), s 5; Sale of Goods Act 1972 (NT), s 5.

57

Sale of Goods Act 1923 (NSW), ss 43–45; Goods Act 1958 (Vic), ss 47–49; Sale of Goods Act 1896 (Qld), ss 42–44; Sale of Goods Act 1895 (SA), ss 40–42; Sale of Goods Act 1895 (WA), ss 40–42; Sale of Goods Act 1896 (Tas), ss 45–47; Sale of Goods Act 1954 (ACT), ss 44–46; Sale of Goods Act 1972 (NT), ss 43–45.

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Withholding delivery [14.880] Where the buyer defaults and neither the ownership nor possession of the goods has passed to the buyer, the unpaid seller, in addition to the right of suing the buyer for breach of contract, has a right of withholding delivery of the goods. This right is similar to and equally extensive with the unpaid seller’s right of lien (see [14.870]) in cases where the ownership has passed to the buyer. 58

Stoppage in transitu [14.890] An unpaid seller has the right of stopping the goods in transitu when: (a)

they have parted with possession of the goods; and

(b)

they are still in transit; and

(c)

the buyer becomes insolvent.

The unpaid seller may in these circumstances resume possession of the goods as long as they are in course of transit, and may retain them until payment or tender of the price. 59 It will be noticed that this right applies when the ownership but not the possession of the goods has passed to the buyer, and the goods must be in the course of transit.

Duration of transit [14.900] In practice it is often difficult to determine whether the goods are still in transit. The Sale of Goods Act contains the following rules: 1.

Goods are deemed to be in course of transit from the time they are delivered to a carrier until the buyer or their agent takes delivery of them.

2.

If the buyer or their agent obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end.

3.

If, after the arrival of the goods at the appointed destination, the carrier acknowledges to the buyer or their agent that the carrier holds the goods on the buyer’s behalf and continues in possession of them for the buyer, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer.

4.

If the goods are rejected by the buyer and the carrier continues in possession of them, the transit is not deemed to be at an end even if the seller has refused to receive them back.

5.

When goods are delivered to a ship chartered by the buyer it is a question depending on the circumstances of the particular case whether they are in the possession of the master as a carrier or as agent for the buyer.

6.

Where the carrier wrongfully refuses to deliver the goods to the buyer the transit is deemed to be at an end.

58

59

Sale of Goods Act 1923 (NSW), s 42; Goods Act 1958 (Vic), s 46; Sale of Goods Act 1896 (Qld), s 41; Sale of Goods Act 1895 (SA), s 39; Sale of Goods Act 1895 (WA), s 39; Sale of Goods Act 1896 (Tas), s 44; Sale of Goods Act 1954 (ACT), s 43; Sale of Goods Act 1972 (NT), s 42. Sale of Goods Act 1923 (NSW), s 46; Goods Act 1958 (Vic), s 50; Sale of Goods Act 1896 (Qld), s 45; Sale of Goods Act 1895 (SA), s 43; Sale of Goods Act 1895 (WA), s 43; Sale of Goods Act 1896 (Tas), s 48; Sale of Goods Act 1954 (ACT), s 47; Sale of Goods Act 1972 (NT), s 46.

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7.

Where part delivery of the goods has been made to the buyer the remainder of the goods may be stopped in transitu, unless the part delivery has been made under such circumstances as to show an agreement to give up possession of the whole of the goods. 60

How stoppage in transitu is effected [14.910] The unpaid seller may exercise the right of stoppage in transitu either by taking actual possession of the goods or by giving notice of their claim to the carrier. The notice may be given either to the person in actual possession of the goods or to their principal. In the latter case the notice to be effectual must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may communicate it to the agent in time to prevent a delivery to the buyer. When notice of stoppage in transitu is given by the seller to the carrier, the carrier must redeliver the goods according to the directions of the seller. The expenses of the redelivery are borne by the seller. 61 The unpaid seller’s right of lien or stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made without the seller’s assent. 62 For example, A agrees to sell to B 100 bags of wheat from general stock and receives a cheque in payment. B immediately sells to C and gives her or him an authority to collect from A, but before C takes delivery B’s cheque is dishonoured. A can refuse to deliver the goods to C.

Defeat of stoppage in transitu [14.920] If, however, a document of title to goods has been lawfully transferred to any person as buyer or owner of the goods and that person transfers, by way of sale, the document to a person who takes it in good faith and for valuable consideration, then the unpaid seller’s right of lien or stoppage in transitu is defeated. 63 Reverting to the previous illustration, if A gives B a document of title to the goods, for example a delivery order, and B transfers this for value to C, then A must deliver the wheat to C as his (the seller’s) lien is defeated. His only right now is to sue B for the price.

Right of resale [14.930] The unpaid seller has a right of resale of the goods where: (a)

the goods are of a perishable nature; or

(b)

the seller exercises the right of lien or stoppage in transitu and gives notice to the buyer of their intention to resell, and the price is not paid or tendered within a reasonable time; or

60

61

62

63

Sale of Goods Act 1923 (NSW), s 47; Goods Act 1958 (Vic), s 51; Sale of Goods Act 1896 (Qld), s 46; Sale of Goods Act 1895 (SA), s 44; Sale of Goods Act 1895 (WA), s 44; Sale of Goods Act 1896 (Tas), s 49; Sale of Goods Act 1954 (ACT), s 48; Sale of Goods Act 1972 (NT), s 47. Sale of Goods Act 1923 (NSW), s 48; Goods Act 1958 (Vic), s 52; Sale of Goods Act 1896 (Qld), s 47; Sale of Goods Act 1895 (SA), s 45; Sale of Goods Act 1895 (WA), s 45; Sale of Goods Act 1896 (Tas), s 50; Sale of Goods Act 1954 (ACT), s 49; Sale of Goods Act 1972 (NT), s 48. Sale of Goods Act 1923 (NSW), s 49; Goods Act 1958 (Vic), s 53; Sale of Goods Act 1896 (Qld), s 48; Sale of Goods Act 1895 (SA), s 46; Sale of Goods Act 1895 (WA), s 46; Sale of Goods Act 1896 (Tas), s 51; Sale of Goods Act 1954 (ACT), s 50; Sale of Goods Act 1972 (NT), s 49. Sale of Goods Act 1923 (NSW), s 49; Goods Act 1958 (Vic), s 53; Sale of Goods Act 1896 (Qld), s 48; Sale of Goods Act 1895 (SA), s 46; Sale of Goods Act 1895 (WA), s 46; Sale of Goods Act 1896 (Tas), s 51; Sale of Goods Act 1954 (ACT), s 50; Sale of Goods Act 1972 (NT), s 49.

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(c)

the seller has expressly reserved a right of re-sale in case the buyer should make a default.

64

The seller’s exercise of the right of resale under (a) and (b) has the effect of rescinding the contract of sale and the seller is entitled to recover damages from the original buyer for any loss occasioned by the latter’s breach of contract: RV Ward Ltd v Bignall [1967] 1 QB 534 at 544, 551. If on resale the goods realise more than the original contract price, the seller would not have to account to the original purchaser for any profit made on the resale. The same consequences flow where the unpaid seller exercises the rights under (c) on the buyer’s default. The unpaid seller’s right of resale under these statutory provisions is in addition to other general contractual remedies which may be available. Thus, an unpaid seller, as a contracting party, is entitled at common law to terminate a contract which has been repudiated by the purchaser and, following such termination, to resell the goods without giving notice of intention to do so to the original purchaser or giving the latter a reasonable time to pay the purchase price.

case [14.940] The first plaintiff agreed to buy the defendant’s 1963 Bentley car for $35,000 and gave the defendant a cheque for $3,000 as a deposit. The cheque was dishonoured because of an administrative error on the part of the first plaintiff’s bank. A day after dishonour of the cheque, the defendant agreed to sell the vehicle to the second plaintiff for $37,000. Both plaintiffs claimed an order for specific performance of their respective contracts for the purchase of the vintage car. The New South Wales Court of Appeal held that due payment of the deposit by the first plaintiff’s cheque being met was an essential term of the contract. Dishonour of the cheque entitled the defendant to terminate the contract and sell the vehicle to the second plaintiff: Wherry v Watson [1991] ASC 56-048 at 56,720.

Rights of unpaid seller against the buyer [14.950] The unpaid seller, in addition to the rights against the goods discussed at [14.860], has certain rights against the buyer for the price of the goods or for damages for non-acceptance of the goods.

Action for the price [14.960] In ordinary cases and unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions. Where the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue the buyer for the price. 65 However, where the price is payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue for the price even though the property in the goods has not passed and the goods themselves have not been appropriated to the contract. 64

65

Sale of Goods Act 1923 (NSW), s 50; Goods Act 1958 (Vic), s 54; Sale of Goods Act 1896 (Qld), s 49; Sale of Goods Act 1895 (SA), s 47; Sale of Goods Act 1895 (WA), s 47; Sale of Goods Act 1896 (Tas), s 52; Sale of Goods Act 1954 (ACT), s 51; Sale of Goods Act 1972 (NT), s 50. Sale of Goods Act 1923 (NSW), s 51; Goods Act 1958 (Vic), s 55; Sale of Goods Act 1896 (Qld), s 50; Sale of Goods Act 1895 (SA), s 48; Sale of Goods Act 1895 (WA), s 48; Sale of Goods Act 1896 (Tas), s 53; Sale of Goods Act 1954 (ACT), s 52; Sale of Goods Act 1972 (NT), s 51.

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Where there is no special agreement as to the payment of the price and the property in the goods has not passed to the buyer, the seller could not sue for the price of the goods: Colley v Overseas Exporters [1921] 3 KB 302 at 306.

Damages for non-acceptance [14.970] Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue for damages for non-acceptance. The general rule is that on a buyer’s non-acceptance of the goods, the measure of damages recoverable by the seller is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract. 66 Where there is an “available market” for the goods in question the measure of damages is, prima facie, the difference between the contract price and the market or current price at the time when the goods ought to have been accepted. This prima facie rule will not apply where the seller proves a higher loss. A party seeking to depart from the prima facie rule must show that the circumstances support such a departure: Onesteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd (2013) 85 NSWLR 1 at [171]. An “available market” means a market available from day-to-day in which the goods might be sold at a then current price or at a fair price at the will of the vendor. The expression contemplates a continuous market for a commodity but always subject to fluctuation according to rise and fall of the market: Eclipse Motors Pty Ltd v Nixon [1940] VLR 49 at 53-54. Where there is no available market, then the general rule will apply, namely, that the measure of damages recoverable by the seller is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract.

case [14.980] R contracted to buy a motor car from T, who were car dealers. R refused to accept delivery and T returned the car to the suppliers. It was held that T were entitled to damages for the loss of their bargain, namely the profit they would have made as they had sold one car less than they otherwise would have sold: WL Thompson Ltd v Robinson (Gunmakers) Ltd [1955] Ch 177 at 183. [14.990] On the other hand, where it appears that the seller did not have a replacement for the particular goods sold to the buyer then, on the buyer refusing to take delivery, the seller is only entitled to recover for the loss which they suffer on the resale of the goods, that is the difference between the price agreed to be paid by the original buyer and the price at which the goods were resold.

case [14.1000] M agreed to buy a new hay-baling machine from K for $4,920. K’s profit on the sale would have been nearly $870. However, M refused to accept the machine. K sold it to another customer for $4,830. The question arose whether K was entitled to recover from M $90 (the difference between the original contract price with M and the resale price) or the full loss of profit of nearly $870 on the basis that K could have sold two hay-balers instead of one: at 168.

66

Sale of Goods Act 1923 (NSW), s 52; Goods Act 1958 (Vic), s 56; Sale of Goods Act 1896 (Qld), s 51; Sale of Goods Act 1895 (SA), s 49; Sale of Goods Act 1895 (WA), s 49; Sale of Goods Act 1896 (Tas), s 54; Sale of Goods Act 1954 (ACT), s 53; Sale of Goods Act 1972 (NT), s 52.

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It was held that K was only entitled to recover $90 since he had not shown that he could have obtained a second hay-baler and hence made a second sale: Kargotich v Mustica [1973] WAR 167 at 168-169. [14.1010] Where a buyer has agreed to buy a unique item, such as a second-hand motor vehicle, but subsequently refuses to accept the goods, the seller is only entitled to recover the loss they have suffered; accordingly, if the seller resells the goods at a higher price than that agreed to be paid by the original buyer, the seller has suffered no loss and hence cannot recover damages from the original buyer: Lazenby Garages Ltd v Wright [1976] 1 WLR 459 at 462. The seller is under a duty to mitigate their loss on default by the buyer which will normally be done by the seller reselling the goods. If the seller does resell they are bound to act reasonably and obtain the best price they can for the goods.

Remedies of the buyer [14.1020] The buyer’s remedies against the seller may be considered under the following headings: 1.

Repudiation of the contract.

2.

Damages for breach of warranty of quality.

3.

Damages for non-delivery.

4.

Specific performance.

Repudiation of the contract [14.1030] The buyer is entitled to rescind the contract and reject the goods where there is a breach of a condition. In such a case the buyer can recover the purchase price he or she has paid if there has been a total failure of consideration. Thus in one case a buyer purchased a car and it subsequently transpired that he had no title. The car was returned to the true owner. It was held that the buyer was entitled to a refund of the full price paid; there was a total failure of consideration even though the buyer had had some use of the car: Rowland v Divall [1923] 2 KB 500 at 504, 506. However, this right of repudiation may be lost to the buyer in the following cases: (a)

where the buyer has waived the breach of condition or elected to treat it only as a breach of warranty, see [14.400];

(b)

where the contract of sale is not severable and the buyer has accepted the goods or part of them (as to the meaning of acceptance in this context, see [14.830]); or

(c)

where the contract is for specific goods and the property in them has passed to the buyer. 67

Damages for breach of warranty of quality [14.1040] Where there is a breach of warranty of quality by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods but the buyer may: 67

This no longer applies in New South Wales, South Australia and the Australian Capital Territory where the corresponding provision in the Sale of Goods Act has been repealed: Sale of Goods (Amendment) Act 1988 (NSW); Misrepresentation Act 1972 (SA), s 11; and Sale of Goods Act 1954 (ACT), s 3, respectively.

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(a)

set up against the seller the breach of warranty in diminution or extinction of the price; or

(b)

maintain an action against the seller for damages. 68

The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty. The Sale of Goods Act further provides that in the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. However, such prima facie rule is appropriate only where the buyer’s claim is in respect of the actual defect in the goods. Where, as is often the case, the buyer is claiming for the damage to persons or property caused by the defective goods, the measure of damages is determined in accordance with the basic rule mentioned earlier, namely, the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty. In the case of Bostock & Co Ltd v Nicholson & Sons Ltd [1904] 1 KB 725, the particular purpose for which the goods were wanted was not communicated to the seller:

case [14.1050] The defendants in Bostock & Co Ltd v Nicholson & Sons Ltd [1904] 1 KB 725 contracted to sell the plaintiffs sulphuric acid commercially free from arsenic. The plaintiffs used the acid in the manufacture of glucose which was sold to brewers. In breach of the implied condition of correspondence with description in the contract, the sulphuric acid contained arsenic, with the result that the beer made by the brewers who had purchased the glucose from the plaintiffs poisoned a large number of people. Consequently, the plaintiffs were liable to pay damages to the brewers. The plaintiffs in turn claimed damages from the defendants as follows: (a)

the price paid for the acid;

(b)

the value of the other materials spoilt in the manufacture of the glucose;

(c)

loss of goodwill; and

(d)

the damages they were liable to pay the brewers: at 733-734.

The court held that the plaintiffs were only entitled to damages to cover: (a)

the price paid for the acid; and

(b)

the value of the goods rendered useless by being mixed with the poisonous acid: at 741.

The plaintiffs were not entitled to damages in respect of:

68

(a)

The loss of goodwill, as this was not a loss directly and naturally resulting in the ordinary course of events from the breach of warranty. It did not arise directly from the act of the defendants but arose from the act of the plaintiffs in selling the poisonous glucose to the brewers and, in the circumstances, was too remote to be recoverable: at 741-742.

(b)

The damages which had to be paid to the brewers: at 742. As the special circumstances surrounding the purpose of the contract had not been communicated to the defendant, the damages were not within the contemplation of the parties within the meaning of the rule in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145: see [12.120].

Sale of Goods Act 1923 (NSW), s 54; Goods Act 1958 (Vic), s 59; Sale of Goods Act 1896 (Qld), s 54; Sale of Goods Act 1895 (SA), s 52; Sale of Goods Act 1895 (WA), s 52; Sale of Goods Act 1896 (Tas), s 57; Sale of Goods Act 1954 (ACT), s 56; Sale of Goods Act 1972 (NT), s 54.

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[14.1060] The chain of contracting parties may in some cases be followed in order to calculate the damages for breach of warranty in supplying goods not fit for the purpose for which they were sold, namely, where such purpose was made known to the sellers at the time of contract and it was within the contemplation of the parties that if there was a breach of contract damages would be claimed by parties separated by several contractual steps.

case [14.1070] A sold some dyed rabbit skins to B, a wholesale furrier, and knew that B intended making them into fur collars. B, having made the collars, sold to C, C resold to D, D to E and E had one attached to a coat and sold it to F who wore the coat with the fur attached. F developed dermatitis caused by the presence of antimony in the dyed skin and sued E for damages and was successful with costs. E claimed the amount he paid F together with his costs from D, who in turn claimed this amount plus his costs from C. C claimed from B and by this time the original £67 damages awarded to F had risen to £699 by reason of successive costs. It was held that B was entitled to recover from A: (a)

the damages awarded in the original action to F;

(b)

the costs of both sides of that action; and

(c)

a sum in respect of the costs incurred by B, C and D respectively in connection with the claims against them: Kasler & Cohen v Slavouski [1928] 1 KB 78 at 85, 87.

[14.1080] This case differed from Bostock & Co Ltd v Nicholson & Sons Ltd [1904] 1 KB 725 not only because in the latter case there was no breach of the warranty of fitness whereas in the present case there was, but also because it was within the contemplation of the sellers that, in the event of breach, damages would be incurred by later purchasers and sub-purchasers. In such cases where the same article passes from hand-to-hand with the same warranty, particularly where the breach of contract which gives rise to the damages consists in there being a latent defect discoverable only in the hands of the ultimate user, and where it must have been within the contemplation of the parties that there would be several contractual steps, the damages recoverable from the original supplier would be the damages awarded to the injured user and costs which are reasonably and properly incurred in defending the actions for damages by the several contracting parties.

Damages for non-delivery [14.1090] The contract of sale may contain certain stipulations as to time of delivery and the buyer is entitled to have these carried out. Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery. 69 The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the seller’s breach of contract. It has also been held that the damages are such as may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract as the probable result of the breach. If the special circumstances under which the contract was actually made were communicated and known to both parties, the damages resulting from breach of such contract 69

Sale of Goods Act 1923 (NSW), s 53; Goods Act 1958 (Vic), s 57; Sale of Goods Act 1896 (Qld), s 52; Sale of Goods Act 1895 (SA), s 50; Sale of Goods Act 1895 (WA), s 50; Sale of Goods Act 1896 (Tas), s 55; Sale of Goods Act 1954 (ACT), s 54; Sale of Goods Act 1972 (NT), s 53.

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would be the amount of injury which would ordinarily flow from a breach of contract under those special circumstances so known and communicated: Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 at 354 (Exch), 151 (ER). Where there is an available market for the goods in question, the measure of damages is, prima facie, to be ascertained by the difference between the contract price and the market or current price of the goods at the time when they ought to have been delivered or, if no time was fixed, then at the time of the refusal to deliver. It is the duty of the buyer to mitigate their loss if this is possible and, should the buyer fail to do so, the court will reduce the claim to that to which the buyer would have been entitled if he or she had acted as a reasonable and prudent person would in the course of business. Where a buyer unreasonably, without first ascertaining the true intention of the seller, refused his offer to repurchase part of the goods alleged to be faulty, it was held that the damages obtained must be reduced by the amount to which the seller’s offer would have mitigated the buyer’s loss. In certain cases the question may arise whether the buyer can claim special damages for non-delivery, as where the goods are required for a particular purpose. These damages depend on a number of factors: (a)

that the seller knew at the time of the contract of sale of the particular circumstances relating to the contract;

(b)

the buyer actually suffered damage through the seller’s default; and

(c)

there was not an available market for the goods in question.

For example, the buyer notified the seller that he or she requires a particular “gun” for a pile driver that had to be delivered to a third party within a specified period. The third party refused to take delivery because of unreasonable delay and, as the gun was useless to anyone else except as old iron, and the manufacturers were aware of these circumstances, their liability was the expenses incurred and the profit which would have been made upon the contract with the third party. From this would be deducted any amount obtained on the sale of the rejected machine: Hydraulic Engineering Co Ltd v McHaffie, Goslett & Co (1879) 4 QBD 670 at 675, 678.

Specific performance [14.1100] Where there is failure by the seller to deliver specific or ascertained goods, the court may direct specific performance of the contract on such conditions as it thinks fit. As a general rule, however, the court will not enforce specific performance of an agreement to sell and deliver chattels unless the goods are, by reason of their nature, unique or of a special kind, and where the award of damages would not be an adequate compensation to the buyer, for example the purchase of a particular portrait by a famous artist. Where a taxicab was the subject of an agreement of sale, specific performance was ordered as the contract was for the sale of a chattel with a valuable privilege (taxicab licence) annexed to it: Dougan v Ley (1946) 71 CLR 142 at 147, 151, 153.

Auctioneers and auction sales [14.1110] Auctioneers are a class of licensed agents employed to sell goods or land in a particular manner as required by statute between sunrise and sunset. An auction is a sale of property in public by calling for bids, the property being usually sold to the highest bidder. A bid is an offer of a price for the property being sold, and the fall of the auctioneer’s hammer the acceptance. Once the auctioneer’s hammer has fallen, the auctioneer has by implication the authority of the highest bidder to sign any memorandum on the bidder’s behalf embodying the conditions of the sale, such

chapter 14 Sale of Goods

memorandum being sufficient to satisfy the requirements of the Statute of Frauds 1677 (Imp) and the Sale of Goods Act. However, this is not the position in Victoria where it has been held that acceptance of a bid for real property at an auction does not give rise to enforceable rights against the bidder where the latter refuses to sign the contract of sale or any other written memorandum of the contract: Futuretronics International Pty Ltd v Gadzhis [1990] ASC 56-009 at 59,160. In Queensland, the successful bidder for certain land at an auction sale was held not liable when he refused to sign a written sale agreement and the auctioneer had neglected to do so on his behalf, since the contract could not be enforced in the absence of a memorandum in writing: Wright v Madden [1992] 1 Qd R 343 at 346, 350. The extent of the authority of an auctioneer depends upon the contract with the auctioneer’s principal but a number of powers are implied by law. An auctioneer has authority to sell the goods subject to all the usual conditions governing sales by auction unless expressly negatived. He or she has authority to deal with the goods in the manner customary amongst auctioneers and to prepare the conditions of sale. The conditions of sale may contain a clause excluding all warranties but this may not be sufficient to exclude an express oral condition or warranty subsequently given at the time of sale. If a seller of goods by auction gives an express oral warranty he or she cannot escape from her or his responsibility for it by saying that the catalogue contained an exempting clause: Harling v Eddy [1951] 2 KB 739 at 744, 748-749. A sale by auction may be with or without reserve. The usual manner of providing for a reserve price is to specify that the vendor shall be entitled to one bid. If there is a reserve price, or a bid is allowed to the vendor, that fact should be notified before the sale. However, if a sale is not announced to be subject to a reserve the auctioneer is bound to accept the bid of the highest bidder and so make a contract with her or him, and the owner is not allowed to bid. Sometimes the reserve price is termed the “upset price”. Where a sale is announced to be subject to a reserve but the auctioneer by mistake accepts a bid and knocks down the property to the highest bidder, there is no completed contract as the whole auction is subject to a condition that the reserve price should be reached: Boulas v Angelopoulos (1991) 5 BPR 11,477 at 11,485 (NSWCA). A bid being merely an offer may be retracted at any time before the property is knocked down; similarly, the vendor may withdraw the property from sale before a bid is accepted, or at any rate before the reserve price is reached. Upon the fall of the hammer, prima facie, the property in the lot knocked down passes to the bidder. If it is intended that this prima facie rule should be excluded, it must be clearly made a condition of the sale. An auctioneer’s authority is to make a contract of sale by auction and once this is made the auctioneer has no authority to vary or rescind it. An auctioneer has no implied authority to sell by private contract as he or she is engaged to sell by auction. However, it is common practice for an auctioneer to be given the right to sell by private sale if the auction proves unsuccessful. An auctioneer has possession of the goods to be auctioned and, like a factor, has a special property in them to the extent of having a lien upon them for her or his expenses and commission. Where the auction is one of goods, an auctioneer has implied authority to receive the purchase money on behalf of the vendor and to hand over the goods when the full price is paid. Where the auction is one of land or an interest in land the auctioneer has merely authority to receive a deposit. He or she has no implied authority to take bills of exchange as payment except to the extent of taking cheques as deposits. Any auctioneer who knowingly misrepresents the value, composition, structure or origin of manufacture of any goods being auctioned is liable to a penalty. There must be kept a full written record of all goods auctioned during the past 12 months and this record is open to inspection by the police. The provisions of the Sale of Goods Act relating to auction sales are as follows:

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1.

Where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale.

2.

A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer or in any other customary manner; until such announcement is made any bidder may retract her or his bid.

3.

Where a sale by auction is not notified in the conditions of sale to be subject to a right to bid on behalf of the seller, it is not lawful for the seller to bid or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person. Any sale contravening this rule may be treated as fraudulent by the buyer.

4.

A sale by auction may be notified in the conditions of sale to be subject to a reserve price, and a right to bid may also be reserved expressly by or on behalf of the seller.

5.

Where a right to bid is expressly reserved, but not otherwise, the seller or any one person on her or his behalf may bid at the auction. 70

In addition to the above provisions contained in the Sale of Goods Act there also exists legislation in the various States 71 regulating and controlling the licensing of auctioneers and general provisions relating to auction sales such as conduct of sale; riotous behaviour; music playing at sale; suitable sale room; keeping records of sales; misrepresentation, etc.

Duties of auctioneers [14.1120] It is the duty of an auctioneer: (a)

to hold a licence and act in person;

(b)

to sell for money only, in the absence of instructions to the contrary;

(c)

to sell to a third person;

(d)

to accept the highest bona fide bid where the auctioneer sells without reserve;

(e)

to account for the proceeds of goods sold;

(f)

not to deliver goods sold until paid for, nor allow any deduction from the price, unless authorised to do so by the principal; and

(g)

to keep full records of sales.

Warranties by auctioneers [14.1130] When an auctioneer sells goods, he or she impliedly gives the following warranties: (a)

their authority to sell;

(b)

that they know of no defect in the principal’s title;

(c)

to give possession against the price paid; and

(d)

that such possession will not be disturbed by the principal or the auctioneer.

70

71

Sale of Goods Act 1923 (NSW), s 60; Goods Act 1958 (Vic), s 64; Sale of Goods Act 1896 (Qld), s 59; Sale of Goods Act 1895 (SA), s 57; Sale of Goods Act 1895 (WA), s 57; Sale of Goods Act 1896 (Tas), s 62; Sale of Goods Act 1954 (ACT), s 60; Sale of Goods Act 1972 (NT), s 60. Property, Stock and Business Agents Act 2002 (NSW), Pt 6; Motor Dealers and Chattel Auctioneers Act 2014 (Qld), Pt 4; Second-Hand Dealers and Pawnbrokers Regulations 2013 (SA), reg 6; Auction Sales Act 1973 (WA); Property Agents and Land Transactions Act 2005 (Tas), Pt 3; Auctioneers Act 1935 (NT). Section 15A of the Fair Trading Act 1992 (ACT) was repealed by Sch 1, Item 1.6 of the Fair Trading (Australian Consumer Law) Amendment Act 2010 (ACT)..

chapter 14 Sale of Goods

However, the auctioneer who as agent sells a specific chattel and does not disclose the name of the principal gives no implied warranty that the buyer will get a good title. It would seem that generally an auctioneer’s only obligation to a purchaser is to deliver the goods the purchaser successfully bid for. Accordingly, notwithstanding that the goods sold do not correspond with their description, the auctioneer is still entitled to recover the price at which the goods were knocked down to the purchaser at the auction. In such a case, the buyer may well have recourse against the vendor for breach of implied condition of the contract of sale, unless such condition has been clearly excluded by the terms of the auction sale.

case [14.1140] In Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631, the defendant M successfully bid $21,000 for a bull at an auction sale of stud cattle conducted by the plaintiff auctioneer E. The bull proved infertile and M refused to pay the price. The auctioneer E brought an action for the price against M, who joined P the owner and vendor of the bull. Sheppard J said: “When an auctioneer sells goods on behalf of a disclosed principal there are three contracts; namely, the contract between the vendor and purchaser, a contract between the vendor and the auctioneer and a contract between the auctioneer and the highest bidder, that is the purchaser”: at 638-639. It was held that the contract between the auctioneer E and the purchaser M was not a contract of sale in the true sense and therefore the conditions implied by the Sale of Goods Act were not applicable to that transaction: at 643. On the facts, it was not a term of the contract between E and M that E had undertaken to deliver a fertile bull but only the bull actually sold: at 646. Accordingly, the auctioneer E was entitled to recover the price of the bull bid by the purchaser M. However, Sheppard J further held that the contract of sale of the bull by auction between the purchaser M and the vendor P was a sale by description, the description being “a breeding bull”. Since the bull was infertile, there had been a breach of the condition of correspondence with description implied in the contract by the Sale of Goods Act, which implied condition had not been effectively excluded on the facts by the terms of sale in the auction catalogue: at 641-643. The result was that although the auctioneer E was entitled to recover the price of $21,000 bid by the purchaser M, M in turn was entitled to recover his loss (namely, $21,000 less the value of the bull for slaughtering purposes, that is, $500) from the vendor P for breach of implied condition: at 650. [14.1150] An auction sale of cattle need not attract any of the conditions as to correspondence with description, merchantable quality or fitness for purpose implied by the Sale of Goods Act, as in the absence of representations such a sale would not be a sale by description and the purchaser might not have made known to the seller the particular purpose for which the cattle he bought were required. However, where the auction sale is preceded by an advertisement which, in effect, represents that the cattle are well suited for breeding, such would constitute an express term of the contract. Furthermore, the effect of the representation would be to make the contract one for the sale of goods by description, the description being cows well suited for breeding and accordingly, there arises an implied condition under the Sale of Goods Act that the cattle correspond with the description. In such a case there also arises an implied condition that the cattle are of merchantable quality where the buyer could not have ascertained the presence of a detrimental condition in them by examination before the auction. By going to the sale in response to such advertisement, the purchaser by implication makes known to the seller that he

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or she requires the cattle for breeding purposes and that he or she relies on the seller’s skill and judgment so as to bring into operation the statutory implied condition that the cattle would be reasonably fit for such purpose. Thus, where an auction was advertised as a “Special Cattle Breeders’ Sale” and described the cows as being well-known for their quality and as being in excellent condition when in fact they were subsequently found to be infected with brucellosis, it was held that the seller was in breach of the conditions of correspondence with description, merchantable quality, and fitness for purpose implied by the Sale of Goods Act: Lockhart v Osman [1981] VR 57 at 66-67.

Mock auctions [14.1160] Western Australia prohibits “mock” auctions, 72 that is, auctions at which people are induced, in effect, to make substantial offers for articles of often inferior quality in the expectation of either having their bids eventually reduced by the auctioneer, or of being given other free gifts, or the chance of obtaining more expensive items at a comparatively low cost, having regard to what had taken place earlier in the proceedings of the so-called auction sale. Tasmania prohibits dummy bids at auctions: Property Agents and Land Transactions Act 2005 (Tas), s 42. In Victoria legislation prohibits the making of dummy bids at auctions for the sale of motor vehicles: Motor Car Traders Act 1986 (Vic), s 50D.

Further reading M Bridge, Benjamin’s Sale of Goods (9th ed, Sweet & Maxwell, London, 2014). KCT Sutton, Sales and Consumer Law (4th ed, LBC Information Services, Sydney, 1995). A Tyree, Sale of Goods (Butterworths, Sydney, 1997).

72

Auction Sales Act 1973 (WA), s 25. The Mock Auctions Act 1973 (Tas) was repealed by the Legislation Repeal Act 2000 (Tas), s 3 and Sch 1. The Fair Trading Act 1987 (NSW), s 51A was repealed by the Fair Trading Amendment (Australian Consumer Law) Act 2010 (NSW), Sch 1, Item 40. The Fair Trading Act 1989 (Qld), s 56 was repealed by the Fair Trading (Australian Consumer Law) Amendment Act 2010 (Qld), s 18. The Fair Trading Act 1999 (Vic), ss 30–31 was repealed by the Fair Trading Amendment (Australian Consumer Law) Act 2010 (Vic), s 9. The Fair Trading Act 1987 (SA), s 28 was repealed by the Statutes Amendment and Repeal (Australian Consumer Law) Act 2010 (SA), s 7.

chapter 15

International Sales Contracts [15.20] Applicability of the Vienna Sales Convention................................................................................... 292 [15.70] Formation of the contract............................................................................................................................ 296 [15.150] Conformity of the goods............................................................................................................................ 299 [15.170] Third party claims ........................................................................................................................................ 302 [15.180] Performance of the contract .................................................................................................................. 302 [15.310] Remedies.......................................................................................................................................................... 306 [15.460] Private international law .......................................................................................................................... 311

Introduction [15.10] This chapter deals with two topics relating to international sales contracts. The first topic is the Convention on Contracts for the International Sale of Goods 1980, 1 more generally referred to as the Vienna Sales Convention. The Convention frequently applies to contracts for the sale of goods between parties in different countries. It contains provisions regulating the application of the Convention to an international sales contract, the formation of the contract, the conformity of the goods with the seller's obligations under the contract, the performance of the contract and remedies for breach of contract. The second topic is the Australian rules of private international law relating to contracts with a foreign element. Private international law determines which system of law will apply to a contract that has both a domestic and a foreign element.

1

Vienna, 11 April 1980, 1489 UNTS 3.

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Applicability of the Vienna Sales Convention Preliminary issues [15.20] Where a contract for the sale of goods is entered into between, for example, an Australian business and a foreign business, the contract may be governed by the provisions of the Vienna Sales Convention. This treaty entered into force for Australia on 1 April 1989. The Convention is implemented by State and Territory legislation. Each of these statutes provides that the Convention has the force of law in the jurisdiction. 2 These laws also provide that in the event of inconsistency the Convention prevails over any other law in force in the jurisdiction. 3 Furthermore, the Australian Consumer Law 4 provides that to the extent of any inconsistency the provisions of the Convention prevail over the provisions of the Act concerning conditions and warranties in consumer transactions: Australian Consumer Law, s 68. As at 29 September 2016, 85 countries are parties to the Convention. Among these countries are the US, China, Japan, Russia, Germany, Brazil, France, South Korea, Canada, Italy, Spain and New Zealand. While China is a party to the Convention, there is some dispute as to whether the Convention applies to Hong Kong. 5 The following nations are among those that are not party to the Convention: the UK, India, Indonesia, Malaysia and South Africa.

Application of the Convention [15.30] The Convention applies to contracts for the sale of goods between individuals or corporations whose places of business are in different countries: (a)

which are parties to the Convention; or

(b)

where under private international law the applicable law is that of a party to the Convention: Vienna Sales Convention, Art 1(1)(a) and (b). 6

The requirement that the places of business of the contracting parties are in different countries applies to both paragraphs of Art 1(1). The Convention contains rules for ascertaining the applicable place of business of a contracting party which conducts business in more than one place: Art 10. 2

Sale of Goods (Vienna Convention) Act 1986 (NSW), s 5; Goods Act 1958 (Vic), s 86; Sale of Goods (Vienna Convention) Act 1986 (Qld), s 5; Sale of Goods (Vienna Convention) Act 1986 (SA), s 4; Sale of Goods (Vienna Convention) Act 1986 (WA), s 5; Sale of Goods (Vienna Convention) Act 1987 (Tas), s 5; Sale of Goods (Vienna Convention) Act 1987 (ACT), s 5; Sale of Goods (Vienna Convention) Act 1987 (NT), s 5.

3

Sale of Goods (Vienna Convention) Act 1986 (NSW), s 6; Goods Act 1958 (Vic), s 87; Sale of Goods (Vienna Convention) Act 1986 (Qld), s 6; Sale of Goods (Vienna Convention) Act 1986 (SA), s 5; Sale of Goods (Vienna Convention) Act 1986 (WA), s 6; Sale of Goods (Vienna Convention) Act 1987 (Tas), s 6; Sale of Goods (Vienna Convention) Act 1987 (ACT), s 6; Sale of Goods (Vienna Convention) Act 1987 (NT), s 6.

4

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17. No: Hannaford v Australian Farmlink Pty Ltd [2008] FCA 1591 at [5]; Innotex Precision Ltd v Horei Image Products Inc 679 F Supp 2d 1356 (ND Ga 2009) at 1358-1359; America’s Collectibles Network Inc v Timlly (HK) 746 F Supp 3d 914 (ED Tenn 2010) at 920; Yes: CNA Int’l Inc v Guangdong Kelon Electronical Holdings (ND Ill; No 05 C 5734; 3 September 2008); Electrocraft Arkansas Inc v Super Electric Motors Ltd 2009 WL 5181854 (ED Ark 2009) at *3; Electrocraft Arkansas Inc v Super Electric Motors Ltd 2010 WL 3307461 (ED Ark 2010) at *5, *8-*13.

5

6

The Convention will not apply where the places of business of both parties are in the same country: Grace Label Inc v Kliff 355 F Supp 2d 965 (SD Iowa 2005) at 971; McDowell Valley Vineyards Inc v Sabate USA Inc 2005 WL 2893848 (ND Cal 2005) at *3-*4.

chapter 15 International Sales Contracts

As stated above, under Art 1(1)(b) the Convention will apply to contracts for the sale of goods between contracting parties whose places of business are in different countries where under private international law the applicable law is that of a party to the Convention. Under this paragraph, the Convention may apply to a contract even where a contracting party has its place of business in a country which is not party to the Convention. Private international law is the body of legal principles that determines the applicable law when the law of two or more countries may potentially apply to a contract or other private law issue: see [15.460]. A number of countries have declared that they will not be bound by Art 1(1)(b) of the Convention: Art 95. That is, these countries will be bound by the Convention only in relation to contracts between individuals or corporations whose places of business are in different countries that are parties to the Convention. 7 These countries will not be bound by the Convention in relation to contracts for the sale of goods between individuals or corporations whose places of business are in different countries where under private international law the applicable law is that of a party to the Convention. The Convention applies only to contracts concluded on or after the date that the Convention entered into force for the countries concerned (if Art 1(1)(a) applies) or the country concerned (if Art 1(1)(b) applies): Art 100(2). In international sales cases the parties’ legal advisers should always consider whether the Convention applies. Litigants and courts often fail to recognise the applicability of the Convention to the facts of their particular case. There have thus been many cases where the Convention should have been applied but was not argued before the court. 8

Matters not governed by the Convention [15.40] The Vienna Sales Convention does not regulate all matters relating to an international sales contract to which it applies. It deals only with the substantive law of international sales, and does not address procedural law issues such as the award of legal costs or jurisdiction. 9 The Convention does not expressly define “goods”, so there is some uncertainty about whether, for example, the sale of computer programs is within the scope of the Convention. The Convention expressly provides that it does not apply to certain specific types of sale. These are: (a)

goods bought for personal, family or household use, unless the seller had no actual or constructive knowledge of such use;

(b)

auction sales;

(c)

sales by authority of law;

7

8

9

Impuls ID Internacional v Psion-Teklogix Inc 234 F Supp 2d 1267 (SD Fla 2002) at 1272; Prime Start Ltd v Maher Forest Products Ltd 442 F Supp 2d 1113 (WD Wash 2006) at 1118. See “CISG Advisory Council Opinion No 15”, http://www.cisg.law.pace.edu/cisg/CISG-AC-op.html; FG Mazzotta, “Reconsidering the CISG Article 95 Reservation Made by the United States of America” (2014) 17 International Trade and Business Law Review 442. Italian Imported Foods Pty Limited v Pucci SRL (Italy) [2006] NSWSC 1060 (before the Local Court); JM Klotz, P Mazzacano and AI Pribetic, “All Quiet on the CISG Front: Guiliani v Invar Manufacturing, the Battle of the Forms, and the Elusive Concept of Terminus Fixus” (2008) 46 Canadian Business Law Journal 430; L Spagnolo, “The Last Outpost: Automatic CISG Opt Outs, Misapplications and the Costs of Ignoring the Vienna Sales Convention for Australian Lawyers” (2009) 10 Melbourne Journal of International Law 141 at 175, 213. In some cases the applicability of the Convention has been raised by the judge. See Perry Engineering Pty Ltd v Bernold AG [2001] SASC 15 at [6]; Mazzetta Co llc c Dégust-Mer inc 2011 QCCA 717 at [11]-[14], [27]. Zapata Hermanos Sucesores SA v Hearthside Baking Co Inc 313 F 3d 385 (7th Cir 2002) at 388, certiorari denied Zapata Hermanos Sucesores SA v Hearthside Baking Co Inc 540 US 1068 (2003).

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(d)

sales of stocks, shares, investment securities, negotiable instruments or money;

(e)

sales of ships, vessels, hovercraft or aircraft; and

(f)

sales of electricity: Art 2.

Contracts for the supply of goods to be manufactured or produced are excluded if the buyer undertakes to supply a substantial part of the necessary materials: Art 3(1). The Convention does not apply to contracts in which the main part of the obligations of the seller consists of the supply of labour: Art 3(2). 10 The Convention does not apply to distributorship contracts, which “typically create a framework for future sales of goods but do not lay down precise price and quantity terms”. 11 However, the Convention will apply to actual sales under these agreements. 12 A number of legal issues are not dealt with by the Convention. 13 It does not regulate the validity of the contract: Art 4(a). Validity means “any issue by which … ‘domestic law would render the contract void, voidable, or unenforceable.’” 14 The Convention also does not concern the effect of the contract on property in the goods: Art 4(b). For example, the Australian Federal Court held that the validity of a retention of title clause is to be determined under domestic law, not the Convention. 15 The Convention regulates only the rights of parties to the contract (that is, the seller and buyer), not the rights of third parties. 16

Exclusion of application of the Convention [15.50] The parties may exclude the application of the Vienna Sales Convention: Art 6. However, it may not be sufficient to exclude application of the Convention merely to provide that the contract will be governed by the law of a particular jurisdiction, since that law may be the Convention. 17 To exclude the application of the Convention it may be necessary for a contract to expressly state that the Convention does not apply and to specify what other law will apply. 18 10 11

12 13

14 15 16 17

18

See “CISG Advisory Council Opinion No 4”, 17 Pace Int L Rev 79. Amco Ukrservice v American Meter Co 312 F Supp 2d 681 (ED Pa 2004) at 686-687; see also Multi-Juice SA v Snapple Beverage Corp 2006 WL 1519981 at *7; Gruppo Essenziero Italiano SpA v Aromi D’Italia Inc 2011 WL 3207555 (D Md 2011) at *3; Adonia Holding GmbH v Adonia Organics LLC 2014 WL 7178389 (D Ariz 2014). Amco Ukrservice v American Meter Co 312 F Supp 2d 681 (ED Pa 2004) at 687. Other matters not dealt with include: 1. products liability: Convention on Contracts for the International Sale of Goods 1980, Art 5; other tort claims: Geneva Pharmaceuticals Technology Corp v Barr Laboratories Inc 201 F Supp 2d 236 (SD NY 2002) at 286; “CISG Advisory Council Opinion No 12”, http://www.cisg.law.pace.edu/cisg/CISG-AC-op.html; 2. contractual capacity; 3. limitation of actions; 4. negligent misrepresentation and fraudulent inducement: Miami Valley Paper LLC v Lebbing Engineering & Consulting GmbH 2006 WL 2924779 at *3. Geneva Pharmaceuticals Technology Corp v Barr Laboratories Inc 201 F Supp 2d 236 (SD NY 2002) at 282. Roder Zelt-Und Hallenkonstruktionen GmbH v Rosedown Park Pty Ltd (1995) 57 FCR 216 at 222-223. Usinor Industeel v Leeco Steel Products Inc 209 F Supp 2d 880 (ND Ill 2002) at 885-886; Beth Schiffer Fine Photographic Arts Inc v Colex Imaging Inc 2012 WL 924380 (D NJ 2012) at *7. BP Oil International Ltd v Petroecuador 332 F 3d 333 (5th Cir 2003) at 337; Easom Automation Systems Inc v Thyssenkrupp Fabco Corp 2007 WL 2875256 (ED Mich 2007) at *3, on reconsideration Easom Automation Systems Inc v Thyssenkrupp Fabco Corp 2008 WL 1901236 (ED Mich 2008) at *2. Contrast American Biophysics v Dubois Marine Specialties 411 F Supp 2d 61 (DRI 2006) at 63. See generally WP Johnson, “Understanding Exclusion of the CISG: A New Paradigm of Determining Party Intent” (2011) 59 Buffalo Law Review 213; CISG Advisory Council Opinion No 16, http://www.cisg.law.pace.edu/cisg/CISG-AC-op.html. American Mint LLC v GOSoftware 2006 US Dist LEXIS 1569 (MD Pa 2006) at *11; Travelers Property Casualty Co of America v Saint-Gobain Technical Fabrics Canada Ltd 474 F Supp 2d 1075 (D Minn 2007) at 1081-1082; It’s Intoxicating Inc v Maritim Hotelgesellschaft mbH 2013 WL 3973975 (MD Pa 2013) at *16–*17; Roser Technologies Inc v Carl Schreiber GmbH 2013 WL 4852314 (WD Pa 2013) at *7.

chapter 15 International Sales Contracts

In an American case the parties attempted to exclude the Convention but failed to agree upon the governing law of the contract, with the result that the Convention continued to apply. 19 In an Australian case the contract provided that it would be governed by “Australian law applicable under exclusion of UNCITRAL law”. The court considered that the words “UNCITRAL law” referred to the Convention. The court held that this clause was effective to exclude application of the Convention. This point was not raised on appeal. 20 The parties may derogate from or vary the effect of most provisions of the Convention: Art 6. However, in some circumstances they may not derogate from the provisions relating to writing: see [15.120].

Interpretation of the Convention [15.60] In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application: Vienna Sales Convention, Art 7(1). The need to promote uniformity in the application of the Convention suggests that it should not be interpreted in the light of domestic legal concepts. 21 Nevertheless, some national courts persist in interpreting the Convention in the light of their own domestic law. 22 The objective of the uniform application of the Convention also suggests that the courts should pay particular regard to decisions by the courts of other nations. Judicial decisions from many nations have treated foreign decisions under the Convention as persuasive authority. 23 The Convention’s expressed aim of uniformity means that it is necessary to make reference to foreign judicial decisions. 24 In any event, there are few Australian cases construing the Convention, so guidance must be sought elsewhere. 25

19 20 21 22

23

24 25

Hanwha Corp v Cedar Petrochemicals Inc 760 F Supp 2d 426 (SD NY 2011) at 431. Olivaylle Pty Ltd v Flottweg AG (No 4) (2009) 255 ALR 632 at [28], affd Olivaylle Pty Ltd v Flottweg AG [2010] FCAFC 62. J Felemegas, Article 7 and Uniform Interpretation, Review of the CISG 2000-2001, 115 at 238-239, 363-364; Smallmon v Transport Sales Ltd [2012] 2 NZLR 109 at [39]-[40]. LA Di Matteo et al, “The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence” (2004) 24 Northwestern Journal of International Law and Business 299 at 303, 398, 437-439; FG Mazzotta, “Why Do Some American Courts Fail to Get It Right?” (2005) 3 Loyola University of Chicago International Law Review 85; L Spagnolo, “The Last Outpost: Automatic CISG Opt Outs, Misapplications and the Costs of Ignoring the Vienna Sales Convention for Australian Lawyers” (2009) 10 Melbourne Journal of International Law 141 at 165-169. See, for example, Hannaford v Australian Farmlink Pty Ltd [2008] FCA 1591 at [5], [233]; Innotex Precision Ltd v Horei Image Products Inc 679 F Supp 2d 1356 (ND Ga 2009) at 1359; L Spagnolo, “The Last Outpost: Automatic CISG Opt Outs, Misapplications and the Costs of Ignoring the Vienna Sales Convention for Australian Lawyers” (2009) 10 Melbourne Journal of International Law 141 at 208-211; Smallmon v Transport Sales Ltd [2012] 2 NZLR 109 at [39]-[45], [67]-[68]; Maxxsonics USA Inc v Fengshun Peiying Electro Acoustic Co Ltd 2012 WL 962698 (ND Ill 2012) at *6; Roser Technologies Inc v Carl Schreiber GmbH 2013 WL 4852314 (WD Pa 2013) at *4, *8. Usinor Industeel v Leeco Steel Products Inc 209 F Supp 2d 880 (ND Ill 2002) at 886. US courts have also sought guidance in the opinions of the CISG Advisory Council. See Cedar Petrochemicals Inc v Dongbu Hannong Chemical Co Ltd 2011 WL 4494602 (SD NY 2011) at *5 fn 5.

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In the interpretation of the Convention, regard is also to be had to the observance of good faith in international trade: Art 7(1). 26 In this context the principle of good faith applies only to the interpretation of the Convention, not to rights and duties under the contract. Hence no collateral obligation can be derived from the principle of good faith. 27 Matters which are governed by the Convention, but which it does not expressly settle, are to be settled under the general principles on which the Convention is based. In the absence of such general principles, these matters are to be settled under the law applicable under private international law: Art 7(2). A court should only apply private international law if there are no applicable express provisions or general principles. 28

Formation of the contract [15.70] The elements of a contract under the Vienna Sales Convention are different from those at common law: see [2.30]. Agreement (offer and acceptance) and intention to be bound are elements of a contract under the Convention. However, consideration is not a necessary element for the formation of a contract. A contract is concluded when an acceptance of an offer becomes effective under the Convention: Art 23.

Offer [15.80] An offer must be sufficiently definite and indicate an intention to be bound. To be sufficiently definite an offer must indicate the goods and expressly or implicitly fix or make provision for determining the price and quantity: Vienna Sales Convention, Art 14(1). An offer must be interpreted “according to the offeror’s intention as perceived by the offeree”. 29 A proposal which is not addressed to specific persons constitutes an invitation to make offers, unless the maker of the proposal clearly indicates a contrary intent: Art 14(2). An offer becomes effective when it reaches the offeree: Art 15(1). An offer may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. This applies even to an irrevocable offer: Art 15(2). Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before they have dispatched an acceptance: Art 16(1). An offer cannot be revoked if it indicates that it is irrevocable or if it was reasonable for the offeree to rely on irrevocability and the offeree has acted in reliance on the offer: Art 16(2). The concept of reliance under this Article resembles the doctrine of promissory estoppel: see [5.230]. However, this concept of reliance “does not appear to require foreseeability or detriment”. 30 Any offer, including an irrevocable offer, is terminated when a rejection reaches the offeror: Art 17.

Acceptance [15.90] An acceptance is a statement or other conduct by the offeree indicating assent to an offer: Vienna Sales Convention, Art 18(1). In themselves silence or inactivity do not constitute acceptance: Art 18(1). 26 27

28

See B Sheehy, Good Faith in the CISG: The Interpretation Problems of Article 7, Review of the CISG 2005-2006, 153. D Sim, The Scope and Applications of Good Faith in the Vienna Convention on Contracts for the International Sale of Goods, Review of the CISG 2002-2003, 19. For contrary views, see LA Di Matteo et al, “The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence” (2004) 24 Northwestern Journal of International Law and Business 299 at 319-320. Schmitz-Werke GmbH & Co v Rockland Indus Inc 37 Fed Appx 687 (4th Cir 2002) at 691, 693.

29 30

Austrian Supreme Court, 6 Ob 311/99z, 9 March 2000. Geneva Pharmaceuticals Technology Corp v Barr Laboratories Inc 201 F Supp 2d 236 (SD NY 2002) at 287.

chapter 15 International Sales Contracts

However, in combination with other circumstances silence may constitute acceptance. An American court held that in the light of the extensive prior dealings between the parties, the offeree had a duty to make a timely objection to an offer, so that in the circumstances the offeree’s silence constituted acceptance of the offer. 31 An acceptance becomes effective at the moment it reaches the offeror. An acceptance is ineffective if it reaches the offeror after the time fixed for acceptance or, if no time is fixed, after a reasonable time. In ascertaining what constitutes reasonable time regard is to be had to the circumstances of the transaction, including the speed of the means of communication used by the offeror in making the offer. Unless the circumstances indicate the contrary, an oral offer must be accepted immediately: Art 18(2). If under the offer or under practices established between the parties or trade usage, the offeree may accept by doing an act without giving notice to the offeror, that act constitutes acceptance. The time requirements already outlined also apply in this situation: Art 18(3). A purported acceptance which attempts to modify an offer is a counter-offer and constitutes a rejection of the offer: Art 19(1). A purported acceptance which contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance: Art 19(2). Such a purported acceptance will be a valid acceptance unless the offeror objects to the alteration without undue delay: Art 19(2). If no objection is made, the contract embodies the offer as varied by the terms of acceptance: Art 19(2). The following are material alterations: alterations to the price, payment, quality and quantity of the goods, place and time of delivery, or dispute settlement: Art 19(3). American courts have held that this Article largely follows the common law mirror image rule that the acceptance must mirror the offer (the consensus ad idem rule). 32 The time for acceptance fixed by an offeror in a telegram or letter runs from the moment the telegram is submitted for dispatch or from the date shown on the letter. The time for acceptance fixed by the offeror by instantaneous communication runs from the moment that the offer reaches the offeree: Art 20(1).

Exclusion of formation provisions [15.100] The Vienna Sales Convention provisions regarding the formation of a contract will not apply where a contracting party has its place of business in a country which has declared that it will not be bound by these provisions: Art 92. Denmark, Finland, Sweden and Norway had formerly made such declarations, but subsequently withdrew them. Hence in an American case the Convention did not apply in relation to the formation of the contract, even though Sweden and the United States were both parties to the Convention, because Sweden had declared that it would not be bound by these provisions of the Convention. 33

The role of parol evidence [15.110] The Vienna Sales Convention requires an inquiry into the subjective intent of the parties. Statements and other conduct of a party are to be interpreted according to that party’s intent where the other party knew, or could not have been unaware, what that intent was: Art 8(1). This is a subjective test. By contrast, if the other party did not know or could have been unaware of that intent, statements or other 31 32 33

Filanto SpA v Chilewich International Corp 789 F Supp 1229 (SD NY 1992) at 1240. Roser Technologies Inc v Carl Schreiber GmbH 2013 WL 4852314 (WD Pa 2013) at *4–*5; VLM Food Trading International Inc v Illinois Trading Co 811 F 3d 247 (7th Cir 2016) at 251-252. Mitchell Aircraft Spares Inc v European Aircraft Service AB 23 F Supp 2d 915 (ND Ill 1998) at 918. See also Standard Bent Glass Corp v Glassrobots OY 333 F 3d 440 (3d Cir 2003) at 444 fn 7 (Finland). These cases were decided before Sweden and Finland withdrew their declarations.

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conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances: Art 8(2). This is an objective test. 34 Under Australian common law, parol evidence may not be admitted to add to or vary the effect of a written contract that is intended by the parties to constitute a complete record of their agreement: see [9.30]. By contrast, the Convention directs the admission of parol evidence in these circumstances. 35 The Convention provides that, in determining the intent of a party or the understanding that a reasonable person would have had, consideration is to be given to all relevant circumstances including negotiations, practices established between the parties, usages and the subsequent conduct of the parties: Art 8(3). Numerous US decisions have held that Art 8 of the Convention requires the admission of parol evidence regarding negotiations in order to ascertain the subjective intent of the parties. 36 A “merger clause” provides that the written contract supersedes any prior agreements between the parties. An American court suggested that such a clause will be effective to exclude parol evidence only if both parties intended that the written contract would replace all prior agreements. 37

Writing [15.120] The Vienna Sales Convention does not contain a Statute of Frauds requirement: see [5.310]. 38 The Convention provides that a sales contract need not be concluded in writing or evidenced by writing and is not subject to any other requirement as to form. The Convention further provides that a contract may be proved by any means, including witnesses: Art 11. However, a national Statute of Frauds requirement will apply where one of the contracting parties has its place of business in a country that has declared that the Convention provisions concerning writing requirements will not apply: Art 96. An American court has held that where one of the contracting parties has its place of business in a country that has made such a declaration, but the other contracting party has its place of business in a nation that has not, a court must apply its choice of law rules to determine which national law will apply and must then apply that national law (which may be the Convention rule or a national Statute of Frauds). 39 Under the Convention, the term “writing” includes a telegram or telex: Art 13.

34

Guang Dong Light Headgear Factory Co Ltd v ACI International Inc 521 F Supp 2d 1153 (D Kan 2007) at 1166-1167.

35

See “CISG Advisory Council Opinion No 3”, 17 Pace Int L Rev 61; KH Cross, “Parol Evidence Under the CISG: The ‘Homeward Trend’ Reconsidered” (2007) 68 Ohio State Law Journal 133. MCC-Marble Ceramic Center Inc v Ceramica Nuova D’Agostino SpA 144 F 3d 1384 (11th Cir 1998) at 1389-1390, certiorari denied Ceramica Nuova D’Agostino SpA v MCC-Marble Ceramic Center Inc 526 US 1087 (1999); ECEM European Chemical Marketing BV v Purolite Co 2010 WL 419444 (ED Pa 2010) at *13, affd on other grounds ECEM European Chemical Marketing BV v Purolite Co 451 Fed Appx 73 (3rd Cir 2011). MCC-Marble Ceramic Center Inc v Ceramica Nuova D’Agostino SpA 144 F 3d 1384 (11th Cir 1998) at 1389-1390, certiorari denied Ceramica Nuova D’Agostino SpA v MCC-Marble Ceramic Center Inc 526 US 1087 (1999); TeeVee Toons Inc v Gerhard Schubert GmbH 2006 WL 2463537 (SD NY 2006) at *8. Vision Systems Inc v EMC Corporation 2005 WL 705107 (Mass Super 2005) at *6; TeeVee Toons Inc v Gerhard Schubert GmbH 2006 WL 2463537 (SD NY 2006) at *7; Miami Valley Paper LLC v Lebbing Engineering & Consulting Gmbh 2009 WL 818618 (SD Ohio 2009) at *5; It’s Intoxicating Inc v Maritim Hotelgesellschaft mbH 2013 WL 3973975 (MD Pa 2013) at *17–*18.

36

37

38

39

Forestal Guarani SA v Daros International Inc 613 F 3d 395 (3rd Cir 2010) at 396.

chapter 15 International Sales Contracts

Modification or termination [15.130] A contract may be modified or terminated by agreement between the parties: Vienna Sales Convention, Art 29(1). A failure to object to a unilateral attempt by a party to modify a contract does not constitute an agreement to that modification. 40 A written contract which provides that any modification or termination must be in writing may only be modified or terminated by written agreement: Art 29(2). Hence a purported oral agreement modifying the contract will not be given effect where a clause of the original contract provides that all modifications must be in writing. 41 Nonetheless, the conduct of a party may preclude their reliance on such a provision if the other party has relied on that conduct: Art 29(2). A modification of the contract does not require consideration. 42

Trade usages [15.140] The parties are bound by any usage to which they have agreed. They are also bound by any practices which they have established between themselves: Vienna Sales Convention, Art 9(1). Unless they have agreed otherwise, the parties are also considered to have impliedly made applicable to their contract a usage of which they knew, or ought to have known, and which in international trade is widely known to parties to contracts of this type in the particular trade: Art 9(2). For example, internationally accepted definitions of common commercial terms may be applicable to international sales contracts. 43 However, the customary trade meaning of a term will not prevail over a contrary understanding of that term by the parties to the contract, established through their own dealings. 44

Conformity of the goods [15.150] The seller must deliver goods which are of the quantity, quality and description required by the contract. 45 The goods must be in the containers or packaging required by the contract: Vienna Sales Convention, Art 35(1). In the absence of contrary agreement, goods do not conform to the contract unless they: (a)

are fit for the purposes for which goods of the same description would ordinarily be used;

(b)

are fit for any particular purpose expressly or impliedly made known to the seller at the time the contract was concluded, except where the buyer did not rely, or it was unreasonable to rely, on the seller’s skill and judgment;

40

Chateau des Charmes Wines Ltd v Sabate USA Inc 328 F 3d 528 (9th Cir 2003) at 531, certiorari denied Sabate USA Inc v Chateau des Charmes Wines Ltd 540 US 1049 (2003); VLM Food Trading International Inc v Illinois Trading Co 811 F 3d 247 (7th Cir 2016) at 253.

41 42

Graves Import Co Ltd v Chilewich International Corp 1994 US Dist LEXIS 13393 (SD NY 1994) at *13. Shuttle Packaging Systems LLC v Jacob Tsonakis, INA SA 2001 US Dist LEXIS 21630 (WD Mich 2001) at *21.

43

BP Oil International Ltd v Petroecuador 332 F 3d 333 (5th Cir 2003) at 337-338; China North Chemical Industries Corp v Beston Chemical Corp 2006 WL 295395 (SD Tex 2006) at *6; Cedar Petrochemicals Inc v Dongbu Hannong Chemical Co Ltd 2011 WL 4494602 (SD NY 2011) at *4 (Vienna Sales Convention, Art 9(2) incorporated Incoterms); WP Johnson, “Analysis of Incoterms as Usage Under Article 9 of the CISG” (2014) 35 University of Pennsylvania Journal of International Law 379. Treibacher Industrie AG v Allegheny Technologies Inc 464 F 3d 1235 (11th Cir 2006) at 1238-1239. See generally D Saidov, “Article 35 of the CISG: Reflecting on the Present and Thinking About the Future” (2013) 58 Villanova Law Review 529; D Saidov, Conformity of Goods and Documents: The Vienna Sales Convention (Hart, Oxford, 2015); V de Luca, “The Conformity of the Goods to the Contract in International Sales” (2015) 27 Pace International Law Review 163.

44 45

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(c)

possess the qualities of goods which were provided to the buyer by the seller as a sample; and

(d)

are packaged in the manner usual for such goods or, if there is no usual manner, in a manner adequate to preserve and protect the goods: Art 35(2).

Under paras (a) and (b) of Art 35(2) (above), fitness for purpose is determined according to the standards of the seller’s country rather than those of the buyer’s country, unless the seller knew or ought to have known of the foreign standards.

case [15.155] In Smallmon v Transport Sales Ltd [2012] 2 NZLR 109 an Australian transport business purchased trucks from a New Zealand company. The purchaser was unable to register the trucks with the Queensland transport department because of noncompliance with Australian legislative requirements. The New Zealand Court of Appeal held that the seller was not liable for nonconformity under Art 35(2)(a) where the goods did not conform to regulatory requirements in the purchaser’s country “unless the seller knew or ought to have known of the requirements because of special circumstances”: at [46]. Those special circumstances could include where the seller had a branch in the purchaser’s country, where the parties had a long-standing commercial relationship or where the seller frequently exported to the purchaser’s country: at [47]. Such circumstances were not present in this case, so the nonconformity with Australian regulatory standards did not constitute unfitness for the purposes for which goods of the same description would ordinarily be used: at [61]-[66]. [15.157] The Australian Federal Court similarly held that the failure of an Italian electricity junction box to meet Australian regulatory standards did not necessarily establish unfitness for the purposes for which goods of the same description would ordinarily be used. 46 Another Australian case provides an example of goods that were not fit for either their ordinary purpose or the particular purpose made known to the seller (that is, both paras (a) and (b) of Art 35(2)). The New South Wales Supreme Court held that glass bottles that constantly shattered during the bottling process were unfit for the purpose of producing soft drinks. The court regarded fitness for purpose as being the same as merchantable quality. 47 A seller is not liable for nonconformity if at the time the contract was concluded the buyer knew or could not have been unaware of the nonconformity: Art 35(3). The Australian Full Federal Court held that this provision relieves the seller of liability only where the buyer knew of the particular non-conformity that is alleged to give rise to liability on the part of the seller. It will not relieve the seller of liability where the buyer was aware of a different non-conformity for which relief is not sought. 48 The seller is liable for any nonconformity existing at the time when the risk passes to the buyer, even though the nonconformity becomes apparent only at a later time: Art 36(1). In a “free on board” shipping contract risk passes when the goods are loaded onto the ship. Under Art 36 the seller is liable for any nonconformity that existed before the goods were loaded onto the ship. 49 46 47 48

Cortem SpA v Controlmatic Pty Ltd [2010] FCA 852 at [94]. Fryer Holdings v Liaoning MEC Group [2012] NSWSC 18 at [16], [19]-[22]. Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd (2011) 192 FCR 445 at [309]-[312], special leave refused Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] HCASL 208.

49

Cedar Petrochemicals Inc v Dongbu Hannong Chemical Co Ltd 2011 WL 4494602 (SD NY 2011) at *4.

chapter 15 International Sales Contracts

The seller is also liable for nonconformity occurring after the risk has passed to the buyer and which is due to a breach of any of the seller’s obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities: Art 36(2). If the seller has delivered goods before the delivery date, the seller may, up to the delivery date, deliver any missing part, make up any deficiency in quantity, or deliver replacement goods, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or expense. The buyer retains any right to claim damages under the Convention: Art 37. If the goods do not conform to the contract and whether or not the price has already been paid, the buyer may reduce the price by the proportion that the value of the nonconforming goods at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform their obligations or if the buyer refuses to accept performance, the buyer may not reduce the price: Art 50. 50 Where the goods delivered have no value the buyer may reduce the price to zero. 51

Examination of the goods [15.160] The buyer must examine the goods 52 for nonconformity within the shortest period practicable in the circumstances: Vienna Sales Convention, Art 38(1). If the contract involves carriage of the goods, examination of the goods may be deferred until they have arrived: Art 38(2). It is for the buyer to prove that they examined the goods within the shortest practicable time. 53 The buyer loses the right to rely on any nonconformity if they do not notify the seller of the nature of the nonconformity within a reasonable time after discovery or within a reasonable period from the time when the nonconformity ought to have been discovered: Art 39(1). 54 What is a reasonable time will vary according to the type of goods. For example, a purchaser of perishable goods must notify the seller of the nonconformity within a “very short” period of time, which may be hours rather than days. 55 An American court has given a good description of the purpose of the Convention’s provisions regarding examination of the goods: “the object of the CISG in requiring inspection in as short a period of time as is practicable [Art 38], and notice promptly thereafter [Art 39], is to avoid controversies … where, because of the passage of time, the condition of the goods at the time of transfer cannot be reliably established. When that happens, the burden falls on the buyer, who had the opportunity to inspect the goods, but failed to do so.” 56 If the buyer has a reasonable excuse for their failure to notify, the buyer may reduce the price or claim damages other than for loss of profit: Art 44. In any event, the buyer loses the right to rely on any nonconformity if they do not notify the seller within two years from the date when the goods were handed to the buyer, unless a contractual guarantee provides otherwise: Art 39(2). 50 51 52

See S Jansen, “Price Reduction under the CISG: A 21st Century Perspective” (2014) 32 Journal of Law and Commerce 325. Ginza Pte Ltd v Vista Corporation Pty Ltd [2003] WASC 11 at [197], [200]. See “CISG Advisory Council Opinion No 2”, 17 Pace Int L Rev 377.

53 54

Chicago Prime Packers Inc v Northam Food Trading Co 320 F Supp 2d 702 (ND Ill 2004) at 712. See CB Anderson, Reasonable Time in Article 39(1) of the CISG: Is Article 39(1) Truly a Uniform Provision?, Review of the CISG 1998, 63; CB Andersen, “Article 39 of the CISG and its Noble Month for Notice-Giving; A (Gracefully) Ageing Doctrine?” (2012) 30 Journal of Law and Commerce 185.

55

Hannaford v Australian Farmlink Pty Ltd [2008] FCA 1591 at [233], [242].

56

Chicago Prime Packers Inc v Northam Food Trading Co 320 F Supp 2d 702 (ND Ill 2004) at 715.

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A seller is not entitled to rely on Arts 38 and 39 if the seller knew of, or could not have been unaware of, the nonconformity but did not disclose it to the buyer: Art 40. This provision will certainly apply in cases of fraud or bad faith on the part of the seller. It is also possible that it may apply in cases of negligence.

Third party claims [15.170] The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim: Vienna Sales Convention, Art 41. Another provision applies to third party claims of intellectual property rights. The seller must deliver goods which are free from any right or claim of a third party based on intellectual property, of which at the time the contract was made the seller knew or could not have been unaware: Art 42(1). The obligation to deliver goods free from third party intellectual property claims does not apply where the buyer knew or could not have been unaware of the claim at the time the contract was made: Art 42(2)(a). The obligation also does not apply where the claim results from the seller’s compliance with technical specifications furnished by the buyer: Art 42(2)(b). The buyer cannot rely on these provisions unless they give notice to the seller specifying the nature of the claim within a reasonable time after they became aware or ought to have become aware of it: Art 43(1). Nevertheless, the buyer may reduce the price or claim damages (other than for loss of profit) if they have a reasonable excuse for the failure to give notice: Art 44.

Performance of the contract Payment [15.180] The buyer must pay the price for the goods: Vienna Sales Convention, Art 53. The obligation to pay includes taking any steps required under the contract or by any law to enable payment to be made: Art 54.

case [15.190] In Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2000] QSC 421 the contract provided that the buyer would pay for the goods by letter of credit. The buyer did not obtain the letter of credit. The Queensland Supreme Court held that the failure to obtain the letter of credit constituted a breach of Art 54, since the obligation to pay for the goods included the taking of steps required to enable payment to be made. On appeal the Court of Appeal did not consider this issue: Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462. [15.200] Where a contract does not fix or make provision for determining the price, in the absence of a contrary indication, the parties are considered to have agreed to the price generally charged for such goods under comparable circumstances in the particular trade at the time the contract was made: Vienna Sales Convention, Art 55. If the buyer is not bound to make payment at another time, the buyer must pay when the seller places the goods at the buyer’s disposal. The seller may make such payment a condition for handing over the goods:

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Art 58(1). If the contract involves carriage of the goods, the seller may dispatch the goods on the term that they will not be handed to the buyer except upon payment: Art 58(2). 57 The buyer is not bound to make payment until given the opportunity to examine the goods, unless the procedures for delivery or payment agreed upon are inconsistent with such a right: Art 58(3).

Delivery [15.210] The seller must deliver the goods and transfer property in the goods: Vienna Sales Convention, Art 30. The place for delivery may be specified in the contract. If no place is so specified, the obligation to deliver consists: (a)

if carriage of the goods is involved – in handing the goods to the first carrier for dispatch to the buyer;

(b)

if carriage of the goods is not involved, where the contract relates to specific goods, or to unidentified goods to be drawn from a specific stock, and at the time the contract was concluded the parties knew that the goods were at a particular place – in placing the goods at the buyer’s disposal at that place; or

(c)

in other cases – in placing the goods at the buyer’s disposal at the seller’s place of business at the time the contract was concluded: Art 31.

The date for delivery is also regulated by the Convention. The seller must deliver the goods: (a)

on the date specified by the contract; or

(b)

within any period of time specified by the contract, unless the circumstances indicate that the buyer is to choose a date; or

(c)

in any other case, within a reasonable time after entry into the contract: Art 33.

The buyer must take delivery of the goods as required by the contract and the Convention: Art 53. The obligation to take delivery consists in taking over the goods and in doing all acts which could reasonably be expected to enable delivery: Art 60.

Passing of risk [15.220] Loss or damage to the goods after the risk has passed to the buyer 58 does not discharge the buyer’s obligation to pay for the goods, unless the loss or damage is caused by the seller’s act or omission: Vienna Sales Convention, Art 66. Specific provision is made for sale contracts which involve carriage of the goods. If the seller is not bound to hand the goods over to a carrier at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place: Art 67(1). The risk in respect of goods sold in transit passes to the buyer from the time the contract was concluded: Art 68. These provisions do not impair a buyer’s remedies if the seller has committed a fundamental breach: Art 70.

Preservation of the goods [15.230] If the buyer delays in taking delivery of the goods, the seller must take reasonable steps to preserve the goods. The seller is entitled to retain the goods until reimbursed by the buyer for reasonable 57

See “CISG Advisory Council Opinion No 11”, http://www.cisg.law.pace.edu/cisg/CISG-AC-op.html.

58

See S Bollee, The Theory of Risks in the 1980 Vienna Sale of Goods Convention, Review of the CISG 1999-2000, 245.

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expenses: Vienna Sales Convention, Art 85. If the buyer has received the goods and intends to exercise a right to reject them, they must take reasonable steps to preserve them. The buyer is entitled to retain the goods until reimbursed by the seller for reasonable expenses: Art 86(1). A party who is bound to preserve the goods may deposit them in a third party’s warehouse at the other party’s expense provided that unreasonable expense is not incurred: Art 87. A party who is bound to preserve goods may sell them if the other party has unreasonably delayed in taking possession or paying the price or preservation costs, provided that reasonable notice of intention to sell has been given: Art 88(1). If the goods are subject to rapid deterioration or their preservation would be unreasonably expensive, a party who is bound to preserve the goods must take reasonable measures to sell them, giving notice of intention to sell so far as is possible: Art 88(2). A party who sells the goods may retain out of the proceeds the reasonable expenses of preservation and sale but must account to the other party for the balance: Art 88(3).

Additional time (nachfrist) [15.240] In civil law systems the concept of nachfrist notice permits a buyer or seller to establish a further period for performance after the time set by the contract has expired. Though it is not described as such, a similar concept is embodied in several provisions of the Vienna Sales Convention. 59 The buyer may fix an additional period of time of reasonable length for performance by the seller of his or her obligations: Art 47(1). Unless the buyer has received notice from the seller that he or she will not perform within that period, during that time the buyer may not resort to any remedy for breach of contract. The buyer retains the right to claim damages for the delay: Art 47(2). Even after the delivery date has passed, the seller may remedy at their own expense any failure to perform their obligations if that can be done without unreasonable delay and without unreasonable inconvenience to the buyer. The buyer retains the right to claim damages: Art 48(1). If the seller requests that the buyer indicate whether performance will be accepted, but the buyer does not do so within a reasonable time, the seller may perform within the time indicated in the request. During that time the buyer may not resort to any remedy which is inconsistent with performance: Art 48(2). The seller may fix an additional period of time of reasonable length for performance of the buyer’s obligations: Art 63(1). Unless the buyer has notified the seller that he or she will not perform within the time fixed, within that time the seller may not resort to any remedy for breach of contract. The seller retains the right to claim damages for the delay: Art 63(2). The Queensland Court of Appeal has commented that it is “difficult to see the relevance” of this provision where time is of the essence of the contract. 60 However, a contractual provision that “time is of the essence” will probably not prevent the exercise of the nachfrist notice. 61

59

See C Liu, Additional Period (Nachfrist) for Late Performance: Perspectives from the CISG, UNIDROIT Principles, PECL and Case Law, Review of the CISG 2004-2005, 3.

60 61

Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462 at [33]. LA Di Matteo, The Law of International Contracting (Kluwer, The Hague, 2000), p 239.

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Exemption from performance [15.250] A party is not liable for a failure to perform their obligations due to an impediment beyond their control which they could not reasonably be expected to have avoided or overcome or to have taken into account at the time the contract was concluded: Vienna Sales Convention, Art 79(1). 62 The fact that a contract has become unprofitable for a party does not ordinarily constitute an impediment relieving that party from performance. 63 If the party’s failure is due to the failure by a third person engaged to perform the contract, the party is exempt from liability only if both the party and the third person fulfil the conditions for exemption under Art 79(1): Art 79(2). Exemption from performance has effect so long as the impediment exists: Art 79(3). The party who fails to perform must notify the other party of the impediment. If notice is not received within a reasonable time after the defaulting party knew or ought to have known of the impediment, the defaulting party is liable for damages resulting therefrom: Art 79(4). Any other right of a party to claim damages is unaffected: Art 79(5).

Anticipatory breach [15.260] A party may suspend performance of their obligations if, after entry into the contract, it becomes apparent that the other party will not perform a substantial part of their obligations as a result of: (a)

a serious deficiency in their ability to perform or creditworthiness; or

(b)

their conduct in performance or preparation: Vienna Sales Convention, Art 71(1).

A party suspending performance must immediately give notice to the other party and must continue with performance if provided with adequate assurance regarding performance: Art 71(3).

Fundamental breach [15.270] Under the Vienna Sales Convention a fundamental breach 64 of contract results in such detriment to the other party as substantially to deprive that party of what they are entitled to expect under the contract. However, a breach will not constitute a fundamental breach if the party in breach did not foresee, and a reasonable person of the same kind in the same circumstances would not have foreseen, such a result: Art 25. The Australian cases provide several examples of fundamental breach.

62

63 64

See J Rimke, Force Majeure and Hardship: Application in International Trade Practice with Specific Regard to the CISG and the UNIDROIT Principles, Review of the CISG 1999-2000, 193; CISG Advisory Council Opinion No 7, http:// www.cisg.law.pace.edu/cisg/CISG-AC-op.html; B Nagy, “Unreliable Excuses: How do Differing Persuasive Interpretations of CISG Article 79 Affect its Goal of Harmony?” (2013) 26, 2 New York International Law Review 61; LA Di Matteo, “Contractual Excuse under the CISG: Impediment, Hardship, and the Excuse Doctrines” (2015) 27 Pace International Law Review 258. LA Di Matteo et al, “The Interpretive Turn in International Sales Law: An Analysis of Fifteen Years of CISG Jurisprudence” (2004) 24 Northwestern Journal of International Law and Business 299 at 425. See P van Reesch, “Judicial Consistency and Article 25 of the Convention on the International Sale of Goods” (2003) 77 Australian Law Journal 436; reply by B Zeller (2004) 78 Australian Law Journal 343.

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case [15.280] In Roder Zelt-Und Hallenkonstruktionen GmbH v Rosedown Park Pty Ltd (1995) 57 FCR 216, a German seller had sold goods to an Australian buyer. The buyer was placed in administration while instalment payments remained outstanding. The contract contained a retention of title clause, which reserved title in the goods to the seller until payment was made: see [14.550]. The administrator declined to give effect to the retention of title clause. The Australian Federal Court held that the appointment of an administrator by the buyer constituted a fundamental breach, substantially depriving the seller of the benefit of the contract. Under the Corporations Law the administrator acted as agent for the buyer. The administrator’s refusal to give effect to the retention of title clause therefore also constituted a fundamental breach. [15.290] Non-payment is a common form of fundamental breach.

case [15.300] In Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462, the contract provided that the buyer would pay for the goods by letter of credit. The buyer did not obtain the letter of credit. The Queensland Court of Appeal held that the failure to obtain the letter of credit amounted to a fundamental breach. This failure deprived the seller of the benefit of the contract, entitling the seller to rescind. The buyers had no intention of meeting their obligations under the contract, which was itself a fundamental breach. The Court commented that the concept of fundamental breach “adopts, at least to some extent, the common law concept of repudiation”: at [35].

Remedies Buyer's remedies for breach by the seller [15.310] If the seller fails to perform an obligation, the buyer may: (a)

exercise the rights provided by Vienna Sales Convention, Arts 46 – 52 (that is, require performance, give a nachfrist extension, require that the nonconformity be remedied, avoid the contract or reduce the price); and

(b)

claim damages: Art 45(1). A court may not grant the seller any period of grace when the buyer resorts to a remedy for breach of contract: Art 45(3). The buyer may require the seller to perform their obligations unless the buyer has invoked a remedy inconsistent with performance: Art 46(1).

In a case of nonconformity, the buyer may require the delivery of substitute goods only if the nonconformity constitutes a fundamental breach. The request for substitute goods must be made either with a notice of nonconformity (see Art 39, [15.160]) or within a reasonable time thereafter: Art 46(2). The buyer may require the seller to repair a nonconformity, except where that would be unreasonable in the circumstances. A request for repair must be made either with a notice of nonconformity or within a reasonable time thereafter: Art 46(3). The exercise of other remedies does not deprive the buyer of the right to claim damages: Art 45(2).

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Seller's remedies for breach by the buyer [15.320] If the buyer fails to perform an obligation, the seller may: (a)

exercise the rights provided by Vienna Sales Convention, Arts 62 – 65 (that is, require performance, give a nachfrist extension, avoid the contract or make a necessary specification for the buyer); and

(b)

claim damages: Art 61(1).

The seller may require the buyer to perform their obligations, unless the seller has resorted to an inconsistent remedy: Art 62. If under the contract the buyer is to specify the form, measurement or other features of the goods and fails to make that specification on the agreed date or within a reasonable time of a request by the seller, the seller may make the specification in accordance with the buyer’s known requirements: Art 65(1). If the seller makes the specification, they must inform the buyer of the details and must set a reasonable time for the buyer to provide otherwise. If the buyer fails to do so within that time, the seller’s specification is binding: Art 65(2). The exercise of other remedies does not deprive the seller of the right to claim damages: Art 61(2).

Avoidance of the contract [15.330] The Vienna Sales Convention does not provide for automatic avoidance. 65 A contract is avoided only after a declaration to that effect by a party. Until a declaration of avoidance the contract remains in force. 66 Avoidance releases both parties from their contractual obligations, subject to the payment of damages. However, avoidance has no effect upon contractual stipulations regarding dispute settlement or regarding rights and obligations upon avoidance: Art 81(1). A buyer who has lost the right to declare the contract avoided retains all other remedies: Art 83.

Avoidance by either party (buyer or seller) [15.340] If prior to the date for performance it is clear that one of the parties will commit a fundamental breach, the other party may declare the contract avoided: Vienna Sales Convention, Art 72(1). If time permits, reasonable notice of the intention to avoid must be given to allow the other party to provide adequate assurance of performance: Art 72(2). However, notice need not be given if the other party has declared that they will not perform their obligations: Art 72(3). A declaration of avoidance is effective only if notified to the other party: Art 26.

Avoidance by the seller [15.350] The seller may declare the contract avoided if the buyer’s failure to perform an obligation constitutes a fundamental breach: Vienna Sales Convention, Art 64(1)(a). The seller may also declare the contract avoided if during a nachfrist extension the buyer does not pay the price or take delivery or declares that they will not do so: Art 64(1)(b). If the buyer has paid the price, the seller loses the right to declare the contract avoided except: 65

See A Kazimierska, The Remedy of Avoidance under the Vienna CISG, Review of the CISG 1999-2000, 79; CISG Advisory Council Opinion No 9, http://www.cisg.law.pace.edu/cisg/CISG-AC-op.html; M Bridge, “Avoidance for Fundamental Breach of Contract under the UN Convention on the International Sale of Goods” (2010) 59 International and Comparative Law Quarterly 911.

66

ICC Case No 8574 of 1996.

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(a)

in respect of the buyer’s late performance, before the seller becomes aware that performance has taken place; or

(b)

in respect of any other breach, within a reasonable time;

(c)

after the seller knew or ought to have known of the breach; or

(d)

after the end of any nachfrist extension, or after the buyer has declared that they will not perform their obligations: Art 64(2).

An American court has observed that Art 64 is drafted so as to “give the implication that non-payment of the purchase price is the most significant form of a fundamental breach by a buyer, since, as to a serious non-payment, no additional notifications are required for avoidance of the contract”. 67

Avoidance by the buyer [15.360] The buyer may declare the contract avoided: (a)

if the seller’s failure to perform their obligations amounts to a fundamental breach; or

(b)

in a case of non-delivery, if the seller does not deliver the goods during any nachfrist extension: Vienna Sales Convention, Art 49(1). 68

Where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless they do so: (a)

in respect of late delivery, within a reasonable time after they have become aware that delivery has been made; or

(b)

in respect of any other breach, within a reasonable time after they knew or ought to have known of the breach, or after the expiration of any nachfrist extension: Art 49(2).

The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach: Art 51(2).

Avoidance of instalment contracts [15.370] Where goods are to be delivered by instalments, if a party’s failure to perform an obligation in respect of any instalment constitutes a fundamental breach with respect to that instalment, the other party may declare the contract avoided with respect to that instalment: Vienna Sales Convention, Art 73(1). If a party’s failure to perform an obligation in respect of any instalment gives the other party good grounds to conclude that a fundamental breach will occur with respect to future instalments, within a reasonable time they may declare the contract avoided for the future: Art 73(2). A buyer who declares the contract avoided in respect of a delivery may at that time declare it avoided in respect of prior or future deliveries if the interdependence of the deliveries means that those deliveries could not be used for the purpose contemplated by the parties when concluding the contract: Art 73(3).

67

Shuttle Packaging Systems LLC v Jacob Tsonakis, INA SA 2001 US Dist LEXIS 21630 (WD Mich 2001) at *27-*28.

68

See CISG Advisory Council Opinion No 5, Review of the CISG 2005-2006, 233.

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Recovery of damages [15.380] As at common law, under the Vienna Sales Convention damages 69 are supposed to provide the equivalent of the benefit of the bargain. 70 Under the Convention damages are assessed as the amount of the loss suffered as a consequence of the breach, including lost profits. Damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time the contract was entered into as a possible consequence of the breach: Art 74. 71 Hence, under the Convention damages are subject to a requirement of foreseeability similar to that at common law: see [12.120]. 72

case [15.390] In Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462, the sellers chartered a vessel for the dispatch of the goods under the sale contract. After the failure of the contract, the sellers subchartered the vessel, seeking to mitigate their loss. The Queensland Court of Appeal held that the seller’s loss from the charter was recoverable since it “would not have been sustained except for the fundamental breach”: at [49]. [15.400] Damages must also be capable of calculation with “sufficient certainty”. 73 Article 74 of the Vienna Sales Convention specifically states that lost profits are recoverable. The amount of lost profits that may be recovered is that which was foreseeable at the time the contract was made, thus “preventing each side from using unforeseeable circumstances to modify the contract”. 74 Though the Convention contains no specific provision on the point, American courts have deducted only variable costs from sales revenue when calculating lost profits. This is because fixed costs would have been payable irrespective of whether or not the breach occurred. 75 Lost profits are only recoverable where they are proven with sufficient certainty. Some American decisions have held that attorney fees do not constitute a recoverable “loss” under Art 74. 76 If the contract is avoided and if the buyer has bought replacement goods or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction: Art 75.

69

70 71 72 73 74 75 76

See B Zeller, Damages under the CISG (Oceana, Dobbs Ferry, NY, 2005); CISG Advisory Council Opinion No 6, http://www.cisg.law.pace.edu/cisg/CISG-AC-op.html; D Saidov, The Law of Damages in International Sales: The CISG and other International Instruments (Hart, Oxford, 2008). Delchi Carrier SpA v Rotorex Corp 1994 US Dist LEXIS 12820 (SD NY 1994) at *12. See R Korpela, Article 74 of the UN CISG, Review of the CISG 2004-2005, 73. Delchi Carrier SpA v Rotorex Corp 71 F 3d 1024 (2d Cir 1995) at 1029; Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462 at [48]. Delchi Carrier SpA v Rotorex Corp 71 F 3d 1024 (2d Cir 1995) at 1029; TeeVee Toons Inc v Gerhard Schubert GmbH 2006 WL 2463537 (SD NY 2006) at *9. Macromex Srl v Globex International Inc 2008 WL 1752530 (SD NY 2008) at *4, affd Macromex Srl v Globex International Inc 330 Fed Appx 241 (2d Cir 2009). Delchi Carrier SpA v Rotorex Corp 71 F 3d 1024 (2d Cir 1995) at 1029-1030. Zapata Hermanos Sucesores SA v Hearthside Baking Co Inc 313 F 3d 385 (7th Cir 2002) at 389, certiorari denied Zapata Hermanos Sucesores SA v Hearthside Baking Co Inc 540 US 1068 (2003); Chicago Prime Packers Inc v Northam Food Trading Co 320 F Supp 2d 702 (ND Ill 2004) at 717; VLM Food Trading International Inc v Illinois Trading Co 811 F 3d 247 (7th Cir 2016) at 251.

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case [15.410] In Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462, the Queensland Court of Appeal held that a substitute transaction under Vienna Sales Convention, Art 75 need not involve precisely the same goods as those which were the subject of the failed transaction. This provision is not limited to contracts for the sale of specific goods, but also applies to contracts for the sale of fungibles. The Court defined fungibles as “goods of which every particle or unit is indistinguishable from, or at least commercially equivalent to, every other particle or unit, eg grain, flour or oil”: Downs Investments Pty Ltd v Perwaja Steel SDN BHD [2002] 2 Qd R 462 at [45]. The fungible good involved in this case was scrap metal, sold by weight or measure. “Specific goods” are goods agreed upon and identified at the time the contract of sale is made, for example, a specific bicycle. The Court also held that the terms of the substitute transaction need not be exactly the same as those of the original contract. [15.420] The current price of the goods is the price prevailing at the place where delivery of the goods should have been made: Vienna Sales Convention, Art 76(2). If the contract is avoided and there is a current price for the goods then, provided that they have not made a purchase or resale, the party claiming damages may recover the difference between the contract price and the current price at the time of avoidance: Art 76(1). As under the common law (see [12.150]), the Convention requires that a party mitigate its loss. A party must take such measures as are reasonable in the circumstances to mitigate the loss resulting from the breach. The party in breach may claim a reduction in damages to account for any failure to mitigate: Art 77. The party in breach must prove that the other party failed to mitigate their loss. 77

Recovery of interest [15.430] If a party has failed to make payment or any other sum is in arrears, the other party is entitled to recover interest on such amounts: Vienna Sales Convention, Art 78. A seller who is bound to refund the price must pay interest on that amount from the date on which the buyer paid the price: Art 84(1). However, the Convention makes no provision for the rate of interest or how it will be calculated. In these circumstances courts and tribunals have applied a wide variety of solutions, 78 generally derived from domestic (national) law.

Specific performance [15.440] Specific performance 79 is determined according to domestic law. If one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgment for specific performance unless the court would do so under its own domestic law of sales contracts: Vienna Sales Convention, Art 28. 77 78

79

Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd (2011) 192 FCR 445 at [326], special leave refused Castel Electronics Pty Ltd v Toshiba Singapore Pte Ltd [2011] HCASL 208. Chicago Prime Packers Inc v Northam Food Trading Co 320 F Supp 2d 702 (ND Ill 2004) at 715-716; FG Mazzotta, CISG Art 78: Endless Disagreement Among Commentators, Much Less Among the Courts, Review of the CISG 2003-2004, 123; Norfolk Southern Ry Co v Power Source Supply Inc 2008 WL 2884102 (WD Pa 2008) at *7; San Lucio Srl v Import & Storage Services LLC 2009 WL 1010981 (DNJ 2009) at *3. See generally S Lu, “Award of Interest in Arbitration under Article 78 CISG” [2007] Uniform Law Review 719. See N Boghossian, A Comparative Study of Specific Performance Provisions in the UN CISG, Review of the CISG 1999-2000, 3.

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Restitution [15.450] A party who has performed the contract, either wholly or in part, may claim restitution of what they have supplied or paid under the contract: Vienna Sales Convention, Art 81(2). The buyer loses the right to declare the contract avoided if it is impossible to return the goods substantially in the condition in which they were received: Art 82(1). However, the right to declare the contract avoided remains: (a)

if the impossibility of restitution is not due to the buyer’s act or omission;

(b)

the goods have perished or deteriorated as a result of the examination of the goods; or

(c)

if the goods have been sold in the normal course of business or have been transformed by the buyer in the course of normal use before discovery of the lack of conformity: Art 82(2).

Private international law [15.460] Sometimes difficulties arise as to the country whose courts have jurisdiction to adjudicate on a subject and as to the law, whether Australian or foreign, which is to be applied by an Australian court in an action on a contract. Such difficulties may arise where, for example, the contract is entered into between an Australian and a foreigner, or is made in one country and is to be wholly or partly performed in another. The question will arise as to the law of which country is to be applied to the interpretation of the contract. This area of law is referred to as private international law or conflict of laws. The general rule is that an Australian court has jurisdiction in actions on contract when the defendant has been served in the jurisdiction or, being out of the jurisdiction, has been served in accordance with the rules of the court and the legislative provisions relating to service out of the jurisdiction, or has submitted to the jurisdiction.

Form of the contract [15.470] Usually this is governed by the law of the country where the contract is made.

Validity, construction and effect of a contract [15.480] Generally speaking in interpreting a contract made in a foreign country, the law applicable is deemed to be the law which the parties intend should apply. This is termed the “proper law” of the contract. The most commonly used formulation of the test is that of the Privy Council in Bonython v Commonwealth [1951] AC 201. In that case, the court stated that the proper law was “the system of law by reference to which the contract was made or that with which the transaction has its closest and most real connection”: at 219. Where the parties have expressly selected in their contract what law is to apply such law is the “proper law”. Where they have made no such express choice, the law infers that they intended that the “proper law” should be the system of law with which, taking all the circumstances of the contract into account, the transaction has the most real and substantial connection: see, for example, Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41. In the normal case, it is presumed that such law is the law of the place where the contract was made. However, circumstances may alter this. For instance, where the contract is to be performed in a different country from that in which it is made, there is a presumption that the parties intend the law of the place of performance to apply. The intention of the parties will be judged on “considerations such as the place of the

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making of the contract, the place of its fulfilment, and the place with which the transaction has the most real and substantial connection”: Merwin Pastoral Co Pty Ltd v Moolpa Pastoral Co Pty Ltd (1933) 48 CLR 565 at 580. Certain Australian laws provide that they are to apply irrespective of anything to the contrary in the contract. Such laws are referred to as “mandatory laws”. An example of such a law is s 67 of the Australian Consumer Law. 80 That section provides that where: (a)

the proper law of a contract for the supply of goods or services to a consumer would, but for a term that it should be the law of some other country, be the law of any part of Australia; or

(b)

a contract for the supply of goods or services to a consumer contains a term that purports to substitute the law of some other country for the statutory guarantees implied by the Australian Consumer Law, those statutory guarantees apply to the contract notwithstanding that term.

The application of a mandatory provision was examined in Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418:

case [15.490] Akai was a New South Wales incorporated subsidiary of a Japanese company. It carried on business in Australia. People’s Insurance was incorporated in Singapore. Under a policy of insurance People’s Insurance agreed to indemnify Akai for certain losses. The maximum liability under the policy was expressed in Australian currency. The premiums were payable in Australian currency. In a legal action brought in Australia, Akai sought a declaration that People’s Insurance was liable to indemnify for its losses. People’s Insurance sought a stay of proceedings based upon clause 9 of the policy. That clause provided: “Governing Law. This policy shall be governed by the laws of England. Any dispute arising from this policy shall be referred to the Courts of England”: at 422-423. Akai contended that the Insurance Contracts Act 1984 (Cth) applied to the insurance contract. Section 8 of the Act provides: (1)

… the application of this Act extends to contracts of insurance … the proper law of which is … the law of a State … in which this Act applies …

(2)

For the purposes of subsection (1), where the proper law of a contract … would, but for an express provision to the contrary included … in the contract …, be the law of a State … in which this Act applies …, then, notwithstanding that provision, the proper law of the contract is the law of that State …

The majority of the High Court held that s 8 of the Act should be read with s 52, which prohibits contracting out of the operation of the Act. Taken together, these two sections “manifest a legislative intent not only that there should be no power to contract out of the provisions of the Act, but also that the regime established by the Act should be respected as regards contracts the proper law of which is, or but for selection of another law would be, that of a State …. This defeats evasion of the legislative regime by the choice of some other body of law as the governing law of the contract”: at 433. On the facts, “the State of New South Wales contained the system of law with which the contract of insurance comprised in the Policy had the closest and most real connection. Accordingly,

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The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

chapter 15 International Sales Contracts

s 8 of the Act operated to render it applicable to the Policy”: Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418 at 437. Therefore the applicable law was that of New South Wales not that of England.

Further reading Vienna Sales Convention LA DiMatteo, International Sales Law: A Critical Analysis of CISG Jurisprudence (Cambridge University Press, Cambridge, 2005). F Ferrari and M Torsello, International Sales Law – CISG – in a Nutshell (West, St Paul, Minn, 2014). CP Gillette, Advanced Introduction to International Sales Law (Edward Elgar, Cheltenham, UK, 2016). J Honnold and H Flechtner, Uniform Law for International Sales under the 1980 United Nations Convention (4th ed, Kluwer, The Hague, 2009). A Janssen and O Meyer, CISG Methodology (Sellier, Munich, 2009). S Kröll, LA Mistelis and M Pilar Perales Viscacillas (eds), The United Nations Convention on Contracts for the International Sale of Goods: Article by Article Commentary (Hart, Oxford, 2011). J Lookofsky, Understanding the CISG (4th ed, Kluwer Law International, Alphen aan den Rijn, 2012). Pace International Law Review (ed), Review of the Convention on Contracts for the International Sale of Goods (CISG) (1998-2003) (Kluwer, The Hague, 1999-2004); (2003-2006) (Sellier, Munich, 2007). P Schlechtriem and P Butler, UN Law on International Sales: The UN Convention on the International Sale of Goods (Springer, Berlin, 2009). I Schwenzer (ed), Schlechtriem & Schwenzer: Commentary on the UN Convention on the International Sale of Goods (CISG) (4th ed, Oxford University Press, Oxford, 2016). United Nations Commission on International Trade Law, UNCITRAL Digest of Case Law on the United Nations Convention on the International Sale of Goods (United Nations, New York, 2012), available at http://www.uncitral.org/pdf/english/clout/CISG-digest-2012-e.pdf Conflict of Laws R Mortensen, R Garnett and M Keyes, Private International Law in Australia (3rd ed, LexisNexis Butterworths, Sydney, 2015). M Davies, A Bell and P Le Gay Brereton, Nygh’s Conflict of Laws in Australia (9th ed, LexisNexis Butterworths, Sydney, 2014). M Tilbury, G Davis and B Opeskin, Conflict of Laws in Australia: Text, Cases and Materials (Oxford University Press, Melbourne, 2002).

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Internet sites Albert H Kritzer CISG Database, Pace Law School http://iicl.law.pace.edu/cisg/cisg (texts of court decisions interpreting the Convention, bibliography, full text articles) United Nations Commission on International Trade Law http://www.uncitral.org (text of the Convention, list of parties, summaries of case law, comprehensive bibliography)

chapter 16

The Law of Electronic Commerce [16.30] Regulation of electronic transactions ................................................................................................... 316 [16.230] Evidence of electronic records............................................................................................................... 323 [16.280] Domain names .............................................................................................................................................. 324 [16.430] Jurisdiction in cyberspace........................................................................................................................ 328 [16.450] Privacy ............................................................................................................................................................... 329 [16.460] Electronic commerce and crime ........................................................................................................... 331 [16.570] Copyright issues and e-commerce...................................................................................................... 333

Introduction [16.10] Electronic commerce refers to all commercial transactions based on the electronic processing and transmission of data, including text, sound and images. This includes transactions over the Internet, Intranets, electronic funds transfers, social media, SMS messages and email. The development of security protocols has aided the expansion of electronic commerce by substantially reducing commercial risk factors. As a result, online shopping, banking, social networking, business links, research and the like have become daily occurrences. This chapter examines the salient legal issues that arise in an electronic commerce context.

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Regulation of electronic transactions Electronic Transactions Acts Background to the legislation [16.30] The Commonwealth Electronic Transactions Act 1999 (Cth) was based on the UNCITRAL Model Law of Electronic Commerce 1996. It applies to all Commonwealth laws except those specifically exempted by the regulations. All States and Territories have enacted parallel legislation based on the Commonwealth Act. 1 In 2005 the UN General Assembly adopted the United Nations Convention on the Use of Electronic Communications in International Contracts (the “UN Convention”), updating and improving on the provisions of the Model Law. The Commonwealth and all States and Territories have enacted amending legislation to conform to the Convention. Australia has expressed its intention to accede to the UN Convention. The object of the Electronic Transactions Acts is to provide a regulatory framework that: facilitates the use of electronic transactions; promotes business and community confidence in their use; and enables business and the community to use electronic communications in their dealings with government. For constitutional reasons, the Commonwealth Act provides that the Act applies only “for the purposes of a law of the Commonwealth”: s 8. The corresponding State and Territory legislation has no need for such a restriction. The Acts bind the Crown. 2

Main features of the Electronic Transactions Acts Validity of electronic transactions [16.40] The Electronic Transaction Acts provide that a transaction is not invalid because it took place wholly or partly by means of one or more electronic communications. 3 The term “electronic communication” is defined broadly to include emails, web-chatting, phone-texting and voice recognition systems. This general rule is subject to other provisions of the Act dealing with the validity of transactions. The regulations may also exclude the general rule in relation to specified transactions and specified laws. The central purpose of the legislation is to provide functional equivalence, that where the electronic version serves the same function as the traditional paper-based requirement, it should be treated equally before the law.

1

2

3

See Electronic Transactions Act 2000 (NSW); Electronic Transactions (Victoria) Act 2000 (Vic); Electronic Transactions (Queensland) Act 2001 (Qld); Electronic Transactions Act 2000 (SA); Electronic Transactions Act 2011 (WA); Electronic Transactions Act 2000 (Tas); Electronic Transactions Act 2001 (ACT); Electronic Transactions (Northern Territory) Act 2000 (NT). Electronic Transactions Act 1999 (Cth), s 6; Electronic Transactions Act 2000 (NSW), s 6; Electronic Transactions (Victoria) Act 2000 (Vic), s 6; Electronic Transactions (Queensland) Act 2001 (Qld), s 7; Electronic Transactions Act 2000 (SA), s 6; Electronic Transactions Act 2011 (WA), s 6; Electronic Transactions Act 2000 (Tas), s 4; Electronic Transactions (Northern Territory) Act 2000 (NT), s 6. Electronic Transactions Act 1999 (Cth), s 8; Electronic Transactions Act 2000 (NSW), s 7; Electronic Transactions (Victoria) Act 2000 (Vic), s 7; Electronic Transactions (Queensland) Act 2001 (Qld), s 8; Electronic Transactions Act 2000 (SA), s 7; Electronic Transactions Act 2011 (WA), s 8; Electronic Transactions Act 2000 (Tas), s 5; Electronic Transactions Act 2001 (ACT), s 7; Electronic Transactions (Northern Territory) Act 2000 (NT), s 7.

chapter 16 The Law of Electronic Commerce

The parties can agree to exclude or modify these default rules. In line with the UNCITRAL principle of technological neutrality, generic expressions such as “electronic communications” are used, so that the Acts have a broader application to facsimiles, instant and SMS messages. Figure 16.1: Comparative Table of the Electronic Transactions Acts Jurisdiction Short Title Commencement Object Simplified Outline Definitions Crown to be Bound Exemptions Validity of electronic transactions Writing Signature Production of document Retention Time of Dispatch Time of Receipt Place of Dispatch and Receipt Attribution of electronic communications Additional provisions applying to contracts involving electronic communications Regulations

Cth 1 2 3 4 5 6 7A–7B 8

NSW 1 2 3 4 5 6 6A 7

9 10 11

Vic 2 1&4 5 3 6 6A 7

Qld 1 2 3 4-5 6 7 Sch 8

SA 1 2 3 4 5 6 6A 7

WA 1 2 3 4 5 6 7 8

Tas 1 2

ACT 1

3 4 4A 5

6A 7

NT 1 2 3 4 5 6 6A 7

8 9 10

8 9 10

9-13 14-15 16-18

8 9 10

9 10 11

6 7 8

8 9 19

8 9 10

12 14 14A 14B

11 13 13A 13B

11 13 13A 13B

19-21 23 24 25

11 13 13A 13B

12 13 14 15

9 11 11A 11B

11 13 13A 13B

11 13 13A 13B

15

14

14

26

14

16

12

14

14

15A–15F

14A–14E

14A–14E

26A–26E

14A–14E

17–21

12A-12E

14A–14E

14A–14E

16

15

15

27

15

22

13

15

15

3 4 5

Writing [16.50] Where a law permits or requires a person to give information in writing, that permission or requirement is taken to have been met if the person gives the information by means of an electronic communication. 4 Generally, for information given by means of an electronic communication to be acceptable, it must be reasonable to expect that the information will continue to be accessible for future reference, and the recipient of the information must consent to being given the information by means of an electronic communication. For example, legislation requires that certain contracts must be in writing or evidenced in writing, such as depositions or assurances with respect to real property.

4

Electronic Transactions Act 1999 (Cth), s 9; Electronic Transactions Act 2000 (NSW), s 8; Electronic Transactions (Victoria) Act 2000 (Vic), s 8; Electronic Transactions (Queensland) Act 2001 (Qld), ss 9 – 13; Electronic Transactions Act 2000 (SA), s 8; Electronic Transactions Act 2011 (WA), s 9; Electronic Transactions Act 2000 (Tas), s 6; Electronic Transactions Act 2001 (ACT), s 8; Electronic Transactions (Northern Territory) Act 2000 (NT), s 8.

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Signatures [16.60] Where a law requires a person to provide a signature, that requirement is taken to have been met if a method is used to identify that person and to indicate the person’s intention in respect of the information communicated. 5 Additionally, the method must be as reliable as is appropriate for the purposes for which the information is communicated in the light of all the circumstances. This reliability test was included with a view to ensuring the correct interpretation of the principle of functional equivalence. 6 However, an unintended consequence of this reliability test was that a party might repudiate its signature even where his or her identity was not in doubt. The reliability test “should not lead a court or trier of fact to invalidate the entire contract on the ground that the electronic signature was not appropriately reliable if there is no dispute about the identity of the person signing or the fact of signing”. 7 Hence the test is qualified with the proviso that where it is proved that the method fulfils its function, then the test is inapplicable. Finally the recipient must consent to the use of this method.

Production of documents [16.70] A person who is required or permitted by law to produce a document in hard copy may instead produce the document in electronic form. 8 For an electronic document to be acceptable, the method of its generation must provide a reliable means of ensuring that the integrity of the information is maintained. It must also be reasonable to expect that the information contained in the electronic document will continue to be accessible for future reference. Additionally, the recipient must consent to the provision of an electronic document.

Consent [16.80] The inclusion of a consent provision for electronic writing, signature and production provisions, absent from the UNCITRAL Model Law on which the legislation is based, has been regarded as a serious weakness. Parties must reach an agreement in advance as to the use of the particular electronic communication. Consent includes consent that can reasonably be inferred from the conduct of the person concerned. The Explanatory Memorandum to the Commonwealth Act states that the consent provision was based on the Government’s “general policy that a person should not be compelled to use an electronic communication to conduct a transaction in order to satisfy requirements or permissions to give information in writing under Commonwealth law”. The consent provision remains even after the amendments to reflect, in part, the consent provision contained in the UN Convention. The Explanatory Note to the UN Convention states that the consent provision has been included in several national laws

5

Electronic Transactions Act 1999 (Cth), s 10; Electronic Transactions Act 2000 (NSW), s 9; Electronic Transactions (Victoria) Act 2000 (Vic), s 9; Electronic Transactions (Queensland) Act 2001 (Qld), ss 14–15; Electronic Transactions Act 2000 (SA), s 9; Electronic Transactions Act 2011 (WA), s 10; Electronic Transactions Act 2000 (Tas), s 7; Electronic Transactions Act 2001 (ACT), s 9; Electronic Transactions (Northern Territory) Act 2000 (NT), s 9. See generally, Attorney-General (SA) v Corporation of the City of Adelaide (2013) 249 CLR 1.

6

See Explanatory Note to the United Nations Convention on the Use of Electronic Communications in International Contracts, para 163. See Explanatory Note to the United Nations Convention on the Use of Electronic Communications in International Contracts, para 164. Electronic Transactions Act 1999 (Cth), s 11; Electronic Transactions Act 2000 (NSW), s 10; Electronic Transactions (Victoria) Act 2000 (Vic), s 10; Electronic Transactions (Queensland) Act 2001 (Qld), ss 16 – 18; Electronic Transactions Act 2000 (SA), s 10; Electronic Transactions Act 2011 (WA), s 11; Electronic Transactions Act 2000 (Tas), s 8; Electronic Transactions Act 2001 (ACT), s 10; Electronic Transactions (Northern Territory) Act 2000 (NT), s 10.

7 8

chapter 16 The Law of Electronic Commerce

relating to electronic commerce to “highlight the principle of party autonomy and make it clear that the legal recognition of electronic communications does not require a party to use or accept them”. 9 The fundamental principle underlying the Model Law, the UN Convention and the Electronic Transaction Acts is functional equivalence. 10 However, the inclusion of the consent provisions weakens the functional equivalence principle and leads to unusual, if not incongruous, results. 11

Retention of information and documents [16.90] The requirement to record information in writing, to retain a document in hard copy or to retain information the subject of an electronic communication may be met by recording or retaining the information in electronic form. 12 To be acceptable it must be reasonable to expect that the information will continue to be accessible for future reference and the method for storing the information must comply with any requirements of the regulations under the Act as to the kind of data storage device on which the information is to be stored. In the case of a document that is required to be retained, additional information as to the origin and destination of the communication, and as to the time that the electronic communication was sent and received, are to be retained and the method for retaining information must provide a reliable means of assuring that the integrity of the information is maintained. 13

Time of dispatch of electronic communications [16.100] An electronic communication is taken to have been dispatched by the sender when the electronic communication “leaves an information system under the control” of the sender. However, where the electronic communication has not left an information system under the control of the sender, the time of dispatch is when the electronic communication is received by the addressee. This second circumstance was included in the recent amendments to the Electronic Transactions Acts, and deals with the position where, in certain email systems, the sender retains the ability to recall an email from the recipient; hence it is dispatched when “received”. 14

Time of receipt of electronic communications [16.110] An electronic communication is taken to have been received by the addressee when it becomes “capable of being retrieved” by the addressee at an electronic address designated by the addressee. Where the addressee has not designated an electronic address the time of receipt is when the electronic communication has become capable of being retrieved by the addressee and the addressee has become 9

10 11 12

13 14

Explanatory Note to the United Nations Convention on the Use of Electronic Communications in International Contracts, para 131. See generally Ilich and Baystar Corp Pty Ltd [2004] WASTR 25; and Thorn Airfield Lighting Pty Ltd v W [2012] TASWRCT 11. See [16.40]. A Davidson, Social Media and Electronic Commerce Law (2nd ed, Cambridge University Press, Melbourne, 2016), pp 186-193. Electronic Transactions Act 1999 (Cth), s 12; Electronic Transactions Act 2000 (NSW), s 11; Electronic Transactions (Victoria) Act 2000 (Vic), s 11; Electronic Transactions (Queensland) Act 2001 (Qld), ss 19 – 21; Electronic Transactions Act 2000 (SA), s 11; Electronic Transactions Act 2011 (WA), s 11; Electronic Transactions Act 2000 (Tas), s 9; Electronic Transactions Act 2001 (ACT), s 11; Electronic Transactions (Northern Territory) Act 2000 (NT), s 11. See The Astor Centre [2013] QBCCMCmr 249. Electronic Transactions Act 1999 (Cth), s 14; Electronic Transactions Act 2000 (NSW), s 13; Electronic Transactions (Victoria) Act 2000 (Vic), s 13; Electronic Transactions (Queensland) Act 2001 (Qld), s 23; Electronic Transactions Act 2000 (SA), s 13; Electronic Transactions Act 2011 (WA), s 13; Electronic Transactions Act 2000 (Tas), s 11; Electronic Transactions Act 2001 (ACT), s 13; Electronic Transactions (Northern Territory) Act 2000 (NT), s 13. See Explanatory Note to the UN Convention, paras 177-178.

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aware that the electronic communication has been sent to that address. 15 This is presumed to be when the electronic communication reaches the addressee’s electronic address whether or not it is opened or read. 16 Nevertheless, evidence of the precise time of receipt by servers can be determined from email logs and can affect contract formation and effective service of notices. 17 If the electronic communication has not left an information system under the control of the originator, it is deemed dispatched when the electronic communication is received by the addressee.

case [16.120] In Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [2009] NSWSC 678, MacReady AJ discussed the meaning of “received” within the Electronic Transactions Act 2000 (NSW). His Honour said evidence of “some kind of email exchange log” is required to determine the time an email was received by the server. Pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) the plaintiff had 10 business days to provide a payment schedule after being “served” with the payment claim. The payment claim was an attachment to an email sent at 3.06 pm on 6 November 2008 and an email read-receipt recorded the email as read at 5.30 am on 7 November 2008. If served on 6 November, the payment schedule, sent on 21 November, was delivered outside of the 10 business day limit. If served on 7 November, it was delivered within the 10 business day limit. His Honour complained of the lack of “some kind of email exchange log generated by that server” to assist in determining the precise time an email entered the recipient’s Internet Service Provider or personal computer. The evidence was indeed available in the metadata to the email, and one can only surmise that it was not presented because a sufficiently knowledgeable computer person was not called on. In the absence of such evidence as to when it was received by the server, the court held receipt to be at the time of the read-receipt. [16.130] The expression “received” has been judicially equated with statutory requirements for the expressions “lodged”, “serve”, “provide”, “notice”, “receipt”, “give” and “made”. 18

Place of dispatch and receipt of electronic communications [16.140] An electronic communication is taken to have been dispatched at the place where the originator has its place of business and to have been received at the place where the addressee has its place of business. 19 A party’s place of business is assumed to be the location indicated by that party. If no place of business is indicated it is assumed to be the party’s only place of business, or, if more than one place of business exists, it is assumed to be the place of business with the closest relationship to the underlying transaction. If there is no place of business, it is assumed to be to be the party’s habitual residence. 15

16 17 18

19

Electronic Transactions Act 1999 (Cth), s 14A; Electronic Transactions Act 2000 (NSW), s 13A; Electronic Transactions (Victoria) Act 2000 (Vic), s 13A; Electronic Transactions (Queensland) Act 2001 (Qld), s 24; Electronic Transactions Act 2000 (SA), s 13A; Electronic Transactions Act 2011 (WA), s 14; Electronic Transactions Act 2000 (Tas), s 11A; Electronic Transactions Act 2001 (ACT), s 13A; Electronic Transactions (Northern Territory) Act 2000 (NT), s 13A. See Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123 at [78], where the email was caught by the recipient spam filter. Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [2009] NSWSC 678 at [31]. See also Austar Finance v Campbell (2007) 215 FLR 464 at [18]. See Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2006] NSWCA 259, Westpac Banking Corporation v Dixon [2011] FMCA 211 and Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123. Electronic Transactions Act 1999 (Cth), s 14B; Electronic Transactions Act 2000 (NSW), s 13B; Electronic Transactions (Victoria) Act 2000 (Vic), s 13B; Electronic Transactions (Queensland) Act 2001 (Qld), s 25; Electronic Transactions Act 2000 (SA), s 13B; Electronic Transactions Act 2011 (WA), s 15; Electronic Transactions Act 2000 (Tas), s 11B; Electronic Transactions Act 2001 (ACT), s 13B; Electronic Transactions (Northern Territory) Act 2000 (NT), s 13B.

chapter 16 The Law of Electronic Commerce

Attribution of electronic communications [16.150] A person is not bound by an electronic communication unless the communication was sent by, or with the authority of, that person. 20 Such authority may be given expressly, ostensibly or impliedly in accordance with agency principles. Importantly, the parties may agree to exclude this provision in advance. This provision of the Acts differs from the UNCITRAL Model Law which contains a rebuttable presumption that the purported originator is in fact the originator. The Acts provide that the purported originator is only bound by a communication if the communication was sent by them or with their authority. The Electronic Commerce Expert Group argued that the UNCITRAL proposal favoured electronic commerce over paper-based communication. It noted that the use of signatures on paper for commerce at a distance (by mail or facsimile) involves the risk of forged or unauthorised signatures but there is no general legislative rule that entitles the addressee to presume that the signature is genuine. If the UNCITRAL proposal was accepted, addressees of electronically signed data messages would be better placed than those who received manually signed paper-based messages. As with receipt and dispatch, a contrary agreement between the parties can supplant this presumption under the Act. However, the law of agency is preserved. 21

Shrinkwrap, clickwrap and browsewrap contracts Shrinkwrap [16.160] Shrinkwrap contracts derive their name from the clear plastic wrapping that encloses many software packages. The package includes a notice stating that by opening the shrinkwrap the purchaser agreed to the terms and conditions enclosed. Such contracts typically include provisions such as an arbitration clause, a choice of law and forum clause, disclaimers, limitations of warranties and limitation of remedies. If the terms and conditions are oppressive, the contract is more likely to be struck down as being unconscionable. However, enforcement generally depends upon whether suitable notice of the terms and conditions have been given to the purchaser or whether the purchaser has the right of rejection.

Clickwrap [16.170] A clickwrap contract is formed on the Internet. With such a contract, the user assents by clicking a button marked “I Agree” or “I Accept”. Such contracts have the advantage that the user can be given the opportunity to read the terms and conditions before assenting.

20

21

Electronic Transactions Act 1999 (Cth), s 15; Electronic Transactions Act 2000 (NSW), s 14; Electronic Transactions (Victoria) Act 2000 (Vic), s 14; Electronic Transactions (Queensland) Act 2001 (Qld), s 26; Electronic Transactions Act 2000 (SA), s 16; Electronic Transactions Act 2011 (WA), s 14; Electronic Transactions Act 2000 (Tas), s 12; Electronic Transactions Act 2001 (ACT), s 14; Electronic Transactions (Northern Territory) Act 2000 (NT), s 14. Electronic Transactions Act 1999 (Cth), s 15(2); Electronic Transactions Act 2000 (NSW), s 14(2); Electronic Transactions (Victoria) Act 2000 (Vic), s 14(2); Electronic Transactions (Queensland) Act 2001 (Qld), s 26(2); Electronic Transactions Act 2000 (SA), s 16(2); Electronic Transactions Act 2011 (WA), s 14(2); Electronic Transactions Act 2000 (Tas), s 12(2); Electronic Transactions Act 2001 (ACT), s 14(2); Electronic Transactions (Northern Territory) Act 2000 (NT), s 14(2).

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Assent is usually given by one of two principal methods. The first method is “type and click”, where the user must type, for example, “I Agree” and then click a send button. The second method is to “click a single button”. The first method demonstrates a clear intention.

case [16.177] In eBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450 concert tickets were purchased online by clicking on a box next to the words “I have read and agreed to the following terms and conditions” and then clicking the word “OK”. The Court concluded that “[b]y clicking on the relevant buttons and, by the computer bringing up all terms needed to purchase a ticket, … the whole transaction was in writing, signed and agreed by the parties.”

Browsewrap [16.180] The term browsewrap 22 refers to the situation where a user may download software, without any unambiguous expression of consent to the terms and conditions. For example, the vendor may merely place a link on the download page with the words “terms of download”.

case [16.190] In Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002), Specht downloaded Netscape’s SmartDownload software. To download the software, users simply clicked the button marked “Download”. The only reference to the terms and conditions could be seen if the user scrolled down the page. The user would then have seen the words “please review and agree to the terms of the Netscape SmartDownload license agreement before downloading and using the software”. Next to this statement was a link to a web page containing the terms and conditions. The court held that Specht was not bound by these terms and conditions. The court stated that “a reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the license terms before responding to defendants’ invitation to download the free software, and … defendants therefore did not provide reasonable notice of the license terms”, so that “… down-loading the software did not unambiguously manifest assent to the arbitration provision contained in the license terms”: at 20.

Australia [16.200] The expressions “clickwrap” and “browsewrap” have not been used in any Australian cases to date. However in eBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450 the Federal Court accepted the position that contracts are binding when the user clicks the appropriate icon. In this case, users entered into contracts by clicking a series of icons to purchase tickets for the concert. The position in Australia with respect to browsewrap agreements is yet to be determined. Until the position is clarified, it would be prudent for websites to expressly indicate that terms and conditions will apply. The user should not be able to proceed without reading or being given the clear opportunity to read the terms and conditions. It would be prudent to include a mechanism which requires the user to actually scroll through the terms before giving assent. 22

See also I.Lan Systems Inc v Netscout Service Level Corp 183 F Supp 2d 328 (D Mass 2002).

chapter 16 The Law of Electronic Commerce

Evidence of electronic records [16.230] In applying the rules of evidence the courts are often obligated to disregard otherwise relevant material. The common law rule regarding secondary evidence of the contents of a document (the “best evidence rule”) is less than satisfactory when applied to electronic records. The general rule is that secondary evidence will be inadmissible if the primary document is available. Subject to limited exceptions, the original document is admissible and the copy is not. The rationales for this rule were the avoidance of error through copying and the prevention of fraud. The rule was created before any electronic device was conceived. The courts have struggled in applying rules regarding documents to electronic records. Commentators disagree as to which “copy” is the original and is thus admissible. In relation to electronic mail numerous “copies” of the data come into existence upon creation and transmission. The sender’s copy is different from the recipient’s copy as the underlying technical information regarding time sent and the path is added. Each is an original of the respective copy sent and received. The High Court has held that the best evidence rule should not apply to exclude copied audio tapes “provided the provenance of the original tape, the accuracy of the copying process and the provenance of the copy tape are satisfactorily proved”: Butera v Director of Public Prosecutions (Victoria) (1987) 164 CLR 180 at 186. Some State Evidence Acts provide for an overly complicated mechanism for adducing evidence of electronic records. 23 These provisions have been criticised by many commentators. 24 With uniform legislation, the Commonwealth, New South Wales, Victoria, ACT, Northern Territory and Tasmania Acts have resolved the original and copy dilemma by abolishing the best evidence rule. 25 Instead they define “document” and then set out methods for adducing evidence. 26 As a result all documents, including electronic documents, are now admissible in those jurisdictions, although it is left to the courts to determine the weight given to them.

Rejection of hard copies of email as evidence [16.240] The case of Armstrong v Executive Office of the President 1 F 3d 1274 (DC Cir 1994) concerned the status of a printout of an email. The court concluded that the printed version of the email “may omit fundamental pieces of information which are an integral part of the original electronic records”: at 1277. This missing information included the date of the transmission, the date of receipt, a detailed list of recipients and linkages between messages sent and replies received. In Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [2009] NSWSC 678 at [31] this information was referred to as an “email exchange log”. 27 Should such a document be called into question it is clear that under the Commonwealth standard greater weight would and should be given to the electronic document. The court may question why the “original” document was destroyed. At the very least the court may consider that the electronic version 23 24 25 26 27

Evidence Act 1977 (Qld), s 95; Evidence Act 1929 (SA), s 34C; Evidence Act 1906 (WA), ss 73A – 73U. See for example, The Receipt of Evidence by Queensland Courts: Electronic Records, Issues WP No 52 (Queensland Law Reform Commission, 1998), p 58. Evidence Act 1995 (Cth), s 51; Evidence Act 1995 (NSW), s 51; Evidence Act 2008 (Vic), s 51; Evidence Act 2001 (Tas), s 51; Evidence Act 2011 (ACT), s 51; Evidence (National Uniform Legislation) Act (NT), s 51. Evidence Act 1995 (Cth), s 48; Evidence Act 1995 (NSW), s 48; Evidence Act 2001 (Tas), s 48; Evidence Act 2011 (ACT), s 48; Evidence (National Uniform Legislation) Act (NT), s 48. See also Austar Finance v Campbell (2007) 215 FLR 464 at [18].

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contained information that would have assisted the court in substantiating its originality and accuracy. Keeping a printed hard copy in preference to the electronic record risks inadmissibility of the document in jurisdictions retaining the best evidence rule, or the attribution of less weight being given to it in the jurisdictions which have abolished that rule.

Social media as evidence [16.250] Social media outlets such as Facebook, Twitter, LinkedIn and YouTube are used daily by millions of people, giving rise to numerous legal issues, including privacy, defamation, crime and media law. The plethora of information is potential evidence for a myriad of circumstances. Evidence on social media may be subject to discovery in litigation. For example, in Allied Concrete Co v Lester 736 SE 2d 699 (2013) the court had to consider both ethical and legal considerations where Lester’s lawyer advised him to “clean up” his Facebook page, effectively destroying evidence the subject of discovery and breaching criminal law:

case [16.260] Lester successfully sued Allied Concrete Company for the wrongful death of his wife. In the course of the action, the defendants sought to admit Lester’s Facebook page, including all photographs and text. One such photograph was of Lester at a social gathering, holding a beer wearing a t-shirt with the words “I [heart] hot moms”. Lester was advised by his lawyer to “clean up” his Facebook page because “we don’t want blowups of this stuff at trial”. The lawyer rationalised that once cleaned up, Lester could sign a response that there were no such pages at the time of signing. After consulting another attorney, Lester reactivated the account but deleted 16 photographs on the advice of the first attorney. The court regarded this action as “spoliation of evidence”. The court sanctioned both the lawyer and Lester for a total of US$722,000 and reduced the original verdict. The lawyer was referred to the ethics committee of the Virginia State Bar and perjury charges were addressed: Allied Concrete Co v Lester 736 SE 2d 699 (2013). [16.270] Every State and Territory makes provision that the destruction of evidence is a criminal offence. 28 At common law courts may draw an adverse inference against the party that wilfully destroys evidence, electronic or otherwise. As a consequence the court may give an adverse ruling, or strike out a defence or claim. 29

Domain names [16.280] Each Internet web address contains a unique domain name, directing each user to a database with text, graphics and other files. An example is www.telstra.com.au. The domain name typically includes a generic top level domain name (gTLDs), such as .com (commercial), .gov (government), .org (organisations) or .edu (education), and more than 240 country code top level domain names (such as .au (Australia)). Recently more than 1,000 new gTLDs have been released. 28

29

Crimes Act 1914 (Cth), s 39; Crimes Act 1900 (NSW), s 138; Criminal Code 1899 (Qld), ss 129 and 140; Criminal Law Consolidation Act 1935 (SA), s 243; Criminal Code 1924 (Tas), s 99; Crimes Act 1958 (Vic), s 254; Criminal Code 1913 (WA), s 132; Criminal Code 2002 (ACT), s 706; Criminal Code 1983 (NT), s 102. See also Legal Profession Regulations 2005 (NSW), reg 17. See, for example, R v Selim [2007] NSWSC 322; and McCabe v British American Tobacco Australia Services Ltd [2002] VSC 73.

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Domain names act as de facto trade marks and business identifiers for many organisations. A defensive registration approach is being taken by many to avoid or minimise possible disputes. However, organisations may need to register hundreds of combinations to deal with various combinations and misspellings. Registering a .com.au domain name is much more restrictive than .com in part because they are administered by separate domain authorities. The Internet Corporation for Assigned Names and Numbers (ICANN) is the non-profit corporation that was formed to assume responsibility for the IP address space allocation, protocol parameter assignment, domain name system management, and root server system management functions. In Australia, the .au Domain Administration Ltd (auDA) is the non-profit company which develops domain name policy, licenses registry operators and registrars and facilitates the .au Dispute Resolution Policy. 30 In Australia, an application for a domain name in the .com.au or .org.au domains requires no test to determine if the same or a similar domain name already exists. Once other criteria are met, the domain names are issued on a first-come, first-served basis. Applicants can use their complete commercial name, an acronym or an abbreviation. Alternatively, the domain name may be the name of goods or services provided by the registrant, an event organised or sponsored by the registrant, an activity that the registrant facilitates, teaches or trains, a venue that the registrant operates or the profession of the registrant.

Remedies [16.310] The scope and breadth available of possible domain names is limited. As with any scarce resource, disputes have arisen as to who has the right to use a specific domain name. The complainant has two options: (a)

to use the courts; or

(b)

to use the Dispute Resolution Process made compulsory for registrants as a condition of the domain name allocation licence.

Passing off [16.320] The tort of passing off provides a remedy where a person misrepresents goods or services as having some association or connection with the plaintiff where this is not the case: see [30.2560].

case [16.330] The decision of the UK Court of Appeal in Marks & Spencer Plc v One in a Million Ltd [1999] 1 WLR 903 contains a broad proposition for challenging a domain name under the tort of passing off. The court considered that merely registering a domain name may potentially constitute passing off since: “The placing on a register of a distinctive name such as ‘marksandspencer’ makes a representation to persons who consult the register that the registrant is connected or associated with the name registered and thus the owner of the goodwill in the name”: at 924.

30

A Roy, “Navigating the landscape of the .au Dispute Resolution Policy as it enters its second decade” (2014) 19 Media and Arts Law Review 1.

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The Court of Appeal regarded the registration of the domain name as an erosion of the exclusive goodwill in the name which damaged or was likely to damage the famous retailer Marks & Spencer. This case represented an extension of the prior concept of passing off in an attempt to provide a suitable remedy for the electronic era.

case [16.335] Two business partners had registered the business name “Nappy Land”. After a disagreement the partnership was dissolved. Both parties continued to use the name, the first party in New South Wales and the second party nationally. The second party registered it as a trade mark, and registered the domain name “www.nappyland.com.au”. The court granted an injunction against the second party concluding that the applicant had proved its case under s 18 of the Australian Consumer Law and the tort of passing off. Citing CSR Ltd v Resource Capital Australia Pty Ltd (2003) 128 FCR 408 (discussed at [16.350] below) the Federal Court commented that the registration of a domain name may constitute misleading or deceptive conduct: CI JI Family Pty Ltd v National Australian Nappies (NAN) Pty Limited [2014] FCA 79.

Trade Marks and Misleading or Deceptive Conduct [16.340] Domain name registrants with a registered trade mark may utilise the Trade Marks Act 1995 (Cth). It is an infringement where the trade mark is well-known in Australia, is substantially identical with or deceptively similar and is likely to be taken as indicating a connection between goods or services. One must take account of the extent to which the trade mark is known within the relevant sector of the public, whether as a result of the promotion of the trade mark or for any other reason: s 120(3), (4). The misleading or deceptive conduct provision in s 18 of the Australian Consumer Law 31 may also assist a plaintiff: 32

case [16.350] CSR is a well-known Australia icon producing 4 per cent of the raw sugar traded on the world market and 40 per cent of Australia’s total raw sugar. “CSR” and “CSR Sugar” were registered trade marks. The defendant (RCA) registered the domain names “csrsugar.com” and “csrsugar.com.au”. RCA wrote to CSR offering to sell these domain names. In the Federal Court, Hill J considered that anyone seeing the domain name would assume that CSR was the real owner of the domain name. His Honour held that “the act of obtaining registration” of both domain names amounted to misleading and deceptive conduct pursuant to s 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law), constituting a representation that CSR and RCA were affiliated. Hill J also held that the sole director of RCA was in breach of the equivalent provisions in the Fair Trading Act 1987 (NSW).

31 32

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17 . See also CI JI Family Pty Ltd v National Australian Nappies (NAN) Pty Ltd [2014] FCA 79.

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Hill J ordered that the domain names be transferred to CSR. Both RCA and the director were restrained from registering any other domain name including the abbreviation “CSR”. It was ordered that a copy of the judgment be forwarded to the Australian domain name registration authority: CSR Ltd v Resource Capital Australia Pty Ltd (2003) 128 FCR 408.

case [16.360] A US resident registered the domain name “sydneyopera.org”. The defendant falsely represented that the site was affiliated with the Sydney Opera House. Persons gave their credit card details in the belief that they were purchasing tickets for events at the Sydney Opera House. It was held that the defendant’s conduct was misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law). The defendant had also contravened the prohibition against false or misleading representations under s 53(c) and (d) of the Act (now s 29(1)(g) and (h) of the Australian Consumer Law): ACCC v Chen (2003) 132 FCR 309.

case [16.365] In Sheather v Staples Waste Removals Pty Limited (No 2) [2014] FCA 84, a person, who as agent procured the registration of the domain name “www.staples.com.au”, breached his fiduciary duty when he transferred the domain name to a third party for $75,000. The Federal Court referred to the conduct as of “dishonest and fraudulent design” and recognised the breach under s 52 of the Trade Practices Act 1974 (Cth) (s 18 of the Australian Consumer Law) and former s 75B dealing with accessory liability.

Enforcement [16.370] Enforcement of judgments outside Australia is a thorny problem. The potential for conflict is magnified by the Internet.

case [16.380] In ACCC v Chen (2003) 132 FCR 309 (see [16.360]) the defendant was a US resident who could not be located to serve the pleadings. The defendant had operated a website that was held to be misleading and deceptive. In the Federal Court, Sackville J stated that “the fact that … any order might be difficult or impossible to enforce, may be a relevant consideration in determining whether a Court should grant injunctive relief”: at [43]. His Honour highlighted three factors in exercising his discretion in favour of granting an injunction. First, there was the distinct possibility that the defendant would resume misleading and deceptive conduct. At the time of the hearing, the websites had been removed: at [51]. Secondly, “cross-border fraud and misleading conduct, particularly through the Internet, is a growing problem for the international community”: at [52]. Thirdly, the ACCC had stated that it would bring the court’s orders to the attention of the US Federal Trade Commission and request its assistance: at [54].

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[16.390] The extra-territorial enforcement of judicial orders is ordinarily a matter for the domestic law of the country in which the orders are sought to be enforced. At common law, four conditions must be satisfied if a foreign judgment is to be recognised by an Australian court: (a)

the foreign court must have exercised a jurisdiction which Australian courts will recognise;

(b)

the foreign judgment must be final and conclusive;

(c)

there must be an identity of parties; and

(d)

if based on a judgment in personam, the judgment must be for a fixed debt.

Dispute resolution policies [16.400] All registrants in the .aero, .biz, .com, .coop, .info, .museum, .name, .net, and .org domains are subject to the ICANN Uniform Domain Name Dispute Resolution Policy (UDRP). The au Dispute Resolution Policy (auDRP) applies to .au domains. The purpose of the policies is to provide a cheaper, speedier alternative to litigation for the resolution of disputes between registrants and a party with competing rights in the domain name. The auDRP is an adaptation of the UDRP. The UDRP authorises the transfer of a domain name to a complainant who can prove that: (a)

the domain name is identical or confusingly similar to a trade mark or service mark in which the complainant has rights;

(b)

the registrant has no rights or legitimate interests in the domain name; and

(c)

the domain name has been registered and is being used in bad faith.

The auDRP only requires that the domain name has been registered or used in bad faith. Registration of a trade mark or service mark is not necessary and individual names have sufficient secondary association for complainants to maintain that “common law trade mark rights” exist.

case [16.410] The novelist Jeanette Winterson successfully reclaimed her name, which had been registered as Jeanettewinterson.com (as well as .org and .net). 33 The registrant claimed that he intended to develop websites with reviews, biographies and forthcoming works of authors, including Winterson. However, the registrant also stated that he wanted to make money and had asked for a 3 per cent share of profits from books sold via the website. The Panel stated that the “Complainant does not rely upon any registered trade marks but on her common law rights in her real name”. She had achieved international recognition and critical acclaim for her works and “use of that Mark has come to be recognised by the general public as indicating an association with words written and produced exclusively by the Complainant”. The Panel was satisfied that the novelist had established trade mark rights in the mark for the purpose of the Policy and ordered that all three domain names be transferred.

Jurisdiction in cyberspace [16.430] Questions sometimes arise as to which country or State’s courts have jurisdiction to adjudicate a case and which law is to be applied. This area of law is referred to as conflict of laws or private 33

See www.wipo.int/amc/en/domains/decisions/html/2000/d2000-0235.html

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international law: see [15.460]. These principles are well established. However, modern communications bypass traditional terrestrial norms and concepts. The borderless nature of the Internet often hides or disguises the origin of particular websites. Notwithstanding the borderless nature of cyberspace, established frameworks of jurisdiction are still applicable. 34

case [16.440] In Dow Jones & Co Inc v Gutnick (2002) 210 CLR 575, Dow Jones published Barrons Magazine (Barrons), which contained an article that alleged that the businessman Joseph Gutnick was “masquerading as a reputable citizen when he was a tax evader who had laundered large amounts of money”. The magazine sold 305,563 paper copies, of which only 14 were sold in the State of Victoria in Australia. The magazine was also available on the Internet to 550,000 subscribers, of whom 300 were in Victoria. The Internet server was located in New Jersey in the United States. The defendant argued that the action should have been brought in New Jersey. Dow Jones argued that it would be unfair for the publisher to have to litigate in the multitude of jurisdictions in which its statements are downloaded and read. In the High Court all seven justices agreed that Victoria was an appropriate venue for jurisdiction. The majority (Gleeson CJ, McHugh, Gummow and Hayne JJ) gave credence to an “effects test”. They stated that “[a]ctivities that have effects beyond the jurisdiction in which they are done may properly be the concern of the legal systems in each place”: at [24]. The majority suggested that “reasonableness of the publisher’s conduct” might be considered “necessary or appropriate” as a common law defence where all of the publisher’s conduct occurred outside the jurisdiction. Their Honours stated that relevant circumstances included “where that conduct took place, and what rules about defamation applied in that place or those places”: at [51]. The majority stated that the “spectre which Dow Jones sought to conjure up” that a publisher would be forced to consider every article it publishes on the Internet “against the defamation laws of every country from Afghanistan to Zimbabwe is seen to be unreal when it is recalled that in all except the most unusual of cases, identifying the person about whom material is to be published will readily identify the defamation law to which that person may resort”: at [54]. The Court determined that the place where damage was inflicted was a most significant factor. The place where the defamation was comprehended and the plaintiff’s connection with the locality were important factors.

Privacy [16.450] Under Australian common law there is no specific right to privacy. However, information privacy has become a significant concern in the digital age where data can be easily copied and transmitted. The Privacy Act 1988 (Cth) requires private sector organisations to either adopt an industry-developed privacy code or comply with legislative privacy principles. The Privacy Act 1988 was amended to update the privacy principles to create the Australian Privacy Principles (APP) which became effective in March 2014. Under the APP, individuals have the right to know why an organisation is collecting their personal information, what information it holds about them, how the information will be used and who else may receive the information. Generally, individuals have the right to access this information and to correct it if it is wrong. Individuals can also make a complaint to the Office of the Australian Information Commissioner 34

See also, Harrods Ltd v Dow Jones & Co Inc [2003] EWHC 1162.

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if they believe that their personal information is not being handled properly. Alternatively, application can be made to the Federal Court or the Federal Circuit Court for an order to restrain an organisation from engaging in conduct that breaches the Principles. Section 13 provides that an act or practice of an APP entity is an “interference with the privacy of an individual” if the act or practice breaches an APP or a registered APP code. An APP entity is defined as both government agencies and private organisations. Schedule 1 of the Act sets out the 13 Privacy Principles. The Act broadly defines an organisation as an individual, body corporate, partnership, any other unincorporated association or a trust, but is not a small business operator, a registered political party, or a government agency or instrumentality: s 6C. A small business operator is defined as a business which: (a)

has an annual turnover of $3 million or less;

(b)

is not related to a business with an annual turnover of greater than $3 million;

(c)

does not provide a health service and hold health records;

(d)

does not disclose personal information about an individual for a benefit, service or advantage;

(e)

does not provide a benefit, service or advantage to collect personal information; and

(f)

is not a contracted service provider for a Commonwealth contract (even if the entity is not a party to the contract): s 6D.

The Principles state that an APP entity must: 1.

have ongoing practices and policies in place to ensure that it manages personal information in an open and transparent way.

2.

provide individuals with the option of dealing with it anonymously or pseudonymously;

3.

not collect personal information, unless the information is reasonably necessary for its functions or activities, with special rules for sensitive information;

4.

only use and retain unsolicited personal information in the same manner where it had the right to collect that information;

5.

notify the individual, as may be reasonable in the circumstances, of the identity and contact details of the APP entity, the purpose for the collection of personal information, its disclosure (including overseas disclosures), access, correction and complaints process;

6.

not use or disclose the information for a secondary purpose unless the individual has consented, the information is used in a manner which the individual would reasonably expect, or is required or authorised by law;

7.

not use the information for direct marketing, unless there is consent or the information is used in a in a manner which the individual would reasonably expect;

8.

only send personal information overseas to reasonably ensure that the overseas recipient does not breach the APP;

9.

not adopt a government-related identifier of an individual as its own identifier of the individual (such as a Medicare number);

10.

take reasonable steps to ensure that the personal information collected is accurate, up to date and complete;

11.

take reasonable steps to protect the information from misuse, interference and loss and from unauthorised access, modification or disclosure;

12.

on request by the individual, give the individual access to the information, subject to a lengthy list of exceptions;

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13.

take reasonable steps to correct that information to ensure that the information is accurate, up to date, complete, relevant and not misleading.

These provisions require a website operator that is classified as an organisation and which collects personal information online to take reasonable steps to ensure that internet users know who is collecting their information and how it is used, stored and disclosed. A breach of the APP amounts to an interference with the privacy of an individual giving rise to a right to complain to the Office of the Australian Information Commissioner and a right to seek compensation. Employee records are exempt if the organisation is or has been an employer of the individual and the act or practice is directly related to the employment relationship: s 7B(3). Acts and practices engaged in by a media organisation in the course of journalism are exempt: s 7B(4).

Electronic commerce and crime [16.460] There is no accepted definition of computer crime. Computer crime can be the simple theft of computer hardware but more usually is taken to mean the use (or misuse) of computer software technology to elicit an illegal or criminal result in data or processing. However, simple unlawful access to a computer system (hacking) can also constitute an offence. The illegal act may include the transfer of funds or confidential information, or deliberate transmission of a computer virus. Amendments to Australian cybercrime law in 2013 facilitated Australia’s accession to the Council of Europe Convention on Cybercrime (Cybercrime Convention). Amendments were made to the Criminal Code Act 1995 (Cth); the Mutual Assistance in Criminal Matters Act 1987 (Cth); the Telecommunications (Interception and Access) Act 1979 (Cth) and the Telecommunications Act 1997 (Cth). The amendments provide uniform powers to law enforcement and intelligence agencies to compel carriers to preserve the communication records of persons suspected of cyber-based crimes. The amendments unify cybercrime offences in accordance with international standards and facilitate international co-operation between members of the Cybercrime Convention including the cross-border sharing of communication records. The accession to the Cybercrime Convention makes available law enforcement tools to assist overseas investigations with access to foreign information. A judge, magistrate or the Minister’s nominee (the authorising authority) may authorise the issue of a stored communications warrant to permit law enforcement or intelligence agencies to access preserved communications. In issuing the warrant the issuing authority must take into consideration individuals’ privacy, the seriousness of the contravention and the availability of alternative methods of investigation. By adopting the Cybercrime Convention, Commonwealth laws have been expanded by removing limitations, such as the requirement that a Commonwealth computer or Commonwealth data be involved or that a carriage service be used in the commission of the offence. In addition jurisdiction is extended to conduct in Australia, on board an Australian aircraft or ship, and of Australian nationals abroad.

Computer crime under the Commonwealth Criminal Code [16.470] In the past three decades substantial amendments have been made to federal criminal law statutes to keep abreast of the technological changes in electronic commerce. The federal Criminal Code , has reformed Commonwealth computer crime laws and expanded the investigative powers of the federal police. Amendments have been consistent with the Council of Europe Convention on Cybercrime. The Cybercrime Convention criminalises certain types of conduct committed via computer networks and

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contains powers and procedures for search and seizure. Australian accession in 2013 has been part of an international effort to prevent, investigate and prosecute perpetrators of cybercrime through strengthened co-operation. The Commonwealth Criminal Code (which is the Schedule to the Criminal Code Act 1995 (Cth)) and the Telecommunications (Interception and Access) Act 1979 (Cth) deal with cybercrimes including unauthorised access and denial-of-service attacks. The offences are based on agreements with the National Cybercrime Working Group (NCWG) and with the Cybercrime Convention. The NCWG was established by the then Standing Council of Attorneys-General and includes representation from New Zealand and CrimTrac. Each State and Territory has parallel cybercrime laws covering online versions of personal and property crimes, cyber-stalking and fraud. According to the Commonwealth Director of Public Prosecutions (CDPP) the most commonly used provisions of the Commonwealth Criminal Code relate to the unauthorised access, modification of data and the impairment of electronic communications and misuse of a carriage service.

Unauthorised impairment of electronic communication [16.500] It is an offence to cause an unauthorised impairment of electronic communications to or from a computer: Criminal Code Act 1995 (Cth), Sch s 477.3. The penalty for this offence is a maximum of 10 years’ imprisonment. This offence is designed to prohibit strategies such as “denial of service attacks”, where a service provider is swamped with useless messages, causing the service to become inoperative.

Unauthorised access to, or modification of, restricted data [16.510] There is an offence of unauthorised access to or modification of restricted data held in a computer: Criminal Code Act 1995 (Cth), Sch s 478.1. The penalty for this offence is a maximum of two years’ imprisonment. The offence relates to unauthorised access or modification of data that is protected by a password or some other security feature. This offence targets hackers attempting to circumvent a password-protected computer system.

Using a carriage service to menace, harass or cause offence [16.520] It is an offence to use a carriage service in a manner which reasonable persons would regard, in all the circumstances, as “menacing, harassing or offensive”: Criminal Code Act 1995 (Cth), Sch s 474.17. The Dictionary to the Commonwealth Criminal Code defines “carriage service” as having the same meaning as in the Telecommunications Act 1997 (Cth) which, in turn in s 7 defines it as “a service for carrying communications by means of guided and/or unguided electromagnetic energy”. The Explanatory Memorandum to the Crimes Legislation Amendment (Telecommunications Offences and Other Measures) Act (No 2) 2004 (Cth) which inserted s 474.17, creating the offence in question, identifies the following acts as constituting use of a carriage service: “making a telephone call, sending a message by facsimile, sending an SMS message, or sending a message by email or some other means using the Internet.” The maximum penalty for using a carriage service to menace, harass or cause offence is three years’ imprisonment. 35

Investigative powers [16.540] The Crimes Act 1914 (Cth) contains enhanced criminal investigation powers relating to the search, seizure and copying of electronically stored data. The large amount of data that can be stored on 35

C Turner, “The vagaries of construction of the carriage service offence in s 474.17 of the Commonwealth Criminal Code” (2016) 40 Criminal Law Journal 16.

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computers and the use of security measures, such as encryption and passwords, present particular problems for investigators. The enhanced powers are designed to enable police to copy computer data and to examine computer equipment and disks off-site and to require assistance from the computer owners. A magistrate may order a person with knowledge of a computer system to provide information or assistance. This power extends to the compulsory disclosure of passwords, keys, codes and cryptographic methods used to protect information “as is necessary and reasonable”: ss 3E – 3S.

Anti-spam legislation [16.550] The Spam Act 2003 (Cth) provides that unsolicited commercial electronic messages must not be sent: s 16. Commercial electronic messages must include information about the individual or organisation who authorised the sending of the message: s 17. Commercial electronic messages must contain a functional unsubscribe facility: s 18. Address-harvesting software must not be supplied, acquired or used. An electronic address list produced using address-harvesting software must not be supplied, acquired or used: ss 20 – 22. The main remedies for breaches of this Act are civil penalties and injunctions. The Act anticipates a tiered regime of enforcement by the Australian Communications Media Authority (ACMA), including: (a)

a formal warning;

(b)

acceptance of an enforceable undertaking;

(c)

the issuing of an infringement notice;

(d)

application to the Federal Court for an injunction; and

(e)

the commencement of proceedings in the Federal Court for breach of a civil penalty provision.

The Act exempts Australian and foreign government bodies, political parties, religious organisations and charities and educational institutions in certain circumstances. A person is deemed to consent to spam if their email address has been “conspicuously published”: Sch 2, cl 4. The main weakness of the legislation is the exemption for sending “factual information”. The Act does not regard email as spam if it contains factual information (Sch 1, cl 2) (with or without directly-related comment) and additional peripheral information such as the sender’s name, logo and contact details. Factual information is not defined in the Act. However, the Explanatory Memorandum states that the provision is designed “to ensure that messages which may be seen to have some form of commercial element, but which are primarily aimed at providing factual information are not covered by the rules” (p 105). For an analysis of the Act, see Australian Communications and Media Authority v Clarity1 Pty Ltd (2006) 150 FCR 494, the case of a spammer who sent more than 200 million spam emails in less than two years.

Copyright issues and e-commerce Private copying provisions [16.570] The Copyright Act 1968 (Cth) provides that private electronic copies made for the purposes of time-shifting, space-shifting and format-shifting are permitted. Thus, a person may record a television or radio program to watch or listen to at a later time (time-shifting) provided it is solely for private and

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domestic use to watch or listen to at a more convenient time. It cannot later be sold, rented or distributed. The owner of a sound recording is allowed to make a copy for private and domestic use to play on another device that he or she owns, for example to make a copy for a computer, car, CD player, or a portable device such as an iPod. Owners of certain types of material are allowed to make a copy of that material, for private and domestic use, in certain other formats (format-shifting). An individual may scan a book or periodical he or she owns, for example, to view on a computer screen, or copy a video he or she owns into a digital format. The Full Federal Court considered the issue of time-shifting in National Rugby League Investments Pty Ltd v Singtel Optus Pty Ltd (2012) 201 FCR 147:

case [16.580] Optus devised a new subscription service, which enabled a subscriber to have free-to-air television programs recorded on the subscriber’s compatible Optus mobile device or personal computer and subsequently played back. The system enabled “time-shifting” of the program as permitted by s 111 of the Copyright Act 1968 (Cth). This was challenged by the Australian Football League and the National Rugby League, both of which had sold electronic rights to Telstra. The key issue was whether the copy of the broadcast was made by Optus or the subscriber. The court at first instance regarded the subscriber as making the copy. As a result, s 111 could apply, permitting the subscriber to time-shift and watch the program at a later time. The Full Federal Court disagreed and held that it was Optus, or Optus and the subscriber, who made the copy of the broadcast. Accordingly, it was held that Optus could not bring itself within the scope of the s 111 exception on its proper construction: National Rugby League Investments Pty Ltd v Singtel Optus Pty Ltd (2012) 201 FCR 147.

Peer-to-peer file sharing [16.590] The transfer of music, video and other files online exceed several billion dollars in lost income internationally and are a source of considerable concern for the music industry. A substantial number of such transfers infringe copyright. Peer-to-peer (P2P) transfers have facilitated the majority of the downloads. The US decision in A & M Records Inc v Napster Inc 114 F Supp 2d 896 (2000) was the first significant case challenging peer-to-peer transfers of copyright material online. The court determined that Napster played an integral role in the transfer process and could block access to infringing material if it chose to do so. The court rejected the contention that the fair use defence of the end users protected Napster. In Australia, the peer-to-peer file-sharing system known as Kazaa was considered by Wilcox J in Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 220 ALR 1 (Sharman), where his Honour stated that it had “long been known” that Kazaa was widely used for the sharing of copyright files. Subsequently, the Full Federal Court in Cooper v Universal Music Australia Pty Ltd (2006) 156 FCR 380 (Cooper) considered the meaning of “authorising” an infringement of copyright in the context of websites. Website hosts may be liable for authorising copyright infringement and, in certain circumstances, so may Internet Service Providers (ISPs).

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The issue was later considered by the High Court in Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42 which tacitly approved both Sharman and Cooper, while holding that an ISP will not be liable for authorising an infringement where it has no power to prevent the breach and can take no reasonable steps to prevent or avoid the breach:

case [16.600] In Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42 the High Court held that the Internet Service Provider (ISP) iiNet had not “authorised” customers to download pirated movies where the customers had used the separate system known as BitTorrent. Section 101(1) of the Copyright Act 1968 (Cth) provides that copyright is infringed by a person who authorises an infringement. A plethora of plaintiffs, including Village Roadshow, Universal Pictures, Warner Bros, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox, Disney and the Seven Network, contended that as an ISP, iiNet had breached this provision. The plaintiffs provided detailed notices of alleged infringing downloads by customers of iiNet. The infringement of copyright was only possible by use of BitTorrent over which iiNet had no control. The High Court was guided by s 101(1A) which provides that in determining whether or not a person has authorised an infringement of copyright, the matters that the court must take into account include: (a)

the extent of the power to prevent the breach;

(b)

the nature of any relationship existing between the parties; and

(c)

any other reasonable steps to prevent or avoid the breach or compliance with any relevant industry codes of practice.

French CJ, Crennan and Kiefel JJ noted that iiNet was not involved with the BitTorrent system and had “no power to control or alter any aspect of the BitTorrent system” (at [65]). The user who downloads copyrighted material using BitTorrent infringes both ss 86(a) and (c) of the Copyright Act 1968 (Cth) for copying and making that material available online to others, that is, facilitating uploading (at [21]). There was no industry code of practice and it was not reasonable for iiNet to take steps to investigate the notices received. The notices did not provide iiNet with a reasonable basis for sending warning notices to its customers. Gummow and Hayne JJ questioned whether the warning notices would have been effective and noted the lack of evidence on the likely behaviour of customers in response to such notices. Accordingly, the Court unanimously held that iiNet’s failure to suspend or terminate its customers’ accounts in response to the notices did not amount to authorisation of its customers’ infringements.

case [16.610] More recently, in the Dallas Buyers Club series of cases 36 Perram J held that individual uploaders may be ordered to pay damages for the cost of a single copy of the work and for damages arising from the cost of obtaining each infringer’s details. The copyright holders sought from the ISP iiNet the contact details of individual uploaders of the film, the Dallas Buyers Club. An order that iiNet release the contact details was stayed until the copyright holders provided the Court with a copy of the proposed letter to be sent to the individuals concerned. Perram J intended to ensure that the copyright holders did not engage in “speculative invoicing”, by making an unreasonable demand on 36

Dallas Buyers Club LLC v iiNet Ltd (No 3) [2015] FCA 422, Dallas Buyers Club LLC v iiNet Ltd (No 4) [2015] FCA 838 and Dallas Buyers Club LLC v iiNet Ltd (No 5) [2015] FCA 1437.

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the individual uploaders. His Honour rejected a claim for a one-off licence fee which included damages for the user sharing the film with other users by means of transfers of slivers of the film across the network, and a claim for punitive damages. The copyright holders effectively abandoned their case by failing to provide the Court with an acceptable letter within the time limit prescribed.

Further reading A Davidson, Social Media and Electronic Commerce Law (2nd ed, Cambridge University Press, Melbourne, 2016). B Fitzgerald et al, Internet and E-commerce Law – Business and Policy (Thomson Reuters, Sydney, 2011). S Mason, Electronic Signatures in Law (3rd ed, Cambridge University Press, 2012). J Forder and D Svantesson, Internet and E-Commerce Law (Oxford University Press, Melbourne, 2008). YF Lim, Cyberspace Law: Commentaries and Materials (2nd ed, Oxford University Press, Melbourne, 2007). A Roy, Australian Domain Name Law (Thomson Reuters, Sydney, 2016).

Internet sites auDA: .au Domain Administration Ltd http://www.auda.org.au Internet Corporation for Assigned Names and Numbers http://www.icann.org Office of the Australian Information Commissioner www.oaic.gov.au IP Australia www.ipaustralia.gov.au

Texts of international instruments UNCITRAL Model Law on Electronic Commerce www.uncitral.org/pdf/english/texts/electcom/05-89450_Ebook.pdf United Nations Convention on the Use of Electronic Communications in International Contracts (New York, 2005) www.uncitral.org/pdf/english/texts/electcom/06-57452_Ebook.pdf Council of Europe Convention on Cybercrime www.conventions.coe.int/Treaty/en/Treaties/Html/185.htm

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Consumer Protection [17.20] Overview of the Australian Consumer Law ...................................................................................... 338 [17.40] Prohibition of misleading or deceptive conduct............................................................................... 339 [17.200] Prohibition of unconscionable conduct ............................................................................................. 347 [17.290] Prohibition of unfair contract terms ................................................................................................... 351 [17.330] Specific false representation provisions.......................................................................................... 353 [17.460] Prohibition of other “unfair practices” ............................................................................................... 358 [17.650] Enforcement and remedies for unfair practices .......................................................................... 365 [17.1000] Consumer guarantees............................................................................................................................ 378 [17.1170] Manufacturers' liability for defective goods................................................................................ 385 [17.1320] Other consumer protection provisions .......................................................................................... 391

Introduction [17.10] In general terms, the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)) is concerned with: (a)

providing protection to consumers against misleading or deceptive conduct, unconscionable conduct, unfair contractual terms, false representations and other “unfair practices” in connection with the supply of goods, services and land, and providing adequate remedies in the event of defective goods or inadequate services being supplied to consumers; and

(b)

regulating restrictive trading practices with the aim of preventing monopolistic and anti-competitive activities among traders and thereby achieving greater competition and efficiency in the marketplace.

The present chapter is concerned only with the consumer protection provisions, which are contained in the Australian Consumer Law, a schedule to the Competition and Consumer Act 2010. The next chapter deals with the Act's regulation of restrictive trading practices (Chapter 18).

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Overview of the Australian Consumer Law [17.20] The former Trade Practices Act 1974 (Cth) has been renamed the Competition and Consumer Act 2010 (Cth). The Australian Consumer Law is Sch 2 of the Competition and Consumer Act 2010. The Australian Consumer Law applies as a law of the Commonwealth in relation to corporations. 1 Pursuant to an intergovernmental agreement each State and Territory applies the Australian Consumer Law as the law of its jurisdiction. 2 The consumer protection provisions of the former Trade Practices Act 1974 were generally directed towards conduct engaged in by corporations, since that Act was based on the Commonwealth’s power under the Constitution to make laws with respect to corporations: Constitution, s 51(xx). By contrast, the Australian Consumer Law has a much broader application to conduct engaged in by persons. The Australian Consumer Law applies to conduct engaged in outside Australia by Australian citizens or persons who are ordinarily resident in Australia: Competition and Consumer Act 2010 (Cth), s 5(1)(c). The Act applies to natural persons engaged in conduct involving postal, telegraphic or telephonic services: Competition and Consumer Act 2010 (Cth), s 6(3). The Internet is a telegraphic or telephonic service: Australian Competition and Consumer Commission v Sensaslim Australia Pty Ltd (No 1) (2011) 196 FCR 566 at [17], [28] (telephonic); Australian Competition and Consumer Commission v Jutsen (No 3) (2011) 206 FCR 264 at [100] (telegraphic). The Australian Consumer Law replaces the consumer protection provisions of the former Trade Practices Act 1974. The provisions of the Australian Consumer Law are broadly similar to those of the former Trade Practices Act 1974. However, there are numerous differences in detail, for example, the replacement of the implied conditions of quality and fitness in consumer sales with statutory guarantees to similar effect. There are also a number of new provisions including those concerning unfair contract terms, door-to-door sales and lay-by sales. The Australian Consumer Law also replaces provisions in State and Territory consumer protection legislation such as the Fair Trading Acts and door-to-door sales legislation. The Australian Consumer Law is enforced by all federal, State and Territory courts and tribunals. 3 It is administered by the federal, State and Territory consumer protection agencies. Throughout this chapter references to section numbers are to the Australian Consumer Law, except for occasional references to the Competition and Consumer Act 2010. Some of the case law discussed in this chapter was decided under the corresponding provisions of the former Commonwealth Trade Practices Act 1974 as the Australian Consumer Law only entered into force on 1 January 2011.

1

2

3

Competition and Consumer Act 2010 (Cth), s 131. The section is in Part XI–Application of the Australian Consumer Law as a law of the Commonwealth. See generally D Taylor and N McNamara, “The Australian Consumer Law After the First Three Years – Is it a Success?” (2014) 1 Curtin Law and Taxation Review 98. Competition and Consumer Act 2010 (Cth), ss 140–140K; Fair Trading Act 1987 (NSW), s 28(1); Australian Consumer Law and Fair Trading Act 2012 (Vic), s 11(1); Fair Trading Act 1989 (Qld), s 16(1); Fair Trading Act 1987 (SA), s 14(1); Fair Trading Act 2010 (WA), s 19(2); Australian Consumer Law (Tasmania) Act 2010 (Tas), s 6(1); Fair Trading (Australian Consumer Law) Act 1992 (ACT), s 7(1); Consumer Affairs and Fair Trading Act 1990 (NT), s 27(1). Competition and Consumer Act 2010 (Cth), ss 138–138B. The sections are in Part XI–Application of the Australian Consumer Law as a law of the Commonwealth.

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Legislative framework of the Australian Consumer Law [17.30] Under the heading “General protections”, the Australian Consumer Law contains provisions prohibiting misleading or deceptive conduct (Ch 2, Pt 2-1), unconscionable conduct (Pt 2-2) and unfair contract terms (Pt 2-3). This is followed under the heading “Specific protections” by provisions prohibiting more specific false or misleading representations and unfair practices: Ch 3, Pt 3-1. In addition, this part of the Australian Consumer Law contains certain consumer guarantees as to title, quality and fitness for purpose relating to the supply of goods: Pt 3-2, Div 1. There are new provisions regulating “unsolicited consumer agreements” (more commonly referred to as door-to-door sales and telemarketing) and lay-by agreements: Pt 3-2, Div 2 and 3. This is followed by provisions relating to the safety of consumer goods and product related services (Pt 3-3) and the liability of manufacturers for defective goods: Pt 3-5. The offences for contravention of the statutory provisions are set down in some detail: Ch 4, Pt 4-1 to Pt 4-7. Finally, the Australian Consumer Law provides for the enforcement of the statutory provisions and remedies for their contravention: Ch 5, Pt 5-1 to Pt 5-5. The basic structure of this chapter broadly follows that of the Australian Consumer Law, although the provisions concerning enforcement and remedies are considered in their more appropriate context throughout the chapter. For discussion purposes, the provisions of the Australian Consumer Law are considered under the following headings: (a)

prohibition of misleading or deceptive conduct;

(b)

prohibition of unconscionable conduct;

(c)

prohibition of unfair contract terms;

(d)

the specific false representation provisions;

(e)

prohibition of other unfair practices;

(f)

enforcement and remedies for contravention of the unfair practices provisions;

(g)

consumer guarantees;

(h)

manufacturers’ liability for defective goods; and

(i)

other consumer protection provisions.

Prohibition of misleading or deceptive conduct Misleading or deceptive conduct [17.40] Certain types of representation or undesirable business conduct may not be caught by the prohibition of specific unfair practices contained in the Australian Consumer Law discussed at [17.330]. Accordingly, to catch what might loosely be termed “unfair business practices” which may not strictly fall within the scope of the other specific prohibitions, s 18(1) provides in general terms that: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Because of the potential breadth of that section and the uncertainty as to which business practices might fall within its ambit, it was felt undesirable to subject those whose conduct is found to contravene the section to the heavy fines which may be imposed for contravention of the more specific kinds of conduct proscribed by the other consumer protection provisions. However, although a prosecution for an offence against the

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Australian Consumer Law cannot be brought for contravention of s 18, the civil remedies available for contravention of the unfair practices provisions, for example an injunction or damages, can be sought in respect of a contravention of s 18. Section 18 of the Australian Consumer Law largely replicates s 52 of the former Trade Practices Act 1974 (Cth) with the exception that “person” has been substituted for “corporation” in the former provision. Accordingly, many of the cases decided under s 52 of the former Trade Practices Act 1974 will be relevant in interpreting s 18 of the Australian Consumer Law.

Meaning of “in trade or commerce” [17.50] The consumer protection provisions of the Australian Consumer Law prohibit conduct that takes place “in trade or commerce”. The High Court held that the words “trade or commerce” are “not terms of art but are terms of common knowledge of the widest import”: Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 602. The Court stated in that case that s 52 of the former Trade Practices Act 1974 (Cth) (now Australian Consumer Law, s 18) was not intended to encompass all conduct of a corporation in the course of its overall business. Rather, s 52 of the former Trade Practices Act 1974 (Cth) was concerned with “the conduct of a corporation towards persons … with whom it … has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character”: at 604; see also Firewatch Australia Pty Ltd v County Fire Authority (1999) 93 FCR 520 at [62]-[64]. For example, the Full Federal Court held that the publication of an Internet blog entry about a flyer distributed by the author’s competitor was conduct “in trade or commerce”. The blog entry was written by a franchisor, had a promotional purpose and was intended to influence trade or commerce in the franchisor’s industry: Fletcher v Nextra Australia Pty Ltd (2015) 229 FCR 153 at [54], [57]. On the other hand, the New South Wales Court of Appeal held that representations made by a homeowner while selling their home were not made in trade or commerce. The fact that the homeowner had renovated their house with the intention of reselling the house at a profit did not affect this conclusion: Williams v Pisano (2015) 90 NSWLR 342 at [38], [44].

Meaning of “engage” [17.55] Section 18(1) of the Australian Consumer Law provides that a person must not “engage” in misleading or deceptive conduct. In the Google case the court considered whether an Internet search engine had engaged in misleading or deceptive conduct by including sponsored search results that were misleading or deceptive.

case [17.56] An internet search engine displayed sponsored search results separately from its other search results. Sponsored results were labelled as such. Some of these results contained misleading or deceptive representations. The search terms that gave rise to sponsored results were chosen by the advertiser. The High Court held that the search engine was not liable for publishing the misleading or deceptive content of the sponsored results. The search engine was not the author of the misleading content, which was supplied by the advertiser: at [68]. An intermediary such as the search engine would be liable if they adopted or endorsed the misleading content: at [15]. However, the search engine had not adopted or endorsed the sponsored search results: Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 at [70]. 4

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[17.60] Section 18(1) of the Australian Consumer Law concerns conduct that is “misleading or deceptive or is likely to mislead or deceive” and the question arises as to the interpretation of these expressions. “Before a statement can be said to be misleading or deceptive or falsely to represent a fact, it must convey a meaning inconsistent with the truth. A statement which conveys no meaning but the truth cannot mislead or deceive or falsely represent; although a statement which is literally true may nevertheless convey another meaning which is untrue, and be proscribed accordingly”: World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 at 201 per Brennan J. Section 18 is concerned to prohibit conduct in trade or commerce which is deceptive to members of the public as consumers of goods or services. It is for the court to determine objectively whether the conduct under consideration is likely to mislead the public and evidence that members of the public have actually been misled is not conclusive: McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394 at 399. The basic issue is what is the likely reaction to the representations by ordinary or reasonable members of the class to whom the representation is directed: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [106]. Where a party argues that s 18 was infringed by an advertisement to the general public in a newspaper with wide circulation, they may “rely on any meaning which was reasonably open to a significant number of the newspaper readership”: Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 at 446. In that case the Court held that an advertisement for Telstra infringed s 52 of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law) because it misrepresented that Telstra sponsored a well-known athlete, that the athlete “had consented to its use of his name, image and reputation” to advertise Telstra, and that the athlete supported Telstra’s campaign for customers: at 451.

case [17.70] In an attempt to deter ticket “scalping” for popular concerts, a concert promoter’s tickets provided that all tickets resold for profit would be cancelled and the holder would be refused entry to the concert: at [17]. Tickets were resold for profit on the website of the applicant, eBay. The Federal Court held that the promoter had engaged in misleading or deceptive conduct because it did not have reasonable grounds for representing that a ticket sold for profit would in all cases be discovered and cancelled: eBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450 at [72], [74]. [17.80] There will be no misleading or deceptive conduct if two products have the same name but any impression of a connection between them will be immediately averted by a comparison between the two products: Knight v Beyond Properties Pty Ltd (2007) 242 ALR 586 at [53]. In that case, an author had written a series of books called “Mythbusters”. A television series called “Mythbusters” had a very different content and format. Any impression on the part of television viewers of a connection between the books and the television show would be quickly put to rest by a brief examination. The Federal Court has held that the statement “no fine print” in an advertisement was too specific to be mere puffery. The statement constituted misleading or deceptive conduct where important contractual terms were not disclosed in the advertisement: Minister for Health and Aged Care v Harrington Associates Ltd (2000) 107 FCR 212 at [91], [96]. 4

M Richardson, “Why Policy Matters: Google Inc v Australian Competition and Consumer Commission” (2012) 34 Sydney Law Review 587.

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Trade competitors have been held entitled to bring proceedings for an injunction to restrain a trade rival from engaging in conduct which contravenes the consumer protection provisions: see [17.740]. Such actions have sometimes raised difficult issues as to whether the conduct in question constitutes misleading or deceptive conduct within the meaning of the former s 52(1) of the Trade Practices Act 1974 (Cth) (now s 18(1) of the Australian Consumer Law).

case [17.90] The fast food retailer McDonald’s extensively advertised their “Big Mac” hamburgers. McWilliam’s, a well-known wine company, started to advertise its wines using the words “Big Mac” prominently displayed in the advertisements. McDonald’s sought an injunction to restrain McWilliam’s from using the words “Big Mac” alleging that their use by McWilliam’s constituted engaging in conduct that was misleading or deceptive or likely to mislead or deceive: at 396. However, the Full Federal Court was of the view that a case had not been made out that the use of the words “Big Mac” by McWilliam’s was likely to deceive or mislead persons by causing them to think that the wines were a product of McDonald’s. Even though the advertisements might cause confusion or wonder in the mind of a person as to whether or not there was a business connection between McWilliam’s and McDonald’s, such a person was not misled by the advertisement into believing that there was such a connection and accordingly there was no contravention of the former s 52(1) of the Trade Practices Act 1974 (Cth) (now s 18(1) of the Australian Consumer Law). Thus, conduct which merely tends to cause confusion will not ordinarily be sufficient to constitute misleading or deceptive conduct: McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394 at 404, 412-413.

case [17.100] The plaintiff manufactured and sold various items of furniture under the name “Post & Rail”, including lounge suites and chairs in its so-called “Contour” range. The defendant also manufactured and sold various items of furniture, including lounge suites and chairs called the “Rawhide” range. The latter furniture was very similar, indeed “almost identical” in shape, design and general appearance to the plaintiff’s Contour range, although on close inspection various differences could be observed: at 195. The High Court held that the defendant had not contravened the former s 52(1) of the Trade Practices Act 1974 (Cth) (now s 18(1) of the Australian Consumer Law). The decisive factor in reaching this conclusion was that the defendant always labelled its furniture stating that it was the manufacturer. The manufacture and sale by wholesale of a product which so closely resembles the product of another manufacturer that a prospective purchaser would be likely to be misled, but which is properly labelled with the name of its own manufacturer is not, generally speaking, conduct which is prohibited by the statutory provision: at 199-200, 225-226. In that case the lounges and chairs were properly labelled, and a prospective purchaser wishing to purchase the plaintiff’s furniture could reasonably be expected to look for the label and find it, or take other comparable steps such as making inquiry: at 199, 211. Evidence that some members of the public had been misled because the defendant’s label was missing, apparently removed by the retailer, was not relevant since the defendant was not responsible for such conduct: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 196, 211.

chapter 17 Consumer Protection

[17.110] By way of contrast, the following case involved a successful action being brought against a trade competitor for contravention of s 52(1) of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law):

case [17.120] In 1989, the respondent began to market potato chips made by the batch-cooking method under the name “The Kettle Chip”. In 1992, the appellant (“Smith’s Crisps”), to counter loss of market share because of the success of the respondent’s product, began marketing a new line of potato chips under the name “Country Kettle”: at 477-478. The Full Federal Court held that at the time the appellant’s chips came onto the market, the name “Kettle” had obtained a secondary meaning distinctive of the respondent’s product: at 483. Accordingly, the court upheld the trial judge’s findings that the appellants had engaged in passing off and had contravened s 52(1) of the former Trade Practices Act 1974 (Cth) (now s 18(1) of the Australian Consumer Law): Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994) 52 FCR 474 at 496; see also Solahart Industries Pty Ltd v Solar Shop Pty Ltd (2011) 281 ALR 544 at [65]-[79]. [17.130] In certain circumstances silence may constitute misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law. Examples include where there is an omission to mention a qualification to a statement which makes the statement misleading, or an omission to mention a subsequent change which has occurred where the result of the change is to make a previous statement incorrect: Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 489-490. In other words, silence may constitute misleading or deceptive conduct where some qualification to a statement is necessary to avoid a party being actively misled: Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601 at 610.

case [17.131] In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 a borrower applied to a lender (BMW) seeking an insurance premium funding loan. The borrower used the services of an insurance broker (Miller). The insurance policy for which finance was sought was a non-cancellable policy: at [1]. A cancellable policy was appropriate as security for a premium loan, but a non-cancellable policy was not suitable as security: at [29]. The lender asked the broker for details of the policy. The broker provided an insurance certificate that made reference to monetary limits applying to various properties. The certificate did not state whether the policy was cancellable: at [31], [54]. Based on a superficial reading, the lender incorrectly assumed that the policy was a property policy, which would usually be cancellable: at [31], [70]. The borrower defaulted on the loan: at [28]. The lender unsuccessfully sought to recover the unpaid moneys from the borrower and its directors: at [30]. The lender then sued the broker, claiming that provision of the insurance certificate constituted a misrepresentation that the policy was cancellable. The lender also claimed that the broker should have disclosed that the policy was not cancellable and was thus not suitable as security: at [2]. The High Court unanimously held that the broker had not engaged in misleading or deceptive conduct. Heydon, Crennan and Bell JJ considered whether the insurance certificate would have conveyed to its audience (an experienced premium lender) a representation that the policy was cancellable: at [85].

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There were numerous indications on the certificate that it did not convey such a representation. It was issued by the insurer’s professional indemnity division. The term of the policy was unusual for a property policy. The premium payable and the indemnity limit were very high for a property policy. The certificate did not describe the risks insured. While a standard property policy was cancellable, there were numerous unusual features that indicated that this was not a standard policy: at [86]. The certificate did not convey a representation that it was a cancellable property policy: at [87]. Heydon, Crennan and Bell JJ also considered whether the broker should have disclosed that the policy was not cancellable. The parties had extensive commercial experience. The fact that the insurance certificate did not describe the risks insured should have put the lender on notice that this was an unusual policy. However, the lender did not make any further inquiries. While the failure to make further inquiries would not necessarily defeat a claim of misleading or deceptive conduct, it was a relevant circumstance to consider in determining such a claim: at [91]. The broker knew that cancellability of the policy was an important consideration in deciding a loan application: at [93]. However, the lender said nothing to the broker that indicated that it was under a mistaken belief about the cancellability of the policy. The lender had asked about the provision of director’s guarantees, which it would not have done with a cancellable policy: at [94]. The broker provided the lender with a copy of the policy, which did not provide for cancellation. The broker’s failure to draw the lender’s attention to something that was disclosed in the policy with which it had been provided was not misleading or deceptive conduct: at [96]. In relation to non-disclosure, French CJ and Kiefel J observed that s 52 of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law) did not compel a party engaged in business negotiations to disclose information that would assist the decision-making of another party to the negotiations. The section did not require a party to disclose information that would enable another party of equal bargaining power and competence to avoid the consequences of carelessly disregarding its own interests: at [22]. The lender had been provided with a copy of the policy but failed to read it: at [26].

case [17.132] A supermarket advertised that the bread produced in its in-store bakeries was “baked fresh” and “baked today”. In fact the bread had already been partially pre-baked by a supplier to the supermarket. The Federal Court held that it was misleading to describe bread as “baked today” where part of the baking had occurred before the day of sale: at [146]. It was also misleading to describe the bread as “baked fresh” as that suggested baking from fresh dough: at [149]. This constituted misleading or deceptive conduct (Australian Consumer Law, s 18(1)). Sections 33 (misleading conduct regarding the manufacturing process of goods) and 29(1)(a) (false or misleading representations concerning the history of the goods) were also infringed: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2014) 317 ALR 73 at [159]. The court issued an injunction restraining the supermarket from making similar representations concerning its bread. The supermarket was also ordered to place a corrective notice in its bakeries: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (No 2) [2014] ATPR 42-287; [2014] FCA 1022 at Order [3]-[4]. The court imposed a pecuniary penalty of $2.5 million: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540 at [103].

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case [17.133] Poultry advertising and packaging claimed that their chickens were “free to roam around in large barns”. That was true at some stages of the chicken’s lives, but as the chickens grew their size and number made free-roaming impossible. The Federal Court held that this claim constituted misleading and deceptive conduct (Australian Consumer Law, s 18) and a false representation about the history of the goods (s 29(1)(a)): Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 4) [2013] ATPR 42-448; [2013] FCA 665 at [114]. The court subsequently imposed a joint penalty of $400,000 against the two poultry suppliers: Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 5) [2013] ATPR 42-450; [2013] FCA 1109 at [83]. In several other cases egg suppliers were held to have engaged in misleading and deceptive conduct by labelling eggs as “free range” when the conditions in which the chickens were kept did not meet that description. See, for example, Australian Competition and Consumer Commission v Pirovic Enterprises Pty Ltd (No 2) [2014] ATPR 42-483; [2014] FCA 1028 at [36]; Australian Competition and Consumer Commission v RL Adams Pty Ltd [2015] FCA 1016 at [34]; Australian Competition and Consumer Commission v Derodi Pty Ltd [2016] FCA 365 at [43]; Australian Competition and Consumer Commission v Snowdale Holdings Pty Ltd [2016] FCA 541 at [517].

case [17.135] An internet service provider advertised broadband services for $29.99 per month. This price was prominently displayed in the advertisement. A rather less conspicuously displayed condition stated that this price was only available when bundled with a home telephone service (itself $30 a month). A setup fee ($129.95) and deposit ($20) were also payable. The High Court held that the advertisement was misleading. Whether an advertisement was misleading was to be assessed not by whether it would induce consumers to enter into contracts with the advertiser, but whether it would induce consumers to enter into negotiations with the advertiser: at [48], [50]. The “dominant message” of the advertisement was the $29.99 figure, not the substantial additional costs: at [52]. Consumers could be attracted to enter negotiations with the advertiser by the misleading impression created by the advertisement: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [54]. 5

Section 18 and misrepresentations in pre-contractual negotiations [17.140] Section 18 of the Australian Consumer Law may be used by those who have been induced to enter into a contract as a result of misrepresentations made during the course of negotiations leading up to the contract, to obtain damages or other appropriate relief on the ground that the misrepresentations constituted misleading or deceptive conduct. Examples under the former s 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law) are as follows:

5

See H Treisman, “Does it Matter what the Hypothetical Consumer Knows? An Analysis of ACCC v TPG” (2014) 22 Australian Journal of Competition and Consumer Law 192.

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case [17.150] L negotiated for the purchase of the appellant company’s beauty clinic business. P, the principal of the appellant company, told L that the head employee at the clinic would continue with the clinic after its sale, when P knew that she intended to leave and set up her own clinic in competition nearby: at 327. It was held by the Full Federal Court that P’s statement constituted misleading or deceptive conduct in contravention of s 52 of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law). The court said that the sale of the clinic was in “trade or commerce” as required by the section, notwithstanding that it was the sale of the appellant’s only capital asset: at 331. Furthermore, the court rejected appellant’s argument that the statutory provision was confined to “conduct which is deceptive of members of the public in their capacity as consumers of goods and services”: Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325 at 332.

case [17.160] Representations were made to the applicants by the respondents as to the proposed features and quality of home units which were not yet built. The applicants agreed to buy the units but the representations proved to be untrue: at 716-717. It was held that the applicants were induced to enter into the contracts by misleading statements in contravention of s 52 of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law) and the court ordered the refund of their deposits: Byers v Dorotea Pty Ltd (1986) 69 ALR 715 at 730. [17.170] An exemption clause cannot be successfully relied upon as a defence to an action for contravention of s 18 of the Australian Consumer Law. For example, an exemption clause in a contract for the supply of goods to the effect that before signing the agreement, the purchaser had examined the goods, relied on her or his own skill and judgment and was satisfied that the goods were reasonably fit for the purpose required cannot be successfully relied on where the vendor has made misrepresentations in the negotiations leading up to the contract which constitute misleading or deceptive conduct. “That is because the conduct of a respondent in making representations is antecedent to the contract in which the exemption clause is contained”: Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371 per Sheppard J. To be contrasted with the factual situation in that case is the decision of the High Court in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592:

case [17.180] A real estate agent had issued an advertising brochure for a property. The brochure included a misrepresentation regarding title to the land contained in a survey diagram supplied by the vendor. The brochure contained a disclaimer stating that the real estate agent did not guarantee the accuracy of the information but believed the information to be reliable. The disclaimer stated that interested persons should make their own inquiries. The High Court held that in issuing the brochure the real estate agent had not engaged in misleading or deceptive conduct. The agent had made no representation but had merely conveyed what the vendor was representing to prospective purchasers about the property without adopting those representations: at [35], [40]. The agent “did not purport to do anything more than pass on

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information supplied by another”: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [51].

case [17.185] Two parties entered into a settlement deed. One of the parties later sought to rescind the settlement for alleged misleading or deceptive conduct regarding financial projections in a business plan that had been provided during the settlement negotiations: at [2]-[3]. The Full Federal Court held that the business plan made no representation that the projections would be achieved. It was a plan with objectives, not firm commitments: at [80]. It was improbable that management would claim that the projections would be definitely met five years into the future at a time of difficult economic conditions: Brosnan v Katke [2016] ATPR 42-515; [2016] FCAFC 1 at [82].

Exemption of news media in respect of news and information [17.190] The Australian Consumer Law exempts certain “information providers”, most notably the news media, from the general prohibition of misleading or deceptive conduct: s 19. However, the exemption does not extend to statements such information providers might make in an advertising context (s 19(2)), which will therefore remain subject to the prohibition of misleading or deceptive conduct in s 18. An information provider is not protected where the misleading statements were made under a contract, arrangement or understanding with a person supplying goods or services of the type which was the subject of the publication: s 19(3); Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Ltd (2009) 239 CLR 305 at [9].

Prohibition of unconscionable conduct [17.200] The Australian Consumer Law prohibits persons from engaging in “unconscionable conduct”: Pt 2-2. These provisions can be conveniently considered under the following heads: (a)

Unconscionable conduct within the meaning of the unwritten law (s 20); and

(b)

Unconscionable conduct in connection with goods or services (s 21). 6

(a) Unconscionable conduct within the meaning of the unwritten law [17.210] Section 20(1) of the Australian Consumer Law provides: A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time. Section 20 refers to conduct that is unconscionable within the meaning of the unwritten law. The “unwritten law” referred to in s 20 is the common law and equity: Australian Competition and Consumer 6

Unconscionable conduct in the supply of goods and services to consumers and unconscionable conduct in business transactions were formerly the subject of separate provisions in the Australian Consumer Law, ss 21 and 22 respectively. The Competition and Consumer Legislation Amendment Act 2011 (Cth) repealed these separate provisions and replaced them with new ss 21 and 22 that apply to both types of transactions.

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Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [38]. The general effect of this provision is to extend the remedies available under the Australian Consumer Law to conduct regarded as unconscionable by the courts in accordance with common law or equitable principles: see [7.870].

case [17.220] In Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51, a shopping centre tenant was engaged in litigation with the centre owners. The tenant wished to assign their lease as part of the sale of their business. The prospective buyer was willing to buy the tenant’s business provided a new lease could be negotiated by the tenant. However, the lease was about to expire and did not contain an option to renew. The centre owners were willing to agree to a new lease provided the tenant withdrew from the litigation. The tenant agreed to this condition for the new lease. The High Court held that the centre owner’s conduct did not constitute unconscionable conduct under the former s 51AA of the Trade Practices Act 1974 (Cth) (now s 20 of the Australian Consumer Law). There was no taking of unconscionable advantage of a party at a special disadvantage. A person is not at a special disadvantage merely because of inequality of their bargaining power: at [11], [184]. A special disadvantage seriously affects the ability of a party to judge their own best interests: at [13], [63], [184]. While the tenants were at a disadvantage, it was not a “special” disadvantage: at [15]. Taking advantage of a superior bargaining position does not constitute unconscientious exploitation of a special advantage: at [14], [155]. 7 [17.230] The application of s 20 of the Australian Consumer Law involves consideration of the unconscionable dealings doctrine (see the cases discussed at [7.870]). “Put in short form, that doctrine involves the knowing exploitation by one party of the special disadvantage of another in a dealing between them …”: Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292 at [11] per Finn J. Where both parties are labouring under the same mistake in good faith, unconscionable conduct has not been established: Spira v Commonwealth Bank of Australia (2003) 57 NSWLR 544 at [60]. Section 20 does not apply where the conduct in question falls within the more specific provisions of s 21: s 20(2).

(b) Unconscionable conduct in connection with goods or services [17.240] Section 21(1) of the Australian Consumer Law prohibits a person from engaging in “unconscionable” conduct in connection with goods or services. 8 It provides: A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible 7

See R Bigwood, “Curbing Unconscionability: Berbatis in the High Court of Australia” (2004) 28 Melbourne University Law Review 203; N Dean, “ACCC v Berbatis Holdings” (2004) 26 Sydney Law Review 255.

8

Unconscionable conduct in the supply of goods and services to consumers and unconscionable conduct in business transactions were formerly the subject of separate provisions in the Australian Consumer Law, ss 21 and 22 respectively. The Competition and Consumer Legislation Amendment Act 2011 (Cth) repealed these separate provisions and replaced them with new ss 21 and 22 that apply to both types of transactions. See generally L Griggs and E Webb, “Section 22 Unconscionability – A Sauropod in Need of Life Support” (2011) 11(1) QUT Law and Justice Journal 31; S McLeod, “Statutory Unconscionable Conduct under the ACL: The Case Against a Requirement for ‘Moral Obloquy’” (2015) 23 Competition and Consumer Law Journal 123.

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acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. This prohibition does not apply to conduct engaged in only because the person engaging in the conduct institutes legal proceedings or refers a dispute to arbitration in relation to a supply or acquisition of goods or services: s 21(2). The term “unconscionable” is not defined. The Full Federal Court has stated it is “undesirable to attempt any comprehensive definition of that which is ‘unconscionable’”: NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98 at [164]. The Act lists some circumstances that may be considered in determining whether conduct is unconscionable. Section 22(1) provides that in determining whether there has been unconscionable conduct by a supplier of goods and services in connection with the supply of goods or services to a customer, the court may have regard to the following matters: (a)

the relative strengths of the bargaining positions of the parties;

(b)

whether conditions imposed upon a customer were not reasonably necessary for the protection of the legitimate interests of the supplier;

(c)

whether the customer was able to understand any documents relating to the supply of the goods or services;

(d)

whether any undue influence or pressure was exerted upon the customer or any unfair tactics used against the customer;

(e)

the amount and terms for which the customer could have acquired equivalent goods or services from another supplier;

(f)

the extent to which the supplier’s conduct was consistent with their conduct towards other customers in similar transactions;

(g)

the requirements of any applicable industry code;

(h)

the requirements of any other industry code where the customer acted on the reasonable belief that the supplier would comply with that code;

(i)

the extent to which the supplier unreasonably failed to disclose intended conduct that might affect the customer or any risks to the customer arising from the supplier’s intended conduct;

(j)

the extent to which the supplier was willing to negotiate with the customer the terms and conditions of the contract; the terms and conditions of the contract; the conduct of the supplier and customer in complying with the contract; and any conduct of the supplier or customer in connection with their commercial relationship after entry into the contract;

(k)

whether the supplier had a contractual right to vary unilaterally a term or condition of a contract with the customer for the supply of the goods or services; and

(l)

the extent to which the supplier and the customer acted in good faith.

A similar list of considerations applies in determining whether an acquirer of goods or services has engaged in unconscionable conduct in connection with an acquisition of goods or services from a supplier: s 22(2). In considering whether conduct is unconscionable, the court may consider the terms of the contract, the manner in which the contract is carried out and the extent to which the contract is carried out. The court is not limited to considering the circumstances in which the contract was formed: s 21(4)(c). The court is not to have regard to any circumstances not reasonably foreseeable at the time of the alleged unconscionable conduct: s 21(3)(a). The court may have regard to conduct or circumstances prior to entry into the contract: s 21(3)(b).

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Unlike s 20, s 21 does not limit unconscionable conduct to conduct that is unconscionable within the meaning of the unwritten law: s 21(4)(a) This provision can apply to a system of conduct or pattern or behaviour even where an individual is not identified as being disadvantaged by that conduct or behaviour: s 21(4)(b).

case [17.250] A vacuum cleaner seller was held to have acted unconscionably in selling a vacuum cleaner on credit terms to a housewife who was alone in the house and to his knowledge was illiterate and unable to understand commercial matters in any depth: Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926 at [112]. On the meaning of unconscionable in the former s 51AB of the Trade Practices Act 1974 (Cth) (now s 21 of the Australian Consumer Law), the learned judge said: “The word unconscionable is not a term of art. It is not limited to traditional equitable or common law notions of unconscionability …. It bears its ordinary meaning of ‘showing no regard for conscience, irreconcilable with what is right or reasonable’ …. What is required is ‘serious misconduct or something clearly unfair or unreasonable’ …. It will be relevant whether advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his or her best interests”: at [98] per RD Nicholson J; see similarly, Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292 at [24] per Finn J.

case [17.255] Vacuum cleaner sellers gained entry to the homes of elderly people by falsely claiming that they would conduct a free maintenance check on the resident’s existing vacuum cleaner. Their real purpose was to sell expensive vacuum cleaners. The “check” was designed to show the superiority of the vacuum cleaner they sought to sell. The Full Federal Court held that the seller’s deception about their purpose constituted unconscionable conduct. That deception tainted all of the seller’s subsequent conduct: at [65]. The purpose of the deception was to obtain entry to the home and to convince the resident of the need to purchase a new vacuum cleaner: at [27]. The existence of a statutory cooling off period did not negate the unconscionability of the prior deception: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] ATPR 42-477; [2013] FCAFC 90 at [72]. 9 The Federal Court imposed a pecuniary penalty of $370,000 for the contraventions: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd (No 2) [2015] ATPR 42-510; [2015] FCA 903 at [31]. [17.260] An intentional breach of contract made between business parties is not necessarily unconscionable and some further “moral obloquy” must be shown: Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 at [91]. A party may take a commercial decision to breach a contract knowing that the other party is able to enforce its right to seek a legal remedy for the breach. Such a breach of contract is not inherently unconscionable: at [92].

9

H Fielder, “Unconscionable Conduct in Equity and Under Statute: The Australian Consumer Law and the Lux Decision” (2015) 23 Australian Journal of Competition and Consumer Law 161.

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Remedies for contravention [17.280] Contravention of the unconscionable conduct provisions do not give rise to a criminal offence. However, a pecuniary penalty may be imposed (see [17.710]). Civil remedies, for example, an injunction, or damages for the loss suffered, discussed at [17.720] and [17.780], may be sought for contravention of the unconscionable conduct provisions.

Prohibition of unfair contract terms [17.290] The Australian Consumer Law prohibits unfair terms in standard form consumer contracts. 10 An “unfair” term of a standard form consumer contract is void: s 23(1). However, the contract as a whole will not be void if the contract can operate without the unfair term: s 23(2). A consumer contract is one for the supply of goods or services or the sale of land to an individual who acquires them wholly or predominantly for personal, domestic or household use or consumption: s 23(3). These provisions also apply to standard form small business contracts: s 250(2). 11 The upfront price under such small business contracts must be no more than $300,000, or no more than $1,000,000 for contracts that extend over more than one year: s 23(4).

Meaning of “unfair” [17.300] A term is unfair if it: (a)

would cause a significant imbalance in the parties’ rights and obligations;

(b)

is not reasonably necessary to protect the legitimate interests of the advantaged party; and

(c)

would cause detriment to a party if it was applied: Australian Consumer Law, s 24(1).

A term is presumed to be not reasonably necessary to protect the advantaged party’s legitimate interests unless that party proves the contrary: s 24(4). In determining unfairness, the court may take into account any matters it considers to be relevant. However, it must take into account the transparency of the term and the contract as a whole: s 24(2). A term is “transparent” if it is expressed in reasonably plain language, legible, presented clearly and readily available to the affected party: s 24(3).

Examples of unfair terms [17.310] The following are given as examples of potentially unfair terms, namely, a term that: (a)

permits only one party to avoid performing the contract;

(b)

permits only one party to terminate the contract;

(c)

penalises only one party for breach or termination of the contract;

(d)

permits only one party to vary the terms of the contract;

(e)

permits only one party to renew the contract;

(f)

permits one party to vary the upfront price payable without allowing the other party to terminate the contract;

10

11

See generally S Harder, “Problems in Interpreting the Unfair Contract Terms Provisions of the Australian Consumer Law” (2011) 34 Australian Bar Review 306; C Wall, “Unfair Contract Terms Provisions: The Saviour of Retirees?” (2012) 20 Competition and Consumer Law Journal 165; A Sims, “Unfair Contract Terms: A New Dawn in Australia and New Zealand?” (2013) 39 Monash University Law Review 739. See A Taylor, “Fair Play on the Building Site: How Extending Unfair Contract Term Protections to Small Businesses will Impact Construction Projects” (2015) 31 Building and Construction Law Journal 365.

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(g)

permits one party to unilaterally vary the characteristics of the goods or services to be supplied;

(h)

permits one party to unilaterally determine if the contract has been breached or to interpret the contract;

(i)

limits one party’s vicarious liability for its agents;

(j)

permits one party to assign the contract to the detriment of another party without consent;

(k)

limits one party’s right to sue another party;

(l)

limits the evidence one party can bring in proceedings concerning the contract;

(m)

imposes the evidential burden on one party in proceedings concerning the contract; and

(n)

is of a kind prescribed by the regulations: Australian Consumer Law, s 25(1).

case [17.315] Chrisco sold Christmas hampers on an instalment payment plan. A term of the firm’s contract with customers provided that after the final instalment was paid the customer’s bank account would continue to be debited in anticipation of a future order. These payments could be refunded if the customer so requested. The contract permitted the customer to opt out of this term: at [2]-[3], [52]. The Federal Court held that this term was an unfair term: at [101]. The court considered that the term gave rise to a “significant imbalance” in the rights and obligations of the parties to the contract. The term allowed the company to withdraw money from the customer’s bank account without providing the customer with “any substantial corresponding right”: at [53]. The right to demand repayment of the money was not a substantial corresponding right: at [56]. The money would be returned without payment of interest: [58]. Customers might also have incurred interest charges on the withdrawn amount if they had paid by credit card: at [64]-[65]. The customer would receive no discount for the withdrawn payment: at [69]. The transparency of the contractual term was also relevant: at [70]. The term did not clearly state what amounts would be withdrawn: at [81]-[82]. The term appeared in small font and there was no attempt to draw attention to the term: at [89]-[90]. The refundability of the withdrawn amounts was not mentioned in the terms set out in the order catalogue, but only on the order form that would be sent to the company. The customer would thus have no copy of the term unless they copied the order form: at [92]. The term imposed a “significant financial detriment” upon the customer without any corresponding benefit: Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd (2015) 239 FCR 33 at [100]. The court declined to issue an injunction that would have prohibited the use of similar terms without the making of various disclosures: Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd (No 2) [2016] FCA 144 at [13]-[14].

Meaning of standard form contract [17.320] For the provisions as to unfair terms in consumer contracts to apply, the contract must be a “standard form contract”: Australian Consumer Law, s 23(1)(b). In determining this issue, a court may take into account such matters as it thinks relevant but must consider whether: (a)

one of the parties has all or most of the bargaining power;

(b)

the contract was prepared by one party before any discussion relating to the transaction occurred;

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(c)

another party was required, in effect, either to accept or reject the terms of the contract in the form in which they were presented;

(d)

another party was given an effective opportunity to negotiate the terms of the contract;

(e)

the terms of the contract take into account the specific characteristics of another party or the particular transaction; and

(f)

any other matter prescribed by the regulations: s27(2).

The matters specified in (d), (e) and (f) do not apply to a term that defines the main subject matter of the contract, sets the upfront price payable or is required or permitted by federal, State or Territory law: s 26(1). On the application of a party to the contract or the ACCC, a court may declare that a contract term is unfair: s 250(1). The court may make such a declaration only if the contract is a standard form contract: s 250(3).

Specific false representation provisions [17.330] The Australian Consumer Law contains provisions designed to protect consumers against false representations made by a person in connection with the promotion and supply of goods, services and land. Contravention of these provisions gives rise not only to civil remedies, for example the recovery of damages for the loss suffered but also to prosecution for an offence rendering the offender liable to a fine.

Goods and services [17.340] The prohibition against the making of false or misleading representations in connection with the promotion and supply of goods and services is to be found in s 29(1) of the Australian Consumer Law. The section provides that a person must not, in trade or commerce, in connection with the supply 12 or possible supply of goods 13 or services 14 or in connection with the promotion by any means of the supply or use of goods or services make a false or misleading representation: (a)

that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;

(b)

that services are of a particular standard, quality, value or grade;

(c)

that goods are new;

(d)

that a particular person has agreed to acquire goods or services;

12

Supply is defined as follows: “(a) in relation to goods – supply (including re-supply) by way of sale, exchange, lease, hire or hire-purchase; and (b) in relation to services – provide, grant or confer”: Australian Consumer Law, s 2(1).

13

Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1). Services are defined as including: “(a) any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce; and (b) without limiting paragraph (a), the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under: (i) a contract for or in relation to the performance of work (including work of a professional nature), whether with or without the supply of goods; or (ii) a contract for or in relation to the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or (iii) a contract for or in relation to the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; or (iv) a contract of insurance; or (v) a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or (vi) any contract for or in relation to the lending of money; but does not include rights or benefits being the supply of goods or the performance of work under a contract of service”: Australian Consumer Law, s 2(1).

14

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(e)

that purports to be a testimonial by any person relating to goods or services;

(f)

concerning: (i)

a testimonial by any person; or

(ii)

a representation that purports to be such a testimonial; relating to goods or services;

(g)

that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits;

(h)

that the person making the representation has a sponsorship, approval or affiliation;

(i)

with respect to the price of goods or services;

(j)

concerning the availability of facilities for the repair of goods or of spare parts for goods;

(k)

concerning the place of origin of goods;

(l)

concerning the need for any goods or services;

(m)

concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-2);

(n)

concerning a requirement to pay for a contractual right that: (i)

is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy; and

(ii)

a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law).

Contravention of the latter section may occur whether the false representation is contained in an advertisement, or is made orally by the salespeople of a company negotiating the sale of goods to a prospective purchaser, or by representations on the goods themselves as the following cases demonstrate.

case [17.350] The respondent computer company sold computers directly to customers. The company did not permit customers to collect the computers from its premises. The goods were subject to a compulsory delivery charge. The company’s advertisements prominently displayed a price for the goods which did not include the delivery charge: at [34]-[35]. An asterisk next to the price referred consumers to small print text which indicated that there was an additional delivery charge: at [48]. Section 53(e) of the former Trade Practices Act 1974 (Cth) (now s 29(1)(i) of the Australian Consumer Law) prohibited the making of “false or misleading representation with respect to the price of goods or services”. The Full Federal Court held that the company’s conduct contravened this provision. The prominently displayed price was not the price which would actually be paid by a customer: Australian Competition and Consumer Commission v Dell Computer Pty Ltd (2002) 126 FCR 170 at [12], [14], [79].

case [17.360] The appellant ran a promotion campaign comprising advertisements in newspapers and on television and radio featuring a “free mobile phone”. Reference was made in the advertisements that “conditions apply”. In reality, a subscriber for the “free” telephone was obliged to pay initially a connection fee of $65, a delivery charge of $19.90, a security deposit of $260, followed by monthly payments in advance of $130 for a minimum of 15 months – a total of $2,294.90: at 218-219.

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The Full Federal Court held that s 53(g) of the former Trade Practices Act 1974 (Cth) (now s 29(1)(m) of the Australian Consumer Law) had been contravened. “Any respect in which goods or services offered as ‘free’ may not be free should be prominently and clearly spelled out so that the magnetism of the word ‘free’ is appropriately qualified”: Nationwide News Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 215 at 228.

case [17.370] In Ascot Four Pty Ltd v Australian Competition and Consumer Commission (2009) 176 FCR 106 a jeweller’s advertisement included a “sale price” and a “strike through price” for certain jewellery. However, given the prevalence of discounting in the industry the jewellery had never sold at the strike through price, or even near to that price. The Full Federal Court held that the jeweller had made a false or misleading representation about the price of the goods as the strike through price was not what a customer would have paid prior to the sale: at [26]. (The case was decided under s 75AZC(1)(g) of the former Trade Practices Act 1974 (Cth) (now s 29(1)(i) of the Australian Consumer Law.) See also Jewellery Group Pty Ltd v Australian Competition and Consumer Commission [2013] FCAFC 144 at [46]-[55].

case [17.372] An airline’s website prominently advertised flights for a price that did not include the booking fee that applied to payment by most credit and debit cards: at [8], [45]. The booking fee was not disclosed until the customer reached the payment page of the website, although there was a prior indication that such a fee might be payable: at [179]. The Federal Court held that the airline had contravened s 18 (misleading or deceptive conduct) and s 29(1)(i) of the Australian Consumer Law (false or misleading representations with respect to the price of services): at [181]. The airline had represented that the prominently displayed price was a “firm figure” that would be varied only if the customer selected additional services: at [180]. Disclosure on the payment page was insufficient to avoid these contraventions of the Act: at [182]. Following representations by the Commission the airline modified the price disclosure on its website: at [56]-[57]. The prominently displayed price was now accompanied by a statement that conditions applied to the price. The booking fee was disclosed in these conditions: at [64], [67]. The Federal Court held that these modifications were sufficient to satisfy ss 18 and 29(1)(i) of the Australian Consumer Law: Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2016] ATPR 42-523; [2015] FCA 1263 at [185]-[186].

case [17.375] A Harvey Norman store told a customer that they were not entitled to a refund for a defective refrigerator and that the customer was limited to their rights under manufacturer’s warranty. However, under the Australian Consumer Law the store was obliged to provide a refund for goods that were not of acceptable quality (s 54(1)). The store also told the customer that it would provide a refund after the manufacturer had provided the store with a refund: at [1]. Under the Australian Consumer Law the store’s obligation to give a refund was independent of the obligations

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of the manufacturer. The store had thereby made false or misleading representations concerning rights available under the consumer guarantee provisions of the Australian Consumer Law (s 29(1)(m)): Australian Competition and Consumer Commission v Gordon Superstore Pty Ltd [2014] ATPR 42-474; [2014] FCA 452 at [48]. [17.380] The penalty for making false or misleading representations about goods or services is $1,100,000 for corporations and $220,000 for other parties: Australian Consumer Law, s 151(1).

Country of origin representations [17.390] Under ss 255–257 of the Australian Consumer Law it is not a contravention of s 18 (misleading or deceptive conduct), s 29(1)(a) or (k) or s 151(1)(a) or (k) (false or misleading representations) to represent that goods are, for example, “Made in Australia” if the goods have been “substantially transformed” in Australia and at least 50 per cent of the cost of producing or manufacturing the goods has occurred in Australia. The same applies to representations as to the country of origin of imported goods. The provision does not apply to a representation as to a particular region of origin, for example “made in Tasmania” or “made in California”, and such representations are governed by ss 18, 29(1)(a) or (k) and 151(1)(a) or (k). Further, it is not a contravention of ss 18, 29(1)(a) or (k) and 151(1)(a) or (k) to represent that goods are a “Product of Australia” or “Produce of Australia” provided that all the significant ingredients or components of the goods come from Australia, and virtually all of the production or manufacturing processes associated with the goods occur within Australia. Again, the same applies to representations as to the country of origin of imported goods. The requirement that the goods must have been “substantially transformed” means that the goods must have undergone a fundamental change in their form, appearance or nature, such as the sewing of cloth into a shirt, or the moulding of sheet metal into a panel: s 255(3). There are detailed provisions regarding the method for calculating production or manufacturing costs for the purposes of the sections: ss 256–257.

case [17.395] A series of websites operated by the respondent claimed that ugg boots were Australian made when they were actually made in China. The websites also used the “Australian Made” logo without authorisation. The Federal Court held that these claims constituted misleading or deceptive conduct (Australian Consumer Law, s 18) and false representations of the place of origin of the goods (s 29(1)(k)). The respondent had obtained an unfair market advantage over suppliers of products that were genuinely made in Australia: at [107]. The misuse of the “Australian Made” logo had the potential to undermine trust in that logo: at [108]. The court imposed separate pecuniary penalties in relation to the misrepresentation of the place of origin ($330,000) and the use of the “Australian Made” logo ($100,000): Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [2011] ATPR 42-363; [2011] FCA 695 at [135], [139].

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Land [17.400] The Australian Consumer Law proscribes the making of false or misleading representations in connection with the sale or grant of an interest in land. Section 30(1) provides that a person must not, in trade or commerce, in connexion with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land make a false or misleading representation concerning: (a)

sponsorship, approval or affiliation;

(b)

the nature of the interest in the land;

(c)

the price payable for the land;

(d)

the location of the land;

(e)

the characteristics of the land;

(f)

the use to which the land is capable of being put or may lawfully be put; or

(g)

the existence or availability of facilities associated with the land.

An example of the application of this provision can be seen in the following case:

case [17.410] In the audio part of a television advertisement for land being offered for sale it was stated, inter alia: “150 quarter acre lots at a sensational price. … A wonderful place to live.” The visual part included the words “watch it grow” and contained various pictures of parts of the land including some showing several houses. The court found that having regard to the advertisement as a whole (including the various pictorial representations) there had been a representation that houses could be built on the land advertised for sale: at 444. In reality, however, the land was subject to a planning scheme under which houses could not be built on the land without the special approval of the responsible authority and by satisfying its onerous conditions: at 447. Accordingly, it was held that there had been a misleading representation concerning the use to which the land could be lawfully put in contravention of s 53A(1)(b) of the former Trade Practices Act 1974 (Cth) (now s 30(1)(f) of the Australian Consumer Law): at 447. The decision was upheld by the Full Federal Court on appeal: Given v Pryor (1979) 24 ALR 442; (1980) 30 ALR 189 at 192 (FC). [17.420] For a misleading representation to be made “in connection with the promotion of the sale” in contravention of s 30 of the Australian Consumer Law (formerly 53A of the Trade Practices Act 1974 (Cth)), there is no necessity to establish that a sale resulted from or was the likely result of the making of the statement. The fact that a brochure containing the representation was available to the public is sufficient: Videon v Barry Burroughs Pty Ltd (1981) 37 ALR 365 at 383-384. The penalty for making a false or misleading representation about the sale of land is $1,100,000 for a corporation and $220,000 for other parties: Australian Consumer Law, s 152(1).

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Profitability of certain business activities [17.430] The Australian Consumer Law provides that a person must not make a representation that is false or misleading in a material particular concerning the profitability or risk or any other material aspect of any business activity that the person has represented as one that can be, or can be to a considerable extent, carried on at or from a person’s place of residence: s 37(1). It is further provided that where a person, whether by advertisement or otherwise, invites persons to engage or participate in a business activity requiring the performance of work, or the investment of moneys and the performance of work associated with the investment, the person must not make a representation that is false or misleading in a material particular with respect to the profitability or risk or any other material aspect of the business activity: s 37(2). This provision is designed to counter, for example, extravagant claims as to earnings which can be made from investment in dubious “franchise” schemes.

case [17.440] A company, which carried on the business of processing and developing film, set up a network of “franchise” couriers to collect exposed films left at various retail outlets, forward the film to the company’s office and redeliver the developed film and photographs. The franchisees had been induced to part with $7,500 each for their franchises by a false statement in advertisements claiming that they could earn up to $300 a week. In reality the return on their investment was minimal and in some cases virtually nothing, since the only substantive income of the company was derived from the sale of the franchises: at 505-506. The company was convicted of a number of offences arising out of contravention of s 59(2) of the former Trade Practices Act 1974 (Cth) (now s 37 of the Australian Consumer Law) and fined a total of $95,000: Ducret v Colourshot Pty Ltd (1981) 35 ALR 503 at 509. [17.450] Section 4(1) of the Australian Consumer Law provides that where a person makes a representation as to any future matter, and they do not have reasonable grounds for making the representation, the representation is taken to be misleading. It is an implication from this provision that a representation will not be misleading if the defendant can show that they had reasonable grounds for making the representation: Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 at [14]; Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114 at [100], [182]. The penalty for making misleading representations about the profitability of certain business activities is $1,100,000 for corporations and $220,000 for other parties: s 159(1).

Prohibition of other “unfair practices” [17.460] The Australian Consumer Law also prohibits certain other kinds of business conduct in relation to the supply of goods and services. These are as follows:

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Misleading conduct as to employment [17.470] A person must not engage in conduct that is liable to mislead persons as to the availability, nature, terms or conditions, or any other matter relating to employment offered by the person or another person: Australian Consumer Law, s 31. The penalty for misleading conduct relating to employment is $1,100,000 for corporations and $220,000 for other parties: s 153(1).

Offering rebates, gifts, prizes, or other free items with the intention of not providing them as offered [17.480] A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or an interest in land or in connection with the promotion by any means of such activities offer rebates, gifts, prizes or other free items with the intention of not providing them or of not providing them as offered: s 32(1). For example, to offer a “free” gift with goods and at the same time increase the price of the goods to cover the cost of the gift would contravene this provision. The penalty for offering rebates, gifts etc with the intention of not providing them as offered is $1,100,000 for corporations and $220,000 for other parties: s 154(1).

Misleading conduct as to the nature or manufacturing process of goods [17.490] A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods: Australian Consumer Law, s 33. The penalty for misleading conduct as to the nature or manufacturing process of goods is $1,100,000 for corporations or $220,000 for other parties: s 155(1).

case [17.495] A painkiller was packaged in four different packages, with each version supposedly formulated for the relief of a specific type of pain (back pain, period pain, migraine and tension headaches). However, the active ingredient and formulation was the same in each case. All of the products thus had exactly the same efficacy in pain relief: at [2]. The manufacturer admitted that it had contravened ss 33 and 18 of the Australian Consumer Law (misleading and deceptive conduct): at [3]. The company admitted that the packaging had represented that each product was specifically formulated to treat the type of pain mentioned on the packet and that the product specifically treated that type of pain and not others: at [13]. The Federal Court held that ss 33 and 18 had been violated: at [14]. The court issued an injunction restraining the manufacturer from engaging in further breaches for a period of three years: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408 at [22]. The court also imposed a pecuniary penalty of $1.7 million: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) [2016] FCA 424 at [98]. The Commission has lodged an appeal against the penalty decision.

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Misleading conduct in relation to services [17.500] A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services: Australian Consumer Law, s 34.

case [17.510] The defendant company conducted a travel business. It published a brochure which advertised a “Swingaway Asia Group Holiday” as being of 16 days’ duration, when in fact it was only 15 days. In earlier proceedings, the defendant had been convicted of accepting payment without intending to supply services as offered in the brochure and fined $3,200. The brochure was subsequently reprinted without the information being corrected. Brochures containing the incorrect information were still on display and available for the public at the defendant’s premises: at 43,177. In the Federal Court, Fisher J said that the crucial feature of the contravention was the defendant’s failure to take any steps to withdraw or correct the misleading statement. Furthermore, the defendant had been guilty of considerable carelessness in permitting the brochures to remain on public display: Dawson v World Travel Headquarters Pty Ltd [1981] ATPR 40-240 at 43,179. [17.520] The penalty for misleading conduct in relation to services is $1,100,000 for corporations or $220,000 for other parties: Australian Consumer Law, s 156(1).

Bait advertising [17.530] This type of advertising essentially takes the form of attracting customers by the offer of goods at “special” prices, only for the customer to be told on following up the advertisement that the “special” price goods had all been sold but that another product at a higher price is available for sale. Section 35 of the Australian Consumer Law attempts to proscribe this kind of practice by providing that: (1)

A person must not, in trade or commerce, advertise goods or services for supply at a specified price if: (a)

(b) (2)

there are reasonable grounds for believing that the person will not be able to offer for supply those goods or services at that price for a period that is, and in quantities that are, reasonable having regard to: (i)

the nature of the market in which the person carries on business; and

(ii)

the nature of the advertisement; and

the person is aware or ought reasonably to be aware of those grounds.

A person who, in trade or commerce, advertised goods or services for supply at a specified price must offer such goods or services for supply at that price for a period that is, and in quantities that are, reasonable having regard to: (a)

the nature of the market in which the person carries on business; and

(b)

the nature of the advertisement.

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case [17.540] The defendant corporation carried on business as a dealer in Ford cars. It advertised for sale in newspaper advertisements a particular Ford model at the special price of “$6,600 plus on-road costs and delivery fees”. A prospective purchaser visited the defendant’s showrooms where he was informed that there was only one vehicle available at the relevant price but that it had already been sold: at 426. The defendant was held to have breached s 56(1) and (2) of the former Trade Practices Act 1974 (Cth) (now s 35 of the Australian Consumer Law). The circumstantial evidence led to the conclusion beyond reasonable doubt that the managing director of the defendant corporation did not intend to offer the particular model of vehicle for sale in accordance with the advertisement: Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417 at 433; see similarly, Walplan Pty Ltd v Wallace (1985) 8 FCR 27 at 30, 35. [17.550] The penalty for the bait advertising offences is $1,100,000 for corporations or $220,000 for other parties: Australian Consumer Law, s 157(1)–(2).

Accepting payment without intending or being able to supply as ordered [17.560] A person must not accept payment or other consideration for goods or services where: (a)

(b)

the person intends (i)

not to supply the goods or services; or

(ii)

to supply goods or services materially different from the goods or services in respect of which the payment or other consideration is accepted; or

there are reasonable grounds, of which the person is aware or ought reasonably to be aware, for believing that it will not be able to supply the goods or services within the period specified or, if no period is specified, within a reasonable time: Australian Consumer Law, s 36.

The penalty for wrongly accepting payment is $1,100,000 for corporations or $220,000 for other parties: s 158(1).

Sending unsolicited credit or debit cards [17.570] A person must not send a credit card, debit card or any article that may be used as a credit or debit card to a person except either: (a)

at her or his written request; or

(b)

in renewal or replacement of a card of the same kind previously sent to and used by her or him: Australian Consumer Law, s 39(1).

This provision is intended to prohibit the unsolicited issue of credit or debit cards. The penalty for sending unsolicited credit or debit cards is $1,100,000 for corporations or $220,000 for other parties: s 161(1).

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Assertion of right to payment for unsolicited goods or services [17.580] A person must not, in trade or commerce, assert a right to payment from a person for unsolicited goods or services (that is, goods sent or services supplied to a person without any request being made for them) unless the person has reasonable cause to believe that there is a right to payment, the burden of proof of which lies on the person: Australian Consumer Law, s 40(1)–(2), (4). A person is taken to have asserted a right to payment if the person: (a)

makes a demand for the payment or asserts a present or prospective right to the payment;

(b)

threatens to bring legal proceedings with a view to obtaining the payment;

(c)

places or causes to be placed the name of the person on a list of defaulters or debtors, or threatens to do so, with a view to obtaining the payment;

(d)

invokes or causes to be invoked any other collection procedure, or threatens to do so, with a view to obtaining the payment; or

(e)

sends any invoice or other document stating the amount of the payment or setting out the price of the goods or services and not stating that no claim is made to the payment that complies with any requirement prescribed by the regulations: s 10(1).

The penalty for asserting a right to payment for unsolicited goods is $1,100,000 for corporations or $220,000 for other parties: s 162(1).

Recipient not liable to pay for unsolicited goods or services [17.590] The recipient of unsolicited goods is not liable to pay for them, nor for the loss of or damage to the goods other than loss or damage resulting from some wilful and unlawful act by the recipient: Australian Consumer Law, s 41(1). Furthermore, the recipient of unsolicited goods becomes the owner of them either: (a)

one month after notifying the sender in writing of the receipt of the goods, or

(b)

in the absence of such notice, after three months of receiving the goods, subject to the following exceptions: s 41(2), (4).

The recipient will not become the owner of the unsolicited goods if, during the one- or three-month periods just mentioned: (a)

the recipient unreasonably refused to permit the sender or owner of the goods to take possession of them; or

(b)

the sender or owner took possession of the goods during the relevant period; or

(c)

the goods were received in circumstances in which the recipient knew, or might reasonably be expected to have known, that the goods were not intended for her or him: s 41(3).

The recipient of unsolicited services is not liable to pay for them, nor for any loss of or damage as a result of the supply of the services: s 42. The penalty for asserting a right to payment for unsolicited services is $1,100,000 for corporations or $220,000 for other parties: s 162(2).

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Assertion of right to payment for unauthorised entries or advertisements [17.600] The Australian Consumer Law makes it an offence for a person to assert a right to payment from any person of a charge for making an entry or advertisement in a publication relating to the person or to their profession, business, trade or occupation unless the person knows or has reasonable cause to believe that the other person has authorised the making of the entry or advertisement: s 43(1). In the absence of authorisation, a person is not liable to make payment for and is entitled to recover any payment made for such entry or advertisement: s 43(4). The penalty for asserting a right to payment for unauthorised entries or advertisements is $1,100,000 for corporations or $220,000 for other parties: s 163(1)–(2).

Pyramid selling [17.610] In general terms a pyramid selling scheme is one in which the participants are offered both the right to sell a particular company’s product and to receive payment or other benefit for introducing other persons into the scheme. The problem experienced with such schemes in the past has been that although those at the top of the pyramid (usually the persons who promoted the scheme) may receive considerable benefit derived largely from the contribution of each new participant, those at the base of the pyramid who rely on sales of the product, and the introduction of new participants to recoup their initial investment, find that the market becomes rapidly saturated and the product almost impossible to sell. Such schemes are prohibited by the Australian Consumer Law, ss 44–46. In Australian Communications Network Pty Ltd v Australian Competition and Consumer Commission (2005) 146 FCR 413, the Full Federal Court gave a lucid explanation of the nature of a pyramid scheme: “The real vice inherent in pyramid selling schemes appears to be that the rewards held out are substantially for recruiting others, who in turn get their rewards substantially for recruiting still more members, and so on. If there is no underlying genuine economic activity the scheme must ultimately collapse and many people will have been induced to pay money for nothing. We see the purpose of the legislation as directed at proscribing schemes where the real or substantial rewards held out are to be derived substantially from the recruitment of new participants, as distinct from rewards for genuine sales of goods or services”: at [46]. In Australian Competition and Consumer Commission v Jutsen (No 3) (2011) 206 FCR 264 a pyramid scheme claimed to offer accommodation and travel discounts and the chance to earn substantial money. Members had to pay $250 to join: at [4]. The accommodation or travel discounts arising from membership were difficult or impossible to realise so were of little or no value: at [114]. Members were told that they could earn money by recruiting new members: at [5]. Nicholas J observed that a pyramid scheme has two essential characteristics. First, new participants make a payment to participate in the scheme: at [105]. Secondly, new participants are induced to make such payments by the prospect of receiving payments for introducing new participants to the scheme: at [106]. The scheme in this case possessed both characteristics: at [112]. The penalty for participating in a pyramid scheme or inducing another person to participate is $1,100,000 for corporations or $220,000 for other parties: s 164(1)–(2).

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Pricing [17.620] A person must not supply goods if: (a) the goods have more than one displayed price; and (b) the supply takes place for a price that is not the lowest of the displayed prices: Australian Consumer Law, s 47(1). This is commonly referred to as multiple pricing. Further, a person must not in connection with: (a) the supply of goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption; or (b) the promotion of the supply of goods or services of that kind; make a representation concerning an amount that would constitute a part of the consideration unless they also prominently specify a single price for the goods or services: s 48(1). The regulations may exclude specific classes of representations from the operation of this provision: s 48(4A).

case [17.625] An airline website flight search results page advertised fare prices that did not include various taxes and charges. The displayed prices on this page were thus only part of the price payable. The correct prices were displayed on subsequent pages. The airline admitted the contravention of s 48 of the Australian Consumer Law: Australian Competition and Consumer Commission v AirAsia Berhad Co [2012] FCA 1413 at [15]. [17.627] The penalty for multiple pricing is $5,000 for corporations or $1,000 for other parties: s 165(1). The penalty for the single price offence is $1,100,000 for corporations or $220,000 for other persons: s 166(1).

Referral selling [17.630] This is a method of selling whereby a person persuades a consumer to buy its goods or services by representing that after the consumer has paid over money, he or she will receive a rebate, commission or some other benefit in return for giving the person names of other customers or otherwise assisting the person in selling their goods or services. The practice has been proscribed because consumers who paid in the expectation that they would receive some future benefit and recoup what they paid received nothing, either because they found it almost impossible to obtain referrals or the companies did not honour their promises to pay. A person must not, in trade or commerce, induce a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made, receive a rebate, commission or other benefit in return for giving the person the names of prospective customers or otherwise assisting the person to supply goods or services to other consumers, if receipt of the rebate, commission or other benefit is contingent on an event occurring after the contract is made: Australian Consumer Law, s 49. This provision seeks to prohibit persons from “encourag[ing] consumers to acquire goods or services for a certain price while thinking that the ‘true price’ will ultimately prove to be less, because of commissions to be received, when there is no certainty that they will be received at all because their receipt is contingent on the occurrence of later events outside the consumer’s control”: Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1999) 95 FCR 302 at [74]. The penalty for referral selling is $1,100,000 for corporations or $220,000 for other parties: s 167(1).

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Harassment and coercion [17.640] A person must not use physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer: Australian Consumer Law, s 50(1). In Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8, French J held that when a creditor makes repeated demands for payment and points out that legal proceedings may be brought to recover the debt, such conduct will not constitute undue harassment. However, a creditor will engage in undue harassment where the “frequency, nature or content” of the creditor’s demands “is such that they are calculated to intimidate or demoralise, tire out or exhaust a debtor”: at [48]. In Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472, Hill J defined “undue harassment” as follows: “[A] person will be harassed by another when the former is troubled repeatedly by the latter. The reasonableness of the conduct will be relevant to whether what is harassment constitutes undue harassment: at [60]. ‘Undue’ adds an element of unreasonableness: at [62]. ‘Coercion’ means ‘force or compulsion or threats of force or compulsion negating choice or freedom to act’”: at [61]. In that case a union had set up a picket line to block departure of a ship that had refused to employ shore labour for onboard cleaning. It was held that this conduct amounted to coercion. The penalty for harassment or coercion is $1,100,000 for corporations or $220,000 for other parties: s 168(1).

Enforcement and remedies for unfair practices [17.650] Contravention of the “unfair practices” provisions of the Australian Consumer Law may give rise to an action for: (a)

a criminal penalty (ss 151–168);

(b)

a pecuniary penalty (s 224(1));

(c)

an injunction (s 232);

(d)

damages (s 236); and

(e)

other orders (for example, rescission or variation of contracts): ss 237, 243. 15

Criminal penalties [17.660] Contravention of the unfair practices provisions of the Australian Consumer Law is an offence. Basically, ss 151–168 repeat the unfair practices provisions, and set down the penalty for breach of each provision. The maximum penalty stipulated for contravention of each unfair practice provision by a corporation is a penalty of $1,100,000. The maximum penalty for an individual is a penalty of $220,000. Prosecutions must be commenced within three years of the commission of the offence: s 212. Criminal proceedings may not be brought for contravention of the general prohibition of misleading or deceptive conduct (s 18); the prohibition on unconscionable conduct (ss 20–22) or the provisions concerning unfair contract terms (ss 23–27): s 217. 15

S Russell, “The Australian Consumer Law: The New Enforcement Powers and Remedies – The Story So Far” (2012) 20 Australian Journal of Competition and Consumer Law 6; JD Heydon, “Are there Stresses and Strains in the Remedial Structure of the Competition and Consumer Act 2010 (Cth)?” (2013) 41 Australian Business Law Review 354.

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Liability of a corporation for the conduct of its employees [17.670] A corporation can only act through its officers, employees and agents. Accordingly, the Competition and Consumer Act 2010 (Cth) makes a corporation responsible for the conduct of such persons. Section 139B(2) of the Act 16 provides that: Any conduct engaged in on behalf of a body corporate – (a) by a director, employee or agent of the body corporate within the scope of the actual or apparent authority of the director, employee or agent; or (b)

by any other person: (i)

at the direction of a director, employee or agent of the body corporate; or

(ii)

with the consent or agreement (whether express or implied) of such a director, employee or agent; if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent; is taken, for the purposes of … the Australian Consumer Law, to have been engaged in also by the body corporate. Certain provisions of the Australian Consumer Law proscribing specific types of unfair conduct require proof of intention (for example, offering “free” gifts with the intention of not providing them as offered (s 32); and accepting payment for goods or services which the corporation intends not to supply: s 36). Where in proceedings for contravention of the Australian Consumer Law arising from conduct engaged in by a corporation, it is necessary to establish the “state of mind” of the corporation, it is sufficient to show a director, employee or agent of the corporation by whom the conduct was engaged in within the scope of the person’s actual or apparent authority, had that state of mind: s 139B(1). 17 The “state of mind” of a person refers to the knowledge, intention, opinion, belief or purpose of the person and the reasons for such: s 130. 18 These provisions imposing responsibility on a corporation for the acts and intention of its employees and agents apply generally to the other remedies for contravention of the Australian Consumer Law. For example, a company will be liable in damages for the loss suffered by another for a false representation as to the company’s intention made by one of its directors in pre-contractual negotiations where the representation, although not within the director’s actual authority, is within their apparent authority: Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431 at 523. On the other hand, where an employee is acting only in their own interest, and hence not “on behalf of” the company, the latter will not be liable for the employee’s misconduct: Snyman v Cooper (1990) 25 FCR 470 at 474-475.

Defences [17.680] Certain defences are available to a defendant prosecuted for contravention of the unfair practices provisions. It is a defence if the defendant establishes “that the contravention was caused by a reasonable mistake of fact, including a mistake of fact caused by reasonable reliance on information supplied by another person”: Australian Consumer Law, s 207(1). The defence does not apply in relation 16 17 18

Section 139B(2) is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth. Section 139B(2) is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth. Section 130 is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth.

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to information supplied by an employee or agent of the defendant, or if the defendant is a corporation, to information supplied by a director, employee or agent of the corporation: s 207(2).

case [17.690] The defendants manufactured toy koalas from casings imported from Korea. The toy koalas were labelled “Made in Australia”: at 516. The defendants were prosecuted for falsely representing that the toys were made in Australia in contravention of s 53(eb) of the former Trade Practices Act 1974 (Cth) (now s 29(1)(k) of the Australian Consumer Law). Over several years the defendants had received advice from the Department of Trade that if more than 50 per cent of manufacturing costs were incurred in Australia, the product was entitled to be labelled “Made in Australia”: at 527. The Federal Court held that although the elements of the offence under s 53(eb) of the former Trade Practices Act 1974 (Cth) had been made out, the defendants had established the defence of reasonable reliance on information supplied by another person under s 85(1)(b) (now Australian Consumer Law, s 207(1)): Thorp v CA Imports Pty Ltd (1989) 16 IPR 511 at 537. [17.700] It is also a defence if the defendant establishes that “(a) the contravention was due to the act or default of another person, to an accident or to some other cause beyond the defendant’s control, and (b) the defendant took reasonable precautions and exercised due diligence to avoid the contravention”: Australian Consumer Law, s 208(1). The defences in ss 207 and 208 are limited to where a prosecution is brought for an offence which will render the defendant liable to a fine if convicted and may not be relied on as a defence to a claim for civil relief, for example an action for damages for loss suffered as a result of the defendant’s contravention. A defence is provided for those innocently publishing offending advertisements. Thus, in proceedings for contravention of the offence provisions committed by the publication of an advertisement, it is a defence if the defendant establishes that he or she: (a)

is a person whose business it is to publish or arrange for the publication of advertisements;

(b)

received the advertisement for publication in the ordinary course of business; and

(c)

did not know and had no reason to suspect that its publication would amount to a contravention of an offence provision: ss 209, 251.

Pecuniary penalties [17.710] The court may order the payment of a pecuniary penalty determined by the court: Australian Consumer Law, s 224(1). The penalty is not to exceed maximum amounts that vary depending upon the provision contravened: s 224(3). A pecuniary penalty may not be ordered if the person has been convicted of an offence for the same conduct: s 225(1). A pecuniary penalty may be imposed for contravention of the unconscionable conduct provisions (ss 20–22): s 224(1)(a)(i). The general prohibition of misleading or deceptive conduct (s 18) is not subject to a pecuniary penalty.

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The maximum penalty stipulated for contravention of the unconscionable conduct provisions (ss 20–22) and each unfair practice provision by a corporation is a penalty of $1,100,000. The maximum penalty for other persons is a penalty of $220,000. 19 The factors that are relevant to the assessment of a pecuniary penalty include the size of the business, the deliberateness of the conduct and the time over which it extended, the involvement of senior management, cooperation with the Commission, previous similar conduct, contrition, the financial position of the company and the profit derived from the contravention: Australian Competition and Consumer Commission v Woolworths Ltd [2016] ATPR 42-521; [2016] FCA 44 at [124], [126]. The size of the business is relevant because a larger penalty will be necessary to achieve a deterrent effect against a large corporation that has breached the Act: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540 at [89]-[92]. Cooperation with the Commission is a factor that weighs in favour of a reduction in penalty. It was held that a supermarket which had cooperated with the Commission should receive a reduced penalty for its unconscionable conduct towards its suppliers. Without that cooperation, the penalty would have been “significantly higher”. In that case an agreed pecuniary penalty of $10 million was imposed: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [124], [133], [222], [229]. Previous similar conduct prevents a defendant from relying on its prior good record in mitigation of penalty: Australian Competition and Consumer Commission v AGL South Australia Pty Ltd (2015) 146 ALD 385; [2015] FCA 399 at [42]-[47]. While the financial position of a company is relevant, a pecuniary penalty may be imposed upon a company that is in liquidation or that may become insolvent: Australian Competition and Consumer Commission v Energy Australia Pty Ltd [2015] ATPR 42-491; [2015] FCA 274 at [157]-[158]. Two aspects of deterrence are applicable to the imposition of a penalty. There is specific deterrence of the contravener in the case at hand. There is also general deterrence of others who might be tempted to engage in a similar contravention: Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 at [71]; Australian Competition and Consumer Commission v Apple Pty Ltd [2012] ATPR 42-404; [2012] FCA 646 at [18]. The Full Federal Court has emphasised that “the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by th[e] offender or others as an acceptable cost of doing business”: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 at [62].

case [17.711] In Australian Competition and Consumer Commission v Harvey Norman Holdings Ltd [2011] ATPR 43-384; [2011] FCA 1407 Harvey Norman advertised 3D television sets using the phrase “Watch the Grand Finals in HD and 3D with this TV.” However, the AFL and NRL grand finals were to be broadcast in 3D in only six cities. 1.75 million copies of the advertising pamphlet were distributed in areas where the grand finals would not be broadcast in 3D. The advertisement did not mention that the grand finals would only be available in 3D in particular cities: at [8]. Harvey Norman admitted that it had violated what are now ss 18 and 29(1) of the Australian Consumer Law (misleading or deceptive conduct; false or misleading representations in connection

19

An exception is contravention of the multiple pricing provision: Australian Consumer Law, s 47(1); see [17.620] where the maximum pecuniary penalty for a corporation is $5,000 and for an individual $1,000: s 224(3).

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with the promotion and supply of goods and services): at [11]. The ACCC and Harvey Norman submitted that an appropriate pecuniary penalty for this conduct was $500,000: at [14]. The Federal Court considered various factors in determining the appropriate penalty. The nature of the contravening conduct included the fact that the television sets could not be put to the advertised use in much of Australia: at [26]. Harvey Norman was aware of this fact when it began distributing the pamphlets: at [31]-[33]. The judge commented that there had been “an expensive, misleading and calculated campaign of sizeable proportions, characterised by blatant and deliberate disregard of the truth [and] cynical strategies to capitalise on contemporary sporting events”: at [45]. The actual loss or damage caused by the violation was not known: at [47]. During the promotion 819 expensive 3D televisions were sold in areas which could not receive the broadcasts: at [48]. The advertisement was likely to have induced some recipients to purchase a 3D television at a higher price than would have been payable if they had waited for the 3D medium to be more widely used: at [49]. The size of the contravener was also relevant in assessing the penalty. Harvey Norman was a large corporation: at [52]. The period over which the conduct occurred was relevant. In this case the contravening conduct occurred over several weeks: at [54]. The culture of compliance within the contravener was another relevant factor. The judge observed that the facts permitted the inferences that either “lip-service” was paid to compliance or that the company’s compliance policy was “woefully inadequate”: at [56]. The judge held that the proposed penalty was within the appropriate range: at [61].

case [17.712] In Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 Optus advertised that its broadband plans had an overall quota composed of separate peak and off-peak components. However, once the peak quota was exceeded, the download speed slowed without regard to the usage of the overall or off-peak quotas: at [1]. The disclaimers in the advertisements were invisible or ineffective to dispel the misleading impression: at [9]. The claim was made in print, billboard and Internet advertising. Optus had previously engaged in similar contraventions: at [10]. The Full Federal Court held that the trial judge had correctly treated each advertisement in each medium as constituting 11 separate contraventions with a separate penalty applying to each contravention: at [53]. The scope of the campaign and the different mediums used justified this treatment of the advertisements: at [55]. Penalties imposed in previous cases did not establish a range of appropriate penalties where their facts differed from those in the present case: at [60]. The absence of loss or damage to consumers is a factor in favour of reducing a penalty: at [58]. A penalty must be sufficient to deter businesses from making the “cynical calculation” that the profits to be derived from contravention exceed the cost of any penalty: at [62]-[63]. Given the scale of the contravening advertising campaign in this case, it was necessary to impose a penalty that would “substantially affect” the profitability of the campaign: at [64]. The breaches were “on a grand scale”: at [66]. Optus was not a first offender: at [68]. Optus had acted in breach of a previous undertaking: at [69]. The court imposed a penalty of $3,610,000 for the 11 infringements: at [71].

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case [17.713] In Australian Competition and Consumer Commission v Apple Pty Ltd [2012] ATPR 42-404; [2012] FCA 646 Apple advertised a 4G iPad that was unable to connect to the only Australian 4G network available to consumers: at [10]. Apple continued to run the advertisements after the ACCC had informed Apple of its concerns about their misleading nature: at [27]. Apple admitted that its advertisements contravened s 33 of the Australian Consumer Law (misleading conduct as to the characteristics of goods): at [11]. Apple and the ACCC jointly proposed that a penalty of $2.25 million was appropriate: at [13]. The Federal Court imposed the proposed penalty: at [14], [51]. Apple’s conduct was deliberate: at [26]. The ACCC had informed Apple of its concerns about the advertisements but Apple continued to use its worldwide advertising campaign and only ceased doing so when the worldwide campaign changed: at [27]-[28]. Apple had thus placed greater importance upon “global uniformity” in marketing than upon compliance with the Australian Consumer Law: at [30]. On the other hand, Apple had not previously engaged in similar contraventions: at [40]. Apple’s admission of liability also reduced the appropriate penalty: at [41].

case [17.715] A shoe importer promoted a type of shoes by claiming that wearing the shoes toned and strengthened muscles in the buttocks, thighs and calves: at [10]. That claim could not be substantiated: at [67]. The importer was aware that the manufacturer of the shoes had settled a US Fair Trade Commission investigation by agreeing not to make this claim: at [19]. The Federal Court held that the claim contravened the following provisions of the Australian Consumer Law: s 18 (misleading or deceptive conduct), s 29(1)(g) (false or misleading representations about the performance characteristics, benefits or uses of goods) and s 33 (misleading conduct regarding the nature, characteristics and suitability for purpose of goods): at [100]. The court held that the agreed pecuniary penalty of $350,000 was appropriate: at [166]. The infringing conduct had occurred over a period of around 18 months: at [127]. The importer was a small wholly owned subsidiary of a much larger company: at [137]. The loss or damage caused by the contravention could not be quantified. Some consumers would have bought the shoes based on the claims: at [138], [141]. Competitors would have lost sales due to the false claims: at [142]. The importer had not previously engaged in similar conduct: at [144]. The importer supplied the shoes with the false claims despite being aware of the US Fair Trade Commission settlement: at [145]. Senior management was aware of the contravention: at [148]. No remedial action was taken until the importer was contacted by the Commission. The remedial action taken was inadequate: at [149]. The importer was “complacent” in relation to compliance with its consumer law obligations: at [152]. The importer cooperated with the Commission and the hearing was not contested: Australian Competition and Consumer Commission v Reebok Australia Pty Ltd [2015] ATPR 42-501; [2015] FCA 83 at [156].

Injunction [17.720] An injunction is an order by the court directed to a person requiring her or him to refrain from conduct of the type specified in the order. The court is empowered to grant an injunction restraining a person from engaging in conduct that constitutes a contravention of the Australian Consumer Law: s 232.

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An injunction may also be granted in respect of a proposed contravention and to restrain ancillary acts such as attempting to contravene, or being directly or indirectly knowingly concerned in a contravention. The court may grant an injunction by consent of all the parties to the proceedings without the court first having to satisfy itself that a person has engaged, or is proposing to engage, in conduct which contravenes the Australian Consumer Law: s 233. Where the court is of the opinion that it is desirable to do so, it may grant an interim injunction pending the determination of an application for an injunction: s 234(1). The purpose of an interim injunction is to provide a speedy remedy to restrain conduct or threatened conduct in cases where a prima facie contravention is shown which, if allowed to continue until a final determination of the matter by the court, would cause irreparable harm to the plaintiff or public at large. In an application for an interim or interlocutory injunction, the court must first inquire whether there is a serious question to be tried and then consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought: Epitoma Pty Ltd v Australasian Meat Industry Employees’ Union (No 2) (1984) 3 FCR 55 at 58, 63; Reckitt Benckiser (Australia) Pty Ltd v Procter & Gamble Australia Pty Ltd [2015] FCA 753 at [44]. What is meant by “balance of convenience” in this context is whether the inconvenience or injury, which the plaintiff would be likely to suffer if an injunction were refused, outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted. The court has power to issue an injunction against an Australian citizen (or person who is ordinarily resident in Australia) in relation to contravening conduct engaged in outside of Australia: Australian Competition and Consumer Commission v Sensaslim Australia Pty Ltd (No 1) (2011) 196 FCR 566 at [28].

Who may apply [17.730] Application for an injunction may be made by the ACCC or “any other person”: Australian Consumer Law, s 232(2). By enabling “any other person” to apply for an injunction, access to the court is made available to private persons and organisations to restrain misleading or deceptive practices which contravene the provisions of the Australian Consumer Law: Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591 at [1]–[2], [139].

Trade competitors [17.740] The High Court has held that the expression “any other person” in the former s 80(1) of the Trade Practices Act 1974 (Cth) (now s 232(2) of the Australian Consumer Law) can include a trade competitor. Accordingly, the latter may obtain an injunction to restrain the conduct of a business rival which contravenes, for example ss 18 or 29 of the Australian Consumer Law: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 226, 234. There has been an increasing number of actions brought by trade competitors against business rivals for alleged contraventions of consumer protection law:

case [17.750] Since 1972 the plaintiffs had marketed in Australia a vegetable oil in aerosol form under the name “Pure and Simple”. From May 1983 the defendants had distributed in Australia food products imported from a Californian company called Pure and Simple Inc, including jars of mustard marketed under the name “Pure and Simple”: at 234.

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The Full Federal Court held that the name “Pure and Simple” had become distinctive of the plaintiffs’ goods and upheld the decision of the first instance judge restraining the defendants from marketing mustard under the same name. Such conduct constituted misleading or deceptive conduct in contravention of s 52 of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law), since there was a likelihood of potential purchasers being misled or deceived into believing the defendants’ mustard was in some way connected with the plaintiffs’: Abundant Earth Pty Ltd v R & C Products Pty Ltd (1985) 7 FCR 233 at 238-239.

case [17.760] Since 1976 the applicant, Taco Bell Pty Ltd, had conducted a Mexican food restaurant at Bondi, Sydney under the name “Taco Bell’s Casa”. In 1981, Taco Company of Australia Inc, a wholly-owned subsidiary of the American Taco Bell chain of fast food outlets, opened two restaurants in Sydney. The applicant thereupon sought an injunction restraining the (US) Taco Company from using the name “Taco Bell” in connection with the operation of restaurants in the Sydney area on the ground, inter alia, that such constituted misleading or deceptive conduct contrary to s 52 of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law). The (US) Taco Company cross-claimed on similar grounds: at 192-193. The trial judge granted the injunction sought by the applicant and his decision was upheld by the Full Federal Court. The reason was that the name “Taco Bell” had become associated in Sydney with the applicant’s Bondi restaurant a considerable time before the (US) Taco Company opened up restaurants in Sydney under the same name. It was the (US) Taco Company’s use of the name which was the cause of any actual or likely misconception as to a connection between the respective restaurants and which therefore should be restrained: Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 182, 205. [17.770] Where comparative television advertising between competing products is engaged in by a rival manufacturer it is important that the impression conveyed by the advertising is a fair reflection of the true position. If not, the advertisement will be held to be misleading or deceptive in contravention of s 18 of the Australian Consumer Law and an injunction granted to restrain its further publication: Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270 at 280, 282. “Provided the factual assertions are not untrue, or misleading half-truths, an advertiser can lawfully compare a particular aspect of its product or service favourably with the same aspect of a competitor’s product or service”: Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 193 ALR 629 at [22].

Damages [17.780] The Australian Consumer Law grants a private right of action to recover damages for the loss or damage suffered by the conduct of another which contravened the statutory provisions. A person who suffers loss or damage by the conduct of another person that was done in contravention of a consumer protection provision may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention: s 236(1).

Assessment of damages [17.790] The measure of damages in tort, rather than contract, is appropriate in most actions under s 236 of the Australian Consumer Law, especially those involving misleading or deceptive conduct and the

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making of false statements: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 6-7, 14; Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 290. However, once a causal connection is identified between the loss and the infringing conduct, the amount recoverable under s 236 is not limited by analogy with the law of tort, contract or equitable remedies. In Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388, the High Court unanimously held that the remedies provisions should not be restricted by analogies to the common law. In this case the drawing of such analogies with the tort of deceit led to the mistaken assumption that a claimant can suffer only one form of loss or damage under the former ss 82 and 87 of the Trade Practices Act 1974 (Cth) (now ss 236–238 of the Australian Consumer Law): at [44].

case [17.800] The appellant sold the respondent a vehicle. During the negotiations, the appellant made representations as to the vehicle’s fuel consumption that were considerably lower than its actual fuel consumption. The Full Court of the South Australian Supreme Court held that under s 82 of the former Trade Practices Act 1974 (Cth) (now s 236 of the Australian Consumer Law) the respondent was “entitled to all consequential loss directly flowing from its reliance upon the representation”: Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd (2001) 79 SASR 517 at [44]. In this case, the respondent’s consequential losses were the difference between the representations made by the appellant regarding fuel consumption and the vehicle’s actual fuel consumption: at [46]. The Court also permitted recovery of the interest incurred in respect of the extra fuel costs: at [60].

case [17.810] A valuer advised a prospective purchaser of a shopping arcade about the local rental market. The valuer advised that a shopping centre under construction in the area would not be likely to reduce rental income from the arcade. After the new shopping centre opened, rental income from the arcade was greatly reduced. The value of the arcade was reduced by the fall in rental income. The High Court held that the measure of damages under s 82 of the former Trade Practices Act 1974 (Cth) (now s 236 of the Australian Consumer Law) was the difference between the purchase price and the true value of the arcade (not market value) at the date of sale, along with consequential losses: at [36]. In determining that true value, the court will take into account matters known when the court assesses damages, not simply those known at the date of sale: at [39]. An alternative measure of damages under s 82 of the former Trade Practices Act 1974 (Cth) was the difference between the purchase price and what was left in the purchaser’s hands: HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at [63]. [17.820] The High Court has held that loss of an opportunity to obtain a commercial advantage or benefit is “loss or damage” within s 82(1) of the former Trade Practices Act 1974 (Cth) (now s 236(1) of the Australian Consumer Law) for which damages are recoverable for misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (now s 18 of the Australian Consumer Law): Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 348, 364. Diminution of an opportunity to exploit a commercial advantage or benefit is also “loss or damage” under s 236(1): Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 at 452. The value of a lost commercial opportunity is assessed by reference to “probabilities and possibilities”, so this value generally cannot be assessed with “precision”: CAJ Investments Pty Ltd v Lourandos (1998) 83 FCR 189 at 200-201.

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It has been held that exemplary (that is, punitive) damages are not recoverable under s 82 of the Trade Practices Act 1974 (now s 236 of the Australian Consumer Law), since the section only allows for the recovery of the amount of the loss or damage suffered by the conduct of another in contravention of the Act: Musca v Astle Corp Pty Ltd (1988) 80 ALR 251 at 262. Entitlement to recover loss or damage under s 236 is not confined to a person who relied on misleading misrepresentations which contravened, for example, s 18. Thus, a trade competitor who suffered loss because of misleading representations of a rival competitor which induced members of the public to purchase the product of the rival competitor was held entitled to recover for the loss of sales which would have been made but for the misleading misrepresentations: Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 532.

Liability of persons involved in contravention [17.830] The Australian Consumer Law makes natural persons such as employees liable in damages for a contravention by a corporation where, in effect, they have been closely involved in the contravention. 20 The definition of “involved” in s 2(1) provides that a reference to a person involved in a contravention (as in s 236(1) at [17.780]) is to be read as a reference to a person who: (a)

has aided, abetted, counselled or procured the contravention; or

(b)

has induced, whether by threats or promises or otherwise, the contravention; or

(c)

has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d)

has conspired with others to effect the contravention.

The High Court has held that to establish that a person has “aided or abetted” a contravention of the Act it must be shown that he or she intentionally aided, abetted, counselled or procured such contravention. Accordingly, if the defendant merely passes on information given to them by another without knowing that such information is false, the defendant lacks the knowledge to form the required intent and hence such action will not render them personally liable: Yorke v Lucas (1985) 158 CLR 661. The facts of that case were as follows:

case [17.840] Mr and Mrs Yorke bought a record business from Treasureway Stores Pty Ltd for $44,500. They raised the amount by way of mortgage on their home and loans at high rates of interest. They were assured by Treasureway’s selling agent (R, of Ross Lucas Pty Ltd, who had obtained the figures from M, a director of Treasureway) that the average weekly turnover of the business was $3,500. However, the Yorkes found on running the business that the average weekly turnover was only $1,800: at 664-665. It was held that Treasureway Stores Pty Ltd had engaged in misleading or deceptive conduct in contravention of s 52 of the former Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law) by falsely representing the weekly turnover of the business which had induced the Yorkes to purchase it. Furthermore, by acting as agent for Treasureway, Ross Lucas Pty Ltd had unwittingly contravened s 52 of the Trade Practices Act 1974 (now s 18 of the Australian Consumer

20

See S Lumb, “Establishing Accessorial Liability under the Australian Consumer Law” (2014) 22 Australian Journal of Competition and Consumer Law 254.

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Law). M, the director of Treasureway, was held to have aided or abetted or been knowingly concerned in the contravention under s 75B of the Trade Practices Act 1974 (now s 2(1) of the Australian Consumer Law). However, it was further held that the agent R, of Ross Lucas Pty Ltd, was not personally liable under s 75B of the Trade Practices Act 1974 since he had simply passed on the information provided by M, the director of Treasureway. The judge’s decision on this point was upheld by the High Court which said that R lacked the necessary knowledge to form the required intent to be personally liable under s 75B of the Trade Practices Act 1974: at 668. The High Court also doubted whether Ross Lucas Pty Ltd had contravened s 52 of the Trade Practices Act 1974 (now s 18 of the Australian Consumer Law) by merely passing on the information provided by M but did not have to decide this issue as there had been no appeal by the company from the earlier decision against it: Yorke v Ross Lucas Pty Ltd (1982) 69 FLR 116; Yorke v Ross Lucas Pty Ltd (1983) 68 FLR 268; Yorke v Lucas (1985) 158 CLR 661 at 666. [17.850] The definition of “involved” requires actual knowledge by the accessory of the essential elements of the contravention of the Act: Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 at [10]. In the case of a misrepresentation, the accessory must have actual knowledge that the representation is false: Hatt v Magro (2007) 34 WAR 256 at [41]; McGrath v HNSW Pty Ltd (2014) 219 FCR 489 at [23]. Liability under s 2(1) of the Australian Consumer Law is based upon a criminal standard of liability. By contrast, a corporation may be liable under s 18 though it acted honestly: Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 at [8].

Limitation of actions [17.860] An action for damages must be commenced within six years of the date when the cause of action accrued: Australian Consumer Law, s 236(2). A cause of action does not accrue until actual loss or damage has been sustained, which might not be until some time after the agreement was entered into: Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 at 40-41. Where the loss is a contingent loss or liability, the time does not begin to run until the contingency is fulfilled, that is, when the loss or damage is actually sustained: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 533.

Other orders [17.870] In addition to its power to grant injunctive relief and award damages, the court is empowered to make further orders to compensate for the damage suffered or likely to be suffered by a person as a result of another’s contravention of the Australian Consumer Law.

Compensation orders [17.880] On the application of a person who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that contravened the provisions of the Australian Consumer Law or relied on an unfair term, the court may make such orders as it thinks appropriate against the person who engaged in the conduct to compensate the applicant in whole or in part for their loss or damage: s 237. The ACCC may make an application on behalf of those who have suffered, or are likely to suffer loss or damage. An application for such an order must be made within six years of the date when the cause of action arose: s 237(3).

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Orders for non-party consumers [17.890] Orders may be made in respect of non-party consumers on the application of the ACCC. If a person contravened the consumer protection provisions or was advantaged by an unfair contract term, causing loss or damage to a class of persons, the court may make such orders as it thinks appropriate against that person (excepting an award of damages): Australian Consumer Law, s 239(1). The order must redress the loss or damage in whole or part or prevent or reduce the loss or damage: s 239(3). An application for such an order must be made within six years of the date when the cause of action arose or the contract term was declared to be unfair: s 239(4).

Kinds of orders that may be made [17.900] The orders which can be made against the person who has contravened the Australian Consumer Law under a compensation order (s 237) or an order for non-party consumers (s 239) referred to at [17.890] include: (a)

declaring the whole or any part of a contract void;

(b)

varying the terms of a contract;

(c)

refusing to enforce any or all of the terms of a contract;

(d)

directing the refund of money or return of property;

(e)

directing the payment of the amount of loss or damage suffered;

(f)

directing the person who contravened or was involved in the contravention, at their own expense, to repair or provide parts for goods supplied, or to render specific services to the person who suffered or is likely to suffer loss or damage caused by their contravention; and

(g)

directing the person who contravened or was involved in the contravention to execute an instrument that varies or terminates a transaction involving land: s 243.

An application for such an order must be made within six years of the date when the cause of action arose: s 237(3).

case [17.910] Where the purchaser of a home unit was induced to enter into the contract by misleading conduct on the part of the vendor in contravention of s 52(1) of the former Trade Practices Act 1974 (Cth) (now s 18(1) of the Australian Consumer Law), it was held that the purchaser was entitled to have the contract and an associated guarantee declared void under s 87 of the Trade Practices Act 1974 (now s 237 of the Australian Consumer Law), and was also entitled to damages for the loss suffered under s 82 of the Trade Practices Act 1974 (now s 236 of the Australian Consumer Law): Sanrod Pty Ltd v Dainford Ltd (1984) 54 ALR 179 at 190. [17.920] While s 243 of the Australian Consumer Law empowers a court to declare a contract void ab initio in appropriate circumstances, this is only one of a number of remedies provided by the section. Thus, the range of options in respect to remedy offered by s 243 allows the court to take into account the defendant’s as well as the plaintiff’s interests in moulding a just response to a proven contravention of the consumer protection provisions: Akron Securities v Iliffe (1997) 41 NSWLR 353 at 368, 371.

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Other enforcement provisions [17.930] In addition to the criminal penalties and pecuniary penalties discussed at [17.660] and [17.710], the Australian Consumer Law provides for a number of other enforcement measures to secure compliance with the consumer protection provisions.

Undertakings [17.940] The ACCC may accept a written undertaking by a person in respect of a breach of the provisions of the Australian Consumer Law. 21 If the court is satisfied that there has been a breach of the undertaking, it may make orders directing compliance with the terms of the undertaking; the payment of any financial benefit reasonably attributable to the breach; the payment of compensation to any person who has suffered loss or damage as a result of the breach or any other order the court considers appropriate: s 218. Failure to comply with a prior undertaking is a factor that favours the imposition of a more severe penalty: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [64].

Substantiation notice [17.950] The ACCC may issue a notice requiring a person to substantiate a claim promoting the supply of goods or services, the sale of land, or employment opportunities: Australian Consumer Law, s 219. Non-compliance with a substantiation notice is an offence punishable by a penalty of $16,500 for a corporation or $3,300 for another party: s 205(1).

Public warning notice [17.960] The ACCC may issue a public warning notice about the conduct of a person if it has reasonable grounds to suspect that their conduct contravenes the consumer protection provisions; is satisfied that persons are likely to suffer detriment as a result of the conduct; and that it is in the public interest to issue the notice: Australian Consumer Law, s 223.

Non-punitive orders [17.970] On application by the ACCC, the court has the power to make a number of non-punitive orders for contravention of the consumer protection provisions. These include a community service order, a probation order for a period up to three years, a disclosure order and an order requiring publication of an advertisement in specified terms: Australian Consumer Law, s 246(2). A community service order is an order requiring a person to perform for the benefit of the community a service that relates to the contravening conduct. A probation order seeks to ensure that a person does not engage in the contravening conduct or similar conduct during the period of the order. The order may direct the person to establish a compliance, education or training program for employees or to revise the internal operations of the person’s business that led to the contravening conduct.

Adverse publicity order [17.980] On application by the ACCC, the court may make an adverse publicity order in relation to a person who has contravened provisions of the Australian Consumer Law (excluding the general prohibition on misleading or deceptive conduct in s 18). An adverse publicity order requires the person to disclose specified information and requires the person to publish, at their own expense, an advertisement in the terms specified in the order: s 247. 21

See M Nehme, “The Use of Enforceable Undertakings by the Australian Competition and Consumer Commission” (2008) 27 University of Tasmania Law Review 197.

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Order disqualifying a person from managing corporations [17.990] If a person has contravened the consumer protection provisions (excluding the general prohibition on misleading or deceptive conduct in s 18 of the Australian Consumer Law), the court may disqualify that person from managing corporations for a period of time the court considers appropriate: s 248. 22 The court considers the seriousness of the contravention, the likelihood that the person will act in a similar manner in the future, the potential for harm to the public and the person’s potential for reformation: Australian Competition and Consumer Commission v Excite Mobile Pty Ltd (No 2) [2013] ATPR 42-454; [2013] FCA 1267 at [172]. For example, the court imposed a permanent disqualification order upon an individual who had been involved in numerous dishonest schemes over several decades. The judge commented that the defendant “preys on the right-mindedness of others to cheat and deceive” and was “beyond redemption”: Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484 at [154]-[155]. An undischarged bankrupt is disqualified from managing a corporation. 23 Where a promoter of a pyramid scheme was an undischarged bankrupt, the Federal Court made a disqualification order against the promoter since it would operate as a disqualification after his discharge from bankruptcy: Australian Competition and Consumer Commission v Stott [2013] ATPR 43-439; [2013] FCA 88 at [78].

Consumer guarantees [17.1000] The Australian Consumer Law provides for statutory guarantees in contracts for the supply of goods and services to consumers. 24 They include guarantees as to title, correspondence with description, acceptable quality and fitness for purpose: Pt 3-2, ss 51–56. Certain guarantees as to quality also apply in contracts for the supply of services to a consumer: ss 60–61. Before discussing the guarantees in more detail some explanation is required of the terms “supply” and “consumer”.

“Supply” [17.1010] The guarantees are not confined to contracts for the sale of goods since they apply to contracts for the supply of goods, the expression “supply” being defined to include not only contracts of sale but also contracts for the “exchange, lease, hire or hire-purchase” of goods: Australian Consumer Law, s 2(1).

“Consumer” [17.1020] The guarantees apply to contracts for the supply of goods and services to a consumer. A person acquires goods as a consumer only if: (a)

the amount payable for the goods does not exceed is $40,000; or

(b)

the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption; or

(c)

the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads: Australian Consumer Law, s 3(1).

22 23 24

M Knox and A Seethor, “Disqualification Orders under the Australian Consumer Law ” (2015) 23 Australian Journal of Competition and Consumer Law 105. Corporations Act 2001 (Cth), s 206B(3). See generally JM Paterson, “The New Consumer Guarantee Law and the Reasons for Replacing the Regime of Statutory Implied Terms in Consumer Transactions” (2011) 35 Melbourne University Law Review 252.

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A person does not acquire goods as a consumer if they acquired them for the purpose of resupply, or for the purpose of using them in the course of production, or in the repair of other goods or fixtures on land: s 3(2). A farm worker who acquired a tyre for the purpose of using it on his tractor was held to be a consumer because the goods were not used up as part of a process of production or manufacture or of repairing or treating other goods or fixtures: Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53 at [142]–[143]. A person acquires services as a consumer only if the amount payable for the services does not exceed $40,000 or the services were of a kind ordinarily acquired for personal, domestic or household use or consumption: s 3(3). The statutory guarantees applied by the Australian Consumer Law to “consumer” contracts for the supply of goods 25 are as follows:

As to title [17.1030] In every contract for the supply of goods by a person to a consumer, there is: (a)

a guarantee that the supplier has a right to dispose of the property in the goods (Australian Consumer Law, s 51(1));

(b)

a guarantee that the consumer has the right to undisturbed possession of the goods except so far as it may lawfully be disturbed by the supplier or by another person who is entitled to the benefit of any security, charge or encumbrance disclosed to the consumer before the contract is made (s 52); and

(c)

in the case of a contract for the supply of goods under which the property is to pass to the consumer – a guarantee that the goods are free, and will remain free until the time when the property passes, from any security, charge or encumbrance not disclosed or known to the consumer before the contract is made: s 53(1).

However, a supplier is not in breach of the guarantee in (c) above by reason only of the existence of a floating charge over assets of the supplier unless and until the charge becomes fixed and enforceable by the person to whom the charge is given: s 53(2). Where the supplier supplies a limited title to goods there is a guarantee that all encumbrances on the title known to the supplier have been disclosed to the consumer: s 53(3).

Acceptable quality [17.1040] Where a person supplies goods to a consumer in trade or commerce (other than a sale by auction), there is a guarantee that the goods are of acceptable quality: Australian Consumer Law, s 54(1). 26

25

Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1).

26

See B Harris, “A Critique of the CCAAC Report of 2009 and the Statutory Guarantee of Acceptable Quality in the Competition and Consumer Act 2010 (Cth)” (2011) 19 Competition and Consumer Law Journal 152; L Edgar, “Acceptable Quality v Merchantable Quality” (2015) 23 Australian Journal of Competition and Consumer Law 97. Under the former Trade Practices Act 1974 (Cth) the implied condition was that the goods were of merchantable quality, the term used in the State and Territory Sale of Goods Acts (see Chapter 14).

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Meaning of acceptable quality [17.1050] Goods are of acceptable quality if they are as: (a)

fit for all the purposes for which goods of that kind are commonly supplied;

(b)

acceptable in appearance and finish;

(c)

free from defects;

(d)

safe; and

(e)

durable;

as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods) would regard as acceptable having regard to the following matters (Australian Consumer Law, s 54(2)): (a)

the nature of the goods;

(b)

the price of the goods (if relevant);

(c)

any statements made about the goods on any packaging or label on the goods;

(d)

any representation made about the goods by the supplier or manufacturer; and

(e)

any other relevant circumstances relating to the supply of the goods: s 54(3).

Goods are taken to be of acceptable quality if the only reason why they were not so was specifically drawn to the consumer’s attention before they were supplied: s 54(4). The reason why the goods were not of acceptable quality is taken to have been specifically drawn to a consumer’s attention if the goods were displayed for sale and the reason or reasons disclosed on a written notice displayed with the goods and that was transparent: s 54(5). Goods do not fail to be of acceptable quality if the consumer causes them to become of unacceptable quality, or fails to take reasonable steps to prevent them from becoming so, and the goods are damaged by abnormal use: s 54(6). Further, goods do not fail to be of acceptable quality if the consumer examines them before agreeing to their supply and the examination ought reasonably to have revealed that the goods were not of acceptable quality: s 54(5). Section 54 provides a guarantee as to acceptable quality in contracts for the supply of goods: accordingly, the section will not apply if the contract is not one for the supply of goods but the supply of services.

case [17.1060] The appellant was given a blood transfusion in the course of an operation at a hospital. It was subsequently discovered that the blood was infected with the HIV virus and the patient later contracted AIDS: at 301. In his action against the hospital, one of the issues to be determined was whether the giving of the blood by the hospital amounted to a supply of goods within s 71 of the former Trade Practices Act 1974 (Cth) (now s 54 of the Australian Consumer Law). It was held by the Full Federal Court that s 71 of the Trade Practices Act 1974 was inapplicable because there was no relevant contract for the supply of goods. The essence of the contract between the appellant and the hospital was one for services, namely, the provision of hospital, medical and nursing services for the purpose of treating the appellant for his medical problem. To the extent that goods were provided to the appellant they were provided as an incident to the contract for the provision of services: E v Australian Red Cross Society (1992) 31 FCR 299 at 306, 323, 333.

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Fitness for disclosed purpose [17.1070] If a person supplies goods to a consumer in trade or commerce (other than a sale by auction) there is a guarantee that the goods are reasonably fit for any disclosed purpose, and for any purpose for which the supplier represents that they are reasonably fit: Australian Consumer Law, s 55(1).

case [17.1075] In Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 a pharmacist supplied a prescription drug to a patient. Use of the drug increased the risk of a heart attack in some patients. The Full Federal Court held that the increased risk did not show unfitness for the disclosed purpose of using the drug for managing arthritic pain without gastrointestinal side effects: at [171], [175]. The patient had not expressly or impliedly made known a purpose that the drug be absolutely safe or completely free from side effects: at [172]. Numerous drugs have potential side effects and may be unsafe for certain types of patient: at [173].

Meaning of disclosed purpose [17.1080] A disclosed purpose is a particular purpose (whether or not that is a purpose for which the goods are commonly supplied) for which the goods are being acquired by the consumer and that: (a)

the consumer makes known, expressly or by implication, to the supplier, or a person with whom prior negotiations for the acquisition of the goods were conducted; or

(b)

the consumer makes known to the manufacturer of the goods either directly or through the supplier, or the person with whom prior negotiations were conducted: Australian Consumer Law, s 55(2).

There is no such guarantee where the circumstances show that the consumer did not rely, or that it was unreasonable for the consumer to rely, on the skill or judgment of the supplier, the person with whom the prior negotiations were conducted, or the manufacturer, as the case may be: s 55(3).

Correspondence with description [17.1090] If a person supplies goods by description to a consumer in trade or commerce (other than a sale by auction) there is a guarantee that the goods correspond with the description: Australian Consumer Law, s 56(1). A supply of goods is not prevented from being a supply by description only because, having been exposed for sale or hire, they are selected by the consumer: s 56(2). If the goods are supplied by description as well as by reference to a sample or demonstration model, the guarantees relating to correspondence with description and supply by sample or demonstration model will both apply: ss 56(3), 57.

Supply of goods by sample or demonstration model [17.1100] If a person supplies goods to a consumer by reference to a sample or demonstration model in trade or commerce (other than a sale by auction), there are the following guarantees: (a)

that the goods correspond with the sample or demonstration model in quality, state or condition;

(b)

that if the goods are supplied by reference to a sample, the consumer will have a reasonable opportunity to compare the goods with the sample; and

(c)

that the goods are free from any defect that would not be apparent on reasonable examination of the sample or demonstration model and that would cause the goods not to be of acceptable quality: Australian Consumer Law, s 57(1).

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Repairs and spare parts [17.1110] If a person supplies goods to a consumer in trade or commerce (other than a sale by auction), there is a guarantee that the manufacturer will take reasonable action to ensure that repair facilities and spare parts are reasonably available for a reasonable period after the goods are supplied: Australian Consumer Law, s 58(1). There is no such guarantee where the manufacturer gave the consumer written notification that repair facilities or spare parts would not be available after a specified period: s 58(2).

Express warranties [17.1120] If a person supplies goods to a consumer in trade or commerce (other than a sale by auction) there is a guarantee that the manufacturer will comply with any express warranty made in relation to the goods: Australian Consumer Law, s 59(1).

Exemption of auction sales [17.1130] It will be observed that, with the exception of the guarantee as to title, the other guarantees outlined at [17.1000] do not apply in sales by auction.

Guarantees and the supply of services [17.1140] The Australian Consumer Law provides for certain guarantees in relation to contracts for the provision of services. If a person supplies services to a consumer in trade or commerce there is a guarantee that the services will be rendered with due care and skill: s 60. Furthermore, if a person supplies services to a consumer in trade or commerce and the consumer, expressly or by implication, makes known to the person any particular purpose for which the services are being acquired, there is a guarantee that the services and any product resulting from the services, will be reasonably fit for that purpose: s 61(1). If a person supplies services to a consumer in trade or commerce and the consumer makes known, expressly or by implication, to the person, or a person by whom any prior negotiations were conducted, the result that the consumer wishes the services to achieve, there is a guarantee that the services, and any product resulting from the services, will be of such a nature and quality, state or condition that they might reasonably be expected to achieve that result: s 61(2). However, there are no such guarantees if the circumstances show that the consumer did not rely, or that it was unreasonable for the consumer to rely, on the supplier’s skill or judgment: s 61(3). Significantly, the section does not apply to a supply of services of a professional nature by a qualified architect or engineer. If a person supplies services to a consumer in trade or commerce and the time for the provision of the services is not fixed by the contract, there is a guarantee that the services will be supplied within a reasonable time: s 62. These guarantees apply in contracts for the provision of “services” as defined in s 2(1) of the Australian Consumer Law, 27 with the exception of: 27

Services are defined as including: “(a) any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce; and (b) without limiting paragraph (a), the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under: (i) a contract for or in relation to the performance of work (including work of a professional nature), whether with or without the supply of goods; or (ii) a contract for or in relation to the provision of, or the use or enjoyment of facilities for,

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(a)

a contract for the transportation or storage of goods for the purposes of a business, trade, profession or occupation carried on by the person for whom the goods are transported or stored; or

(b)

a contract of insurance: s 63.

Where s 63 applies, it will do so unaffected by limitations on the liability of, for example, carriers of goods under State legislation, since to the extent that such legislation is inconsistent with s 63 it would be invalid by reason of s 109 of the Constitution: Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388 at 393, 396, 401.

Limitation of liability [17.1150] The general rule is that the guarantees imposed by the Australian Consumer Law in contracts for the supply of goods and services cannot be excluded. A term of a contract is void to the extent that it purports to exclude, restrict or modify the application of the statutory guarantees discussed at [17.1000]: s 64(1). Importantly, that general rule is subject to the qualification that where the goods are not of a kind ordinarily acquired for personal, domestic or household use or consumption, a term of the contract will not be void merely because it limits the supplier’s liability for failure to comply with a statutory guarantee to one or more of the following: 28 (a)

in the case of goods: to the replacement or repair of the goods, or payment of the cost of such replacement or repair; and

(b)

in the case of services: supplying the services again, or payment of the cost of having them supplied again: s 64A(1)–(2).

However, a term in the contract so limiting liability cannot be relied on where the person to whom the goods or services were supplied establishes that it is not “fair or reasonable” for the supplier to rely on such term: s 64A(3). In determining whether or not reliance on a term limiting the liability of the supplier is fair or reasonable, a court is to have regard to all the circumstances of the case and, in particular, to the following: (a)

the relative strength of the bargaining positions between the supplier and the person to whom the goods or services were supplied (referred to as the “buyer”) taking into account, among other things, the availability of equivalent goods or services and suitable alternative sources of supply;

(b)

whether the buyer received an inducement to agree to the term or, in agreeing to the term, had an opportunity of acquiring the goods or services or equivalent goods or services from any source of supply under a contract that did not include that term;

(c)

whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); and

(d)

in the case of the supply of goods, whether the goods were manufactured, processed or adapted to the special order of the buyer: s 64A(4).

28

amusement, entertainment, recreation or instruction; or (iii) a contract for or in relation to the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; or (iv) a contract of insurance; or (v) a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or (vi) any contract for or in relation to the lending of money; but does not include rights or benefits being the supply of goods or the performance of work under a contract of service”: Australian Consumer Law, s 2(1). This does not apply to the guarantees as to title (s 51), undisturbed possession (s 52) and undisclosed securities (s 53) (see [17.1030]).

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It needs to be emphasised that the limitation on the liability of a supplier for, for example, defects in the goods supplied permitted by the above provisions does not apply where the goods are of a kind ordinarily acquired for personal, domestic or household use or consumption: no exclusion of liability is permitted where the goods supplied are of such a kind. The purpose of the limited form of exclusion from liability permitted by the Australian Consumer Law is essentially to enable suppliers to exclude liability for consequential losses which may result from a defect in goods supplied to another company, where the goods supplied are not of a kind ordinarily acquired for personal, domestic or household use or consumption but to which the statutory guarantees may still apply because of the Australian Consumer Law’s broad definition of consumer: s 3. That definition includes purchases by companies in certain instances (for example, where the price did not exceed $40,000 and the goods were not purchased for the purpose of resupply, or to be used up in a process of production or manufacture, or for repairing or treating other goods). There is a second qualification to the general rule that the consumer guarantees cannot be excluded or modified by agreement. A contractual term for the supply of recreational services is not void by reason only that it limits liability for death or personal injury in relation to those recreational services: Competition and Consumer Act 2010 (Cth), s 139A(1), (3). 29 Recreational services are services that consist of participation in sporting activities, similar leisure-time pursuits, or other recreational activities that involve a significant degree of physical exertion or physical risk: s 139A(2). 30

Remedies for non-compliance with consumer guarantees [17.1160] Where the failure to comply with a consumer guarantee in a contract for the supply of goods is not a major failure, the consumer may require the supplier to remedy the failure within a reasonable time or (if the supplier refuses to do so) reject the goods or recover all reasonable costs incurred in remedying the failure: Australian Consumer Law, s 259(1), (2). A major failure is defined as a situation where: (a)

the goods would not have been acquired by a reasonable consumer who was fully acquainted with the nature and extent of the failure;

(b)

in the case of a supply by description, or reference to a sample or demonstration model, the goods depart in significant respects from their description, sample or demonstration model;

(c)

the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot be easily and within a reasonable time be remedied to make them fit for such a purpose;

(d)

the goods are unfit for a disclosed purpose and cannot be easily remedied to fit that purpose; or

(e)

the goods are not of acceptable quality because they are unsafe: s 260.

If the failure is a major failure or the failure cannot be remedied, the consumer may reject the goods or recover compensation for any reduction in the value of the goods below the price paid: s 259(3). In addition, the consumer may recover damages for any reasonably foreseeable loss or damage caused by the failure to comply with the guarantee (s 259(4)), unless the failure occurred only due to a cause independent of human control that occurred after the goods left the control of the supplier: s 259(5). There are limitations upon the consumer’s right to reject the goods, for example where the rejection period has ended or where the goods have been lost, destroyed or disposed of by the consumer, or were 29 30

Section 139A(1), (3) is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth. Section 139A(1), (3) is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth.

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damaged after being delivered to the consumer: s 262(1). The rejection period is the time within which it would be reasonable to expect that the failure would become apparent, having regard to factors such as the type of goods and the use to which it is likely that they would be put: s 262(2). A consumer who rejects the goods must return them to the supplier, unless doing so would impose significant cost, in which case the supplier must collect the goods: s 263(2)–(3). The supplier must refund the money paid or replace the goods: s 263(4). If the consumer gives the goods to another person as a gift, that person has the same rights and remedies that would have been available if he or she had acquired the goods from the supplier: s 266. Broadly similar remedies apply in relation to failure to comply with guarantees in relation to the supply of services: ss 267–268.

Manufacturers' liability for defective goods [17.1170] Where goods supplied to a consumer are defective then, generally speaking, the immediate supplier of the goods (for example, the retailer) will be liable to the consumer for non-compliance with the statutory guarantees of fitness for purpose or acceptable quality as discussed earlier (at [17.1070], [17.1040] respectively). Liability for non-compliance with the guarantees does not depend on proof of negligence on the part of the supplier but simply on the existence of a contractual relationship between the parties. If the consumer suffers personal injury or property damage because of the defective nature of the goods, then the consumer may well have an alternative action for damages for negligence at common law against the manufacturer of the goods. However, an action for negligence requires proof of fault on the part of the defendant, which can give rise to difficult factual and legal questions: see Chapter 28. It was decided that there was no good reason why a manufacturer should not be directly responsible to a consumer for loss arising from the defective nature of the manufacturer’s products without the need for the consumer to establish fault on the part of the manufacturer as required in an action for negligence. The Australian Consumer Law contains important provisions which impose liability upon manufacturers for defective goods without the need to rely on the more difficult action in tort for negligence against the manufacturer. The provisions of the Australian Consumer Law imposing liability on manufacturers for defective goods are discussed under the following headings: 1.

Liability of manufacturer for goods with safety defects: Pt 3-5 (ss 138–150).

2.

Liability of manufacturer to consumer for non-compliance with statutory guarantees: s 271.

3.

Liability of manufacturer to seller of defective goods: s 274.

This is followed by consideration of the product safety and information provisions of the Australian Consumer Law.

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Liability of manufacturer for goods with safety defects Circumstances in which liability arises [17.1180] The effect of the Australian Consumer Law is to make the manufacturer of goods containing a “safety defect” liable to compensate a person who is injured, or whose property is damaged, because of the safety defect. 31 More specifically, it is provided that: (1)

A manufacturer is liable to compensate an individual if: (a)

the manufacturer supplies the goods in trade or commerce; and

(b)

the goods have a safety defect; and

(c)

the individual suffers injuries because of the defect: s 138(1).

Where these conditions are satisfied the individual may recover from the manufacturer the amount of the loss or damage suffered by them: s 138(2). The meaning of “safety defect” is considered separately at [17.1190]. It will be observed that liability in the section set out above is not restricted to where the person injured had, for example, bought or hired the defective goods but applies generally whenever a person is injured by goods having a safety defect. Furthermore, where, in effect, the dependants of an individual suffer loss as a result of the injuries sustained or the death of that individual because of a safety defect in the goods, such loss is recoverable from the manufacturer: s 139. Liability extends to loss resulting from other goods of a kind ordinarily acquired for personal, domestic or household use being destroyed or damaged because of the defective goods: s 140. Similarly, a person who suffers loss as a result of land, buildings, or fixtures ordinarily acquired for private use being destroyed or damaged by the defective goods is entitled to recover that loss from the manufacturer. Damage to commercial property is outside the scope of the provisions. Basically, the provisions impose liability on a manufacturer to compensate a person for the loss or damage suffered as a result of the supply of goods that have a safety defect. The meaning of “safety defect”, “goods” and “manufacturer” in this context require further explanation.

Meaning of “safety defect” [17.1190] Goods have a safety defect “if their safety is not such as persons generally are entitled to expect”: Australian Consumer Law, s 9(1). This is an objective standard based upon what the public at large, rather than any particular individual, is entitled to expect. In determining the extent of the safety of goods, regard is to be given to all relevant circumstances including: (a)

the manner in which, and the purposes for which, they have been marketed;

(b)

their packaging;

(c)

the use of any mark in relation to them;

(d)

any instructions for, or warnings with respect to, doing, or refraining from doing, anything with or in relation to the goods;

(e)

what might reasonably be expected to be done with or in relation to them; and

31

M Guihot, “Putting the ‘Personal’ Back into Injuries: An Interpretation of Pt 3-5 of the Australian Consumer Law” (2014) 21 Competition and Consumer Law Journal 232.

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(f)

the time when they were supplied by their manufacturer: s 9(2).

An inference that goods have a safety defect is not to be made only because of the fact that, after they were supplied by their manufacturer, safer goods of the same kind were supplied: s 9(3). An inference that goods have a safety defect is not to be made only because: (a)

there was compliance with a Commonwealth mandatory standard for them; and

(b)

that standard was not the safest possible standard having regard to the latest state of scientific or technical knowledge when they were supplied by their manufacturer: s 9(4).

A pharmaceutical drug that increased the risk of a heart attack in some patients and carried no warning to that effect had a safety defect: Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 at [201].

Meaning of “goods” [17.1200] The term “goods” in the present context is not limited to goods of a kind ordinarily acquired for personal, domestic or household use or consumption. The wide meaning of “goods” as defined generally by the Australian Consumer Law applies. 32

Meaning of “manufacturer” [17.1210] A manufacturer includes a person who: (a)

grows, extracts, produces, processes or assembles goods;

(b)

hold themselves out to the public as the manufacturer of the goods;

(c)

causes or permits their name, business name or brand name to be applied to the goods;

(d)

causes or permits another person to hold them out to the public as the manufacturer of the goods; or

(e)

imports the goods and the actual manufacturer does not have a place of business in Australia: Australian Consumer Law, s 7(1).

Defences [17.1220] It is a defence to an action for compensation for the loss suffered as a result of the supply of defective goods to establish that: (a)

the safety defect in the goods that is alleged to have caused the loss or damage did not exist at the time they were supplied by their actual manufacturer (or, in relation to electricity, at the time at which it was generated). In other words, the manufacturer is not liable for safety defects occurring later in the distribution chain;

(b)

the goods had the safety defect only because there was compliance with a mandatory standard;

(c)

the state of scientific or technical knowledge at the time the goods were supplied by their manufacturer was not such as to enable that safety defect to be discovered (this is a “state of the art” defence: Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 at [203]); or

(d)

if the goods were, in effect, component parts of other goods, the defect is attributable only to the design of the finished goods; the markings on or accompanying the finished goods; or the instructions or warnings given by the manufacturer of the finished goods: Australian Consumer Law, s 142.

32

Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1).

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If the court finds that the goods had a safety defect only because there was compliance with a Commonwealth mandatory standard for the goods, the Commonwealth is liable to pay the plaintiff for the amount of the loss or damage caused by the safety defect and not the manufacturer: s 148.

Contributory negligence [17.1230] Where in proceedings to recover the loss or damage suffered in respect of goods with a safety defect, the loss was partly due to the contributory negligence of the individual who suffered injury, the damages recoverable are to be reduced to the extent to which the court thinks fit having regard to the individual’s share in the responsibility for the loss or damage: Competition and Consumer Act 2010 (Cth), s 137A. 33

Limitation period [17.1240] An action for compensation for the loss suffered in respect of the supply of defective goods must be brought within three years after the time the person became aware, or ought reasonably to have become aware, of the alleged loss or damage, the safety defect and the identity of the manufacturer of the goods. No action may be brought after 10 years of the supply of the goods by the manufacturer: Australian Consumer Law, s 143.

Non-exclusion [17.1250] The provisions concerning the right to recover from a manufacturer the loss or damage suffered in consequence of a safety defect in goods cannot be excluded, restricted or modified. Any term of a contract which purports to do so is void: Australian Consumer Law, s 150(1).

Work-related injuries [17.1260] The provisions do not apply to a loss recoverable under Commonwealth, State or Territory law relating to workers’ compensation, that is, loss caused by work-related injuries is excluded: Australian Consumer Law, s 146.

Representative action [17.1270] The ACCC and the State and Territory consumer protection agencies are empowered to commence a defective goods action on behalf of persons who have suffered loss or damage provided the written consent of each person has been obtained: Australian Consumer Law, s 149.

Liability of manufacturer to consumer for non-compliance with statutory guarantees [17.1280] Under the Australian Consumer Law a manufacturer incurs liability to a consumer for non-compliance with certain of the guarantees imposed on a seller on the supply of goods to a consumer (discussed at [17.1000]): s 271. The broad effect of the latter section is to enable a consumer to recover damages from the manufacturer of goods which do not comply with the statutory guarantees for the following reasons: (a) 33

the goods are not of acceptable quality (ss 54, 271(1)); Section 137A is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth.

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(b)

the goods do not correspond with a description which the manufacturer has applied, or allowed to be applied to the goods (ss 56, 271(3));

(c)

there is a failure to ensure that facilities for the repair of the goods or spare parts are available (ss 58, 271(5)); or

(d)

there is a breach of express warranties, for example in guarantees or advertising matter: ss 59, 271(5).

In an action against the manufacturer an “affected person” is entitled to recover damages for: (a)

(b)

any reduction in value of the goods below (i)

the price paid for the goods or

(ii)

their average retail price at the time of supply (whichever is the lower); and

any loss or damage that was reasonably foreseeable as a result of the failure to comply with the particular guarantee: s 272.

An “affected person” is defined broadly to mean: (a)

a consumer who acquires the goods;

(b)

a person who acquires the goods from the consumer (other than for the purpose of resupply); and

(c)

a person who derives title to the goods through the consumer: s 2(1).

An action for damages may be commenced within three years of the day when the affected person first became aware, or ought reasonably to have become aware, that the guarantee was not complied with: s 273.

Liability of manufacturer to seller of defective goods [17.1290] As a result of the guarantees provided by the Australian Consumer Law in contracts for the supply of goods by a seller to a consumer (see [17.1000]) and the liability imposed on a manufacturer of the goods to a consumer for non-compliance with the statutory guarantees (see [17.1280]), a consumer will often have a choice of whether to sue their immediate supplier (for example, the seller) or sue the manufacturer directly where the goods supplied do not comply with the statutory guarantees. If in such a case the consumer elects to sue their immediate supplier (that is, the “seller”), the Australian Consumer Law requires the manufacturer to indemnify the supplier in respect of the costs incurred by the supplier because of the failure of the goods to comply with certain of the statutory guarantees: s 274. The manufacturer’s liability is to indemnify the supplier for the costs incurred by the supplier because of the failure of the goods to comply with the guarantees as to acceptable quality (s 54); fitness for a disclosed purpose (s 55); and the description applied to the goods (s 56): s 274(2). The supplier may commence an action against the manufacturer at any time within three years after the earliest of the following: (a)

the day on which the supplier made a payment with respect to the supplier’s liability to the consumer; or

(b)

the day on which the consumer commenced legal proceedings against the supplier.

Limitation of liability [17.1300] The general position is that the manufacturer’s liability to indemnify a supplier under these provisions cannot be excluded. A term of a contract is void to the extent that it purports to exclude, restrict or modify the supplier’s rights against the manufacturer: Australian Consumer Law, s 276.

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However, if the goods are not of a kind ordinarily acquired for personal, domestic or household use or consumption, the liability of the manufacturer to the supplier who supplied the goods to a consumer is limited to the cost of: (a)

replacing the goods;

(b)

obtaining equivalent goods; or

(c)

having the goods repaired; whichever is the lowest amount: s 276A(1).

Such limitation on the liability of the manufacturer does not apply if the supplier establishes that it is not “fair or reasonable” in the circumstances: s 276A(2). In determining whether or not it is “fair or reasonable” for the manufacturer’s liability to the seller to be so limited, the court is to have regard to all the circumstances of the case and, in particular, to: (a)

the availability of suitable alternative sources of supply of the goods;

(b)

the availability of equivalent goods; and

(c)

whether the goods were manufactured, processed or adapted to the special order of the supplier: s 276A(3).

Furthermore, these provisions are subject to any term of a contract between the manufacturer and seller imposing a greater liability on the manufacturer: s 276A(4).

Product safety and information [17.1310] The Australian Consumer Law contains provisions concerning product safety, product recall and information requirements. The provisions are contained in Pt 3-3. It is only possible here to outline their general effect. A person must not supply consumer goods that do not comply with a prescribed safety standard: s 106(1). Doing so is an offence subject to a penalty of $1,100,000 for a corporation and $220,000 for any other party: s 194(1). Where a civil pecuniary penalty is imposed those amounts are maximum penalties: Australian Competition and Consumer Commission v Ozsale Pty Ltd [2016] FCA 1049 at [22]. The Minister may impose an interim or permanent ban on consumer goods that may cause injury: ss 109(1), 114(1). Supplying banned consumer goods is an offence subject to the same penalties: s 197(1). A person must not supply consumer goods in relation to which an interim or permanent ban is in force: s 118(1). A court may issue an injunction ordering the destruction of goods that do not comply with a prescribed safety standard: Director of Consumer Affairs v Nightingale Electrics Pty Ltd [2016] FCA 279 at [20]. The Minister is also empowered to issue a recall notice for consumer goods in certain circumstances. Thus, where a person supplies consumer goods that: (a)

are of a kind which, in the opinion of the Minister, will or may cause injury to a person;

(b)

do not comply with a prescribed safety standard; or

(c)

are the subject of an interim or permanent ban;

and the Minister considers that the supplier of the goods has not taken satisfactory action to prevent the goods causing injury, the Minister may require the supplier to take action to recall the goods: ss 122(1), 123(1). The Minister may also require the supplier to advertise that the supplier undertakes to repair or replace the goods or refund the price: s 123(1)(c). The mandatory recall power is only intended to be exercised where the supplier has not already taken satisfactory remedial action. A supplier must comply with the requirements of a recall notice, and not

chapter 17 Consumer Protection

supply goods in which a defect or dangerous characteristic has been identified in the notice: s 127(1), (2). Where a supplier contravenes the latter provision, and a person suffers loss or damage by reason of a defect in the goods, or as a result of not having information about the unsafe characteristics of the goods, the person is deemed to have suffered loss or damage as a result of the failure of the supplier to comply with the provision: s 127(3). Failure to comply with a recall notice is an offence: s 199(1). The Minister is empowered to publish a notice on the Internet warning of possible risks of using particular goods, or alerting the public that certain goods are under investigation as to their safety: s 129. Suppliers are required to report deaths, serious injuries or illnesses associated with the use or foreseeable misuse of consumer goods: s 131(1). Non-compliance is an offence punishable by a penalty of $16,650 for a corporation and $3,330 for other parties: s 202(1). The Minister may make information standards related to goods or services of a particular kind: s 134. A person must not supply goods that do not comply with an information standard: s 136(1).The supply of goods or services that do not comply with an information standard is an offence subject to penalty of $1,100,000 for a corporation and $220,000 for another party: ss 203(1), 204(1). A defence is provided in relation to a contravention committed by the supplying of goods that did not comply with a safety or information standard. In such a case it is a defence if the defendant (for example, a retailer) establishes: (a)

that the goods were acquired by the defendant for the purpose of resupply and were so acquired from a person who carried on in Australia a business of supplying such goods otherwise than as the agent of a person outside Australia; and

(b)

that the defendant did not know, and could not with reasonable diligence have ascertained, that the goods did not comply with the standard, or the defendant relied in good faith on a representation by the person from whom the goods were acquired that no safety or information standard had been prescribed in respect of the goods: ss 210(1), 252.

Other consumer protection provisions Claims against a supplier and linked credit provider in respect of defective goods or misrepresentation [17.1320] A consumer who has selected goods at the premises of a dealer will often arrange with the dealer to acquire the goods on credit terms from a finance company under, for example, a loan contract or lease. The Australian Consumer Law makes provision for the respective liabilities of the dealer (the “supplier”) of the goods and the third party financier (the “credit provider”) in the event of the goods proving defective: ss 278–286. The basic position is that where, for example, a finance company provides the credit to enable the consumer to acquire the goods from the supplier, the finance company will only incur potential liability for the defective condition of the goods where the finance company is what is termed a “linked credit provider”. A linked credit provider is essentially a credit provider (for example, a finance company) which has a close business affiliation with the supplier because: (a)

it finances the supplier’s stock-in-trade under a trade agreement; or

(b)

it is the credit provider to whom the supplier, by arrangement with the credit provider, regularly refers buyers wanting credit to buy goods or services from the supplier; or

(c)

the credit provider gives the supplier its credit application forms for signature by prospective borrowers on the supplier’s premises: s 2(1).

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Where a consumer enters into a contract with a linked credit provider for the provision of credit in respect of goods or services supplied by the supplier, then the linked credit provider and supplier are jointly and severally liable to the consumer for the amount of the loss or damage suffered by the consumer as a result of (among others) misrepresentation, failure of consideration, non-compliance with the guarantees of acceptable quality, fitness for a disclosed or particular purpose, supply by description or sample, due care and skill and reasonable time for supply: s 278(1). However, a credit provider who is not a linked credit provider will not be liable for breach of these guarantees but the consumer may recover the amount of the loss or damage from the supplier: s 287(1), (2).

Defences available to a linked credit provider [17.1330] Certain defences are available to a linked credit provider who would otherwise be liable under these provisions. A linked credit provider will not be liable to the consumer where the credit provider can prove that the credit was provided as the result of an approach by the consumer that was not induced by the supplier: Australian Consumer Law, s 280(1). It is also a defence for the credit provider to prove that: (a)

after due inquiry before becoming a linked credit provider of the supplier, the credit provider was satisfied that the supplier’s reputation in respect of their financial standing and business conduct was good; and

(b)

after becoming a linked credit provider, had no reason to suspect that the supplier might not be able to meet liabilities as they fell due: s 280(2).

Where a linked credit provider is unable to make out these defences because, for example, it failed to make proper inquiries about the supplier, the linked credit provider will be jointly and severally liable with the supplier for the loss or damage suffered by the consumer.

Limitations on the liability of a linked credit provider [17.1340] Even where a linked credit provider is jointly and severally liable with the supplier, there are important limitations on the linked credit provider’s potential liability. The liability of a linked credit provider to a consumer is limited to the amount financed under the credit contract, together with interest and any costs awarded by the court: Australian Consumer Law, s 281. The effect of this provision is to limit the consequential losses which a consumer may recover from a linked credit provider. Furthermore, a consumer cannot sue the linked credit provider alone but must bring an action against both the supplier and credit provider unless: (a)

the supplier has been dissolved or wound up; or

(b)

the court believes that is it not reasonably likely that judgment against the supplier would be satisfied: s 279(2), (3).

Where judgment is entered against the linked credit provider and the supplier, the judgment cannot be enforced against the linked credit provider alone unless a written demand on the supplier has remained unsatisfied for 30 days: s 283(1). Unless otherwise agreed, the supplier is liable to the linked credit provider for the loss suffered by the credit provider by virtue of these provisions: s 283(6).

Unsolicited consumer agreements [17.1350] The Australian Consumer Law regulates what are referred to as “unsolicited consumer agreements” (more generally known as door-to-door sales).

chapter 17 Consumer Protection

Meaning of unsolicited consumer agreement [17.1360] An unsolicited consumer agreement is an agreement for the supply of goods or services in trade or commerce to a consumer, which is entered into as a result of negotiations away from the dealer’s business premises or by telephone, and where the consumer did not invite the dealer to the place of negotiation or to make the telephone call, and the total price is more than $100 or other amount prescribed by regulation: Australian Consumer Law, s 69(1). This provision applies to agreements concluded in private homes, but does not apply to agreements made in places “to which the general public has access”: Australian Competition and Consumer Commission v ACN 099 814 749 Pty Ltd [2016] FCA 403 at [137], [139]. A dealer is a person who negotiates with a consumer in order to conclude an agreement for the supply of goods or services, or who calls on a person seeking to enter into such negotiations. A dealer need not be the supplier of the goods or services: s 71.

Time restrictions [17.1370] A dealer must not call on a person on Sundays, public holidays, before 9 am or after 6 pm on other days (or after 5 pm on Saturdays): Australian Consumer Law, s 73(1). The penalty for violating these time restrictions is $50,000 for a corporation and $10,000 for another party: s 170(1). A dealer must leave the premises immediately on the request of the occupier: s 75(1). A “do not knock” sign fixed on the front door constitutes a request to leave the premises: Australian Competition and Consumer Commission v AGL Sales Pty Ltd [2013] ATPR 42-449; [2013] FCA 1030 at [133]. The penalty for failure to leave when requested is $50,000 for a corporation and $10,000 for another party: s 172(1).

Statutory requirements [17.1380] A dealer must inform the consumer of the right to terminate the agreement during the termination period: Australian Consumer Law, s 76. The same penalty stated in the previous paragraph applies for non-compliance: s 173(1). The supplier of the goods or services is liable for the breach of these provisions by a dealer: s 77. The dealer must give the consumer a copy of the agreement (s 78), the same penalty applying for violation (s 174(1)). The agreement must set out the total consideration to be paid by the consumer, must conspicuously inform the consumer of the right to terminate, and must be transparent (s 79), with the same penalty for non-compliance: s 175(1).

Consumer's right to terminate [17.1390] The consumer may terminate the agreement within the termination period, which is generally 10 business days or three or six months if the dealer breached certain statutory requirements: Australian Consumer Law, s 82(1), (3). The right to terminate applies even if the agreement has been fully executed: s 82(2)(b). Contractual provisions that purport to exclude these consumer rights are void: s 89. Inclusion of such provisions or attempting to enforce them is an offence: s 182(1). Similar penalties apply for violation of these requirements: ss 178(1), 182(1). Consumers may not waive these rights: s 90(1). It is an offence to induce a consumer to waive these rights: s 183(1). The Commonwealth Do Not Call Register Act 2006 (Cth) set up a national register enabling telephone customers to block unwanted calls from telemarketers who will face fines if they make such calls: see https://www.donotcall.gov.au.

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Lay-by sales [17.1400] A lay-by agreement is an agreement between a supplier and a consumer for the supply of consumer goods on terms that the goods will not be delivered to the consumer until the total price of the goods has been paid by two or more instalments: Australian Consumer Law, s 96(3). A lay-by agreement must be in writing and a copy must be given to the consumer: s 96(1). A consumer may terminate the agreement at any time before the goods are delivered to the consumer: s 97(1). A termination charge must be no more than the supplier’s reasonable costs relating to the agreement: s 97(3). It is not necessary that the supplier have a system already “in place” for working out its reasonable costs. If an agreement is terminated the supplier will breach this provision if it charges more than its reasonable costs: Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd (2015) 239 FCR 33 at [112], [114]. If the agreement is terminated the supplier must refund all amounts paid by the consumer excepting any termination charge: s 99(1). Non-compliance with these requirements is an offence, subject to a penalty of $30,000 for a corporation or $6,000 for other parties: ss 188–191.

Second-hand motor vehicle sales [17.1410] Motor vehicles legislation in each of the States and Territories provides statutory warranties in respect of second-hand vehicles. 34 The general effect of the legislation is that the dealer is required to repair a defect occurring in the vehicle within a specified mileage or period, typically 5,000 kilometres or three months after sale for most second-hand vehicles. Where a vehicle is exempted from the statutory warranties because its sale price is below a prescribed amount, then in New South Wales, Victoria, Queensland, and the Australian Capital Territory, the dealer must affix a notice to the vehicle stating that the dealer has no obligation to repair defects in the vehicle. Generally excluded from the dealer’s liability to repair a motor vehicle under statutory warranty are: (a)

defects arising from accidental damage, misuse or negligence occurring after sale of the vehicle;

(b)

where the purchaser has had the vehicle in their possession for three months prior to the sale; and

(c)

(except in South Australia) where a defect notice has been attached to the vehicle (provided that in New South Wales there is also attached a current inspection report).

For the statutory warranties to be excluded in the Northern Territory, the purchaser must sign a prescribed form away from the dealer’s premises in front of, for example, a member of the police force, who explained the rights the purchaser was forgoing before the purchaser signed the document and who witnessed the purchaser’s signature. Such warranties are in addition to the normal remedies provided by the Australian Consumer Law for breach of the guarantees of fitness for purpose and acceptable quality and the analogous implied conditions under the State Sale of Goods Acts: see Chapter 14.

34

Motor Dealers and Repairers Act 2013 (NSW), ss 68 – 69, 74; Motor Car Traders Act 1986 (Vic), ss 54 – 55; Motor Dealers and Chattel Auctioneers Act 2014 (Qld), Sch 1, s 12 (repair obligation), s 145 (auctioneers), s 115 (motor dealers); Second-hand Vehicle Dealers Act 1995 (SA), ss 23 – 24; Motor Vehicle Dealers Act 1973 (WA), ss 34 – 35; Sale of Motor Vehicles Act 1977 (ACT), ss 23 – 24; Consumer Affairs and Fair Trading Act 1990 (NT), ss 168 – 171; Motor Vehicle Traders Act 2011 (Tas), ss 42 – 46.

chapter 17 Consumer Protection

In many jurisdictions the sale of second-hand motor vehicles by a motor dealer is subject to a cooling-off period ranging from one to three business days. 35 In New South Wales the Civil and Administrative Tribunal may order a motor dealer to refrain from engaging in unjust conduct (which includes conduct that is dishonest or unfair or is in breach of contract). 36

Motor vehicle repairs [17.1420] In New South Wales the Motor Dealers and Repairers Act 2013 (NSW) created a Motor Dealers and Repairers Compensation Fund: s 165. A person may lodge a claim with the fund for losses incurred as a result of incompetent repair work. Compensation payable through the fund is limited to the loss or $40,000, whichever is the lesser amount: s 171(2). In Western Australia the Motor Vehicle Repairers Act 2003 (WA) created a Motor Vehicle Repair Industry Compensation Fund. If a licensee carries out repair work on a motor vehicle incompetently or fails to complete the work by reason of insolvency, after taking all reasonable steps to exercise all available legal remedies, the owner of the vehicle may lodge a claim with the fund for losses incurred: ss 91(1), 92(1). The amount that may be claimed is limited to the actual loss, or $6,000, whichever is the lesser amount: s 92(1). Once a payment is made the Director General is subrogated to the claimant’s rights and remedies to the amount of the payment: s 95.

Consumer protection and the provision of financial services [17.1430] In general, the provisions of the Australian Consumer Law do not apply to financial services or financial products provided by a corporation: Competition and Consumer Act 2010 (Cth), s 131A(1). 37 For example, it is provided that the general prohibition on misleading or deceptive conduct (Australian Consumer Law, s 18) and the unfair terms provisions (ss 23–27) in the Australian Consumer Law do not apply to financial services or financial products provided by a corporation: Competition and Consumer Act 2010 (Cth), s 131A(2). 38 The reason is that extensive provision for consumer protection in relation to financial services is contained in the Australian Securities and Investments Commission Act 2001 (Cth), Pt 2, Div 2. The latter division is headed “Unconscionable conduct and consumer protection in relation to financial services”. A person provides a financial service if (among others) they provide financial product advice or deal in a financial product or make a market for a financial product: s 12BAB(1). A financial product includes a deposit account, security, managed investment scheme, derivative, insurance contract, retirement savings account, superannuation, foreign exchange contract or a credit facility: s 12BAA(7). The consumer protection provisions of the Australian Securities and Investments Commission Act 2001 (Cth) are similar to those in the Australian Consumer Law. For example, the Australian Securities and Investments Commission Act 2001 prohibits unconscionable conduct (ss 12CA–12CC: see Goodridge v 35

36 37 38

One business day: Motor Dealers and Repairers Act 2013 (NSW), ss 78 – 81 (where the purchaser obtains credit); one business day: Motor Dealers and Chattel Auctioneers Act 2014 (Qld), ss 99, 110; two clear business days: Second-hand Vehicle Dealers Act 1995 (SA), ss 3, 18B; three clear business days: Sale of Motor Vehicles Act 1977 (ACT), s 25B; three clear days, unless the purchaser accepts delivery of the vehicle: Motor Car Traders Act 1986 (Vic), s 43. Motor Dealers and Repairers Act 2013 (NSW), ss 105, 108. Section 131A is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth. Section 131A is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth.

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Macquarie Bank Ltd (2010) 265 ALR 170 at [201]-[211]). The Act also prohibits misleading or deceptive conduct in relation to financial services: s 12DA; see ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1 at [754]–[773]. The Act contains unfair contract terms provisions (ss 12BF–12BM) that are similar to those in the Australian Consumer Law. The court may declare that a contractual term is an unfair term: Australian Securities and Investments Commission Act 2001 (Cth), s 12GND(1). The unfair contract terms provisions also apply to standard form small business contracts: s 12GND(2). The upfront price under such small business contracts must be no more than $300,000 (or no more than $1,000,000 for contracts that extend over more than one year): s 12BF(4). Other provisions prohibit, inter alia, false or misleading representations (s 12DB); certain misleading conduct in relation to financial services (s 12DF); bait advertising (s 12DG); referral selling (s 12DH); harassment and coercion (s 12DJ); and pyramid selling of financial products: s 12DK. Provision is also made regarding unsolicited credit or debit cards that allow access to a financial product: s 12DL. Certain non-excludable conditions and warranties apply to consumer transactions relating to financial services: ss 12EB–12ED. Notably, in a prosecution for contravention of the consumer protection provisions (12DA–12DN), it is a defence for the defendant to establish that: (a)

the contravention was due to a reasonable mistake; or

(b)

the contravention was due to reasonable reliance upon information supplied by another person; or

(c)

the contravention was due to the act or default of some other person, to an accident or to some other cause beyond the defendant’s control; and the defendant took reasonable precautions and exercised due diligence to avoid the contravention: s 12GI(1).

Remedies available for breach of the consumer protection provisions include pecuniary penalties (s 12GBA); infringement notices (s 12GXA); orders to redress losses suffered by non-party consumers (s 12GNB); and orders disqualifying a person from managing corporations: s 12GLD. ASIC may require the substantiation of claims about financial services (s 12GY) and may issue public warnings regarding the conduct of persons that are suspected of contravening the Act: s 12GLC. If a person infringes the financial services consumer protection provisions ASIC may issue an order prohibiting them from engaging in credit activities: National Consumer Credit Protection Act 2009 (Cth), s 80(1)(d). ASIC may exercise this power to drive an infringing financial services provider out of business: Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) (2012) 213 FCR 380 at [273]–[277]. The Competition and Consumer Act 2010 prohibits a corporation from charging an excessive surcharge for using a method of payment (such as paying by credit card): s 55B of the Act. The operation of this provision extends beyond corporations where the payment is made by electronic communication: s 6(2F). The purpose of these provisions is to ensure that surcharges “reflect the cost of using the payment methods for which they are charged”: s 55. A court may impose a pecuniary penalty for charging an excessive surcharge: s 76(1)(ia). The Commission may also issue an infringement notice: s 55G(1). A surcharge is excessive if it exceeds an amount set by a Reserve Bank standard: s 55B(2). The Bank’s Payments System Board has adopted three standards that place limits on the surcharge fees that large merchants may charge customers who pay using credit cards. See Setting of Interchange Fees in the Designated Credit Card Schemes and Net Payments to Issuers (Standard No 1 of 2016); Setting of

chapter 17 Consumer Protection

Interchange Fees in the Designated Debit and Prepaid Card Schemes and Net Payments to Issuers (Standard No 2 of 2016); Scheme Rules Relating to Merchant Pricing for Credit, Debit and Prepaid Card Transactions (Standard No 3 of 2016).

case [17.1440] A bank charged a substantial fee for late payment of the minimum monthly amount required under a customer’s credit card: at [1]. The High Court held that the late payment fee did not constitute unconscionable conduct or an unfair contract term. Keane J suggested that it was “something of a stretch” to argue that conduct was unconscionable where all participants in the market engaged in similar conduct: at [290]. A disparity of bargaining power did not in itself establish unconscionable conduct: at [293]. In the light of all of the circumstances, the bank’s “exercise of its superior bargaining power” did not constitute unconscionable conduct: at [294]. The late payment fee also did not constitute an unfair contract term. The unfair terms provisions of the Act did not require the court to act as a price regulator in relation to financial services: at [302]–[303]. French CJ and Kiefel J agreed with Keane J on these points: at [2], [70]. Gageler J pointed out that the customer had not entered into the credit card contract as a result of the conduct of the bank. The customer’s failure to make payment on time was not due to the conduct of the bank: at [186]. The late payment fee had been disclosed in communications from the bank. The customer understood the fee. No undue influence or unfair tactics had been applied against the customer. Other banks charged similar late payment fees: at [190]. In the light of all of the circumstances, the fee did not constitute unconscionable conduct on the part of the bank: at [191]. Nettle J found it unnecessary to consider these issues: Paciocco v Australia & New Zealand Banking Group Ltd (2016) 90 ALJR 835 at [375].

Further reading A Bruce, Consumer Protection Law in Australia (2nd ed, LexisNexis Butterworths, Sydney, 2014). A Coorey, Australian Consumer Law (LexisNexis Butterworths, Sydney, 2015). S Corones, The Australian Consumer Law (3rd ed, Thomson Reuters, Sydney, 2016). S Corones and P Clarke, Australian Consumer Law: Commentary and Materials (5th ed, Thomson Reuters, Sydney, 2015). C Lockhart, The Law of Misleading or Deceptive Conduct (4th ed, LexisNexis Butterworths, Sydney, 2015). R Miller, Miller’s Australian Competition and Consumer Law, Annotated (38th ed, Thomson Reuters, Sydney, 2016). J Paterson, Unfair Contract Terms in Australia (Thomson Reuters, Sydney, 2012). R Steinwall, Annotated Competition and Consumer Legislation (LexisNexis Butterworths, Sydney, 2016).

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Internet sites Australian Competition and Consumer Commission http://www.accc.gov.au/consumers Australian Consumer Law http://www.consumerlaw.gov.au SCAMwatch http://www.scamwatch.gov.au Competition and Consumer Law Education Programs http://www.ccaeducationprograms.org

Journals Australian Journal of Competition and Consumer Law (formerly Trade Practices Law Journal) Competition and Consumer Law Journal

chapter 18

Restrictive Trade Practices [18.20] Overview of restrictive trade practices legislation......................................................................... 400 [18.60] Agreements and covenants affecting competition ....................................................................... 402 [18.170] Boycotts ............................................................................................................................................................ 406 [18.180] Misuse of market power........................................................................................................................... 407 [18.310] Exclusive dealing .......................................................................................................................................... 412 [18.400] Resale price maintenance....................................................................................................................... 416 [18.450] Acquisitions substantially lessening competition ...................................................................... 418 [18.470] Concepts of “market” and “competition” .......................................................................................... 421 [18.500] Statutory exceptions .................................................................................................................................. 425 [18.510] Authorisation.................................................................................................................................................. 425 [18.520] Enforcement and remedies..................................................................................................................... 427 [18.680] Industry codes of conduct........................................................................................................................ 433

Introduction [18.10] By far the most important piece of legislation controlling restrictive trade practices is the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)). The Act is concerned with regulating various restrictive trading practices with the aim of preventing monopolistic and anti-competitive activities among traders, thereby achieving greater competition and efficiency in the marketplace to the benefit of the public as consumers and to the benefit of business generally. This chapter is concerned primarily with those provisions of the Competition and Consumer Act 2010 (Cth) which regulate restrictive trading practices. 1

1

The Commonwealth Competition and Consumer Act 2010 (Cth) also contains provisions dealing with “International Liner Cargo Shipping” (Pt X) but these provisions fall outside the ambit of the present work.

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Overview of restrictive trade practices legislation Constitutional framework of the Competition and Consumer Act 2010 [18.20] The restrictive trade practices provisions of the Competition and Consumer Act 2010 (Cth) are directed at conduct by corporations. The reason is that the head of power which has been primarily relied on in enacting these provisions is the Commonwealth’s power under the Constitution to make laws with respect to “foreign corporations and trading or financial corporations formed within the limits of the Commonwealth”: s 51(xx) of the Constitution. However, s 6 of the Competition and Consumer Act 2010 (Cth) extends the Act’s operation so that where the Commonwealth is able to rely on one of its other powers for the validity of provisions in the Act, those provisions are in certain circumstances extended so as to apply to individuals (including sole traders, partnerships and other unincorporated bodies) as well as to corporations. The effect of the extended application is that the restrictive trade practices provisions of the Competition and Consumer Act 2010 (Cth) also generally apply to individuals (including sole traders, partnerships and other unincorporated bodies) where they are engaged in interstate or overseas trade or commerce, trade or commerce within or involving the Australian Capital Territory or the Northern Territory, or dealings with the Commonwealth government. On the other hand, the restrictive trade practices provisions do not generally apply to individuals or unincorporated firms trading within the confines of one particular State (that is, in intrastate trade).

The Competition Code [18.30] Part XIA (ss 150A – 150K) of the Competition and Consumer Act 2010 (Cth) facilitates the application of the Competition Code (set out as Sch 1 to the Act) by the States and Territories participating in a national scheme. The Competition Code is a modified version of the restrictive trade practices provisions of the Competition and Consumer Act 2010 (Cth) (that is, Pt IV). The modifications reflect the different constitutional basis that underpins the State and Territory application laws. Whereas the prohibitions in Pt IV of the Competition and Consumer Act 2010 (Cth) are expressed to apply to corporations, the prohibitions in the Competition Code are expressed to apply to persons. The State and Territories enacted application laws adopting the Competition Code as part of the law of their particular jurisdiction. 2 In this way intrastate unincorporated businesses (for example, intrastate partnerships and sole traders) are subject to the Competition Code. The scheme facilitates business access to the services of certain infrastructure facilities, for example, a road or railway line, facilities for handling or transporting goods or people, or a communications service: Competition and Consumer Act 2010 (Cth), Pt IIIA (Access to Services). The objectives of this Part are to “promote the economically efficient operation of, use of and investment in the infrastructure by which services are provided, thereby promoting effective competition in upstream and downstream markets; and … provide a framework and guiding principles to encourage a consistent approach to access regulation in each industry”: s 44AA. 2

See, for example, Competition Policy Reform (New South Wales) Act 1995, s 5(1) (NSW). See generally B Sweeney, “The Constitutional Basis of the Competition Code” (2001) 27 Monash University Law Review 78.

chapter 18 Restrictive Trade Practices

Provision is made for the declaration of certain services provided by facilities which are of national significance, and for the means by which persons may seek access to declared services. The National Competition Council has a recommendatory role in the declaration process and the Australian Competition and Consumer Commission (ACCC) is the body which determines whether access should be given where this is disputed, and on what terms and conditions. There is also provision for appeals to the Australian Competition Tribunal and for the enforcement of access determinations by the Federal Court.

Administrative machinery [18.40] The ACCC has general responsibility for bringing proceedings for contraventions in restrictive trade practices cases. The ACCC has the power to allow by way of authorisation certain types of conduct which might otherwise be prohibited by the Act. In general, an authorisation assumes that the Act applies to a particular practice but grants a dispensation (broadly on public benefit grounds) which permits the practice to be engaged in even though it falls within a prohibited class of conduct. Authorisation is not available in all types of restrictive trade practices: see [18.510]. The ACCC also has the power to revoke the protection conferred by notification to it of the practice of exclusive dealing: see [18.390]. The Australian Competition Tribunal is the appeal body from decisions of the ACCC on authorisation applications and revocation of exclusive dealing notifications. Enforcement proceedings for contravention of the restrictive trade practices prohibitions is by way of action in the Federal Court of Australia. The Federal Circuit Court has jurisdiction in relation to restrictive trade practices, including s 46 cases: Competition and Consumer Act 2010 (Cth), s 86(1A).

Restrictive trade practices regulated by the Act [18.50] The Competition and Consumer Act 2010 (Cth) prohibits certain kinds of restrictive trade practices, namely: (a)

agreements and covenants affecting competition (ss 45 – 45C), cartel conduct (ss 44ZZRA – 44ZZRV) and anti-competitive disclosures of information (ss 44ZZS – 44ZZZB);

(b)

boycotts (s 45D);

(c)

misuse of market power (ss 46, 46A);

(d)

exclusive dealing (s 47);

(e)

resale price maintenance (ss 48, 96 – 100); and

(f)

acquisitions substantially lessening competition: ss 50, 50A.

The regulation of each of these kinds of restrictive trade practices will be considered in turn. Contravention of the restrictive trade practice prohibitions enumerated above exposes the parties to: (a)

liability for pecuniary penalties: up to $10 million for a company, and up to $500,000 for an individual;

(b)

an injunction to restrain the contravention or threatened contravention;

(c)

damages for the loss or damage suffered by a person as a result of the contravention; and

(d)

ancillary orders (including rescission or variation of contracts) to compensate those who have suffered or will suffer loss or damage arising from the contravention: see [18.520].

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Agreements and covenants affecting competition [18.60] A corporation which makes or gives effect to a provision of a contract, arrangement or understanding having the purpose or effect of “substantially lessening competition” in a market for the supply of goods and services contravenes s 45 of the Competition and Consumer Act 2010 (Cth) 3. (On the meaning of “market” and “competition”, see [18.470].) Examples of provisions which would contravene s 45 include market-sharing agreements (that is, arrangements between traders dividing or allocating particular territories or the market for any goods) and agreements containing restrictions on the output or quality of goods to be produced or supplied. The potential breadth of application of the section can be seen in the following cases:

case [18.70] Steel Supplies (Aust) Pty Ltd, a subsidiary of Tubemakers of Australia Ltd, was the major supplier of steel to the Western Australian market. B, the regional manager of Tubemakers, stressed the urgent need to increase the profitability of Steel Supplies with its manager, A. B canvassed the possibility of increasing Steel Supplies’ profit margin by reducing the amount of discount offered to its customers and suggesting that, in view of its position as market leader, such an approach by Steel Supplies would be followed by its competitors. It also appears to have been further suggested by B that an attempt be made to obtain the agreement of other merchants to a reduction in discount levels. At a special meeting of a Trade Association of steel merchants the following day, B said he would support whatever initiative was undertaken to improve profitability in the steel business. Thereafter, A told the meeting that it was his intention to limit the level of discount offered by Steel Supplies, and that he would take very strong action in pricing terms if any other merchant “moved in” on his customers as a result: at 725-727. Subsequently, A contacted the former Trade Practices Commission apparently troubled by the implications of what had taken place at the meeting: at 730. In proceedings brought by the Commission it was held by the Federal Court that Tubemakers (through its regional manager, B), and Steel Supplies (through its manager, A), had attempted to bring about an arrangement whereby the discounts allowed by steel merchants to purchasers of steel products would be controlled, that is, the two companies had attempted to contravene s 45, and had attempted to induce others to do the same. It was further held that B had attempted to induce Steel Supplies (through A) to contravene s 45 of the Competition and Consumer Act 2010 (Cth): at 743-744. In a subsequent hearing, a penalty of $15,000 was imposed on Tubemakers, $10,000 on Steel Supplies, and $2,000 on B, the regional manager of Tubemakers: Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719; [1983] ATPR 40-390 at 44,578.

case [18.80] A rural publisher began to issue its newspaper the River News in a town within the circulation area of another newspaper, the Murray Valley Standard. The publishers of the Murray Valley Standard informed the other publisher that they might set up a competing newspaper in the circulation area of the River News. The publishers of the River News agreed that they would withdraw their newspaper from the Murray Valley Standard’s circulation area. 3

See P Armitage, “The Evolution of the ′Substantial Lessening of Competition” Test – A Review of Case Law” (2016) 44 Australian Business Law Review 74.

chapter 18 Restrictive Trade Practices

The High Court held that the publishers had reached an “arrangement” under s 45 of the Competition and Consumer Act 2010 (Cth): at [30]. A “market” under s 45 need not be a substantial market: at [43]. A market can thus be a small or local market. The arrangement between the publishers substantially lessened competition between the publishers for readers and advertisers in the regional newspaper market: Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [46]. [18.90] In Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 1 (see [18.320]), the appellant was a waste paper collection and recycling business. It was supplied with waste paper by one of its competitors. The appellant sought to enter into an agreement with this competitor. The High Court held that: “The parties intended both to restrict [the competitor’s] freedom to supply services to others, and to restrict its freedom to acquire goods from them”: at [34]. Such an agreement would contravene s 45(2) of the Competition and Consumer Act 2010 (Cth). The general prohibition contained in s 45 does not apply to certain anti-competitive provisions specifically dealt with in other sections of the Act: thus, it does not apply, for example, to resale price maintenance provisions, or exclusive dealing arrangements discussed at [18.310] and [18.400]. So far we have seen that provisions which have the purpose or effect of “substantially lessening competition” in a market are prohibited by s 45. However, exclusionary provisions in contracts, arrangements or understandings are prohibited whether or not they have the purpose or effect of substantially lessening competition. 4

Exclusionary provisions [18.100] Exclusionary provisions (sometimes referred to as primary boycotts) are provisions in a contract, arrangement or understanding between two or more corporations which are competitive with each other, having the purpose of preventing, restricting or limiting the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons, or to or from particular persons or classes of persons in particular circumstances or on particular conditions: Competition and Consumer Act 2010 (Cth), s 4D. In essence, the Act prohibits collective boycotts between corporations aimed at preventing or hindering the supply of goods or services to, or the acquisition of goods or services from, another person. The purpose prohibited by s 4D is the limiting of supply, and it does not have any additional element of seeking to cause any injury or detriment beyond the limiting of supply: Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [12], [68].

case [18.110] In News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563, the governing bodies of the two rugby league football competitions agreed to merge the two competitions. Over time, the 22 clubs were to be reduced to 14 competitors in a new competition. The respondent club was one of those excluded from the new competition.

4

Note that the former price-fixing provisions in ss 45A and 76D of the Trade Practices Act 1974 (Cth) were repealed by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth) and replaced by the new “cartel conduct” provisions discussed at [18.150].

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The High Court held that the subjective purpose of the parties was the main criterion in assessing whether a term was an exclusionary provision under s 4D of the Competition and Consumer Act 2010 (Cth): at [18], [41], [60], [212]. An objective approach may “give undue significance to the substantive effect of the provision, as opposed to the effect that the parties sought to achieve through its inclusion”: at [63]. On the facts the Court held that the exclusion was enforceable. The provision enabled the creation of a viable merged competition. There was no intent to exclude any particular club: at [27], [217]. [18.120] Exclusionary provisions are prohibited whether or not they have the purpose or effect of substantially lessening competition in a market: Competition and Consumer Act 2010 (Cth), s 45.

case [18.130] In 1994, News Ltd was intent on establishing “Super League” as a new professional rugby league competition in Australia. Super League was to operate in competition with the existing National Competition run by the New South Wales Rugby League (the “League”) in conjunction with the Australian Rugby League (the “ARL”) and which comprised 20 clubs. During 1995, News Ltd entered into contracts with over 300 players and coaches enabling them to participate in the Super League competition. Most of the players and coaches were already contracted to clubs participating in the National Competition. The Super League contracts were signed after the League, the ARL and the 20 clubs had executed “Commitment Agreements” and “Loyalty Agreements” which, inter alia, precluded the clubs from participating in any competition, until the end of the 1999 season, not conducted or approved by the League and the ARL. In an action by News Ltd against the League, the ARL and 17 of the 20 clubs, the Full Federal Court held that the Commitment and Loyalty Agreements contained exclusionary provisions which contravened s 45(2) of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)). This was because the Agreements signed by the clubs, which were found to have been in competition with each other, were entered into substantially “for the purposes of preventing, for five years: (a)

the supply by the clubs of rugby league teams to any competition organiser other than the one approved by the League and [the] ARL; and

(b)

the acquisition by the clubs of the services of a competition organiser other than one approved by” [the League and the ARL]: at 577.

Accordingly, the clubs, the League and the ARL were prohibited (under Trade Practices Act 1974 (Cth), s 45(2)(b)(i)) from giving effect to any of the exclusionary provisions contained in the Agreements which, it was further held, were void: at 581-582. The decision effectively enabled News Ltd to pursue its aim of establishing Super League: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410. [18.140] In proceedings for contravention of the exclusionary provision sections, it is a defence that the exclusionary provision is for the purposes of a joint venture and does not have the purpose, and does not have and is not likely to have the effect, of substantially lessening competition: Competition and Consumer Act 2010 (Cth), s 76C(1). There are specific provisions relating to collective bargaining: ss 93AA – 93AF. Parties to an exclusionary provision may seek authorisation from the ACCC: see [18.510].

chapter 18 Restrictive Trade Practices

Cartel conduct [18.150] A provision of a contract, arrangement or understanding is a cartel provision if conditions (a) and (b) are satisfied. 5 Condition (a) may be either a purpose/effect condition or a purpose condition, while condition (b) is a competition condition: Competition and Consumer Act 2010 (Cth), s 44ZZRD(1). In the following discussion “parties” refers to parties to the contract, arrangement or understanding. The purpose/effect condition will be satisfied if the provision has the purpose or likely effect of:  fixing, controlling or maintaining; or  providing for the fixing the price for, or  a discount in relation to goods or services supplied by any of the parties; or  goods or services acquired by any of the parties; or  goods or services resupplied by persons to whom those goods or services were supplied by any of the parties; or  goods or services likely to be resupplied by persons to whom those goods or services are likely to be supplied by any of the parties: s 44ZZRD(2). A recommended price does not in itself satisfy the purpose/effect condition: s 44ZZRD(6). The purpose condition will be satisfied if the provision has (a)

the purpose of preventing, restricting or limiting the production of goods by any of the parties; or the capacity of any of the parties to supply services; or the supply of goods or services to persons by any or all of the parties to the contract, arrangement or understanding; or

(b)

allocating between the parties: the persons who are likely to acquire goods or services from any of the parties; or the persons who are likely to supply goods or services to any of the parties; or the geographical areas in which goods or services are supplied by any of the parties; or the geographical areas in which goods or services are acquired by any of the parties; or

(c)

ensuring that in the event of a request for bids in relation to the supply or acquisition of goods or services: one or more parties bid, but one or more other parties do not; or two or more parties bid, but at least two of them do so on the basis that one of those bids is more likely to be successful than the others; or two or more parties bid, but not all of those parties proceed with their bids; or two or more parties proceed with their bids, but at least two of them proceed on the basis that one of those bids is more likely to be successful than the others; or two or more parties bid, but a material component of at least one of those bids is worked out in accordance with the contract, arrangement or understanding: s 44ZZRD(3).

Under purpose sub-condition (c) the cartel provision may be concluded before or after the bids are made: Obeid v Australian Competition and Consumer Commission (2014) 226 FCR 471 at [65], [68]. In that case a cartel provision was entered into in relation to bidding for a mineral exploration permit. Under the provision a bidder agreed to withdraw its bid in exchange for a share of the mining project: at [8]. The cartel provision was made after the bids were made but still fell within this sub-condition: at [64]-[65]. 5

See generally M Gordon, “Criminalisation of Cartel Conduct” (2011) 34 Australian Bar Review 177; G Nettle, “Criminalisation of Cartel Conduct: Commentary” (2011) 18 Competition and Consumer Law Journal 213; C Beaton-Wells and B Fisse, Australian Cartel Regulation (Cambridge University Press, Melbourne, 2011); C Hodgekiss, “Cartels and the Competition and Consumer Act 2010 (Cth)” (2013) 27(3) Commercial Law Quarterly 9; F Cantatore and B Marshall, “Pitfalls in Proving Price-fixing: Are Price-signalling Laws the Answer?” (2015) 27 Bond Law Review 113.

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The competition condition will be satisfied if at least two of the parties are, or likely to be, in competition with each other in relation to (among others) the supply, acquisition or resupply of those goods or services, or the production of those goods or the supply of those services: s 44ZZRD(4).

Anti-competitive disclosures of information [18.151] The Act prohibits anti-competitive disclosures of pricing and related information (discounts, allowances, rebates or credits). 6 These provisions apply only to goods or services of classes that are specified by regulation: Competition and Consumer Act 2010 (Cth), s 44ZZT(1). These provisions apply to the banking industry: Competition and Consumer Regulations 2010 (Cth), r 48. A private disclosure of information is made by a corporation to one or more competitors but not to any other person: s 44ZZV(1). A corporation must not make a private disclosure of information concerning the price of goods or services supplied by the corporation in a market: s 44ZZW. A disclosure in the ordinary course of business is not prohibited. A corporation must not disclose information concerning the price of goods and services supplied by the corporation, or its capacity to supply or acquire goods or services, or its commercial strategy, if it makes the disclosure for the purpose of substantially lessening competition in a market: s 44ZZX(1). The Act lists certain factors which the court may consider in determining whether the disclosure was made for an anti-competitive purpose: s 44ZZX(2). The Act exempts certain disclosures from this prohibition, such as disclosures to an acquirer or supplier of goods or services, to an unknown competitor or to participants in a joint venture: s 44ZZZ. Disclosure through an intermediary falls within these prohibitions: s 44ZZU(3). Accidental disclosures are not prohibited: s 44ZZU(4). A person does not contravene these provisions merely by being the recipient of information disclosed in contravention of these provisions: s 44ZZZB.

Covenants affecting land [18.160] Covenants running with land (including covenants in leases other than those which amount to exclusive dealing) are treated in essentially the same way as provisions in contracts, arrangements or understandings which substantially lessen competition in the relevant market: Competition and Consumer Act 2010 (Cth), ss 45B and 45C. For example, a covenant is unenforceable insofar as it confers rights or benefits or imposes duties or obligations on a corporation if the covenant has or is likely to have the effect of substantially lessening competition in any market in which the corporation supplies or acquires goods or services: s 45B(1). The ACCC may authorise conduct which would otherwise contravene price-fixing covenants involving goods and services: s 45C with s 45B; and see [18.510].

Boycotts [18.170] Non-industrial or corporate boycotts which are engaged in for the purpose and effect of lessening competition are prohibited by s 45D of the Competition and Consumer Act 2010 (Cth). In general terms, what is meant by a boycott, or more particularly in the present context, a secondary boycott, 6

See generally K Tomasic, “‘Price Signalling’ Amendments to the Competition and Consumer Act 2010 (Cth): A Principled Response to the Problem of Tacit Collusion?” (2012) 19 Competition and Consumer Law Journal 176; F Cantatore and B Marshall, “Pitfalls in Proving Price-fixing: Are Price-signalling Laws the Answer?” (2015) 27 Bond Law Review 113.

chapter 18 Restrictive Trade Practices

is a situation where there is concerted action between two or more parties (A and B) for the purpose of hindering or preventing a third party (C), such as a potential customer or supplier, from dealing with a fourth party (D), that is, the “target” of the boycott). Section 45D(1) provides that a person A must not, in concert with a second person (B), engage in conduct that: (a)

hinders or prevents a third person (C) supplying goods or services to a fourth person (D), who is not an employer of A or B; or

(b)

hinders or prevents C acquiring goods or services from D; and that conduct is engaged in for the purpose, and would have or be likely to have the effect, of causing substantial loss or damage to the business of D.

Section 45D(1) applies if D is a corporation. Section 45D(1) also applies if C is a corporation and D is not a corporation; and the conduct would have, or be likely to have, the effect of causing substantial loss or damage to the business of C.

Misuse of market power [18.180] The Act prohibits certain kinds of anti-competitive conduct on the part of a corporation which (together with any related corporation) “has a substantial degree of power in a market” for goods or services: Competition and Consumer Act 2010 (Cth), s 46. In determining the degree of market power that a corporation (together with any related corporation) has in a market, the court is to have regard to the extent to which the conduct of the corporation is constrained by competition from other competitors or potential competitors in the market, and those to whom or from whom it supplies or acquires goods or services in that market: s 46(3). In determining the degree of market power possessed by a corporation, the Court may have regard to the power the corporation has that results from any contracts, arrangements or understandings that the corporation has with another party and any covenants that the corporation is bound by or entitled to the benefit of: s 46(3A). A corporation may have a substantial degree of market power even though it does not substantially control the market or it does not have absolute freedom from constraint by the conduct of competitors or its suppliers or customers: s 46(3C). More than one corporation may have a substantial degree of power in a market: s 46(3D). A corporation which has a substantial degree of power in a market must not take advantage of that power to: (a)

eliminate or substantially damage a competitor of the corporation, or of a company that is related to the corporation, in that or any other market;

(b)

prevent the entry of a person into that or any other market; or

(c)

deter or prevent a person from engaging in competitive conduct in that or any other market: s 46(1). 7

7

See generally M Brock, “Section 46 of the Trade Practices Act – Has the High Court made a U-turn on Taking Advantage?” (2005) 33 Australian Business Law Review 327; S Quo, “Interpretation and Application of the Purpose Test in s 46 of the Competition and Consumer Act 2010” (2011) 19 Competition and Consumer Law Journal 90 and 215; P Williams, “The Counterfactual Test in s 46” (2013) 41 Australian Business Law Review 93; J Laman and M Nehme, “Section 46 of the Competition and Consumer Act: The Need for Change” (2014) 22 Australian Journal of Competition and Consumer Law 112; IB Stewart, “Contrary to Fact: Competition, Market Power, and the Use and Abuse of the Counterfactual Test in s 46”

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A leading case on the application of this provision is the decision of the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177:

case [18.190] BHP was the sole Australian manufacturer of “star picket posts” used in rural fencing. The posts were made from Y-bar steel which was manufactured solely by BHP. The appellant, QWI, wanted to manufacture star picket posts as part of its wire fencing business. However, BHP refused to supply the necessary Y-bar steel to QWI except at an excessively high price, which ensured that QWI could not manufacture and sell star picket posts at a competitive price: at 183-185. QWI brought an action seeking damages and injunctive relief for BHP’s alleged contravention of s 46 of the Competition and Consumer Act 2010 (Cth). The High Court held that in effectively refusing to supply Y-bar steel to QWI, BHP was taking advantage of its substantial market power to prevent QWI competing with it as a manufacturer and wholesaler of star picket posts in contravention of s 46: at 192-193, 198, 202, 216. The case was remitted back to the Federal Court for a determination of QWI’s entitlement to damages and injunctive relief: Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 at 193, 198, 203, 217. [18.200] The High Court decision in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 provides a further example of the operation of the misuse of market power provision in s 46 of the Competition and Consumer Act 2010 (Cth):

case [18.210] M Pty Ltd published Melbourne street directories, accounting for 85 per cent of all street directories sold in that city. M distributed these directories through wholesalers. Each wholesaler was allocated a segment of the retail market, and was not to sell to other segments of the market. RH Pty Ltd was appointed distributor of the directories to automotive parts retailers but this appointment was subsequently revoked. After termination of its distributorship RH requested that M supply it with street directories. RH intended to sell to all segments of the market. M refused to supply the directories. The Full Federal Court held that M had taken advantage of its market power by refusing to supply to RH. On appeal, the High Court reversed the decision of the Federal Court. The High Court held that the true question was whether M could have maintained its system of exclusive distributorship without its market power: at [61]. M’s distributorship system was created before it attained substantial market power, so once M attained substantial market power, maintenance of this system was not necessarily an exercise of market power: Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 at [68].

(2015) 43 Australian Business Law Review 6; GM Grant, “‘Taking Advantage’ of Substantial Market Power, and Other Profit-Focused Tests for Unilateral Anticompetitive Conduct” (2015) 41 Monash University Law Review 655; S Quo, “Unilateral Conduct and the Role of the Purpose Test in Section 46 of the Competition and Consumer Act 2010 (Cth)t” (2016) 24 Monash University Law Review 114.

chapter 18 Restrictive Trade Practices

[18.220] Recent decisions tend to suggest that establishing that a corporation has a substantial degree of market power for the purposes of s 46 of the Competition and Consumer Act 2010 (Cth) is difficult. This can be demonstrated by the High Court decision in Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374:

case [18.230] Boral manufactures concrete masonry products including blocks and bricks for the building industry. It competes with a number of other manufacturers in Victoria. The principal source of demand for the products came from block-layers who were able to drive down prices by playing one manufacturer off against another. Between April 1994 and October 1996 Boral engaged in a price war by cutting its prices in Melbourne to cost or below cost of manufacture and supply in the expectation that some of its competitors would leave the market. The ACCC sought a declaration that Boral had contravened s 46 of the Competition and Consumer Act 2010 (Cth). The High Court held that s 46 was not contravened by Boral cutting its prices for concrete masonry to below cost. While the price-cutting had an anti-competitive purpose (reducing the number of competitors in this market), that anti-competitive purpose alone did not violate s 46. Business damage to competitors is an ordinary consequence of strong price competition: at [86]. “Section 46 requires much more than ‘intent’”: at [283]. To prove a contravention of s 46 it was necessary to show a substantial degree of market power, and taking advantage of that power. An anti-competitive purpose does not prove the taking advantage of substantial market power: at [123], [194]. On the facts, the relevant market was concrete masonry products in Melbourne, not a larger market in wall and paving products: at [134], [259]. Boral’s market power was not substantial. Market power is also influenced by demand, that is by customers as well as competitors: at [133], [189]. In this case, builder customers were able to drive down prices by playing suppliers off against one another: at [318]. Another indication of substantial market power is that the company will later be able to recover its losses from price-cutting by charging higher prices in a less competitive market. Here, Boral was unlikely to recover its losses from the price-cutting: at [130], [199]. A company is less likely to have taken advantage of its market power if there is a legitimate business reason for its conduct. In this case Boral reduced its prices to survive in an intensely competitive market: at [44], [86]. Finally, if there are few barriers to entry into a market, that is inconsistent with substantial market power: at [307]. Financial capacity to survive competition is not market power if the market remains competitive after a price war. By contrast, “if a market is not competitive, and a firm puts prices down, seeking to eliminate a potential rival, in the expectation that it will thereafter be in a position to raise prices without competitive constraint, its ability to act in that manner may reflect the existence of market power”: Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 at [138]. 8 [18.240] The decision of the High Court in Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 was followed by the Full Federal Court in Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 with a similar result as regards the application of s 46 of the Competition and Consumer Act 2010 (Cth):

8

See F Zumbo, “The Boral Case: Has the High Court Done Justice to s 46?” (2003) 11 Trade Practices Law Journal 199.

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case [18.250] It became lawful from 30 July 1998 to import genuine, that is, non-pirate compact discs (“CDs”), following amendments to the Copyright Act 1968 (Cth). The effect was to take away the statutory monopoly of the record companies in respect of the distribution of CDs in Australia. The two appellant record companies, Universal Music (formerly Polygram) and Warner Music adopted a policy under which retailers were told that if they imported CDs rather than acquire them from the appellants, the latter might cease to have a trading relationship with the retailers. When a number of smaller retailers did in fact import CDs, the appellant record companies ceased to supply them with other CD titles in their catalogue. The Full Federal Court held that the relevant market was the market for wholesale recorded music in Australia: at [34]. However, it could not be said that the degree of power held by either of the appellant record companies was so significant as to warrant the description “substantial” within the meaning of s 46 of the Competition and Consumer Act 2010 (Cth): at [22], [162].

case [18.260] In NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90, a statutory authority granted a licence to NT to sell electricity. The authority refused to allow NT to use the authority’s transmission and distribution system for that purpose. The High Court held that the refusal contravened s 46 of the Competition and Consumer Act 2010 (Cth). The refusal was based on protecting the authority’s own electricity pricing, rather than any technical or safety reasons: at [72]. The authority’s ownership of the transmission and distribution system was a barrier to entry into the electricity market, which constituted market power. The authority took advantage of that market power with the purpose of excluding NT from the market: at [114]. The exclusionary purpose was made possible by the authority’s market power. [18.270] In Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, it was said in the High Court at 187 per Mason CJ and Wilson J: “The analysis of a s 46 claim necessarily begins with a description of the market in which the defendant is thought to have a substantial degree of power. In identifying the relevant market, it must be borne in mind that the object is to discover the degree of the defendant’s market power. Defining the market and evaluating the degree of power in that market are part of the same process, and it is for the sake of simplicity of analysis that the two are separated”. The importance of defining the relevant market in an action for alleged contravention of s 46 of the Competition and Consumer Act 2010 (Cth) is illustrated by the decision of the Full Federal Court in Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158:

case [18.280] The case concerned an alleged contravention of s 46 of the Competition and Consumer Act 2010 (Cth) by the appellant airline in relation to packaged island holiday tours to the Maldives, the airline carrying 80-90 per cent of the passengers on such tours from Australia. However, the Full Court held that the relevant market was the provision of island holiday services across a range of destinations (that is, not restricted to package tours to the Maldives) and the airline did not have a substantial degree of power in that market. Accordingly, the the airline had not violated s 46: Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 184.

chapter 18 Restrictive Trade Practices

[18.290] If it is established that the corporation has a substantial degree of power in a market, the further question is whether the corporation has “taken advantage” of that power for one of the purposes proscribed by s 46 of the Competition and Consumer Act 2010 (Cth) and thus undermined competition. In Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 the High Court adopted a narrow interpretation of the meaning of “taking advantage” of market power. The Court held that “taking advantage” does not include conduct that has the sole purpose of protecting market power: at [51]. The Trade Practices Legislation Amendment Act 2008 (Cth) inserted a new subsection modifying the interpretation of “taking advantage” adopted in the Rural Press decision. The subsection now provides: In determining … whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following: (a)

whether the conduct was materially facilitated by the corporation’s substantial degree of power in the market;

(b)

whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market;

(c)

whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market;

(d)

whether the conduct is otherwise related to the corporation’s substantial degree of power in the market. This subsection does not limit the matters to which the court may have regard: Competition and Consumer Act 2010 (Cth), s 46(6A). Whether a corporation has taken advantage of its market power may be inferred from the conduct of the corporation, or of any other person, or from other relevant circumstances: s 46(7). Predatory pricing is unlawful. If a corporation supplies goods or services for a sustained period at a price that is less than the cost of their supply, the corporation may violate the Competition and Consumer Act 2010 (Cth), s 46(1) even if the corporation cannot recoup losses incurred by supplying those goods or services: s 46(1AAA). A corporation with a substantial market share must not offer or supply goods or services for a sustained period at a price that is less than the cost to it of supplying those goods or services with the purpose of eliminating or substantially damaging a competitor or preventing the entry of a person into any market or deterring a person from engaging in competitive conduct in any market: s 46(1AA). In determining whether a corporation has a substantial market share, the court may have regard to the number and size of the corporation’s competitors in the market: s 46(1AB). In determining whether a corporation has breached s 46(1), the court may have regard to predatory pricing by the corporation: s 46(4A). There is no machinery for authorisation of misuse of market power.

The trans-Tasman market [18.300] The Competition and Consumer Act 2010 (Cth) defines a trans-Tasman market as a market in Australia, New Zealand or in both for goods or services: s 46A(1). Section 46A concerns misuse of power in a trans-Tasman market. A corporation with a substantial degree of market power in a trans-Tasman market, that is not a market exclusively for services, must not use that power to eliminate or damage a competitor in that market; to prevent the entry of a competitor into that market; or to deter competitive

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behaviour within that market: s 46A(2). A corporation is taken to have a substantial degree of market power in the trans-Tasman market where it has such power together with one or more of its related corporations: s 46A(3).

Exclusive dealing [18.310] The Competition and Consumer Act 2010 (Cth) prohibits “exclusive dealing”: s 47. In broad terms exclusive dealing concerns situations where a supplier imposes restrictions on the freedom of its customers to deal with others and vice versa. Basically, a corporation engages in the practice of exclusive dealing in the following situations: (a)

where it supplies, or offers to supply, goods or services on condition that the customer will not acquire (or will limit their acquisition of) goods or services from a competitor of the supplier;

(b)

where it supplies, or offers to supply, goods on the condition that the customer will not resupply (or will limit the extent of their resupply of) the goods to particular persons or classes of persons, or in particular geographic places;

(c)

where it refuses to supply goods or services because the customer either has not complied with, or will not accept such conditions (that is, those in (a) or (b) above);

(d)

where it acquires, or offers to acquire, goods or services on condition that the supplier will not supply goods or services to any person, or will not supply (or limit their supply) of goods or services to particular persons or classes of persons, or in particular geographic places (refusing to acquire goods or services because the supplier has not complied with, or will not accept such conditions is also prohibited);

(e)

where it supplies, or offers to supply, goods or services on the condition that the customer will acquire other goods or services from another supplier (this practice is commonly referred to as “third-line forcing” (see [18.330]) (refusing to supply because the customer will not agree to such a condition is also prohibited);

(f)

where, as the lessor of land or a building, it grants or renews a lease or licence (or will not terminate such except) on condition that the lessee: (i)

will not acquire (or will limit the acquisition of) goods or services from a competitor of the lessor;

(ii)

will not supply goods or services to particular persons or classes of persons, or in particular geographic places; or

(iii)

will acquire particular goods or services from a certain supplier (refusal to grant or renew, or the exercise of a right to terminate a lease or licence, because the lessee has not complied with or will not agree to such conditions is also prohibited).

A corporation engages in the practice of exclusive dealing in relation to (a)-(d) above, not only where it supplies or acquires, etc, goods or services subject to the conditions or restrictions mentioned, but also where it supplies, etc, the goods or services at a particular price, or gives a discount, allowance, rebate or credit subject to such conditions or restrictions. However, it is important to bear in mind that conduct which amounts to exclusive dealing is only prohibited if it has the purpose or effect of “substantially lessening competition” in a market for goods and services: s 47(10). For example, the manufacturer and distributor of outboard marine engines terminated a dealership agreement with a retailer because the latter would not agree not to sell marine engines of the manufacturer’s competitors. It was held that the manufacturer had not contravened the exclusive dealing

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provisions in s 47 because the manufacturer’s refusal to supply outboard motors to the retailer was not likely to substantially lessen competition in the relevant retail market: Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd (1982) 44 ALR 667 at 670, 679.

case [18.320] In Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 1, the appellant was a waste paper collection and recycling business. The appellant was supplied with waste paper by one of its competitors. The appellant sought to enter into an agreement with this competitor. One provision of the agreement would have restricted the supplier from supplying waste collection services to the appellant’s actual and prospective customers. The High Court held that this provision would have contravened the Competition and Consumer Act 2010 (Cth), s 47(1). Another provision of the agreement would have restricted the supplier from acquiring goods (waste paper) from those persons. The Court held that this provision would not have contravened s 47: at [34].

case [18.325] Following amendments to the Copyright Act 1968 (Cth) it became lawful from 30 July 1998 to import genuine, that is, non-pirate compact discs (CDs). The effect was to take away the statutory monopoly of the record companies in respect of the distribution of CDs in Australia. The two appellant record companies, Universal Music and Warner Music adopted a policy under which retailers were told that if they imported CDs rather than acquire them from the appellants, the latter might cease to have a trading relationship with the retailers. When a number of smaller retailers imported CDs, the appellant record companies ceased to supply them with other CD titles in their catalogue. The Full Federal Court held that the appellant record companies had engaged in exclusive dealing in violation of s 47 and that their senior executives were knowingly concerned in the contraventions: at [238]. The appellant record companies had offered to supply CDs to retailers on the condition that the retailers agreed not to acquire CDs from the appellants’ competitors (that is, by importing the CDs from overseas suppliers) or had refused to supply where the retailers had imported: at [235]. Such conduct had the purpose of substantially lessening competition in the relevant market: at [247], [274]. The Full Court imposed a penalty of $1 million against each company for contravention of s 47: at [312]. The court also imposed a penalty of $45,000 against each of the senior executives involved in the contravention: Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at [285], [293].

Third-line forcing [18.330] The only exception to the requirement that the conduct amounting to exclusive dealing must have the purpose or effect of substantially lessening competition is where the conduct constitutes “third-line forcing” referred to in (e) in [18.310] and a provision to similar effect in leases or licences referred to in (f) in [18.310]: this type of conduct is prohibited outright. 9 It would seem that an offer to supply work as a cartage contractor on condition that the offeree acquire a truck from a third party would

9

See generally D Healey, “Third Line Forcing: Has the Problem Gone Away?” (2009) 32 University of New South Wales Law Journal 249; E Hortle, “Third-line Forcing and the Notification Process: Yet Another Reason to Abolish the Per Se

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constitute third-line forcing and hence contravention of the exclusive dealing provisions of s 47(6) of the Competition and Consumer Act 2010 (Cth): Queensland Aggregates Pty Ltd v Trade Practices Commission (1981) 38 ALR 217 at 220-221.

case [18.340] B provided a bill payment network for newsagents. The newsagents were required to sign two contracts: one with B for the supply of the system, the other with a different party for the rental of computer equipment that was necessary for the operation of the system. It was held that B and the computer rental supplier had engaged in third line forcing: Australian Competition and Consumer Commission v Bill Express Ltd (in liq) (2009) 180 FCR 105 at [68]. [18.350] On the other hand, insistence by a brewer on using a preferred carrier for the delivery of its beer from Brisbane to retail buyers in North Queensland was held by the High Court not to constitute exclusive dealing, since the beer was not supplied to the retail buyers on condition that they use the services of a particular carrier but on terms that the brewer would deliver the beer: Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) 162 CLR 395 at 400, 402, 406. In SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516, a corporation lent money to another corporation on the condition that the borrower would acquire packing and unpacking services from parties to be nominated by the lender. The lending was a “supply of services”. This provision of the loan agreement constituted third-line forcing: at [13]. The Australian Competition Tribunal has summarised the concept of third-line forcing as follows: “[T]hird line forcing requires two distinct goods or services with the supply of the first by one party being conditioned on the acquisition of the second from a different party. Where a single package of products or services is supplied, there will be no third line forcing even though different, unrelated organisations produce the various goods or services making up the package”: Re Australian Competition and Consumer Commission by Australian Association of Pathology Practices Inc (2004) 206 ALR 271 at [101].

Examples of exclusive dealing [18.360] The following cases are further examples of the application of the exclusive dealing provisions of the Competition and Consumer Act 2010 (Cth):

case [18.370] A terminating building society’s requirement that borrowers insure property mortgaged to the society with an insurance company nominated by the society was held by the Federal Court to constitute exclusive dealing: Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 22 ALR 621 at 631, 651-652.

Prohibition” (2010) 18 Competition and Consumer Law Journal 39; IS Wylie, “Not that Old Chestnut Again — Third Line Forcing under the Competition and Consumer Act 2010” (2011) 19 Competition and Consumer Law Journal 18; J Lipinski, “Blurring the Bright Line? Third Line Forcing Revisited” (2014) 22 Australian Journal of Competition and Consumer Law 23.

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case [18.380] O’Brien Glass Industries Ltd (O’Brien’s) had the largest share of the wholesale market in New South Wales for the supply of windscreens, including the Wagga district, where it also supplied and fitted replacement windscreens at the retail level. Cool & Sons Pty Ltd (Cool) was a major retail supplier in and around Wagga for the supply and fitting of replacement windscreens. There were over 100 competitors in the relevant retail market (mostly service stations and smash repairers): at 626-627. O’Brien’s supplied windscreens to retailers at varying discounts of 40 per cent, 45 per cent and 50 per cent. The company had a general practice of giving retailers discounts of 45 per cent or 50 per cent on condition that the retailer purchased all or a substantial majority of its windscreens from O’Brien’s rather than from its competitors, otherwise the discount was 40 per cent: at 627. Cool was allowed 40 per cent discount but was offered a 50 per cent discount subject to the aforementioned condition: at 629. Cool contended that such condition contravened the exclusive dealing provisions of the Competition and Consumer Act 2010 (Cth), s 47. The Full Federal Court held that O’Brien’s conduct constituted exclusive dealing within s 47, and on the facts it substantially lessened competition in the relevant wholesale and retail markets for windscreens: at 632-634, 650. The purpose of O’Brien’s requirement that retailers who wanted to obtain the highest discount had to obtain all, or substantially all, their windscreens from the company was: “to coerce retailers into dealing with it and not, except to a limited extent, its competitors. The tendency was to lower the forces of competition in the market, by reducing the capacity of retailers to choose between sources of supply, to weaken the trading position of competitors, and to inhibit the entry of other competitors”: O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) 48 ALR 625 at 633.

Notification [18.390] Parties engaged in private disclosure of pricing information or exclusive dealing (other than third-line forcing) may notify the Australian Competition and Consumer Commission using a particular statutory form: Competition and Consumer Act 2010 (Cth), s 93. On proper notification being given, the parties receive automatic interim protection. That is to say, there can be no prosecution nor any civil action in respect of that exclusive dealing practice and the parties may continue to engage in such practice until the ACCC revokes the protection given by the exclusive dealing notification. The ACCC may revoke that protection if it is satisfied that the conduct or practice in question has the purpose, or has or is likely to have, the effect of substantially lessening competition in the relevant market and that in all the circumstances: (a)

the conduct has not resulted, or is not likely to result in a benefit to the public; or

(b)

any public benefit flowing from the conduct would be outweighed by the detriment to the public caused by the lessening of competition as a result of the particular conduct or practice.

Before revoking the protection given by an exclusive dealing notification, the ACCC must give interested parties the opportunity of a conference with a member of the Commission: s 93A. An appeal lies to the Australian Competition Tribunal from a decision of the ACCC revoking the protection of a notification: s 101A. Special notification provisions have been enacted in respect of third-line forcing. The principal difference is that, unlike other forms of exclusive dealing, protection will not commence as soon as the corporation gives notice to the ACCC but only after 14 days of that notice: s 93(7A), and the Competition and

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Consumer Regulations 2010 (Cth), reg 9(3). During this time the ACCC has an opportunity to consider the proposed conduct and take steps to prevent the notice coming into force if satisfied that the likely benefit to the public from the conduct will not outweigh the likely public detriment. The ACCC may also take proceedings to revoke a notification for third-line forcing which has come into force. Notification may not be made to the ACCC if the conduct has already been the subject of a final decision on authorisation. Parties engaging in exclusive dealing of any of the types outlined at [18.310] may apply to the ACCC for authorisation instead of using the notification procedure: see [18.510].

Resale price maintenance [18.400] “A corporation or other person shall not engage in the practice of resale price maintenance”: Competition and Consumer Act 2010 (Cth), s 48. 10 Resale price maintenance is the practice whereby a supplier, for example a manufacturer or wholesaler, stipulates a minimum price at which the goods supplied must be resold. It is often referred to as vertical price fixing since the fixing of prices takes place between persons engaged in business at different levels of the distribution process as the goods pass from manufacturer to wholesaler, and from wholesaler to retailer. It should be distinguished from horizontal price fixing which concerns agreements on prices by persons engaged in business at the same level of distribution, for example where manufacturers agree to charge the same price for their products. The Competition and Consumer Act 2010 (Cth) specifies the acts which constitute engaging in the practice of resale price maintenance. In essence, a supplier engages in resale price maintenance by: (a)

making it known to a reseller (for example, a retailer) that the supplier will not supply goods unless the reseller agrees not to sell the goods below a specified price;

(b)

inducing, or attempting to induce, a reseller not to sell goods supplied by the supplier, or a third person who obtained them directly or indirectly from the supplier, at less than a price specified by the supplier;

(c)

entering into an agreement, or offering to enter into an agreement, for the supply of goods under which the reseller agrees not to resell at less than the supplier’s specified price; withholding the supply of goods because the reseller either:

(d)

(e)

(i)

has not agreed not to sell below a specified price, or

(ii)

has sold or is likely to sell below the specified price;

withholding the supply of goods to a reseller because a third person who directly or indirectly has obtained or wishes to obtain goods from the reseller: (i)

has not agreed not to sell at less than the supplier’s specified price, or

(ii)

has sold or is likely to sell below the specified price; and

using a statement as to price in relation to the supply of goods that is likely to be understood by the reseller as the price below which the goods are not to be resold: s 96.

In relation to (b) above, a supplier is not treated as inducing or attempting to induce a reseller to maintain a resale price merely because the supplier puts a price on goods, provided that the price statement is preceded by the words “recommended price”. A supplier who has given written notification to a reseller of the price the supplier recommends as appropriate for the resale of goods is similarly not to be taken as inducing or attempting to induce the reseller to maintain a resale price provided that such notification (and 10

See W Pengilley, “Resale Price Maintenance: An Overview of the Per Se Ban in Light of Recent Court Observations” (2008) 16 Competition and Consumer Law Journal 1.

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each writing that refers either expressly or by implication to the notification) contains a statement to the following effect: “The price set out or referred to herein is a recommended price only and there is no obligation to comply with the recommendation”: s 97. Examples of the operation of the resale price maintenance provisions are as follows:

case [18.410] A dealer advertised and sold a manufacturer’s television sets at substantially lower prices than those specified by the manufacturer. The latter attempted to induce the dealer to cease his price-cutting sales campaign and subsequently withheld supplies of its television sets to him: at 18,313. The Federal Court ordered the manufacturer to pay a pecuniary penalty of $120,000 for contravention of the resale price maintenance provisions of the Act: Pye Industries Sales Pty Ltd v Trade Practices Commission [1979] ATPR 40-124 at 18,318; 18,324; 18,327.

case [18.420] The defendant supplied sportswear products under the Adidas brand name. A retailer advertised Adidas tracksuits for sale at a price approximately 40 per cent lower than the defendant’s recommended retail price. As a result, one of the defendant’s national sales managers threatened to cut off supplies of Adidas sports goods to the retailer unless the latter refrained from advertising the goods at discount prices: at 477. The Federal Court imposed pecuniary penalties of $25,000 and $4,000 on the defendant company and the sales manager respectively for contravention of s 48 of the Competition and Consumer Act 2010 (Cth): Trade Practices Commission v Dunlop Australia Pty Ltd (1980) 30 ALR 469 at 486, 488. [18.430] There is one defence provided by the Competition and Consumer Act 2010 (Cth) in respect of the general prohibition on resale price maintenance. A supplier is, in effect, permitted to withhold supplies of goods to a person who, within the preceding 12 months, has sold goods obtained from the supplier at less than their cost for the purposes of promoting business or attracting to their place of business persons likely to purchase other goods, a practice commonly referred to as “loss leader” selling: s 98(2). The word “cost” here bears its ordinary and natural meaning in a resale context, that is, the net “landed” or delivered cost of the retailer, and does not include “marginal” costs such as Bankcard charges, interest and advertising expenses in relation to the products sold: Trade Practices Commission v Orlane Australia Pty Ltd (1984) 1 FCR 157 at 162, 164. The exemption does not apply in relation to genuine seasonal clearance sales of goods not acquired for the purpose of being sold at the particular sale, and does not apply in situations where the sale took place with the consent of the supplier: s 98(3). It is not a defence for a party to claim that its efforts to secure retail price maintenance were “provoked” by the conduct of a retailer and were done “in defence of [its] commercial interests”: Australian Competition and Consumer Commission v OmniBlend Australia Pty Ltd [2015] ATPR 42-509; [2015] FCA 871 at [99]–[100]. The resale price maintenance provisions extend to the provision of both goods and services: s 96A. The ACCC may authorise resale price maintenance: see [18.510].

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Dual listed company arrangements [18.440] A corporation must not make a dual listed company arrangement that has the purpose, or would have or be likely to have the effect, of substantially lessening competition: Competition and Consumer Act 2010 (Cth), s 49. A dual listed company arrangement is defined in the Income Tax Assessment Act 1997 (Cth), s 125.60(4). It is an arrangement under which two publicly listed companies align their strategic directions and the economic interests of their respective shareholders. The two companies align their interests through techniques such as (inter alia) the appointment of common (or nearly identical) boards of directors, unified management of the operations of the companies, and the shareholders of both companies vote in effect as a single decision-making body on substantial issues affecting their combined interests.

Acquisitions substantially lessening competition [18.450] The Competition and Consumer Act 2010 (Cth) prohibits mergers or other acquisitions which substantially lessen competition in any market: s 50. More specifically, the present provisions prohibit a corporation from directly or indirectly acquiring shares in the capital of a body corporate, or acquiring the assets of a corporation or natural person, where the acquisition would have the effect, or is likely to have the effect, of substantially lessening competition in any market: s 50(1). Furthermore, a person is prohibited from directly or indirectly acquiring shares in the capital of a corporation or assets of a corporation if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market. “Market” is defined as a market for goods and services in Australia, a State, a Territory, or a region of Australia: s 50(6). The following, non-exclusive matters are to be taken into account in determining whether an acquisition is likely to substantially lessen competition in a market: (a)

the actual and potential level of import competition in the market;

(b)

the height of barriers to entry to the market;

(c)

the level of concentration in the market;

(d)

the degree of countervailing power in the market;

(e)

the likelihood that the acquisition would result in the acquirer being able to significantly and substantially increase prices or profit margins;

(f)

the extent to which substitutes are available in the market or are likely to be available in the market;

(g)

the dynamic characteristics of the market, including growth, innovation and product differentiation;

(h)

the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; or

(i)

the nature and extent of vertical integration in the market: s 50(3). 11

The ACCC is to regard the following, inter alia, as benefits to the public: (a)

a significant increase in the real value of exports; and

(b)

a significant substitution of domestic products for imported goods.

11

In 2008 the ACCC issued guidelines outlining its process for the review of proposed mergers. These guidelines are available at http://www.accc.gov.au/publications/merger-guidelines. See SP King, “The 2008 ACCC Merger Guidelines: How and Why Have They Changed?” (2009) 32 University of New South Wales Law Journal 263; J Nelson, “The ACCC Merger Guidelines 2008: Some Concerns and Recommendations” (2012) 14 University of Notre Dame Australia Law Review 83. The 2008 Guidelines are supplemented by the Informal Merger Review Process Guidelines 2013. These guidelines are available at www.accc.gov.au/publications/informal-merger-review-process-guidelines-2013.

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The ACCC is also to take into account all other relevant matters that relate to the international competitiveness of any Australian industry: s 90(9A).

case [18.451] In Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 the supermarket wholesaler Metcash acquired all of the shares in a failed chain of supermarkets and wholesaler (Franklins): at [34], [93]. The ACCC opposed the sale, arguing that it would substantially lessen competition in the “independent wholesale grocery market” in New South Wales and the Australian Capital Territory: at [94]-[95]. This case concerned the wholesale grocery market, not the retail market. The ACCC argued that there was a “real chance” that if Metcash did not acquire Franklins, an alternative consortium (KKKL) would purchase the assets of Franklins and would be able to create a new grocery wholesaler: at [149]. This possible future scenario was the only basis upon which the ACCC could oppose the sale as the owner of Franklins had decided to cease its loss-making operations even if the Metcash acquisition did not go ahead: at [150]. There were no other alternative purchasers that might take up wholesale operations: at [154]. If the KKKL consortium did not acquire the assets of Franklins and begin operations as a new wholesaler, grocery wholesaling in this market would inevitably fall to Metcash. In that case the acquisition by Metcash would not substantially lessen competition: at [153]. The trial judge had found that the owner of Franklins would not have accepted the offer that would have been made by the KKKL consortium: at [184]. The Full Federal Court held that the ACCC’s case regarding an offer by the KKKL consortium was “pure speculation”. There was no real chance that such an offer would be made and accepted by the owners of Franklins: at [223]. On this basis the court held that s 50(1) was not contravened: at [237]. The Full Court also rejected the ACCC’s arguments regarding the definition of the relevant market. The Commission had argued that Franklins was a close competitor of Metcash in the wholesale market, while the major supermarkets were not since they did not operate in the wholesale market as they supplied their own stores: at [269]. The Full Court held that it was open to the trial judge to conclude that the major supermarkets were a much stronger competitive restraint upon the wholesale activity of Metcash than had been exercised by Franklins, though the influence of the major supermarkets was indirect: at [384]-[385]. 12 [18.459] Generally, the ACCC has 30 days from receipt of an application for authorisation of a proposed merger in which to determine the application. Where the ACCC fails to make a decision within that time, then normally authorisation is deemed to have been granted. However, where the ACCC requests in writing further information from the applicant, the period of 30 days is increased by the time it takes for the applicant to provide the additional information. The ACCC may notify the applicant in writing within 30 days of receiving the application that the ACCC considers the period should be extended to 45 days owing to the complexity of the issues involved: s 90(11), (11A). If a person applies to the Australian 12

See C Veljanovski, “Mergers, Counterfactuals and Proof after Metcash” (2012) 40 Australian Business Law Review 263; D McCracken-Hewson, “How Likely is ‘Likely’? Metcash, Counterfactuals and Proof under s 50” (2012) 40 Australian Business Law Review 363; I Wylie, “What is ‘Likely’ in the Competition and Consumer Act 2010?” (2012) 20 Competition and Consumer Law Journal 28; GA Hay and EJ Murdoch, “A Tale of Two Cities: From Davids Holdings to Metcash” (2013) 20 Competition and Consumer Law Journal 213; J Buckland, “Whither a Unified Approach to the Functional Dimension of Market Definition: Why Metcash was The One That Got Away” (2014) 42 Australian Business Law Review 214.

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Competition Tribunal for review of a determination of the ACCC relating to the grant or revocation of an authorisation, the Tribunal is required to determine the matter within 60 days after receiving the application for review unless the Tribunal considers that the matter cannot be dealt with properly within that period either because of its complexity or because of other special circumstances: s 102(1A), (1B). Merger clearances and authorisations are subject to different procedures and tests. The ACCC may grant clearance for a merger: s 95AC. A clearance may be subject to conditions: s 95AP. The ACCC must not grant a clearance unless it is satisfied that the acquisition would not have the effect, or be likely to have the effect, of substantially lessening competition: s 95AN(1). A clearance cannot be granted for an acquisition that has occurred: s 95AN(2). The ACCC must decide within 40 business days of the making of the application, though that time limit can be extended by 20 business days in difficult cases: s 95A. An unsuccessful applicant may apply to the Tribunal for review of the ACCC’s determination: s 111. The Tribunal can affirm, set aside or vary the ACCC’s determination: s 117. The Tribunal must decide its review within 30 business days of the making of the application, but that period can be extended by a further 60 business days: s 118. The Tribunal may grant authorisation for a merger: s 95AT. An authorisation may be subject to conditions: s 95AZJ. The Tribunal must not grant an authorisation unless it is satisfied that the acquisition would be likely to result in such a benefit to the public that the acquisition should be allowed to occur. Those benefits to the public include a significant increase in exports, a significant substitution of domestic products for imports, and other relevant matters that relate to the international competitiveness of an Australian industry: s 95AZH. The Tribunal must decide within three months of the making of the application, though that time limit can be extended by three months in difficult cases: s 95AZI. A contract to acquire shares in the capital of a body corporate or assets of a person can be made subject to a condition that the provisions of the contract relating to the acquisition will not come into force unless and until a clearance or authorisation has been granted to acquire the shares or assets. In the event of such a conditional contract being made, an application for a clearance or authorisation must be made before the expiration of 14 days after the contract was entered into. The acquisition of shares or assets in such a case is not regarded as having taken place pursuant to the contract until either the application for a clearance or authorisation is disposed of or the contract ceases to be subject to the condition, whichever first happens: s 50(4), (5). The Federal Court has power to direct divestiture of shares or assets acquired in contravention of s 50 on the application of the Minister, the ACCC or any other person. The court also has power on application of the Minister or ACCC to declare an acquisition of shares or assets to be void, in which event they are deemed not to have been disposed of by the vendor who is to refund the amount paid for them. An application under these provisions may be made at any time within three years after the date on which the contravention occurred: s 81. If the court is satisfied that a person was granted a clearance or an authorisation for a merger on the basis of false or misleading information and that the merger would contravene s 50 if it occurred, the court may grant an injunction against the merger: s 80AC. If a clearance or authorisation of a merger was granted on the basis of false or misleading information and the merger would contravene s 50 if it occurred, the court may direct that the acquirer of the shares dispose of those shares: s 81A.

Acquisitions outside Australia [18.460] The Competition and Consumer Act 2010 (Cth), s 50A is concerned with certain acquisitions occurring outside Australia that have anti-competitive effects within Australia. Section 50A provides, in essence, that the Tribunal, on application by the Minister, the ACCC or any other person, may make a

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declaration that an acquisition by a person outside Australia of a controlling interest in one or more corporations which results in the acquirer acquiring a controlling interest in a corporation in Australia: (a)

would be likely to have the effect of substantially lessening competition in a substantial market for goods or services in Australia or in a State or Territory; and

(b)

that the acquisition would not be likely to result in such a benefit to the public that it should be disregarded.

In determining whether the acquisition would be likely to have the effect of substantially lessening competition the matters listed in s 50(3) (set out in the previous section) are to be taken into account: s 50(1A). In deciding whether there is a benefit to the public the Tribunal is to have regard to any significant increase in the real value of exports and any significant substitution of domestic products for imported goods. The Tribunal must also take into account all other relevant matters that relate to the international competitiveness of any Australian industry: s 50A(1B). An application to the Tribunal for a declaration referred to in the preceding paragraph must be made within 12 months of the date of the acquisition: s 50A(3). If the Tribunal makes a declaration, the corporation or corporations the subject of the declaration must cease operating in the relevant market after six months from the date of the declaration: provision is made for an extension of time not exceeding a further six months: s 50A(6). In the event of a corporation failing to comply with a declaration, an injunction may be obtained by the Minister, the ACCC, or the person who originally applied for the declaration, to restrain the continued carrying on of the business the subject of the declaration: s 80(1A), (1B). Furthermore, a divestiture order may be made against the corporation by the Federal Court on the application of the Minister or the ACCC: s 81(1B). Authorisation is available in respect of acquisitions which would fall within s 50A: s 88(9). The ACCC is not to grant an authorisation unless it is satisfied in all the circumstances that the proposed acquisition would result, or be likely to result, in such a benefit to the public that the acquisition should be allowed to take place: s 90(9).

Concepts of “market” and “competition” [18.470] A number of practices discussed at [18.450] are only proscribed by the Act on proof that they have the purpose or effect of “substantially lessening competition” in a market for the supply of goods and services (see, for example, the discussion on agreements and covenants affecting competition (Competition and Consumer Act 2010 (Cth), s 45); exclusive dealing (s 47); and acquisitions substantially affecting competition: ss 50, 50A. In other words, conduct, practice, and contracts which are subject to this anti-competitive test are to be gauged by reference to their effect on a market. Furthermore, the prohibition against misuse of market power concerns anti-competitive conduct by a corporation that “has a substantial degree of power in a market”: s 46. Accordingly, the question arises as to the meaning of market and competition for the purposes of trade practices law. 13

13

See generally B Reid, “Section 46 — A New Approach” (2010) 38 Australian Business Law Review 41; RL Smith and DK Round, “Putting the Cart before the Horse? Market Definition in Seven Network v News Ltd” (2012) 20 Competition and Consumer Law Journal 148; RL Smith, “Market Definition and Substitution Options” (2014) 22 Competition and Consumer Law Journal 105.

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“Market” [18.480] A market is defined by the Act as meaning a market in Australia: Competition and Consumer Act 2010 (Cth), s 4E. 14 The Full Federal Court held that the markets for air cargo from several Asian cities into Australia were markets in Australia: Australian Competition and Consumer Commission v P T Garuda Indonesia Ltd (2016) 330 ALR 230 at [7], [160], [170]. The words “market in Australia” refer to “an abstract concept, not to a physical place”: at [82]. On 14 October 2016 the High Court granted special leave to appeal against this decision. Furthermore, when used in relation to any goods or services, the expression market “includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first mentioned goods or services”: s 4E. The Tribunal has explained the meaning of market in the following way: “A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them (if there is no close competition there is of course a monopolistic market). Within the bounds of a market there is substitution – substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive”: Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 at 517. In Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 at 199, Dawson J commented: “A market is an area in which the exchange of goods or services between buyer and seller is negotiated. It is sometimes referred to as the sphere within which price is determined and that serves to focus attention upon the way in which the market facilitates exchange by employing price as the mechanism to reconcile competing demands for resources …. In setting the limits of a market the emphasis has historically been placed upon what is referred to as the ‘demand side’ but more recently the ‘supply side’ has also come to be regarded as significant. The basic test involves the ascertainment of the cross-elasticities of both supply and demand, that is to say, the extent to which the supply of or demand for a product responds to a change in the price of another product. Cross-elasticities of supply and demand reveal the degree to which one product may be substituted for another, an important consideration in any definition of a market.” In that case the High Court adopted a liberal approach to the issue of the relevant market to be considered in determining whether BHP had contravened the misuse of market power provisions in s 46. The High Court concluded that BHP had misused its power in the market for steel and steel products by effectively withholding supplies of a particular kind of steel (of which it was the sole Australian manufacturer) from the appellant manufacturer, to prevent the appellant from competing in the market for a certain type of fencing post which had previously been solely manufactured in Australia by BHP: see [18.190].

case [18.481] Travel agents booked international flights for their customers using a database which listed fares available through various airlines. Travel agents were paid a commission for “published fares” listed on this database. Airlines also sold fares through their own websites. Often the airlines would sell fares at a cheaper price on their own websites than were available through the database. A 14

Except in relation to mergers, where a reference to a market for goods or services is to be construed as a reference to a “substantial market for goods or services in Australia in a State or in a Territory”: Competition and Consumer Act 2010 (Cth), s 50(6).

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firm of travel agents sent emails to three different airlines seeking to dissuade them from offering fares at a lower price than was available on the travel agent database: at [25]-[28], [33]. The ACCC argued that the travel agent had sought to enter into an arrangement with the purpose or effect of substantially lessening competition in a market in violation of s 45 of the Act. The Full Federal Court held that the travel agent did not compete with the airlines in relation to booking and distribution services for international flights as no such market existed: at [168]. When the travel agent booked flights for customers, it acted as agent for the airlines: at [157]. The travel agent and the airlines thus did not compete in a market for flight booking services: at [160]. While an agent could compete with its principal, that was unlikely where the agent has the authority to sell the principal’s product. In that case the agent would not compete with its principal in relation to the products that fell under the agency agreement: at [163]. There was no separate market for booking services as that was an “inseparable” part of the market for international flights: at [149], [153]. The travel agent and the airlines did not compete in a market for distribution services since each airline provided distribution services for its own flights, so there would be many markets for distribution services: at [142]-[143]. The court commented that “whilst a market is an economic analytical tool, it must nonetheless have economic and commercial reality. It must therefore be based on findings of fact”: Flight Centre Ltd v Australian Competition and Consumer Commission (2015) 234 FCR 367 at [120]. On 27 July 2016 the High Court heard an appeal from the decision of the Full Federal Court.

case [18.482] While a bank will provide only its own loan services, a mortgage broker facilitates access to loan services provided by numerous financial institutions: at [36]. A bank and a mortgage broker entered into an agreement under which the mortgage broker could offer a refund to customers who obtained a loan from the bank: at [2]. The ACCC argued that the mortgage broker and the bank competed in a market for “loan arrangement services”: at [42]. The Full Federal Court held that the mortgage broker and the bank did not compete in the same market. The suggested market was an artificial construction: at [139]. The giving of assistance by bank employees in relation to loans was not a separate market that was “distinct” from the provision of loans by the bank: at [151]. The various banks did not compete with each other in a market for “loan arrangement services” since they only provided assistance in relation to their own financial products: at [162]. The services provided by brokers and the bank employees “were not close substitutes”: at [276]. The court emphasised that an identified market “must … not be artificial or contrived.” “A court should be loath to accept … a market definition which is an artificial construct that does not accurately or realistically describe … the interactions between … the relevant actors or participants in the alleged market, that is, the commercial community involved””: Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 78 at [138].

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“Competition” [18.490] Despite the fundamental importance of the concept of competition to the interpretation of the Competition and Consumer Act 2010 (Cth), there is no comprehensive definition of the term. The Act simply provides that the expression includes competition from imported goods: s 4. Accordingly, one must look elsewhere for the meaning of the concept. The former Trade Practices Tribunal (now the Australian Competition Tribunal) expressed the following views: “… in identifying the existence of competition in particular industries or markets, we must focus upon its economic role as a device for controlling the disposition of society’s resources. Thus we think of competition as a mechanism for discovery of market information and for enforcement of business decisions in the light of this information. It is a mechanism, first, for firms discovering the kinds of goods and services the community wants and the manner in which these may be supplied in the cheapest possible way. Prices and profits are the signals which register the play of these forces of demand and supply. At the same time, competition is a mechanism of enforcement: firms disregard these signals at their peril, being fully aware that there are other firms, either currently in existence or as yet unborn, which would be only too willing to encroach upon their market share and ultimately supplant them. This does not mean that we view competition as a series of passive, mechanical responses to ’impersonal market forces’. There is, of course, a creative role for firms in devising the new product, the new technology, the more effective service or improved cost efficiency. And there are opportunities and rewards as well as punishments. Competition is a dynamic process; but that process is generated by market pressure from alternative sources of supply and the desire to keep ahead. As was said by the United States Attorney-General’s National Committee to Study the Antitrust Laws in its Report of 1955 (at 320): ’The basic characteristics of effective competition in the economic sense is that no one seller, and no group of sellers acting in concert, has the power to choose its level of profits by giving less and charging more. Where there is workable competition, rival sellers, whether existing competitors or new potential entrants into the field, would keep this power in check by offering or threatening to offer effective inducements.’ … In our view effective competition requires both that prices should be flexible, reflecting the forces of demand and supply, and that there should be independent rivalry in all dimensions of the price-product-service packages offered to consumers and customers. Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the market in which they operate. The elements of market structure which we would stress as needing to be scanned in any case are these: (1)

the number and size distribution of independent sellers, especially the degree of market concentration;

(2)

the height of barriers to entry, that is the ease with which new firms may enter and secure a viable market;

(3)

the extent to which the products of the industry are characterised by extreme product differentiation and sales promotion;

(4)

the character of ’vertical relationships’ with customers and with suppliers and the extent of vertical integration; and

(5)

the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities. Of all these elements of market structure, no doubt the most important is (2), the condition of entry. For it is the ease with which firms may enter which establishes the possibilities of market concentration over time; and it is the threat of the entry of a new firm or new plant into a market

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which operates as the ultimate regulator of competitive conduct”: Re Queensland Co-operative Milling Association Ltd (1976) 8 ALR 481 at 514-516.

Statutory exceptions [18.500] There are a number of exceptions to the operation of the restrictive trade practices provisions of the Act: Competition and Consumer Act 2010 (Cth), s 51. Thus, in determining whether there has been a contravention of the restrictive trade practices provisions, generally no regard is to be had to conduct specifically authorised, or approved by, or by regulation under, Commonwealth, State or Territory legislation (other than legislation relating to patents, trade marks, designs or copyright) provided the authorising provision specifically refers to the Competition and Consumer Act 2010 (Cth). Furthermore, in determining whether there has been a contravention of any provision (other than boycotts (s 45D) or resale price maintenance (s 48)) no regard is to be had to: (a)

any act done in relation to, or to the making of a contract, arrangement or understanding in respect of the remuneration, conditions of employment, hours of work or working conditions of employees;

(b)

any provision of a contract of service or contract for the provision of services restricting a person as to the work in which he or she may engage either during or after the termination of the contract (such restrictive provisions will be subject to the common law restraint of trade rules: see [8.360], as will the exceptions in (d) and (e) below);

(c)

any provision of a contract obliging a person to comply with standards laid down by Standards Australia International Ltd or by a prescribed association or body;

(d)

any provision of a contract between non-corporate partners relating to the terms of the partnership, conduct of the partnership business, or competition between the partnership and a partner while he or she is, or after he or she ceases to be, a partner;

(e)

in the case of a contract for the sale of a business, any provision of the contract which protects the purchaser in respect of the goodwill of the business; and

(f)

any provision relating exclusively to the export of goods or services from Australia, providing full and accurate particulars of the provision are given to the ACCC within 14 days of the making of the provision.

A further exception is that in determining whether there has been a contravention of any provision (other than the prohibition on resale price maintenance (s 48)) regard is not to be had to any acts done, otherwise than in the course of trade or commerce, in concert by the “ultimate users or consumers of goods or services against the suppliers of those goods or services”: s 51(2A). In other words, purely consumer boycotts are exempted from the prohibitions contained in the Act. Finally, contravention of the restrictive trade practices provisions (other than the misuse of market power (s 46) and resale price maintenance provisions (s 48)), is not to be taken as having been committed by reason of the imposition of, or giving effect to, certain matters relating to the licensing of trade marks, designs, copyrights or patents: s 51(3).

Authorisation [18.510] The Competition and Consumer Act 2010 (Cth) allows authorisation of a variety of restrictive trade practices otherwise prohibited by the legislation: ss 88 – 91. Authorisation is granted by the ACCC or on appeal by the Australian Competition Tribunal.

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Authorisation can be sought for provisions in contracts, arrangements or understandings or for covenants affecting competition (otherwise prohibited by s 45 or s 45B), for exclusive dealing (s 47), for mergers (s 50) and for the acquisition outside Australia of a controlling interest in a corporation: s 50A. Authorisations can also be sought for exclusionary provisions (s 45), boycotts (s 45D), anti-competitive disclosures of information (ss 44ZZW, 44ZZX) and dual listed company arrangements: s 88(6A), (8A). Furthermore, the ACCC is empowered to authorise conduct which would otherwise contravene the prohibitions against price-fixing covenants involving goods and services (s 45C with s 45B), resale price maintenance (s 48), and cartel conduct: s 44ZZRM. For example, in 2014 the ACCC authorised an applicant to engage in resale price maintenance. See Determination: Application for authorisation A91433 lodged by Tooltechnic Systems (Aust) Pty Ltd (5 December 2014). Authorisation is not available for misuse of market power: ss 46, 46A. In considering applications for authorisation, the test to be applied by the ACCC or Tribunal varies depending on the contract or conduct in question. Where the application is in respect of a contract affecting competition or exclusive dealing (other than third-line forcing), the ACCC is not to grant an authorisation unless it is satisfied that in all the circumstances the contract or conduct would result in a benefit to the public, and that such benefit would outweigh the detriment to the public constituted by any lessening of competition that would be likely to result from the particular contract or conduct: s 90(6). In the case of an application in relation to an exclusionary provision, a boycott, third-line forcing, resale price maintenance, a merger, a dual listed company arrangement or for the acquisition outside Australia of a controlling interest in a corporation (s 50A), the ACCC must be satisfied that in all the circumstances the proposed conduct or provision would result in such a benefit to the public that the proposed conduct or provision should be allowed: s 90(8), (8A), (9). The Commission must not authorise a cartel provision unless it is satisfied that it would result in a benefit to the public which would outweigh the detriment to the public due to the lessening of competition that is likely to result: s 90(5A), (5B). The Commission must not authorise a proposed private disclosure of pricing information unless it is satisfied that the disclosure would result in such a benefit to the public that the disclosure should be allowed: s 90(5C). The Commission must not authorise a proposed disclosure that has the purpose of substantially lessening competition unless it is satisfied that the disclosure would result in a benefit to the public that would outweigh the detriment to the public caused by its anti-competitive effect: s 90(5D). The Commission cannot authorise a disclosure that has already been made: s 88(6B). Before giving its decision on an authorisation application (other than an authorisation for a merger (s 50), or for the acquisition outside Australia of a controlling interest in a corporation (s 50A)), the ACCC must give interested parties the opportunity for a conference with a member or members of the Commission: s 90A. The ACCC may grant an interim authorisation pending further investigation of the matter. 15 Furthermore, authorisations may be granted subject to conditions or for a limited period of time: s 91. The ACCC may revoke an authorisation: s 91B. Applications for authorisation or clearance, submissions made in relation thereto, and determinations of the ACCC or Tribunal are recorded on a public register and are generally publicly available: ss 95AH, 95AZ. However, provision is made for confidentiality in respect of commercially sensitive material: ss 95AI, 95AZA. 15

E Gorrie, “When will the ACCC Grant Interim Authorisation?” (2015) 23 Australian Journal of Competition and Consumer Law 192.

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Enforcement and remedies [18.520] Contravention of the restrictive trade practices provisions of the Competition and Consumer Act 2010 (Cth) exposes the parties to liability for: (a)

pecuniary penalties (s 76);

(b)

an injunction (s 80);

(c)

damages (s 82);

(d)

ancillary orders (s 87);

(e)

in the case of mergers and other acquisitions, divestiture of the shares or assets illegally acquired (s 81); and

(f)

disqualification from management of a corporation: s 86E.

Pecuniary penalties [18.530] Where the Federal Court is satisfied that a defendant has contravened, or attempted to contravene, or has been involved in a contravention of a restrictive trade practices prohibition, the court may order the defendant to pay a pecuniary penalty. The maximum penalties differ between corporations and individuals. For a corporation, the penalty is not to exceed $750,000 for breach of the Competition and Consumer Act 2010 (Cth), ss 45D, 45DB, 45E or 45F. For breach of the other provisions of Pt IV, the maximum penalty is the greater of $10 million, or three times the value of the benefit obtained, or 10 per cent of the corporation’s turnover if the benefit cannot be determined: s 76(1A). For an individual, the maximum penalty is $6,600 for breach of s 95AZN, and $500,000 for breach of the other provisions: s 76(1B). If the conduct of a defendant constitutes a contravention of two or more restrictive trade practices prohibitions, a proceeding may be instituted in relation to the contravention of any one or more of those prohibitions but the defendant is not liable to more than one pecuniary penalty in respect of the same conduct: s 76(3). Proceedings for the recovery of a pecuniary penalty for contravention of Pt IV are not criminal but civil in nature: s 78. Accordingly, the civil, not the criminal standard of proof applies, that is the necessary facts need only be proved on the balance of probabilities, while “taking into account the gravity of the matters alleged”: Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153 at 160; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at [28]. Such proceedings may be instituted by the Commission within six years after the contravention: s 77. In Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152, French J usefully enumerated the factors that the court will have regard to in assessing a pecuniary penalty of appropriate deterrent value: 1.

The nature and extent of the contravening conduct.

2.

The amount of loss or damage caused.

3.

The circumstances in which the conduct took place.

4.

The size of the contravening company.

5.

The degree of power it has, as evidenced by its market share and ease of entry into the market.

6.

The deliberateness of the contravention and the period over which it extended.

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7.

Whether the contravention arose out of the conduct of senior management or at a lower level.

8.

Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programmes and disciplinary or other corrective measures in response to an acknowledged contravention.

9.

Whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.

In J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532, the Full Federal Court held that, in determining a penalty under s 76, a relevant factor is whether the contravening conduct “was systematic, deliberate or covert”: at [158]. Since deterrence is one of the main objects of a pecuniary penalty, the size of the corporation is relevant to the size of the penalty, since a small penalty will have little or no deterrent effect upon a large corporation: Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170 at [48]. Pecuniary penalties are often very substantial. The Federal Court imposed a penalty of $18 million for exclusive dealing: Australian Competition and Consumer Commission v Visa Inc [2015] ATPR 42-511; [2015] FCA 1020 at [125]. The court imposed penalties totalling $18 million for entering into understandings to limit supply and exchange price information in the laundry detergent market: Australian Competition and Consumer Commission v Colgate-Palmolive Ltd (No 2) [2016] FCA 528 at [1], [25]. The Full Federal Court imposed penalties of $1 million each on two record companies for contravening the exclusive dealing provisions in s 47 and $45,000 on each of their senior executives involved in conduct aimed at discouraging Australian retailers from importing CDs more cheaply from overseas: Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at [312]; see [18.250]. The Federal Court imposed a penalty of $1.5 million in a price fixing case. The judge observed that price fixing was “notoriously difficult to detect” and that when it has been discovered, “deterrence demands a heavy penalty”: Australian Competition and Consumer Commission v George Weston Foods Ltd (2004) 210 ALR 486 at [27]; see similarly Australian Competition and Consumer Commission v Leahy Petroleum (No 3) (2005) 215 ALR 301 at [57]-[58].

case [18.540] In Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673, Visy admitted that it had engaged in price-fixing and market sharing in the market for corrugated fibreboard packaging, used to make cardboard boxes. The Federal Court judge stated that “[t]he law, and the way it is enforced, should convey to those disposed to engage in cartel behaviour that the consequences of discovery are likely to outweigh the benefits, and by a large margin”: at [307]. Some reduction in the penalty that would otherwise be payable was appropriate for the admission of liability: at [316]. The Court imposed upon Visy a pecuniary penalty of $36 million for 37 violations of the Competition and Consumer Act 2010 (Cth): at [298]. Further penalties totalling $2 million were imposed against two officers of the company: at [328], [332]. The owner of Visy was knowingly concerned in the violations of the Act. However, no separate penalty was imposed upon the owner because he would be penalised by the pecuniary penalty against the company: at [294].

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[18.550] The Full Federal Court has held that the fact that a company is in liquidation does not bar the imposition of a pecuniary penalty under the Competition and Consumer Act 2010 (Cth), s 76: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513 at [21]. However, that fact may be a consideration weighing against the imposition of a pecuniary penalty, especially if it is very unlikely that the penalty will ever be paid. A corporation must not indemnify any of its officers against a civil liability or legal costs incurred in defending proceedings in which the officer is found to be liable: s 77A(1).

Agreed penalties [18.560] In cases where contravention of the restrictive trade practices provisions in Pt IV of the Act is admitted, the practice has developed of submitting to the court an agreed position between the respondent and the ACCC on an appropriate amount of penalty to be imposed. 16 The Federal Court has accepted this approach as proper, while emphasising that the responsibility and duty to fix an appropriate penalty rests with the court. Provided the negotiated sum put to the court for its approval is not outside the range within which the court would fix a penalty, the court will usually accede to the amount of penalty proposed. The High Court has emphasised that the practice of submitting an agreed position regarding an appropriate pecuniary civil penalty promotes regulatory certainty regarding penalties, encourages admissions of wrongdoing and reduces the length of trials: Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 90 ALJR 113 at [46]. The practice of submitting an agreed position regarding penalty is longstanding. For example, pecuniary penalties were imposed at the amount suggested in the joint submission of the parties where the respondents had systematically engaged in conduct contravening ss 45 and 45A of the Competition and Consumer Act 2010 (Cth) to protect their share of the express freight market (the pecuniary penalties were $4.1 million, $900,000 and $6 million in respect of the three corporate respondents, and an average of $50,000 against nearly 20 individuals): Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 41-375 at 40,164. In a further case, the court endorsed the agreement for the payment of a pecuniary penalty of $6.6 million by each of the three respondent corporations which, in contravention of s 45, had engaged in price fixing in connection with the supply of pre-mixed concrete: Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Ltd [1996] ATPR 41-457 at 41,583.

case [18.570] In Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd [2001] ATPR 41-815, one of the respondents had entered into a market-sharing arrangement concerning the power transformer market, in contravention of s 45 of the Competition and Consumer Act 2010 (Cth): at [1]. The Court considered that an agreed penalty of $5.5 million was appropriate: at [26]-[27]. The court pointed out that as of April 2001 the highest penalties which had been imposed were $15 million in the case of a corporation, and $150,000 in the case of an individual: at [12].

16

See generally S Teong, “Stamping out Rubber-stamped Penalties? Determining an Appropriate Judicial Response to Agreed Penalties in Civil Penalty Settlements” (2015) 43 Australian Business Law Review 48.

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Immunity policy [18.580] In September 2014 the ACCC published its revised “Immunity Policy for Cartel Conduct”. The Commission will grant conditional immunity to a corporation that is party to a cartel where: 1.

the corporation admits that its conduct may infringe the Act;

2.

the corporation is the first to apply for immunity in relation to the cartel;

3.

the corporation has not coerced other parties to take part in the cartel;

4.

the corporation is no longer involved in the cartel or has told the ACCC that it will end its involvement;

5.

these admissions are those of the corporation not an individual;

6.

the corporation gives the ACCC “full, frank and truthful disclosure” and “full and expeditious[]” co-operation; and

7.

at the time of the application the ACCC does not have written legal advice that it possesses evidence that suffices for bringing proceedings in relation to the cartel: at [16].

The Commission will usually grant final immunity at the conclusion of proceedings against the other cartel participants: at [18]. The criteria for granting immunity to individuals are broadly similar: at [28]. 17 In Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [15], Lee J explained the rationale behind the immunity policy: “The temptation will always be present for major participants in a market to engage in ‘cartel conduct’ to suppress competition and maximise revenue. Such conduct will be covert and hard to detect and allegations that corporations have engaged in such conduct will be difficult to prove. Accordingly, it can be understood why the ACCC has developed and published a policy to encourage disclosure of conduct that contravenes the Act in return for more lenient enforcement of the Act against the disclosing party.” In that case, consent orders were made in the Federal Court imposing a pecuniary penalty of $1 million on the respondent corporation relating to a price fixing agreement for the supply of clay bricks in contravention of s 45 and $25,000 on a senior employee who was knowingly concerned in the contravention: at [26], [32], [42]. In Australian Competition and Consumer Commission v Qantas Airways Ltd (2008) 253 ALR 89 Qantas had participated in an international collusive understanding relating to international air cargo charges. Qantas received a 50 per cent discount of the penalty due to its co-operation with the Commission and assistance with proceedings against other participants: at [65]–[69]. A penalty of $20 million was ultimately imposed: at [81].

Enforceable undertakings [18.585] The Commission may accept enforceable written undertakings from parties in relation to conduct that may breach the Act. If the party breaches the undertaking the court may order that party to do one or all of the following: comply with their undertaking, order payment to the Commonwealth of an amount not exceeding the financial benefit obtained through the breach and compensate another party for loss or damage suffered through the breach: Competition and Consumer Act 2010 (Cth), s 87B(4). The Federal Court held that a supermarket had breached an enforceable undertaking given in relation to the offer of fuel discounts: Australian Competition and Consumer Commission v Woolworths Ltd [2014] 17

The immunity policy is available at http://www.accc.gov.au/publications/accc-immunity-policy-for-cartel-conduct.

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ATPR 42-466; [2014] FCA 364 at [45]. The court also held that another supermarket had not breached its undertaking in relation to the same matter: Australian Competition and Consumer Commission v Coles Group Ltd [2014] ATPR 42-467; [2014] FCA 363 at [38]-[42].

Cartel conduct [18.590] A corporation commits an offence if it makes a contract, arrangement or understanding that contains a cartel provision: Competition and Consumer Act 2010 (Cth), s 44ZZRF(1). This offence is punishable by a fine that does not exceed $10,000,000; three times the benefit obtained by the offence; or 10 per cent of the corporation’s annual turnover during the year ending at the month when the offence was committed (whichever is the greatest): s 44ZZRF(3). Giving effect to a cartel provision is also an offence subject to the same penalties: s 44ZZRG(1). Cartel provisions for the purpose of a joint venture are exempted from these offence provisions: s 44ZZRO. Civil penalties are also applicable to the making or giving effect to a contract, arrangement or understanding that contains a cartel provision: ss 44ZZRJ – 44ZZRK. Cartel provisions for the purpose of a joint venture are exempted from these civil penalty provisions: s 44ZZRP. The offences and civil penalty provisions do not apply to cartel provisions that infringe the provisions of the Act relating to covenants affecting competition (s 44ZZRQ), resale price maintenance (s 44ZZRR) or exclusive dealing (s 44ZZRS).

Injunction [18.600] The Federal Court is empowered to grant an injunction restraining a person from engaging in conduct that constitutes or would constitute a contravention of the Act: Competition and Consumer Act 2010 (Cth), ss 80, 44ZZRI. The court may also grant a mandatory interlocutory injunction requiring a party to do some act, but the making of such an order requires a “higher degree of assurance” that final relief will be granted than in the case of an injunction restraining some conduct: Parmalat Australia Pty Ltd v VIP Plastic Packaging Pty Ltd (2013) 210 FCR 1 at [17], [21]. An application for an injunction may be made by the ACCC or “any other person”, the latter expression enabling companies and individuals (including trade competitors) to institute proceedings for an injunction. However, a person other than the ACCC is not entitled to seek an injunction in the case of an alleged contravention of the merger provisions: s 50. Further, a person other than the Minister or the ACCC is not entitled to seek an injunction in respect of the provisions (under s 50A) concerning the acquisition outside Australia of a controlling interest in a corporation, although in the latter case the person who successfully applied for a declaration by the Tribunal under s 50A may also bring injunction proceedings for the failure of a person to cease carrying on business in the market to which the declaration relates: s 80(1A), (1B). The injunction provisions of the Act were considered in Chapter 17. The general principles discussed there are equally relevant to the restrictive trade practices provisions of the Act.

Damages [18.610] Companies or individuals can bring an action for damages for the loss or damage suffered by the conduct of another which contravened the restrictive trade practices provisions of the Act: Competition and Consumer Act 2010 (Cth), s 82. An action for damages may be commenced at any time within six years after the date on which the cause of action accrued. For example, a retailer was awarded over $60,000 damages by the Federal Court for the loss of sales suffered in consequence of an electrical goods

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manufacturer withholding supplies because the retailer discounted the price of the goods on their retail sale. Such conduct on the part of the manufacturer was in contravention of the resale price maintenance provisions in s 48 of the Act: Simpson Ltd v Hubbards Pty Ltd (1982) 44 ALR 695 at 703.

Ancillary orders [18.620] The Federal Court is empowered to make such order or orders it thinks appropriate to compensate, prevent or reduce the loss or damage suffered or likely to be suffered by a person as a result of another’s contravention of the Competition and Consumer Act 2010 (Cth). Where the company or individual who has suffered or is likely to suffer loss or damage is a party to a proceeding for an offence against the Act, the orders which can be made against a defendant who contravened the Act include an order: (a)

declaring the whole or any part of a contract void;

(b)

varying the terms of a contract;

(c)

refusing to enforce any or all of the provisions of such a contract;

(d)

directing the refund of money or return of property; or

(e)

directing the payment of the amount of loss or damage: s 87.

Where a person has been ordered to pay a pecuniary penalty for contravention of a restrictive trade practice provision under Pt IV of the Act, the court, on application by the ACCC, may make an adverse publicity order in relation to such person: s 86D(1). The court is also empowered, on application of the ACCC, to make certain non-punitive orders, such as a community service order or a probation order, in relation to a person who has contravened Pt IV.

Divestiture of shares or assets [18.630] If a merger proceeds in contravention of s 50 of the Competition and Consumer Act 2010 (Cth), the Federal Court may give directions for the purpose of securing the disposal by the acquiring corporation of all or any of the shares or assets acquired in contravention of that section. An order for divestiture may be made on the application of the ACCC or any other person. The court also has power on application of the Minister or the ACCC to declare an acquisition of shares or assets to be void, in which event they are deemed not to have been disposed of by the vendor who is to refund the amount paid for them: s 81(1), (1A). Alternatively, the court may accept an undertaking by the acquirer, on such conditions as the court thinks fit, to dispose of other shares or assets owned by such person: s 81(1C).

case [18.640] Where company A’s acquisition of company B contravened the merger provisions of s 50, company A was ordered to divest itself of its shares in company B, or alternatively, give appropriate undertakings to dispose of certain assets to ensure competition in the market: Australia Meat Holdings Pty Ltd v Trade Practices Commission [1989] ATPR 40-932 at 50,094; 50,108. [18.650] A divestiture order may also be made where a declaration has been made by the Tribunal under the Competition and Consumer Act 2010 (Cth), s 50A concerning the acquisition outside Australia of a controlling interest in a corporation and the corporation against whom the declaration was made has failed to cease carrying on business in the market to which the declaration relates. Such order may be made

chapter 18 Restrictive Trade Practices

against the corporation by the Federal Court on the application of the Minister or the ACCC: s 81(1B). An application under these provisions may be made at any time within three years after the date on which the contravention occurred: s 81(2).

Disqualification from management of a corporation [18.660] The Federal Court may disqualify a person from managing corporations for contravention of Pt IV of the Competition and Consumer Act 2010 (Cth). The disqualification is for a period that the court considers appropriate. In determining whether the disqualification is justified, the court may have regard to the person’s conduct in relation to the management, business or property of any corporation and any other matters that the court considers appropriate: s 86E. A person is not entitled to refuse to answer a question asked during a civil or criminal proceeding on the ground that doing so may expose them to the penalty of disqualification: s 86F. The Federal Court disqualified a defendant from managing corporations for seven years for his involvement in an understanding to share confidential price information, thereby substantially lessening competition in the laundry detergent market: Australian Competition and Consumer Commission v Colgate-Palmolive Ltd (No 2) [2016] FCA 528 at [2], [27].

Severance [18.670] If the making of a contract violates the Competition and Consumer Act 2010 (Cth) by inclusion of a particular provision in the contract, nothing in the Act affects the validity or enforcement of the contract other than in relation to that provision in so far as the provision is severable: s 4L. 18 In SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516, the High Court held that a contract that violates the Act is valid and enforceable and only the contravening provision is severed: at [24]. As the court pointed out, this is the “direct opposite” of the position at common law: at [34]. The common law rules regarding severance are thus not applicable here: at [50]. Section 4L actually requires rather than merely permits severance: at [52]. The remainder of the contract is enforceable: at [40]. In this case a provision of the contract constituted third-line forcing. However, this provision was severable from the remainder of the contract. The other provisions were enforceable. Thus the provisions for the repayment of a loan and interest thereon were enforceable against the guarantors: at [52]. Section 4L applies only to the severance of contractual provisions: it does not apply to arrangements or understandings that fall short of contracts: at [32].

Industry codes of conduct [18.680] The Competition and Consumer Act 2010 (Cth), Pt IVB enables industry codes of conduct to be prescribed and enforced under the Act. An “industry code” means a code regulating the conduct of participants in an industry towards other participants or towards consumers. A “consumer” is a person to whom goods or services are or may be supplied by participants in the industry: s 51ACA. An industry code may be prescribed by the regulations as either a mandatory or voluntary industry code: s 51AE. A mandatory code will be compulsory for parties covered by the code. A corporation may agree, as prescribed by the regulations, to be bound by the provisions of a voluntary code. Where the provisions of a code are binding, a corporation must comply with those provisions. Thus, s 51AD provides that: “A corporation must not, in trade or commerce, contravene an applicable industry code.” 18

See generally S Corones, “Restrictive Trade Practices: Statutory Severance under Section 4L of the Trade Practices Act 1974 (Cth)” (2006) 34 Australian Business Law Review 309; J Duns, “The High Court on Severance” (2007) 15 Trade Practices Law Journal 42.

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An “applicable industry code” for the purposes of this provision means: (a)

the provisions of any mandatory industry code relating to the industry; and

(b)

the provisions of any voluntary code that binds the corporation: s 51ACA.

To avoid any doubt, franchising has been declared to be an industry for the purposes of the provisions: s 51ACA(3). Contravention of an applicable industry code will give rise to remedies such as pecuniary penalties (s 51AE(2)); injunctions (s 80); damages (s 82); infringement notices (s 51ACD); community service orders or probation orders (s 86C); adverse publicity orders (s 86D); and such other orders as the court considers appropriate to compensate for the loss or damage suffered: s 87. The federal government has expressed its commitment to voluntary codes of conduct but has also warned that it will prescribe an industry code under Pt IVB where a voluntary code proves inadequate within a particular industry. For example, the Franchising Code of Conduct (see [30.2790]) has been prescribed as a mandatory industry code. The ACCC may bring proceedings for alleged contravention of applicable industry codes including representative actions. The ACCC is also required to keep a register of notices of persons who have agreed to be bound by a voluntary code or have withdrawn from being so bound: s 95(1).

Further reading See also Further Reading: Chapter 17. A Bruce, Australian Competition Law (2nd ed, LexisNexis Butterworths, Sydney, 2013). P Clarke, SG Corones, J Clarke, Competition Law and Policy: Cases and Materials (3rd ed, Oxford University Press, Melbourne, 2011). D Clough, Competition Law – The Laws of Australia (Thomson Reuters, Sydney, 2014). S Corones, Competition Law in Australia (6th ed, Thomson Reuters, Sydney, 2014). J Duns and A Duke, Competition Law: Cases and Materials (4th ed, LexisNexis Butterworths, Sydney, 2014). K McMahon, “Competition Law, Adjudication and the High Court” (2006) 30 Melbourne University Law Review 782. R Miller, Miller's Australian Competition and Consumer Law Annotated (38th ed, Thomson Reuters, Sydney, 2016). R Miller, Miller's Australian Competition Law and Policy (2nd ed, Thomson Reuters, Sydney, 2012).

Internet sites Australian Competition and Consumer Commission http://www.accc.gov.au

chapter 18 Restrictive Trade Practices

Australian Competition Law http://www.australiancompetitionlaw.org/index.html Australian Competition Tribunal http://www.competitiontribunal.gov.au Competition and Consumer Law Education Programs http://www.ccaeducationprograms.org The State of Competition http://thestateofcompetition.com.au

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chapter 19

Credit Law [19.20] The national regulation of consumer credit....................................................................................... 439 [19.140] The National Credit Code ......................................................................................................................... 445 [19.900] The new personal property securities legislation ....................................................................... 472

Introduction [19.10] This chapter is concerned with the regulation of consumer credit. Basically consumer credit is money lent to individuals under a contract for domestic or personal purposes. Credit may be advanced in a number of different ways. It may take the form of a loan of money from, for example, a bank, finance company or other lending institution. Such loans are frequently made to enable the consumer to purchase particular goods or services. The credit may be provided in the form of the purchase of goods from a retailer by way of the payment of the purchase price by future instalments as under a credit-sale agreement, or the crediting of the price of the goods to a store account, or payment by means of a credit card such as a Visa card. Basically, credit involves the provision of a benefit (such as the loan of money, or the supply of goods or services) giving rise to a contractual obligation of payment by the recipient at some future time or times. The credit may be advanced simply on the basis of the debtor's promise to pay later, that is to say, the credit may be unsecured. Should the debtor fail to repay in such a case, the unsecured lender would have to enforce their right to payment by suing the debtor, obtaining judgment, and seeking execution against the debtor's available property to satisfy the outstanding debt. On the other hand, the credit advanced may be secured over property of the debtor, for example by way of mortgage over the debtor's home, or over the goods purchased with the loan, or otherwise being purchased on credit terms. In such a case, the secured lender will have rights in respect of the property that is the subject of the secured transaction, for example the secured lender may take possession of and sell the goods over which the security is given to satisfy or reduce the outstanding debt, in addition to other rights as creditor of the debtor. Fundamental changes were made to Australian consumer credit laws with the enactment of the National Consumer Credit Protection Act 2009 (Cth) which came into operation on 1 April 2010. The Act creates a national regime for the regulation of consumer credit by: (a)

establishing a national licensing scheme for credit providers and setting down requirements for responsible lending conduct; and

(b)

regulating the provision of credit to consumers under the National Credit Code (set out in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth)).

As mentioned earlier, the credit advanced may be secured over personal property, for example over the vehicle being purchased with the loan. Security taken over personal property requires

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perfection (mainly, registration) under the new Personal Property Securities Act 2009 (Cth) which provides a national scheme for all securities over personal property. The main provisions of the Personal Property Securities Act 2009 (Cth) came into operation on 30 January 2012. In summary, the present law is considered under the following general headings:  The national regulation of consumer credit;  The National Credit Code; and  The new personal property securities legislation.

chapter 19 Credit Law

The national regulation of consumer credit The national regulatory framework [19.20] The focus of this part of the chapter is the National Consumer Credit Protection Act 2009 (Cth). There are two basic aspects to the legislation: (a)

the general regulation of the provision of credit under a national licensing scheme for credit providers and requirements for responsible lending conduct; and

(b)

the enactment as Commonwealth law in the National Credit Code of the former State- and Territory-based consumer credit laws under what was known as the Uniform Consumer Credit Code.

Before dealing with the general regulatory provisions of the National Consumer Credit Protection Act 2009 (Cth), it is necessary to outline the former position under the Uniform Consumer Credit Code and the background to the new legislation.

The former Uniform Consumer Credit Code [19.30] Prior to the enactment of the National Consumer Credit Protection Act 2009 (Cth) the regulation of consumer credit was the responsibility of the States and Territories. Substantial uniformity in consumer credit laws was achieved following the signing by the State and Territories of the Australian Uniform Credit Laws Agreement in 1993. Under the Agreement the Queensland Parliament passed the Consumer Credit (Queensland) Act 1994 (Qld) which incorporated, as the Appendix to the Act, the Consumer Credit Code. Each of the Australian States and Territories enacted enabling legislation adopting the Queensland “template” or model legislation and applying it within their own State or Territory. 1 The resultant credit law was known as the Uniform Consumer Credit Code. However, while the bulk of credit providers’ obligations were consistent under the Uniform Consumer Credit Code, there were minor variations since the States and Territories were able to enact “complementary” legislation. For example, some but not all jurisdictions enacted legislation limiting the rate of interest and fees which could be charged on consumer credit products. The licensing and regulation of finance brokers also varied from State to State. The slow process for amending the Uniform Consumer Credit Code which required agreement among all jurisdictions led to delays in implementing necessary reforms and an inability to respond in a timely manner to market developments. Furthermore, the Uniform Consumer Credit Code only regulated the provision of credit and not the provision of credit-related advice.

Background to the national credit legislation [19.40] There was an ongoing debate over many years on whether it would be more desirable in the national interest for consumer credit regulation to be a Commonwealth rather than a State matter. The Council of Australian Governments (COAG) reached an in-principle agreement on 26 March 2008 that the Commonwealth would assume responsibility for regulating certain aspects of the provision of credit. Subsequently, on 3 July 2008, COAG agreed that the Commonwealth government would assume responsibility for regulating all consumer credit products. It was further agreed that responsibility for the regulation of credit and finance broking should be “referred”, that is transferred, from the States to the Commonwealth under s 51(xxxvii) of the Constitution. 1

Western Australia and Tasmania opted to enact their own consumer credit legislation which was “consistent” with the Consumer Credit Code, rather than enacting legislation adopting the Code.

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At a meeting on 2 October 2008, COAG agreed to an implementation plan for the Commonwealth government to assume responsibility for all areas of consumer credit. National credit regulation was to be implemented in two phases. Phase One was to include enacting existing State legislation, the Uniform Consumer Credit Code, into Commonwealth legislation; establishing a new national licensing system for providers of consumer credit and credit-related services; imposing responsible lending requirements; and extending the powers of the Australian Securities and Investment Commission (ASIC) as the sole regulator of the new national credit framework. Phase Two comprised ongoing investigation with a view to eventual legislation over a broad range of credit issues including enhancements to the regulation of credit cards; the need for regulation of credit to small business and investment loans; and predatory or fringe lending. As a consequence of that agreement, the National Consumer Credit Protection Bill 2009 (Cth) was introduced into the House of Representatives on 25 June 2009. The Bill became the National Consumer Credit Protection Act 2009 (Cth) on its assent on 15 December 2009. It was proclaimed to commence on 1 April 2010. 2 The States and Territories have enacted legislation referring their powers in this area to the Commonwealth. 3 The next stage of the reform process was implemented in 2011–2013. The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (Cth) was enacted in July 2011, receiving its assent on 25 July 2011. This Act imposes additional disclosure requirements on credit licensees that provide credit under standard home loans and credit cards. In addition, further amendments to the National Consumer Credit Protection Act 2009 (Cth) relating to reverse mortgages, short-term credit contracts, small amount credit contracts (these two categories are often referred to as “payday loans”) and consumer leases were introduced in the Consumer Credit and Corporations Legislation Amendment (Enhancements) Act 2012 (Cth). The principal provisions of that Act commenced on 1 March 2013. Reverse mortgages, payday loans 4 and consumer leases 5 are at the periphery of mainstream consumer credit in Australia and therefore fall outside the scope of this chapter.

The national regulation of credit [19.50] The general regulatory provisions of the National Consumer Credit Protection Act 2009 (Cth) are considered under the following headings:  A national licensing scheme for all credit providers; 2 3

4

5

There are also two consequential pieces of legislation, the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) and the National Consumer Credit Protection (Fees) Act 2009 (Cth). Credit (Commonwealth Powers) Act 2010 (NSW); Credit (Commonwealth Powers) Act 2010 (Vic); Credit (Commonwealth Powers) Act 2010 (Qld); Credit (Commonwealth Powers) Act 2010 (SA); Credit (Commonwealth Powers) Act 2010 (WA); Credit (Commonwealth Powers) Act 2009 (Tas); Consumer Credit (National Uniform Legislation) Implementation Act 2010 (NT). See P Ali, C McRae and I Ramsay, “The Politics of Payday Lending Regulation in Australia” (2014) 39 Monash University Law Review 114; A Serpell, “Small Amount Loans and the Consumer Credit Legislation Amendment (Enhancements) Act 2012” (2014) 32 Company and Securities Law Journal 7; S Andersen, “The Phenomenon of Payday Lending” (2013) 21 Australian Journal of Competition and Consumer Law 20; A Serpell, “Protecting the Desperate: The Regulation of Payday Lending” (2015) 43 Federal Law Review 147. The Australian Investments and Securities Commission has recently published its findings on its review of the payday lending and consumer lease sectors: ASIC, Payday Lenders and the New Small Amount Lending Provisions (Report 426, March 2015); ASIC, Cost of Consumer Leases for Household Goods (Report 447, September 2015). In ASIC v The Cash Store Pty Ltd (in liquidation) (No 2) [2015] FCA 93, the Federal Court imposed pecuniary penalties of $18.975 million on the respondent payday lenders for contraventions of the National Consumer Credit Protection Act 2009 (Cth). See P Ali, C McRae and I Ramsay, “Consumer Leases and Consumer Protection: Regulatory Arbitrage and Consumer Harm” (2013) 41 Australian Business Law Review 240.

chapter 19 Credit Law

 Responsible lending conduct;  Consumer remedies;  Sanctions for non-compliance.

A national licensing scheme for all credit providers The licensing scheme [19.60] The National Consumer Credit Protection Act 2009 (Cth) has established a national licensing scheme for all credit providers, finance brokers and other intermediaries. Basically, a person engaging in a “credit activity” must obtain an Australian Credit Licence (ACL) from the Australian Investments and Securities Commission (ASIC): s 29. A person engages in a “credit activity” where, for example, the person is the: credit provider under a credit contract; lessor under a consumer lease; mortgagee under a mortgage; or the beneficiary under a guarantee: s 6. Significantly, the term “credit activity” also includes a person who provides a “credit service”, that is, provides “credit assistance” to a consumer or “acts as an intermediary”: s 7. The term “credit assistance” is defined broadly and extends from providing actual assistance to a consumer in applying for a particular credit contract to suggesting to a consumer that they apply for a particular credit contract with a particular credit provider or an increase to the credit limit of a particular credit contract: s 8. The provisions are wide enough to include finance brokers, mortgage brokers, and other intermediaries who have a direct or indirect role in securing credit for a consumer: s 8. 6 Employees or credit representatives of a licence holder do not need a licence when acting on behalf of the licence holder: s 29(3).

Australian credit licence [19.70] An Australian credit licence (ACL) is a licence that authorises the licensee to engage in the particular credit activities specified in the licence: National Consumer Credit Protection Act 2009 (Cth), s 35. A person may apply for a licence to ASIC by lodging an electronic application in the approved form: s 36. ASIC is to grant a licence if it does not have reason to believe that the applicant is likely to contravene their general obligations if the licence was granted (see [19.80]) or that they are not a fit and proper person to engage in credit activities: s 37(1). In determining these matters, and therefore whether or not to grant a licence, ASIC must have regard to past suspensions, banning or disqualification orders, any criminal convictions and other relevant matters: s 37(2). A licence cannot be granted where a current banning or disqualification order, or a prescribed State or Territory order, is in force against the applicant in relation to the credit activity: s 40. An applicant must be given a hearing before a licence is refused: s 41. ASIC may impose, vary or revoke conditions on licences: ss 44 – 45.

General conduct obligations of licensees [19.80] Once licensed, a person is required to conduct their business in accordance with a number of specific conduct standards. These include obligations to: (a)

ensure that credit activities are engaged in efficiently, honestly and fairly;

(b)

have in place adequate arrangements to ensure that clients are not disadvantaged by any conflict of interest;

(c)

comply with any licensing conditions;

6

The National Consumer Credit Protection Regulations 2010 (Cth), reg 24 provides for certain activities, such as those undertaken by lawyers and tax agents, as well as certain administrative functions, such as passing on factual information or prepared documentation, to be exempt from being “credit activities”.

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(d)

comply with credit legislation and take reasonable steps to ensure its representatives do so;

(e)

maintain competence to engage in credit activities it is authorised to provide, and ensure that its representatives are adequately trained and competent to engage in those activities;

(f)

have an internal dispute resolution procedure that is compliant with standards and requirements made or approved by ASIC;

(g)

be a member of an approved external dispute resolution scheme;

(h)

have adequate compensation arrangements for loss or damage resulting from a breach of its obligations; 7

(i)

have adequate and documented arrangements and systems to ensure compliance with its obligations;

(j)

have adequate resources to engage in credit activities and have adequate risk management systems; and

(k)

comply with any additional obligations prescribed by the regulations: National Consumer Credit Protection Act 2009 (Cth), s 47.

A licensee also has obligations to provide ASIC with information and assistance regarding its credit activities or those of its representatives upon being called upon to do so (ss 49 – 51) and to lodge an annual compliance certificate: s 53. ASIC is empowered to suspend or cancel a licence where, for example, the licensee is insolvent or is convicted of serious fraud; contravenes one of the general conduct obligations of licensees; or is not a fit and proper person to engage in credit activities: ss 54 – 55. Similar grounds enable ASIC to issue a banning order preventing a person from engaging in credit activities whether permanently or temporarily: ss 80 – 85. There are requirements concerning the keeping of financial records and how the records must be kept: ss 88 – 106.

Responsible lending conduct [19.90] The National Consumer Credit Protection Act 2009 (Cth) introduces responsible lending requirements for all licensees to try to ensure consumers have the capacity to meet the financial obligations under their credit contracts. 8

Assessment of unsuitability of contracts [19.100] A licensee will need to meet the statutory responsible lending obligations where it is either: (a)

A credit provider, that is, it enters into credit contracts with consumers or increases the credit limit of a credit contract; or

(b)

A credit assistance provider in that it: (i)

assists a consumer to apply for a particular credit contract with a particular credit provider or an increase in a credit limit of a particular credit contract; or

(ii)

suggests that a consumer enter into a particular credit contract with a particular credit provider, or increase the limit of a particular credit contract.

Before a credit provider enters into a credit contract with a consumer or increases the credit limit of a credit contract, the credit provider is required to assess whether the contract will be unsuitable for the consumer: 7 8

The National Consumer Credit Protection Regulations 2010 (Cth), reg 12 requires the licensee to hold adequate professional indemnity insurance cover unless they are an exempt licensee. See B Taylor, “New National Responsible Lending Obligations – Pt 1” (2011) 39 Australian Business Law Review 464; B Taylor, “New National Responsible Lending Obligations – Pt 2” (2012) 40 Australian Business Law Review 43.

chapter 19 Credit Law

National Consumer Credit Protection Act 2009 (Cth), ss 128, 129. The assessment must be made no more than 90 days before providing the credit: s 128. 9 Before making the assessment, the credit provider must make reasonable inquiries into the consumer’s requirements, objectives and financial situation and take reasonable steps to verify it: s 130. A credit contract will be unsuitable for a consumer if it is likely that:  the consumer will be unable to comply with their financial obligations under the contract or could only do so with substantial hardship (this is presumed if the consumer would have to sell their principal place of residence in order to satisfy the contract’s obligations); or  the contract will not meet the consumer’s requirements or objectives: s 131. A copy of the assessment is to be given to the consumer if requested (unless no contract is entered into or the credit limit is not increased): s 132. A licensee is prohibited from entering into a credit contract or increasing the credit limit where the assessment finds it unsuitable: s 133. A credit assistance provider has corresponding obligations to make a preliminary assessment as to the unsuitability of a proposed credit contract before providing credit assistance: ss 115 – 120, 123 – 124. Similar obligations are imposed on a lessor under a consumer lease (ss 151 – 156) and licensees proving credit assistance in relation to consumer leases: ss 138 – 143, 146 – 147.

Requirement of licensees to give a credit guide to the consumer [19.110] Where a licensee is also a credit provider, the licensee is required to give a credit guide to the consumer as soon as practicable after it becomes apparent to the licensee that it is likely to enter a credit contract with the consumer: National Consumer Credit Protection Act 2009 (Cth), s 126(1). The credit guide contains details about the licensee and certain other information. More particularly, the credit guide is to include: (a)

the licensee’s name and contact details;

(b)

the licensee’s Australian credit licence number;

(c)

information about the licensee’s procedure for resolving disputes with a consumer, including contact details for a consumer to access: (i)

the licensee’s internal dispute resolution procedure; and

(ii)

the approved external dispute resolution scheme of which the licensee is a member;

(d)

information about the licensee’s obligation to provide the consumer with a copy of its assessment, if requested, and the prohibition on the licensee entering into the credit contract or increasing the credit limit if it is found unsuitable for the consumer; and

(e)

any other requirements prescribed by the regulations: s 126(2).

There is a corresponding obligation on a credit assistance provider to give a credit guide to a consumer containing similar information after it becomes apparent that credit assistance is likely to be provided. In addition in this case, the credit guide must give information about fees and charges payable and the method of their calculation; any commission the licensee, or its employees, directors or credit representatives, are likely to receive from credit providers; and the panel of credit providers that it deals with: s 113. Further, credit assistance is not to be provided to a consumer unless the consumer has been given a quote specifying the maximum amount payable by the consumer for the credit assistance with a breakdown of the fees and charges: the consumer must have signed and dated the quote and been given a copy of the accepted quote: 9

The National Consumer Credit Protection Regulations 2010 (Cth), reg 26 extends the assessment period from 90 to 120 days where the credit contract is being used to finance the purchase of a residential property secured by a mortgage.

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s 114. At the time of providing credit assistance, a credit assistance provider must give a consumer a credit proposal disclosure document disclosing commissions, fees and charges (including third-party fees) and the amount of credit available to the consumer after the payment of these amounts: ss 121 – 122. Similar disclosure obligations are required of a lessor under a consumer lease (s 149) and licensees providing credit assistance in relation to consumer leases: ss 136 – 137, 144 – 145. Part 3.2A (introduced by the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (Cth)) imposes additional disclosure requirements on credit licensees that are credit providers under standard home loans. These requirements commenced on 1 January 2012. Standard home loans are credit contracts under which a credit licensee provides credit to purchase residential property or to refinance credit that has been provided to purchase residential property: s 133AA. The credit provider must provide the consumer with a “Key Facts Sheet” setting out the information about the home loan prescribed in the National Consumer Credit Protection Regulations 2010 (Cth) (as amended by the National Consumer Credit Protection Amendment Regulations (No 5) 2011 (Cth)). The purpose of this Key Facts Sheet is to provide information in a standardised form about the key terms of home loans (loan amount, term, whether fixed or variable interest rate, interest rate, repayment method, repayment frequency, fees, comparison rate) to enable consumers to compare the home loans. Similarly, Part 3.2B (also introduced by the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (Cth)) imposes additional disclosure requirements on credit licensees that are credit providers under credit card contracts. These requirements commenced on 1 July 2012. Credit card contracts are continuing credit contracts under which credit is ordinarily obtained only by the use of a credit card: s 133BA. The credit provider must provide the consumer with a “Key Facts Sheet” setting out the information about the credit card contract prescribed in the National Consumer Credit Protection Regulations 2010 (Cth) (as amended by the National Consumer Credit Protection Amendment Regulations (No 6) 2011 (Cth) and National Consumer Credit Protection Amendment Regulations (No 1) 2012 (Cth)). The purpose of this Key Facts Sheet is to provide information in a standardised form about the key terms of credit card contracts (minimum credit limit, minimum repayments, interest on purchases, interest-free period, interest on cash advances, promotional interest rate, balance transfer interest rate, and fees).

Consumer remedies [19.120] It is anticipated that many consumer complaints arising from contravention or non-compliance by a licensee with the requirements of the National Consumer Credit Protection Act 2009 (Cth) discussed at [19.50]–[19.110] will be resolved through the internal and external dispute resolution mechanisms which a licensee is required to have in place under the Act. Where these fail to satisfactorily resolve the dispute, the consumer retains access to the courts to seek redress. The Act provides a range of remedies to consumers where they suffer loss or damage from the misconduct of a licensee. For example, if a consumer has entered an “unsuitable” credit contract, the consumer (or ASIC on behalf of the consumer) can seek an order for compensation for the loss or damage suffered: s 178. The consumer can also seek an order to compensate, prevent or reduce the loss or damage suffered by, among other things, varying the contract, refusing to enforce some or all of the terms of the contract, or declaring the contract void: s 179. Similarly, an order can be sought to prevent an unlicensed credit or credit assistance provider from profiting from the consumer and to compensate the latter for any loss or damage suffered: s 180. Orders can also be made requiring a credit service provider who has engaged in unfair or dishonest conduct in relation to the credit service to take or refrain from taking specified action or to pay a specified amount: s 180A. In addition, the court can, under s 180A, make an order that a specified amount is not due or owing by the consumer to the credit service provider.

chapter 19 Credit Law

Sanctions for non-compliance [19.130] The Australian Securities and Investments Commission (ASIC) is responsible for administering the new national credit regime. As we saw at [19.80] ASIC is empowered, among other things, to suspend or cancel a licence and to make orders banning a person from engaging in credit activities for non-compliance with the new regulatory scheme. The National Consumer Credit Protection Act 2009 (Cth) contains a range of other sanctions for non-compliance with its provisions. These include civil penalty provisions (ss 166 – 175); injunctions (s 177); compensation orders (s 178); and adverse publicity orders: s 182. Under an adverse publicity order a court may require a person to disclose certain information in a specified way and to publish the information at their own expense. Substantial criminal penalties may also be imposed for breach of the Act’s provisions. Failure to comply with the obligations imposed by the Act may result in the imposition of civil penalties and/or criminal sanctions. For example a person who engages in a credit activity if they have not been licensed to do so is liable to a civil penalty of 2,000 penalty units ($360,000), or a criminal penalty of 200 penalty units ($36,000) or two years’ imprisonment or both: s 29(1), (2).

The National Credit Code Overview [19.140] The National Credit Code is set out in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth). The Code largely replicates the former State-based Uniform Consumer Credit Code (see [19.30]). It regulates the many facets of the provision of credit ranging from pre-contractual disclosure; comprehensive information in the credit contract as to the true cost of the credit to the borrower; the rights and obligations of the parties in the event of enforcement of the contract and any security (for example, the repossession of goods); to the provision of relief for debtors suffering genuine hardship and the reopening of unjust transactions. The general approach is for the Code to be as similar to the Uniform Consumer Credit Code as practicable. However, there are a number of changes the most significant of which are: (a)

extending the scope of credit contracts covered by the Code to contracts where the credit is provided to purchase, renovate, improve or refinance a residential property for investment purposes (see [19.160]); and

(b)

increasing the amount under which a debtor can request a change to the terms of their credit contract on the grounds of hardship, for example because of illness or unemployment, to $500,000 (see [19.570]).

To assist in comparing the provisions of the National Credit Code with the former Uniform Consumer Credit Code a comparison table is set out at [19.890].

Application of the National Credit Code [19.150] The scope of operation of the National Credit Code is very wide. In general terms, it applies to all personal (that is, non-business) credit with certain limited exceptions. More particularly, it applies to all forms of consumer credit (including loans of money, the acquisition of goods on credit terms, credit cards

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and housing loans) and covers all credit providers (including banks, credit unions, building societies, retail stores and all others who provide credit to consumers in the course of a business).

Credit to which the Code applies [19.160] The National Credit Code applies to the provision of credit if, when the “credit contract” is entered into, the following four requirements are satisfied: (a)

the debtor is a natural person; 10

(b)

the credit is provided “wholly or predominantly” for personal, domestic or household purposes or to purchase, renovate, improve or refinance a residential property for investment purposes;

(c)

a charge is made for providing the credit; and

(d)

the credit is provided in the course of a business: s 5(1).

A “credit contract” is defined as a “contract under which credit is or may be provided, being the provision of credit to which this Code applies”, that is, in essence, where the four requirements set out above are satisfied: s 4. “Credit” is provided if, under a contract, payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred: s 3(1). This would include, for example, a contract for the loan of money including housing loans; a contract for the purchase of goods on credit terms; credit cards used to borrow money or to pay for goods on credit such as a Visa card; and retail store credit facilities. There is no monetary ceiling under the National Credit Code. That is, provided the requirements set out above are satisfied, the Code applies where the amount of credit provided or money borrowed under the credit contract exceeds $50. 11 Each of the requirements which must be satisfied for the Code to apply requires further explanation.

The debtor must be a natural person [19.170] The National Credit Code only applies to credit provided to natural persons: s 5(1)(a). This requirement means that the Code does not apply to credit provided to a company. 12

The credit must be provided wholly or predominantly for personal, domestic or household purposes or for a residential investment property [19.180] The National Credit Code only applies to credit which is provided, or intended to be provided, “wholly or predominantly” for personal, domestic or household purposes or for a residential investment property: s 5(1)(b). Credit provided for other investment purposes is not regulated by the Code: s 5(3). It follows from these provisions that credit provided for business purposes is not regulated by the Code.

Meaning of “predominant” purpose [19.190] In deciding the predominant purpose for which credit is provided, the National Credit Code states that it is: 10 11

12

The National Credit Code also applies where the debtor is a strata corporation, that is, a home unit body corporate: s 5(1)(a). National Consumer Credit Protection Regulations 2010 (Cth), reg 52 provides that the National Credit Code does not apply to the provision of credit under a contract (other than a continuing credit contract) if: the amount of credit does not at any time exceed $50; there is no insurance financed under the contract; there is no mortgage or guarantee taken by the credit provider; and the annual percentage rate does not exceed the maximum annual percentage rate (if any) for the contract if it were a contract to which the Code applies. However, the “hardship”, “reopening” and “postponement” provisions of the Code will apply to such contracts (see [19.570], [19.590] and [19.480] respectively). Unless the debtor is a strata corporation, in which case the National Credit Code applies: s 5(1)(a).

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(a)

the purpose for which more than half of the credit is intended to be used; or

(b)

if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used: s 5(4).

For example, credit is obtained to purchase a vehicle that may be used partly for personal and partly for business purposes. If the vehicle is mostly used for business purposes, the transaction is not regulated by the Code, whereas if the vehicle is mostly used for personal purposes it will be regulated. Under the corresponding provision of the former Uniform Consumer Credit Code, it was held that a loan contract entered into by a borrower to replace their liability under a personal guarantee of a loan to a company of which they were a director, and which subsequently went into liquidation, did not constitute credit provided for “personal” purposes and therefore was not regulated by the Code: Linkenholt Pty Ltd v Quirk [2000] ASC 155-040; [2000] VSC 166. It was also held that the word “personal” should be given a liberal interpretation and accordingly the Code applied to credit obtained for the purpose of providing a home for the borrower’s parents: Jonsson v Arkway (2003) 58 NSWLR 451.

Presumption where a declaration is signed [19.200] It is presumed 13 that credit is not provided under a contract wholly or predominately for personal, domestic or household purposes, or for a residential investment property, if the debtor signs a declaration before entering into the contract that the credit is to be applied for a purpose that is not a National Credit Code purpose, that is for business purposes or investment purposes other than investment in residential property, unless the contrary is established: s 13(2). 14 A declaration will be ineffective if the credit provider or person who obtained the declaration knew, or had reason to believe, or would have known on making reasonable inquiries, that the credit was in fact to be applied wholly or predominantly for a Code purpose: s 13(3). For example, a declaration that a loan was for business purposes was ineffective where the circumstances provided reason to believe that it was made only in respect of the borrower’s home: Permanent Mortgages Pty Ltd v Cook [2007] ASC 155-085; [2007] NSWCA 219; Benjamin v Ashikian [2007] ASC 155-086; [2007] NSWSC 735. The test is what would a reasonable person in the shoes of the credit provider have understood was the predominant purpose for which credit was provided: Park Avenue Nominees Pty Ltd v Boon (on behalf of Weir) [2001] ASC 155-052; [2001] NSWSC 700; DaimlerChrysler Services Australia Pty Ltd v Berckelman [2004] ASC 155-065; [2004] NSWSC 447.

A charge must be made for the credit [19.210] If no interest charge, or other fee, is charged for providing the credit, then the credit provided will not be regulated by the National Credit Code: s 5(1)(c).

The credit must be provided in the course of a business [19.220] The credit provider must provide the credit in the course of a business of providing credit (as in the case, for example, of a bank, finance company, credit union or building society), or as part of, or incidental to, any other business of the credit provider (for example, where a retail store provides credit facilities to its customers): National Credit Code, s 5(1)(d). 13 14

Under the former Uniform Consumer Credit Code, s 11(2), there was a conclusive presumption that the Code did not apply where such a declaration was made. The form of the declaration is set out in the National Consumer Credit Protection Regulations 2010 (Cth), reg 67.

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Exceptions [19.230] There are certain limited circumstances where credit is provided to a debtor but will not be regulated by the National Credit Code: s 6. Thus, the Code will not apply to: (a)

short-term credit (that is, where credit is provided for no more than 62 days, the credit fees and charges do not exceed 5% of the amount of credit, and the interest rate does not exceed 24% per annum);

(b)

the provision of credit if, before the credit was provided, there was no express agreement for the provision of credit (for example where a cheque account is overdrawn with no expressly agreed overdraft facility or when a savings account falls into debit);

(c)

continuing credit contracts where the only charge is a periodic or other fixed charge which does not vary according to the amount of credit provided, and where the charge does not exceed the maximum charge prescribed by the regulations; 15

(d)

credit provided under a bill facility (that is, a bill of exchange or promissory note) by an authorised deposit-taking institution (for example, a bank or credit union);

(e)

the payment of insurance premiums by instalments even though the instalments exceed the total of the premium that would be payable if the premium were paid in a lump sum;

(f)

the provision of credit on the security of goods by a pawnbroker provided that if the debtor is in default, the pawnbroker’s only recourse is against the goods provided as security; 16

(g)

the provision of credit by the trustee of the estate of a deceased person by way of an advance to a beneficiary; 17

(h)

employee loans; 18 and

(i)

margin loans.

The regulations may exclude the application of the National Credit Code from the provision of credit of a class specified in the regulations: s 6(13). Thus, the National Consumer Credit Protection Regulations 2010 (Cth) exclude the application of the National Credit Code to the provision of credit under a contract (other than a continuing credit contract) if the amount of credit does not at any time exceed $50 and certain other conditions are satisfied: National Consumer Credit Protection Regulations 2010 (Cth), reg 52. 19 A loan by a partnership to a partner in the firm is exempt from most of the provisions of the National Credit Code: National Consumer Credit Protection Regulations 2010 (Cth), reg 55. Also exempt from most of the National Credit Code provisions are loans to students by a higher educational institution, or an association of students of the institution, on the grounds of hardship or emergency. However, this only applies if the student and any guarantor is provided with a statement of the costs of the credit and a copy of the terms and conditions of the contract for the provision of credit: National Consumer Credit Protection Regulations 2010 (Cth), reg 56. 15 16 17 18

19

Under the National Consumer Credit Protection Regulations 2010 (Cth), reg 51, the maximum charge is $200 for the 12 months after the continuing credit contract is made, and $125 for any subsequent period of 12 months. However, the provisions of the National Credit Code empowering the court to reopen unjust transactions (ss 76 – 81) apply to the provision of credit by a pawnbroker: s 6(9). However, the provisions of the National Credit Code empowering the court to reopen unjust transactions (ss 76 – 81) will apply to the advance: s 7(10). Not all the provisions of the National Credit Code are excluded in relation to employee loans, for example the “hardship” and “unjust transactions” provisions still apply (Pt 4 Div 3), and also the postponement of enforcement proceedings (Pt 5 Div 3): see s 6(11). However, the “hardship”, “unjust transactions” and “postponement” provisions will apply (see [19.570], [19.590] and [19.480] respectively).

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ASIC is empowered to exclude from the application of the National Credit Code a provision of credit as specified by ASIC including a provision of credit if the amount exceeds a specified amount or the credit is provided by a specified credit provider: s 6(14) – (18).

Formalities and contents of credit contracts Pre-contractual disclosure [19.240] Before a credit contract is entered into, or a prospective debtor makes an offer to enter into a credit contract, the credit provider must have given her or him a pre-contractual statement (which may be the proposed contract document) setting out, in essence, the financial details of the proposed credit contract and also an information statement of the debtor’s statutory rights and obligations: the statements must be in the form required by the regulations: National Credit Code, s 16, and National Consumer Credit Protection Regulations 2010 (Cth), Form 5, entitled Information Statement: Things You Should Know About Your Proposed Credit Contract.

Form of credit contract [19.250] A credit contract must be in writing, signed by the debtor and the credit provider, or alternatively, comprise a written contract document signed by the credit provider and constituting an offer to the debtor that is accepted by the debtor in accordance with the terms of the offer: National Credit Code, s 14. An offer may be accepted by the debtor by accessing or drawing down credit to incur a liability, or by any other act that satisfies the conditions of the offer and constitutes an acceptance of the offer at law: s 14(2). The regulations may authorise other ways of making a credit contract that does not involve a written document (for example, by electronic means): s 15.

Contents of credit contracts [19.260] The credit contract must comply with the disclosure and financial information requirements set down in the National Credit Code. More specifically, the Code requires that details of the following matters must be disclosed in all credit contracts (s 17): 1.

The credit provider’s name.

2.

The amount of credit to be provided and the persons or bodies (including the credit provider to whom it is to be paid and the amounts payable to each of them).

case [19.270] Seminar attendees could borrow the amount of the registration fees from a credit provider. The credit provider, by arrangement with the seminar organisers, was entitled to a “holdback” of a proportion of the amount borrowed. The High Court held that the amount of the “holdback” (that is, the amount withheld by the credit provider from the seminar organisers) should have been disclosed in the credit contract between the credit provider and the debtors (that is, the seminar attendees): Australian Finance Direct Ltd v Director of Consumer Affairs Victoria (2007) 234 CLR 96.

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3.

If the amount of credit is not ascertainable, the maximum amount of credit agreed to be provided, or the credit limit, if any, is to be stated. Where the credit is provided by the supplier for a sale of land or goods by instalments, the contract must include a description of the land and its price, or a description of the goods and a statement of their cash price.

4.

The annual percentage rate or rates (that is, the rate of interest payable under the contract). The correct statement of the annual percentage rate is a fundamental requirement of the National Credit Code.

5.

The method of calculation of interest charges payable under the contract.

6.

The total amount of interest charges payable to the extent that they are able to be ascertained.

7.

If more than one repayment is to be made, the amount of the repayments, and, if ascertainable, the number of the repayments and the total amount of the repayments. (This does not apply to minimum payments under continuing credit contracts.)

8.

A statement of the credit fees and charges that are payable under the contract.

9.

If the annual percentage rate or the amount or frequency of payment of a credit fee or charge may be varied, or a new credit fee may be imposed, a statement to that effect and the means by which the debtor will be informed of the variation.

10.

The frequency with which statements of account are to be provided to the debtor.

11.

If a default rate of interest may be charged when payments are in default, a statement to that effect together with the default rate.

12.

A statement that enforcement expenses may become payable under the credit contract or mortgage (if any) in the event of a breach.

13.

If a mortgage or guarantee is to be taken by the credit provider, a statement to that effect and a description of the property proposed to be subject to the mortgage.

14.

Particulars of commissions paid by or to the credit provider for the introduction of credit business or business financed by the credit contract, subject to certain exceptions.

15.

Where the credit provider knows that the debtor is to enter into a credit-related insurance contract which is to be financed under the credit contract, certain particulars are to be given, including the disclosure of the amount of any commission to be paid by the insurer for the introduction of the insurance business of which the credit provider is aware.

16.

Any other information or warning required by the regulations.

[19.280] The contract must conform to the requirements of the regulations as to its form and the way it is expressed: s 18.

Debtor to be given copy of the contract [19.290] Where a contract document is to be signed by the debtor and returned to the credit provider, the debtor must be given a copy to keep: National Credit Code, s 20(1). The debtor must also be given a copy of the credit contract within 14 days after it is made: s 20(2).

Termination of the contract by the debtor before credit has been obtained [19.300] The debtor may by written notice terminate a credit contract even after it has been made unless any credit has been obtained under the contract, or a card or other means of obtaining credit provided to the debtor by the credit provider has been used to acquire goods or services for which credit is to be advanced under the contract. The credit provider is entitled to retain fees and charges incurred before termination: National Credit Code, s 21.

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Prohibited fees or charges [19.310] A provision of a credit contract imposing a credit fee or charge prohibited by the National Credit Code, or exceeding the amount which may be charged consistently with the Code, is void and the amount paid recoverable by the debtor: a credit fee or charge must be authorised by the credit contract and, if not, is recoverable by the debtor: s 23.

Civil penalties for contraventions by credit providers [19.320] Under the National Credit Code a civil penalty may be imposed by the court for contravention by a credit provider of a “key requirement” of the Code: ss 111 – 123. Proceedings for the imposition of a civil penalty may be brought within a period of six years from the date of the contravention: s 123.

“Key requirements” [19.330] A “key requirement” (under National Credit Code, s 111) is a requirement by the Code concerning the disclosure of certain financial details to be included in the credit contract as set out in s 17(3) – (6), (8) – (9), (11), and (15) (see [19.260]-[19.280]); and the imposition of fees and charges under the credit contract prohibited by the Code: s 23(1). For example, the disclosure requirements in s 17 concerning the amount of credit; the annual percentage rate (that is, the rate of interest being charged); the method of calculation of interest charges; and other credit fees and charges payable under the contract, are all listed as being “key requirements” in s 111(1). Similar “key requirements” are enumerated separately in relation to the disclosure of financial details in a “continuing credit contract”, for example a credit card: s 111(2). 20 The following discussion only concerns the civil penalty provisions for breach of the “key requirements” of the Code.

Those who may apply for the imposition of a civil penalty [19.340] An application to the court for an order for the imposition of a civil penalty on a credit provider for the contravention of a key requirement of the National Credit Code may be made by: (a)

the debtor;

(b)

the credit provider;

(c)

a guarantor; or

(d)

the Australian Securities and Investments Commission (ASIC): s 112(1).

On an application being made, the court must by order declare whether or not the credit provider has contravened a key requirement in connection with the credit contract. If the court is of the opinion that the credit provider has contravened a key requirement, then it may make an order requiring the credit provider to pay an amount as a civil penalty: s 113(1), (2).

Effect of an application for a civil penalty by the debtor or a guarantor [19.350] Where an application for a civil penalty is made by the debtor or a guarantor under the credit contract, the maximum civil penalty that may be imposed is an amount not exceeding the amount of all the interest charges payable under the contract, although a greater civil penalty may be imposed if the court is 20

The National Credit Code defines a “continuing credit contract” as meaning a “credit contract under which: (a) multiple advances of credit are contemplated; and (b) the amount of available credit ordinarily increases as the amount of credit is reduced”: Sch 1, Pt 13, s 204–Principal definitions.

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satisfied that the debtor has suffered a loss: National Credit Code, s 114. 21 The amount of the civil penalty ordered to be paid in such a case may be set off by the debtor or guarantor against any amount that is due to the credit provider under the credit contract, and if no amount is due, then the amount of the civil penalty is a debt due by the credit provider to the debtor or guarantor: s 115(1). In other words, where a civil penalty is ordered to be paid by the credit provider for contravention of a key requirement on an application by the debtor or guarantor, it is payable to the debtor or guarantor. However, a significant limitation is placed on the right of a debtor or guarantor to apply for a civil penalty. Thus, a debtor or guarantor may not make an application for a civil penalty if the contravention is, or has been subject to, an application by the credit provider or ASIC anywhere in Australia: s 112(2). On the other hand, such an application by the credit provider or government consumer agency does not prevent the court, on an application by a debtor or guarantor, from ordering the credit provider to compensate the debtor or guarantor for the amount of actual loss suffered as a result of the contravention of a key requirement: ss 112(3), 118.

Effect of an application for a civil penalty by the credit provider or government consumer agency [19.360] More usually, the credit provider will make an application for an order for a civil penalty. In the case of a financial institution such as a bank or a finance company, many hundreds and even thousands of similar credit contracts may be inadvertently affected by the same error. As pointed out at [19.340], ASIC may also apply for an order for a civil penalty. Where a credit provider or a government consumer agency applies for an order, the maximum civil penalty that may be imposed by the court for a contravention of a key requirement is an amount calculated so that the total civil penalty for all contraventions of the requirement throughout Australia does not exceed $500,000: National Credit Code, s 116. The amount of civil penalty ordered to be paid by the court on an application by a credit provider or ASIC is to be paid by the credit provider to ASIC on behalf of the Commonwealth: s 117.

Assessment of the amount of civil penalty [19.370] In considering the imposition of a civil penalty, the court is to have regard primarily to the “prudential standing” of the credit provider concerned, if requested to do so, and the credit provider takes deposits or borrows money from the public: National Credit Code, s 113(3). The expression “prudential standing” is not defined by the Code but appears to mean that the court is to take into consideration the financial effects on the credit provider of any order which it makes. In relation to a small credit union the expression has been interpreted as meaning its “financial capacity to meet its current commitments to borrowers and, beyond that, to serve the future needs of its members”: Re Polish Community Credit Union Ltd [2000] ASC 155-037 at 200,313 per Lee J. The court is also to have regard to the following matters (s 113(4)): (a)

the conduct of the credit provider and debtor before and after the credit contract was entered into;

(b)

whether the contravention was deliberate or otherwise;

(c)

the loss or other detriment (if any) suffered by the debtor as a result of the contravention;

21

In the case of a contravention of a key requirement relating to a statement of account in a continuing credit contract, the maximum civil penalty that may be imposed is all the interest charges payable under the contract for the period to which the statement of account relates: National Credit Code, s 114(1)(b).

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(d)

when the credit provider first became aware, or ought reasonably to have become aware, of the contravention;

(e)

any systems or procedures of the credit provider to prevent or identify contraventions;

(f)

whether the contravention could have been prevented by the credit provider;

(g)

any action taken by the credit provider to remedy the contravention or compensate the debtor or to prevent further contraventions;

(h)

the time taken to make the application and the nature of the application;

(i)

any other matter the court considers relevant.

The following case is an example of the application of the corresponding provisions in the former Uniform Consumer Credit Code:

case [19.380] The applicant credit provider, GE, introduced a continuing credit facility which enabled eligible customers of certain retail stores to make purchases on credit. Upon approval of a customer’s application for credit, GE would make a written offer to provide the credit facility. The offer was in the form of a pre-printed booklet that contained the terms of the proposed credit contract. The retailer was required to complete the financial table in the booklet and then give the booklet to the customer. The offer of the credit facility was accepted by the customer drawing down on the line of credit in purchasing the goods from the retailer. It was estimated that in some 11,900 instances, the retailer failed to provide the customer with a copy of the offer document, that is, the printed booklet, before the customer accepted the offered line of credit. It was common ground that by failing to provide the customer with a copy of the offer document before the offer was accepted by the customer, GE had breached five of the key requirements of the Uniform Consumer Credit Code, namely, had failed to disclose: the total amount of credit; the annual percentage rate; the calculation of interest charges; credit fees and charges; and changes affecting interest and credit fees and charges. The amount of $250,000 was submitted to the Victoria Civil and Administrative Tribunal (VCAT) as the appropriate national civil penalty. This amount was accepted by the Tribunal as the appropriate civil penalty for the contraventions of the key requirements: GE Capital Finance Australia v Various Debtors [2000] ASC 155-036. [19.390] In a particularly flagrant case under the former Uniform Consumer Credit Code, the Queensland Court of Appeal upheld the imposition of a civil penalty of $10,000 for each contravention of a key requirement of the Code amounting in total to some $230,000: Ward v State of Queensland [2004] 1 Qd R 429.

Penalties for offences under the Code [19.400] So far we have considered the civil penalty provisions of the National Credit Code where there has been a contravention of a key requirement by a credit provider. Other provisions make it an offence not to comply with the Code’s requirements and further provide a maximum penalty of 100 penalty units per contract on conviction for the non-compliance. A penalty unit is $180. Accordingly, the maximum penalty for each offence where 100 penalty units is specified is $18,000. Examples of non-compliance which carry the maximum penalty of 100 penalty units include: (a)

contravention of the financial disclosure requirements (s 22);

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(b)

the imposition of fees and charges prohibited by the Code (s 24);

(c)

issuing statements of account which do not comply with the provisions of the Code (s 33); and

(d)

failing to provide notice of changes to the contract, such as to the interest rate, repayment amounts, or credit fees and charges in accordance with the Code: ss 64 – 68.

Related mortgages [19.410] Often a credit provider will require security for performance of a debtor’s obligations under a credit contract. For example, where a consumer approaches a car dealer to acquire a motor vehicle on credit terms, the dealer may get the consumer to sign an application form addressed to a finance company (that is, the credit provider), to borrow moneys for the purchase of the vehicle. The ensuing loan contract between the consumer and the finance company may provide for a mortgage over the vehicle in favour of the finance company, enabling the latter to seize possession of and sell the vehicle in the event of the consumer defaulting in their obligations under the loan contract. The rights and obligations of the credit provider and the debtor in such a case are closely regulated by the National Credit Code, as we shall see at [19.460]–[19.530]. However, it is necessary first to outline the general provisions of the Code relating to mortgages, bearing in mind that the example given at [19.410] is simply one of many situations where the credit provider may take a mortgage over property to secure performance of a debtor’s obligations under a credit contract.

General provisions [19.420] The mortgage taken by a credit provider to secure the debtor’s obligations under a credit contract may be over goods or land, or both. The provisions of the National Credit Code are mainly concerned with mortgages over goods, although some provisions also apply to mortgages of land. A mortgage must be in writing signed by the mortgagor to be enforceable: s 42. The mortgagor must be given a copy of the mortgage document to keep within 14 days after it is made (unless it is part of the credit contract): s 43. A mortgage must describe or identify the property which is affected by the mortgage or it will be void: s 44(1). A provision in a mortgage that charges all the property of the mortgagor is void: s 44(2). The aim of these provisions is to ensure that a mortgage always specifies the property to which it attaches. Mortgages over future property are generally void, but this restriction is subject to the following exceptions: (a)

where the mortgage relates to property that is to be acquired wholly or partly with the credit provided under the credit contract secured by the mortgage;

(b)

the property is described or identified in the mortgage; or

(c)

goods acquired in replacement for, or as additions or accessories to, other goods subject to the mortgage: s 45.

A provision in a mortgage to the effect that goods supplied from time to time under a continuing credit contract are subject to a mortgage is void, although a mortgage over specified goods securing payment of a debt under a continuing credit contract is permissible: s 46. The mortgagor must be a debtor under a credit contract or a guarantor under a related guarantee otherwise the mortgage will be unenforceable: s 48. This means that “third party mortgages” cannot be used to secure credit that is regulated by the Code. A mortgage is void to the extent that it secures an amount that exceeds the sum of the amount of the liabilities of the debtor under the credit contract and reasonable enforcement expenses of enforcing the mortgage: s 49.

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Prohibited securities [19.430] The National Credit Code prohibits security being taken over certain types of property. Section 50 provides that a mortgage cannot be created over: (a)

wages or salary or benefits under a superannuation scheme;

(b)

goods that are essential household property; 22 or

(c)

goods that are property used by the mortgagor in earning income by personal exertion if the goods do not have a total value greater than the relevant limit. 23

It is also provided that an obligation under a credit contract cannot be secured by a cheque, bill of exchange or promissory note endorsed or issued by the debtor or guarantor. A mortgage or security which contravenes these provisions is void: s 50(7).

Assignment or disposal of mortgaged property by mortgagor [19.440] A mortgagor must not assign or dispose of property that is subject to a mortgage without the credit provider’s consent or the authority of the court. The credit provider is not to unreasonably withhold consent or attach unreasonable conditions to the consent. On application by a mortgagor, the court may authorise the mortgagor to dispose of mortgaged goods on conditions determined by the court if: (a)

the credit provider fails within a reasonable time to reply to a request for consent to do so by the mortgagor; or

(b)

consent is unreasonably withheld, or unreasonable conditions are attached to the consent: National Credit Code, s 51.

As a condition of granting consent to an assignment or disposal of property subject to a mortgage, the credit provider may require any breaches of the credit contract to which the mortgage relates to be remedied. The credit provider may also require the mortgagor and the assignee, or the person to whom the property is disposed, to enter into an agreement under which, without prejudicing or affecting the liability of the mortgagor, the assignee or the person to whom the property is disposed, agrees with the credit provider: (a)

to be personally liable to pay the amounts due or that become due under the mortgage; and

(b)

to perform and observe all other requirements and conditions of the mortgage: s 52.

Related guarantees [19.450] The National Credit Code provides that to be enforceable a guarantee must be in writing signed by the guarantor and must comply with the provisions concerning guarantees contained in the regulations: s 55. The regulations provide that a guarantee must contain a warning in the form of a box containing 22

23

“Essential household property” is defined as household property as prescribed under the regulations to the Bankruptcy Act 1966 (Cth), s 116(2)(b)(i). The Bankruptcy Regulations 1996 (Cth), reg 6.03 provides that the latter section does not extend to household property (including recreational and sports equipment) that is reasonably necessary for the domestic use of the bankrupt’s household, having regard to current social standards. Specifically excluded are kitchen equipment; sufficient household furniture; beds; educational, sporting or recreational items (including books) for children or students; and one television set, stereo equipment, radio, washing machine, clothes drier, refrigerator, freezer, telephone appliance and video recorder. The “relevant limit” is defined as the limit prescribed under the Bankruptcy Regulations 1996 (Cth) for the purposes of s 116(2)(c)(i) of the Bankruptcy Act 1966 (Cth): Bankruptcy Regulations 1996, reg 6.03B(1), (2) provides that the amount is $2,600, increased annually in accordance with the CPI rate and rounded down to the nearest multiple of $50.

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certain statements to be placed immediately above the space for the guarantor’s signature: National Consumer Credit Protection Regulations 2010 (Cth), reg 81 and Form 8. The statements in the box warn the prospective guarantor that by signing the guarantee, he or she may become personally responsible for the amounts the debtor owes and that: “If the debtor does not pay you must pay. This could mean you lose everything you own including your home”. The prospective guarantor is advised to obtain independent legal advice before signing the guarantee and should also consider obtaining independent financial advice. Further, prior to the prospective guarantor entering into the guarantee, the credit provider must provide her or him with: (a)

a copy of the credit contract or proposed credit contract to which the guarantee relates (otherwise the guarantee will not be enforceable); and

(b)

a document in the form prescribed by the regulations explaining the rights and obligations of a guarantor: National Credit Code, s 56; for the form of the information statement entitled Things You Should Know About Guarantees, see National Consumer Credit Protection Regulations 2010 (Cth), Form 9.

Within 14 days after a guarantee is signed, a credit provider must give the guarantor a copy of the guarantee and the credit contract or proposed credit contract: National Credit Code, s 57. A guarantor, by written notice to the credit provider, may withdraw from the guarantee: (a)

at any time before credit is first provided under the credit contract; or

(b)

after credit is provided, if the credit contract made differs in some material respect from the proposed credit contract given to the guarantor before the guarantee was signed: s 58.

A guarantee may contain a provision that secures credit provided under a future credit contract in addition to securing credit provided by the credit contract to which the guarantee initially relates. Such a provision is unenforceable unless the credit provider gives the guarantor a copy of the credit contract, or proposed credit contract, and obtains a written acceptance of the extension of the guarantee from the guarantor: s 59. A guarantee is void to the extent that it secures an amount that exceeds the sum of the amount of the liabilities of the debtor under the credit contract and reasonable enforcement expenses of enforcing the guarantee, or any lesser amount agreed between the credit provider and the guarantor. This does not prevent a credit provider from enforcing a guarantee in the event of the debtor’s death, insolvency or incapacity: s 60(1), (2). A guarantee which guarantees the liability of a debtor who was under 18 years of age when the liability was incurred cannot be enforced against the guarantor unless it contains a prominent statement to the effect that the guarantor may not be entitled to an indemnity against the debtor: s 60(3). A guarantee is void to the extent that it limits the guarantor’s right to indemnity from the person whose liability the guarantor has guaranteed: s 60(5). If the terms of a credit contract are changed to increase, or allow for an increase, in the debtor’s liabilities, the obligations of a guarantor under a guarantee of those obligations will only be effective if: (a)

the guarantor is given written notice of the change; and

(b)

the guarantor has accepted in writing the extension of the guarantee to those increased liabilities: s 61.

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Enforcement of credit contracts, mortgages and guarantees Default notice [19.460] A credit provider is not to begin enforcement proceedings against a debtor in relation to a credit contract unless the credit provider has given the debtor a default notice allowing the debtor at least 30 days from the date of the notice to remedy the default and the default is not remedied within this period: National Credit Code, s 88(1). There is a similar notice requirement before enforcement proceedings may be undertaken to recover money or take possession of property subject to a mortgage: s 88(2). The Code contains detailed requirements to be included in the default notice including the action necessary to remedy the default; information as to the repossession and sale of mortgaged property where security has been taken; and the rights of the debtor or mortgagor in enforcement proceedings which are discussed at [19.490]–[19.530]: s 88(3) and the National Consumer Credit Protection Regulations 2010 (Cth), reg 86 and Form 12. A credit provider is not required to give a default notice, or to wait until the period specified in the default notice has elapsed, before beginning enforcement proceedings, if: (a)

the credit provider believes on reasonable grounds that it was induced by fraud on the part of the debtor or mortgagor to enter into the contract or mortgage;

(b)

the credit provider has made reasonable attempts to locate the debtor or mortgagor but without success;

(c)

the court authorises the credit provider to begin the enforcement proceedings; or

(d)

the credit provider believes on reasonable grounds that the debtor or mortgagor has removed or disposed of mortgaged goods under a mortgage related to the credit contract, or intends to do so, without the credit provider’s permission or that urgent action is necessary to protect the mortgaged property: National Credit Code, s 88(5).

If the default is remedied within the period specified in the notice, the contract or mortgage is reinstated: s 89.

Direct debit default [19.470] If a debtor authorises payment by direct debit and default occurs, the credit provider must give the debtor, and any guarantor, a direct debit default notice within 10 business days of the default occurring if it is the first occasion the default occurs. The direct debit default notice informs the debtor that a direct debit repayment has been dishonoured and to contact the credit provider to make arrangements for payment. The notice requests the debtor to check the accuracy of their direct debit request and outlines the debtor’s rights if they are unable to make payment: National Credit Code, s 87 and the National Consumer Credit Protection Regulations 2010 (Cth), reg 85 and Form 11.

Negotiation of postponement of proceedings [19.480] A debtor, mortgagor or guarantor who has been given a default notice may negotiate with the credit provider a postponement of the enforcement proceedings at any time before the end of the period specified in the notice, unless the amount of credit is more than $500,000 or such other amount as may be prescribed by the regulations. Within 21 days after receiving the request, the credit provider must give the debtor, mortgagor or guarantor a written notice stating whether or not the credit provider agrees to negotiate a postponement. If

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the credit provider does not agree to negotiate, the notice must state: the name of the approved external dispute resolution scheme of which the credit provider is a member; the person’s rights under that scheme; and the reasons for not agreeing to negotiate: National Credit Code, s 94. Where a postponement cannot be negotiated, the debtor, mortgagor or guarantor may apply to the court which may order, or refuse to order, a postponement. The court may stay any enforcement proceedings under the credit contract or mortgage until the application has been determined: s 96.

Enforcement of mortgages [19.490] Often a credit provider will require security for performance of a debtor’s obligations under a credit contract. For example, where money is borrowed from a finance company for the acquisition of a motor vehicle from a dealer, the finance company may take a mortgage over the vehicle entitling the company to repossess and sell the vehicle in the event of the debtor defaulting in repayment of the loan under the credit contract. The rights and obligations of the credit provider and debtor/mortgagor are closely regulated by the National Credit Code.

Limitations on taking possession of mortgaged goods [19.500] A credit provider must not take possession of mortgaged goods, without the consent of the court, if the amount owing under the credit contract related to the mortgage is less than 25 per cent of the amount of credit provided under the contract or $10,000, whichever is the lesser: National Credit Code, s 91(1). However, this restriction does not apply: (a)

to a continuing credit contract; or

(b)

if the credit provider believes on reasonable grounds that the debtor has removed or disposed of the mortgaged goods, or intends to remove or dispose of them, without the credit provider’s permission or that urgent action is necessary to protect the goods: s 91(2).

A credit provider or its agent must not enter any part of premises used for residential purposes in order to take possession of mortgaged goods unless either the court has authorised the entry, or the occupier of the premises has consented in writing to the entry: ss 99 – 101. A mortgagor may be required by written notice to inform the credit provider within seven days where the mortgaged goods are and, if the mortgaged goods are not in the mortgagor’s possession, to give the credit provider information that might assist the credit provider to trace the goods: s 98.

Procedure after taking possession of goods [19.510] Within 14 days of taking possession of goods under a mortgage, the credit provider must give the mortgagor a written notice containing: the estimated value of the goods; the enforcement expenses incurred and their rate of accrual (for example the costs of repossession and storage of the mortgaged goods); and a statement of the mortgagor’s rights and obligations in the form set out in the regulations: National Credit Code, s 102(1). The latter statement, entitled “Notice after taking possession of mortgaged goods”, informs the mortgagor that they can get the goods back either by paying the arrears and enforcement expenses or paying out the credit contract: it further warns the mortgagor that if they do not act within 21 days after the date of the notice the credit provider may sell the goods: National Consumer Credit Protection Regulations 2010 (Cth), reg 88 and Form 14. The credit provider must not dispose of goods taken under the mortgage within 21 days after the date of the notice, unless the court authorises the credit provider to do so. Further, the credit provider must return the goods if the amount in arrears and the credit provider’s reasonable enforcement expenses are paid

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within that 21-day period, or the credit contract is paid out: National Credit Code, s 102(2), (4). During this 21-day period after the credit provider’s notice of taking possession of mortgaged goods, the mortgagor may nominate in writing a person who is prepared to purchase the goods from the credit provider at the estimated value, or at any greater amount for which the credit provider has obtained a written offer to buy the goods, and the credit provider must offer to sell the goods to that person: s 103. If at the end of the 21-day period a stay of enforcement proceedings is in force under the Code (see s 96 at [19.480]), or an application to reopen the transaction on the ground that the contract was “unjust” (see s 76 at [19.590]) has not been determined, the credit provider must not dispose of the goods until the proceedings have been finalised: s 102(3).

Sale of repossessed goods by credit provider [19.520] If the mortgagor does not exercise any of the rights at [19.510], the credit provider is to sell the goods as soon as reasonably practicable for the “best price reasonably obtainable”: National Credit Code, s 104(1). The credit provider must credit the mortgagor with the amount of the proceeds of sale, less any amounts which the credit provider is entitled to deduct from those proceeds. On the sale of the goods, the amount required to pay out the contract becomes due: s 104(2). A credit provider that sells mortgaged goods is entitled to deduct from the proceeds of sale, only the following amounts: (a)

the amount currently secured by the mortgage, not being more than the amount required to discharge the contract;

(b)

the amount payable to discharge any prior mortgage to which the goods were subject;

(c)

the amounts payable to discharge any subsequent mortgages to which the goods were subject and of which the credit provider had notice; and

(d)

reasonable enforcement expenses: s 105.

After the sale of mortgaged goods, the mortgagor is to be given a written notice stating the gross amount realised on sale, the net proceeds of sale, the amount required to pay out the credit contract or the amount due under the guarantee and any further recovery action to be taken by the credit provider against the debtor: s 104(3). The court may order a credit provider to credit the mortgagor with a payment exceeding the net proceeds of sale if it is not satisfied that the credit provider sold the goods as soon as reasonably practicable for the best price reasonably obtainable: s 106. Merely because the credit provider has taken possession of and sold the mortgaged goods on default by the debtor of her or his obligations under the credit contract does not necessarily end the debtor’s financial obligations to the credit provider. If the price realised on the sale of the goods is not sufficient to cover the amount owing to the credit provider under the credit contract, the debtor or mortgagor remains liable for the deficiency.

Mortgagor may apply to regain possession of mortgaged goods [19.530] If a credit provider takes possession of mortgaged goods in contravention of the National Credit Code’s requirements, the court may order the credit provider to return possession of the goods to the mortgagor. The court may make consequential orders to restore the parties to the position they were in before the credit provider took possession of the goods: ss 108 – 110.

Surrender of mortgaged goods [19.540] So far we have been primarily concerned with the legal position of the debtor and credit provider where the latter takes possession of mortgaged goods on default by the debtor under the credit

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contract. However, a debtor may return goods being purchased on credit terms, or which are subject to a mortgage, and require the credit provider to sell the goods. More specifically, the National Credit Code provides that if: (a)

a credit contract takes the form of a sale of goods by instalments and title in the goods does not pass until all the instalments are paid; or

(b)

the credit provider has a mortgage over goods of the debtor or guarantor;

then the debtor or mortgagor may give notice of an intention to return the goods to the credit provider or, if the goods are in the credit provider’s possession, require the credit provider in writing to sell the goods. A debtor or mortgagor may return the goods to the credit provider’s place of business during ordinary business hours within seven days of the date of the notice. Within 14 days after a debtor or mortgagor returns the goods or requires the credit provider to sell the goods, the credit provider must give the debtor or mortgagor a written notice containing the estimated value of the goods and any other information required by the regulations. If the debtor or mortgagor, within 21 days after the credit provider’s notice of the estimated value of the goods is given, requests the return of the goods, or withdraws the requirement to sell the goods (and is not in default under the terms of the credit contract), the credit provider is to return the goods to the debtor or mortgagor: s 85(1) – (4). Within 21 days after the credit provider’s notice of the estimated value of the goods is given, the debtor or mortgagor may nominate in writing a person who is prepared to purchase the goods from the credit provider at the estimated value or at any greater amount for which the credit provider has obtained a written offer to buy the goods. If the debtor or mortgagor has not requested the return of the goods, the credit provider must sell the goods as soon as reasonably practicable to the purchaser nominated by the debtor or mortgagor, or if no buyer is nominated, for the “best price reasonably obtainable”: s 85(5), (6). On sale of the goods, the credit provider is to credit the debtor or mortgagor with a payment equivalent to the proceeds of the sale less any amounts which the credit provider is entitled to deduct from those proceeds. On the sale of the goods, the amount required to pay out the contract becomes due. A credit provider that sells mortgaged goods is entitled to deduct from the proceeds of sale the following amounts: (a)

the amount currently secured by the mortgage in relation to the credit contract or guarantee;

(b)

the amount payable to discharge any prior mortgage to which the goods were subject;

(c)

the amounts payable to discharge any subsequent mortgages to which the goods were subject and of which the credit provider had notice;

(d)

the credit provider’s reasonable enforcement expenses; and

(e)

the expenses reasonably incurred by the credit provider in connection with the possession and sale of the mortgaged goods: s 85(7), (8).

The credit provider is to give the debtor or mortgagor a written notice stating the gross amount realised on the sale, the net proceeds of the sale, the amount credited to the debtor or mortgagor and the amount required to pay out the credit contract or the amount due under the guarantee: s 85(9). On application by the debtor or mortgagor, the court may order a credit provider to credit the debtor or mortgagor with a payment exceeding the net proceeds of sale if the court is not satisfied that the credit provider sold the goods as soon as reasonably practicable for the best price reasonably obtainable: s 86. It will be observed that these provisions parallel those discussed at [19.520] where the credit provider takes possession of and sells mortgaged goods on default by the debtor of their obligations under the credit contract. Accordingly, it is important to bear in mind that the mere fact that the debtor or guarantor has returned the goods to the credit provider does not necessarily end their financial obligations to the credit

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provider. If the price realised on the sale of the goods by the credit provider is not sufficient to cover the amount owing to the credit provider under the credit contract, the debtor or mortgagor will be liable for the deficiency.

Ending of credit contract by debtor [19.550] A debtor or guarantor is entitled to pay out the credit contract at any time: National Credit Code, s 82(1). The amount required to pay out a credit contract (other than a continuing credit contract) is the total of the following amounts: (a)

the amount of credit;

(b)

the interest charges and all other fees and charges payable by the debtor to the credit provider up to the date of termination;

(c)

reasonable enforcement expenses; and

(d)

early termination charges, if provided for in the contract;

less any payments made under the contract and any rebate of premium under a credit-related insurance contract financed under the credit contract under s 148: s 82(2). At the written request of a debtor or guarantor a credit provider must provide a written statement of the amount required to pay out a credit contract (other than a continuing credit contract) as at the date specified by the debtor or guarantor. If requested, the credit provider must also provide details of the items which make up that amount. The statement must also notify the debtor that the amount required to pay out the credit contract may change according to the date on which it is paid. A credit provider must provide such a statement within seven days of the request: s 83.

Enforcement of a guarantee [19.560] A credit provider must not enforce a judgment against a guarantor unless: (a)

the credit provider has obtained a judgment against the debtor for payment of the guaranteed liability and the judgment remains unsatisfied for 30 days after the credit provider has made a written demand for payment of the judgment debt;

(b)

the court has relieved the credit provider from the obligation to obtain a judgment against the debtor on the ground that recovery from the debtor is unlikely;

(c)

the credit provider has made reasonable attempts to locate the debtor but without success; or

(d)

the debtor is insolvent: National Credit Code, s 90.

Changes to credit contract on grounds of hardship [19.570] The National Credit Code contains provisions enabling relief to be given to a debtor suffering hardship: ss 72 – 75. A debtor, who considers that he or she is or will be unable to meet their obligations under a credit contract, may give the credit provider a “hardship notice” of the debtor’s inability to meet those obligations: s 72(1). If the debtor gives a hardship notice, the credit provider must give the debtor notice within 21 days after receiving the hardship notice requiring the debtor to provide specified information within 21 days: s 72(2).This specified information must be relevant to deciding whether the debtor is or will be unable to meet his or her obligations and how to change the credit contract if the debtor is or will be unable to meet those obligations: s 72(2).

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The credit provider does not need to agree to change the credit contract if the credit provider does not believe there is a reasonable cause (such as illness or unemployment) for the debtor’s inability to meet their obligations under the credit contract or if the credit provider reasonably believes the debtor would not be able to meet those obligations even if the credit contract were changed. If the credit provider does not agree, the credit provider must give notice to the debtor stating: the reasons why the credit provider and the debtor have not agreed to the change; the name of the approved external resolution scheme of which the credit provider is a member; and the debtor’s rights under the scheme: s 72(3). If the credit provider does not change the credit contract as a result of a hardship notice, the debtor may apply to the court to change the terms of the contract: s 74. The following case is an example of the application of the hardship provisions under the former Uniform Consumer Credit Code:

case [19.580] Shortly after entering into a home loan for $35,000, the applicants experienced difficulties in making their repayments. The reasons were principally because of the imprisonment of one of the applicants, the birth of a baby and health problems associated in part with the stress of trying to make the loan repayments. The applicants were successful before the New South Wales Fair Trading Tribunal in having their home loan varied on the grounds of hardship: McNally v Australia and New Zealand Banking Group [2001] ASC 155-047. For further examples, see Ward-Miller v Perpetual Trustees Australia Ltd [2001] ASC 155-046 and Permanent Custodians Ltd v Upston [2007] ASC 155-083; [2007] NSWSC 223.

Reopening unjust transactions [19.590] A court may reopen a transaction where it is satisfied that in the circumstances relating to the credit contract, mortgage or guarantee at the time it was entered into or changed, it was “unjust”: National Credit Code, s 76(1). “Unjust” includes “unconscionable, harsh or oppressive”: s 7(8).

Matters to be considered by the court [19.600] In deciding whether a term of a particular credit contract, mortgage or guarantee is unjust in the circumstances relating to it at the time it was entered into or changed, the court is to have regard to the public interest and to all the circumstances of the case. The court may also have regard to the following (National Credit Code, s 76(2)): (a)

the consequences of compliance, or non-compliance, with the provisions of the contract, mortgage or guarantee;

(b)

the relative bargaining power of the parties;

(c)

whether or not at the time the contract, mortgage or guarantee was entered into or changed, its provisions were the subject of negotiation;

(d)

whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage, guarantee or the change;

(e)

whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee;

(f)

whether or not the debtor or guarantor, or a person who represented them, was reasonably able to protect their interests because of their age or physical or mental condition;

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(g)

the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed;

(h)

whether or not, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor;

(i)

the extent to which the provisions of the contract, mortgage or guarantee, or change, and their legal and practical effect were accurately explained to the debtor, mortgagor or guarantor and whether or not they understood those provisions and their effect;

(j)

whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor;

(k)

whether the credit provider took measures to ensure that the debtor or guarantor understood the nature and implications of the transaction and, if so, the adequacy of those measures;

(l)

whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship;

(m)

whether the terms of the transaction or the conduct of the credit provider is justified in the light of the risks undertaken by the credit provider;

(n)

whether a mortgage had been created over a prohibited security, for example over goods that are essential household property (see s 50 at [19.430]);

(o)

the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the rate of interest payable in comparable cases;

(p)

any other relevant factor.

In determining whether a credit contract, mortgage or guarantee is unjust, the court is not to have regard to any injustice arising from circumstances that were not reasonably foreseeable when the contract, mortgage or guarantee was entered into or changed: s 76(4). Further, the section does not apply to a change in the annual percentage rate (that is, the interest rate) payable under a contract, or to an establishment fee or charge in respect of which an application may be made for the court to review unconscionable interest and other charges (under s 78, see [19.640]): s 76(6).

Court orders on reopening transactions [19.610] Where the court reopens a transaction it has wide powers to adjust the rights and obligations of the parties including: (a)

reopening an account already taken between the parties;

(b)

relieving the debtor and any guarantor from payment of any amount in excess of such amount as the court considers to be reasonably payable;

(c)

setting aside either wholly or partly, or revising or altering an agreement or mortgage given in connection with the transaction; and

(d)

ordering that the mortgagee takes such steps as are necessary to discharge the mortgage: National Credit Code, s 77.

An application for reopening a transaction under these provisions may not be brought more than two years after the credit contract is rescinded or discharged or otherwise comes to an end: s 80(1).

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The following cases are examples of the application of the corresponding reopening provisions under the former Uniform Consumer Credit Code:

case [19.620] The applicant entered into a loan contract with the respondent credit provider as a co-borrower with her son and mortgaged her sole asset, a car, as security for the loan. She was a pensioner who was born in Italy and whose understanding of spoken English was rudimentary. The applicant did not benefit at all from the money lent and eventually her son defaulted in repayment of the loan instalments. The respondent sought to take possession of the applicant’s motor vehicle. The applicant submitted that she would not have signed the loan documentation had she known she was to be a borrower under the contract and that her car was to be security for the loan. The Victoria Civil and Administrative Tribunal held that in the circumstances relating to the loan contract and mortgage at the time they were entered into, the contract and mortgage were unjust and the transaction should be reopened. The loan contract and mortgage were set aside and the respondent’s application to repossess the applicant’s car dismissed: Maisano v Car and Home Finance Pty Ltd [2006] ASC 155-078; [2005] VCAT 1755.

case [19.630] Two debtors had borrowed money to purchase a home. Illness had affected their income and out of necessity they entered into a series of loans, each loan refinancing the last and for a larger amount to meet interest and expenses. Finally, they took out yet another loan with a credit provider, mortgaging their home as security. However, they defaulted almost immediately and the credit provider sought an order for possession of the mortgaged home. In response, the debtors cross-claimed for relief under the Uniform Consumer Credit Code. The trial judge held that the Code applied to the loan contract. He further found the loan was unjust, essentially on the ground that the debtors’ credit history and means were such that the credit provider was aware, or would have been aware had it made the most perfunctory inquiries, that the debtors were not capable of servicing the loan even at the ordinary (non-default) rate of interest. It was apparent that the loan could only be repaid either by taking out a larger loan or selling their home. The trial judge relieved the debtors from the obligation to pay the credit provider’s fees associated with entry into the loan transaction and from payment of interest above 8.8 per cent per annum, the ordinary rate of interest under the contract (compared with the default rate of 13.8 per cent per annum). The debtors appealed contending that the trial judge should have relieved them from the obligation to pay any interest. However, the New South Wales Court of Appeal rejected the appeal since to relieve the debtors from payment of interest would do more than restore them to their previous position – it would improve their position: Permanent Mortgages Pty Ltd v Cook [2006] ASC 155-082; [2006] NSWSC 1104; Cook v Permanent Mortgages Pty Ltd [2007] ASC 155-085; [2007] NSWCA 219.

Court may review unconscionable interest and other charges [19.640] On the application of a debtor or guarantor, the court may annul or reduce the following fees and charges where it is satisfied that they are unconscionable: (a)

a change in the annual percentage rate under a credit contract;

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(b)

an establishment fee or charge;

(c)

a fee or charge payable on early termination of a credit contract; or

(d)

a fee or charge for a prepayment of an amount under a credit contract: National Credit Code, s 78(1).

The section goes on to set down the factors to be taken into consideration in determining whether such fees and charges are unconscionable: s 78(2) – (4). An application may not be brought more than two years after the change takes effect, or charge is made under the credit contract, or the credit contract is rescinded or discharged or otherwise comes to an end: s 80(2).

Applications by ASIC [19.650] ASIC may make an application under the hardship, unjust transactions and unconscionable provisions discussed at [19.570]–[19.640] where it considers that it is in the public interest to do so. The application may be in respect of one or more credit contracts and to all or any class of credit contracts entered into by a credit provider during a specified period: National Credit Code, s 79.

Related sale contracts [19.660] So far we have been primarily concerned with the credit aspect of a consumer credit transaction. Frequently such credit is provided for the acquisition of goods or services. This is necessarily so in the case of credit sale contracts but loan contracts are also often entered into in connection with the purchase of goods. For example, where a consumer negotiates for the purchase of a motor vehicle from a dealer and tells the dealer that they require “terms”, the dealer is likely to get the consumer to sign an offer to enter into a loan contract addressed to a finance company. On acceptance of the offer by the finance company, a loan contract will come into existence between the finance company and the consumer, the finance company paying out the dealer with the amount financed under the loan contract with the consumer. In such a case, there will also be a contract of sale of the vehicle between the dealer as seller and the consumer as buyer. Implied in the contract of sale are the conditions as to title, correspondence with description, merchantable quality and fitness for purpose under the Sale of Goods Acts: see Chapter 14. The statutory guarantees to similar effect under the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)) will also apply to the contract: see Chapter 17. The National Credit Code contains provisions concerning the rights and obligations of a consumer (the debtor) and the finance company (the credit provider) under a loan contract entered into in such circumstances when problems arise in respect of the goods or services purchased from the supplier with the loan. Before dealing with these provisions, however, it is necessary to understand certain other definitions in the Code.

Meaning of “tied loan contract” [19.670] Where a credit provider enters into a credit contract (other than a continuing credit contract) with a debtor who is a buyer of goods and services from a supplier, and the credit provider knows, or ought reasonably to know, that the debtor has entered into the credit contract wholly or partly for the purpose of paying for the goods or services, and at the time the credit contract is entered into the credit provider is a linked credit provider of that supplier, the loan is regarded as a tied loan contract for the purposes of the National Credit Code: s 127(3). Accordingly, it will be seen that an essential requirement for there to be a tied loan contract is that the credit provider be a “linked credit provider”: see [19.680].

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Meaning of “linked credit provider” [19.680] A linked credit provider is, in essence, a credit provider who has a business relationship with the supplier (that is, the dealer) of the goods or services arising from one of the circumstances listed below. That is, the Code provides that a “linked credit provider” of a supplier means a credit provider: (a)

with whom the supplier has a contract, arrangement or understanding relating to the supply to the supplier of goods in which the supplier deals, relating to the business carried on by the supplier of supplying goods or services or relating to the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services; or

(b)

to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit; or

(c)

whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or

(d)

with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at the premises of the supplier: National Credit Code, s 127(1).

For example, where the prospective purchaser of a motor vehicle from a dealer tells the dealer that they require credit or “terms”, whereupon the dealer gets the prospective purchaser to complete the credit application form addressed to a particular finance company, which the dealer has on their premises by arrangement with the finance company, the latter will be the linked credit provider of the dealer.

Meaning of “tied continuing credit contract” [19.690] A tied continuing credit contract is defined as a continuing credit contract under which a credit provider provides credit in respect of the payment by a debtor for goods or services supplied by a supplier in relation to whom the credit provider is a linked credit provider: National Credit Code, s 127(2). For example, where a debtor uses a credit card obtained from a credit provider, and the latter is a linked credit provider of the supplier from whom the debtor purchases the goods with the credit card, the credit contract is a tied continuing credit contract.

Liability of credit provider for supplier's misrepresentation [19.700] The National Credit Code makes a credit provider liable for representations made by the supplier to the debtor in relation to a tied loan contract or tied continuing contract to the same extent as if the representations had been made by the credit provider. More particularly, it is provided that if there is a tied loan contract or a tied continuing credit contract in respect of a sale contract, any representation, warranty or statement made (whether orally or in writing) by the supplier, or any person acting on behalf of the supplier, to the debtor in relation to the tied loan contract or tied continuing credit contract gives the debtor the same rights against the credit provider as the debtor would have had if it had been made by the credit provider. The credit provider is entitled to be indemnified by the supplier against any damage suffered by the credit provider through the operation of the provision: s 128.

Liability of credit provider in relation to goods [19.710] The National Credit Code imposes on a linked credit provider a degree of responsibility, together with the supplier, for example for misrepresentations made by the supplier in respect of the goods, or for the defective condition of the goods supplied by the supplier to the debtor. More particularly, a linked credit provider and the supplier are jointly and severally liable in damages for the amount of any loss

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or damage that a debtor may suffer by reason of misrepresentation, breach of contract or failure of consideration in relation to the sale contract: s 129(1). The intention of the section is to make the linked credit provider jointly and severally liable with the supplier for damages for the loss the debtor may suffer arising from, for example the defective condition of the goods supplied under the sale contract between the supplier and the debtor.

Linked credit provider's defences [19.720] A linked credit provider has a number of significant defences available to it in respect of its joint and several liability with the supplier for damages for the loss suffered by the debtor. First, a linked credit provider is not liable to a debtor if the credit provider establishes that the credit provided by the credit provider to the debtor was the result of an approach made to the credit provider by the debtor that was not induced by the supplier: National Credit Code, s 129(2)(a). Secondly, and of particular importance, the linked credit provider will not be liable where a tied loan contract was entered in respect of the contract of sale if: (a)

before becoming a linked credit provider of the supplier it made due inquiry and was satisfied that the supplier’s reputation in respect of its financial standing and business conduct was good; and

(b)

after becoming a linked credit provider, it had no reason to suspect that the debtor might suffer loss or damage as a result of misrepresentation, breach of contract or failure of consideration if the debtor entered into the contract; and

(c)

it had no reason to suspect that the supplier may be insolvent: s 129(2)(b).

Thirdly, in the case of a tied continuing credit contract being entered into in respect of the contract of sale, it is a defence for the linked credit provider to establish that having regard to the nature and volume of its business and other relevant matters, and before becoming aware of the sale (or proposals for the sale), it had no cause to suspect that a person entering into such a contract with the supplier might be entitled to claim damages against the supplier for misrepresentation, breach of contract or failure of consideration: s 129(2)(c). Where a linked credit provider is unable to make out any of these defences then, as indicated at [19.710], the linked credit provider is liable jointly and severally with the supplier for damages recoverable by the debtor from the supplier. However, the debtor cannot sue the credit provider alone but must bring an action against the supplier and credit provider jointly, unless: (a)

the supplier is insolvent, cannot be located after reasonable inquiry, or has died, or in the case of a company has been dissolved; or

(b)

in the opinion of the court it is not reasonably likely that judgment against the supplier would be satisfied: s 130(2), (3).

Limit of credit provider's liability [19.730] A further important limitation under these provisions is that the liability of a linked credit provider to a debtor for damages is not to exceed the sum of: (a)

the amount of credit under the tied loan contract or tied continuing credit contract;

(b)

the amount of interest (if any) awarded against the linked credit provider by the court; and

(c)

the amount of costs (if any) awarded by the court against the linked credit provider or supplier or both: National Credit Code, s 130(4).

Where judgment is entered against the linked credit provider and the supplier, the judgment cannot be enforced against the linked credit provider, unless a written demand on the supplier has remained

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unsatisfied for 30 days: s 130(5), (6). Unless otherwise agreed, the supplier is liable to the linked credit provider for the loss suffered by the latter by virtue of these provisions: s 131.

Termination of related transactions Termination of sale contract which is conditional on obtaining credit [19.740] Where a purchaser of goods or services makes it known to a supplier that credit is required in order to pay for the goods or services and the purchaser, after making reasonable endeavours to do so, fails to obtain credit on reasonable terms, the purchaser is entitled to terminate the sale contract: National Credit Code, s 131. A sale contract may be terminated even though goods or services have already been supplied under the contract but, if practicable, the goods must be returned to the supplier. On termination the supplier is entitled to: (a)

reasonable compensation for damage to, or deterioration of, goods supplied under the sale contract (other than fair wear and tear) up to the date of their return to the supplier or, if they are not returned, the cash price of the goods; and

(b)

the reasonable value of the services supplied under the sale contract up to the date of termination.

The purchaser is entitled (subject to the supplier’s entitlement referred to above) to the return of money paid under the sale contract: s 134.

Termination of tied credit contract if sale contract terminated [19.750] As discussed at [19.660], the credit for the acquisition of goods or services may not be provided by the actual supplier of the goods or services but by a third party, for example a finance company, which may enter into a credit contract with the debtor to enable the debtor to purchase the goods from the supplier. In certain circumstances, where the debtor is able to rescind the contract of sale with the supplier of the goods or services (for example because of the defective condition of the goods), this will affect the debtor’s legal position under the associated credit contract between the debtor and the credit provider. If a sale contract is rescinded or discharged either under the National Credit Code or any other law (for example for breach of the statutory requirements as to quality or fitness in the case of defective goods, or for misrepresentation), and there is a tied loan contract or a tied continuing credit contract 24 made with the purchaser by a linked credit provider of the supplier under the sale contract, the debtor is entitled: (a)

in the case of a tied loan contract – to terminate the credit contract; or

(b)

in the case of a tied continuing credit contract – to be credited with the amount of credit in relation to the sale contract and the accrued interest charges attributable to that amount: s 135(1).

case [19.760] Where a consumer entered into a sale contract with one company for the supply of certain educational seminars and materials and entered into a tied loan contract with another company to borrow money to pay for them, then on rescission of the sale contract for misrepresentation, the consumer was entitled to terminate the credit contract: Agussol v Australian Finance Direct Limited [2004] ASC 155-066; [2004] VCAT 1560. [19.770] Where a tied loan contract is terminated, any related guarantee or mortgage is terminated to the extent that it secures obligations under the contract or any related guarantee: National Credit Code, 24

For the meaning of tied loan contract and tied continuing credit contract, see [19.670] and [19.690].

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s 135(2). Further, the credit provider is entitled to recover from the debtor any part of the amount of credit that has not been paid to the supplier and the debtor is entitled to recover from the credit provider any interest charges or other amounts paid by the debtor under the credit contract: s 135(3). The credit provider is also entitled to recover from the supplier the amount of any loss suffered by the credit provider: s 135(5). A supplier who knows that a sale contract has been rescinded must immediately notify the credit provider under any tied loan contract or tied continuing credit contract of the termination: s 135(6). These provisions do not apply if the credit was provided as a result of an approach by the debtor that was not induced by the supplier or credit provider: s 135(7). Where a debtor is entitled to terminate a sale contract or credit contract, he or she must do so by notice in writing: s 137. The court, on the application of any interested party, may make orders declaring whether a purported termination of a contract under these provisions is valid and for the adjustment of rights following termination: s 138.

Related insurance contracts [19.780] The National Credit Code (Pt 8, ss 142 – 149) contains provisions concerning insurance contracts connected with credit contracts. A credit provider or a supplier must not require a debtor or guarantor to take out insurance, or to pay the cost of insurance taken out or arranged by the credit provider or supplier, unless the insurance is compulsory insurance (that is, compulsory third party personal injury insurance), mortgage indemnity insurance, insurance over mortgaged property or insurance approved by the regulations. Further, where in connection with a credit contract or a sale contract in relation to which there is a tied loan contract or a tied continuing credit contract, a credit provider or a supplier must not: (a)

require a debtor or guarantor to take out insurance with a particular insurer (unless the insurer is the only insurer providing insurance of the relevant kind); or

(b)

make any unreasonable requirement as to the terms on which the debtor or guarantor is to take out insurance.

Contravention of these provisions entitles the insured to recover the premium paid under the contract from the credit provider or supplier: s 143. The Code provides that the total commission paid by an insurer in connection with consumer credit insurance to the credit provider, supplier and the agent of the credit provider or supplier, must not exceed 20 per cent of the premium: contravention entitles the insured to recover the amount of the commission: s 145. Where the premium under a “credit-related insurance contract” (that is, insurance over mortgaged property or consumer credit insurance) is financed under the credit contract, the insurer must ensure that a copy of the policy of insurance is given to the debtor within 14 days after acceptance of the insurance proposal by the insurer: s 146. On termination of a credit contract, any relevant credit-related insurance contract financed under the credit contract for consumer credit insurance is also terminated and the credit provider is required to pay the debtor a proportionate rebate of premium paid under the insurance contract: s 148.

Advertising and misleading conduct [19.860] Advertisements relating to the availability of credit must not contain a statement of the kind prohibited by the regulations and, conversely, must contain any statement required by the regulations. The advertisement need not contain an annual percentage rate, but must do so if the advertisement states the amount of any repayment: National Credit Code, s 150.

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Credit providers must include the comparison rate in an advertisement for consumer credit if it contains an annual percentage interest rate: s 160. The comparison rate reflects the total cost of credit, including all interest, fees and charges payable: s 157(3). It is an offence to publish a credit advertisement which does not include the comparison rate where required, punishable by a maximum fine of 100 penalty units ($18,000): s 150(1). The regulations prescribe the method for calculating a comparison rate: National Consumer Credit Protection Regulations 2010 (Cth), reg 100. The advertisement must also state the name of the consumer credit product, the amount of credit and the term to which each comparison rate applies: National Credit Code, s 162. The comparison rate must not be less prominent than any annual percentage rate or the amount of any repayment stated in the advertisement: s 164(2). In television and Internet advertisements, if the annual percentage rate is spoken but does not appear on screen, the comparison rate must also be spoken. If the annual percentage rate appears on screen, the comparison rate must also appear on screen: s 164(3). The comparison rate requirements do not apply to advertisements for continuing credit contracts such as credit cards: s 158. In addition, a person must not, in the course of engaging in a credit activity, give information where that person knows, or is reckless as to whether, the information is false in a material particular or materially misleading: National Consumer Credit Protection Act 2009 (Cth), s 160D. A breach of that prohibition is punishable by a maximum fine of 2000 penalty units ($360,000).

Other provisions of the Code “Contracting-out” prohibited [19.870] A provision of a contract which seeks to avoid or modify the effect of the National Credit Code is void: s 191(1). A credit provider that is a party to such a contract is guilty of an offence which carries a maximum penalty of 100 penalty units ($18,000): s 191(3). An indemnity for a liability under the Code is not void and cannot be declared void on the grounds of public policy: s 192.

Contravention does not make the credit contract illegal [19.880] A credit contract, mortgage or guarantee is not illegal, void or unenforceable because of a contravention of the National Credit Code unless the Code contains an express provision to that effect: s 193.

Comparison table [19.890] The following table is a comparison between the provisions of the National Credit Code (NCC) and the former Uniform Consumer Credit Code (UCCC): NCC s1 s2 s3 s4 s5 s6

UCCC s1 s3 s4 s5 s6 s7

NCC s 73 s 74 s 75 s 76 s 77 s 78

UCCC s 67 s 68 s 69 s 70 s 71 s 72

NCC s 147 s 148 s 149 s 150 s 151 s 152

UCCC s 137 s 138 s 139 s 140 s 141 s 142

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NCC s7 s8 s9 s 10 s 11 s 12 s 13 s 14 s 15 s 16 s 17 s 18 s 19 s 20 s 21 s 22 s 23 s 24 s 25 s 26 s 26A s 27 s 28 s 29 s 30 s 30A s 31 s 32 s 33 s 34 s 35 s 36 s 37 s 38 s 39 s 40 s 41 s 42 s 43 s 44 s 45 s 46 s 47 s 48 s 49 s 50

UCCC s8 s9 s 10 s 10A s 10B s 10C s 11 s 12 s 13 s 14 s 15 s 16 s 17 s 18 s 19 s 20 s 21 s 22 s 23 s 24 – s 25 s 26 s 27 s 28 – s 29 s 30 s 31 s 32 s 33 s 34 s 35 s 36 s 36A s 37 Note s 38 s 39 s 40 s 41 s 42 s 43 s 44 s 45 s 46

NCC s 79 s 80 s 81 s 82 s 83 s 84 s 85 s 86 s 87 s 88 s 89 s 90 s 91 s 92 s 93 s 94 s 95 s 96 s 97 s 98 s 99 s 100 s 101 s 102 s 103 s 104 s 105 s 106 s 107 s 108 s 109 s 110 s 111 s 112 s 113 s 114 s 115 s 116 s 117 s 118 s 119 s 120 s 121 s 122 s 123 s 124

UCCC – s 73 s 74 s 75 s 76 s 77 s 78 s 79 – s 80 s 81 s 82 s 83 s 84 s 85 s 86 s 87 s 88 s 89 s 90 s 91 s 92 s 93 s 94 s 95 s 96 s 97 s 98 s 99 – – – s 100 s 101 s 102 s 103 s 104 s 105 s 106 s 107 s 110 s 111 s 112 s 113 s 113A s 114

NCC s 153 s 154 s 155 s 156 s 157 s 158 s 159 s 160 s 161 s 162 s 163 s 164 s 165 s 166 s 167 s 168 s 169 s 170 s 171 s 172 s 173 s 174 s 175 s 176 s 177 s 178 s 179 s 180 s 181 s 182 s 183 s 184 s 185 s 186 s 187 s 188 s 189 s 190 s 191 s 192 s 193 s 194 s 195 s 196 s 197 s 198

UCCC s 143 s 144 s 145 s 146 s 146A s 146B s 146C s 146E s 146F s 146G s 146H s 146I s 146J s 146R s 146S s 146T s 147 s 148 s 149 s 150 s 151 s 152 s 153 s 154 s 155 s 156 s 157 s 158 s 159 s 160 s 161 s 162 s 163 s 164 s 164A s 166 s 167 s 168 s 169 s 169A s 170 s 171 s 172 s 173 s 174 s 175

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NCC s 51 s 52 s 53 s 54 s 55 s 56 s 57 s 58 s 59 s 60 s 61 s 62 s 63 s 64 s 65 s 66 s 67 s 68 s 69 s 70 s 71 s 72

UCCC s 47 s 48 s 49 Note s 50 s 51 s 52 s 53 s 54 s 55 s 56 s 57 s 58 s 59 s 60 s 61 s 62 s 63 s 63A s 64 s 65 s 66

NCC s 125 s 126 s 127 s 128 s 129 s 130 s 131 s 132 s 133 s 134 s 135 s 136 s 137 s 138 s 139 s 140 s 141 s 142 s 143 s 144 s 145 s 146

UCCC s 115 s 116 s 117 s 118 s 119 s 120 s 121 s 122 s 123 s 124 s 125 s 126 s 127 s 128 s 129 s 130 s 131 s 132 s 133 s 134 s 135 s 136

NCC s 199 s 200 s 201 s 202 s 203 s 203A s 203B s 204 s 205 s 206 s 207 s 208 s 209 s 210 s 211 s 212 s 213 s 214 s 215 s 216 s 217 s 218

UCCC s 176 s 182A s 183 s 184 – – – Sch 1 Sch 2, s 2 Sch 2, s 4 Sch 2, s 5 – Sch 2, s 13 Sch 2, s 14 Sch 2, s 16 Sch 2, s 20 Sch 2, s 21 Sch 2, s 23 Sch 2, s 24 Sch 2, s 25 Sch 2, s 29 Sch 2, s 30

The new personal property securities legislation Introduction [19.900] The Personal Property Securities Act 2009 (Cth) effects fundamental changes to the law relating to the taking of security over personal property to secure the repayment of a loan or other contractual obligation. It has replaced the more than 70 different personal property securities statutes in the Commonwealth, States and Territories that dealt with the registration of different types of securities including motor vehicle securities, bills of sale, ship mortgages, company charges, crop liens, stock mortgages and so on. That system was cumbersome and complex and gave rise to inconsistencies in treatment between the different jurisdictions. The principal objectives of the new legislation are to replace the myriad of existing Commonwealth, State and Territory laws and registers with a single national law governing security interests over personal property together with a single national system of registration of such interests in the Personal Property Securities Register. 25 The Personal Property Securities Act 2009 (Cth) was assented to on 14 December 2009 and its main provisions came into operation on 30 January 2012. 25

See N Mirzai, “The Consumer and the Personal Property Securities Act 2009: Does the Regime Protect Consumers?” (2013) 87 Australian Law Journal 59; A Duggan, “A PPSA Registration Primer” (2011) 35 Melbourne University Law Review 865; I Davidson, “Overview of the New Personal Property Securities Law” (2011) 35 Australian Bar Review 93.

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The Personal Property Securities Act 2009 (Cth) is largely modelled on the Canadian (in particular, Saskatchewan) and New Zealand Personal Property Securities Acts. All of these Acts have Art 9 of the United States Uniform Commercial Code as their common basis.

Background to the legislation [19.910] The Australian Law Reform Commission had recommended in its 1993 Report the establishment of a single regime to apply in all jurisdictions for the regulation of priorities between personal property security interests. 26 However, notwithstanding the release of a discussion paper and consultations no legislation eventuated. Some years later the issue was taken up again by the Standing Committee of Attorneys-General which prepared an options paper to gauge the level of support for personal property securities reform which was issued in April 2006. Three further detailed discussion papers were released for comment in November 2006, and in March and April 2007. Subsequently, the Council of Australian Governments (COAG) meeting of 13 April 2007 gave in-principle agreement to the establishment of a national system for the registration of personal property securities. A year later, on 16 May 2008, the Commonwealth Attorney-General circulated the Consultation Draft Personal Properties Securities Bill 2008. This was followed by the Commonwealth and State governments signing the Personal Properties Law Agreement on 2 October 2008 to “establish a national system for the registration of personal property securities to be implemented by Commonwealth legislation, supported by a State text-based referral of certain matters to the Commonwealth Parliament, in accordance with subsection 51(xxxvii) of the Constitution.” The States and Territories have subsequently enacted legislation referring their powers in this area to the Commonwealth, in accordance with the Agreement. 27 On 18 March 2015, a report — authored by Mr Bruce Whittaker — relating to the Attorney-General’s review of the Personal Property Securities Act 2009 (Cth) was tabled before Parliament. 28 This report recommended a number of key improvements to the Act, in particular: (1) the deletion of all references in the Act to “chattel paper”; (2) the simplification of the definition of “PPS Lease”; and (3) the simplification of the relationship of the Act with Torrens system legislation. The government is yet to respond to the recommendations contained in this report.

Overview of the legislation [19.920] The Personal Property Securities Act 2009 (Cth) provides for the registration of security interests in personal property. This raises the questions of what constitutes a “security interest” in personal property for the purposes of the Act. Both “security interest” and “personal property” are very broadly defined in the Personal Property Securities Act 2009 (Cth). The Act further sets down the requirements to be satisfied for a security interest to be enforceable against: 26 27

28

The Law Reform Commission, Personal Property Securities (Report No 64, 1993). Personal Property Securities (Commonwealth Powers) Act 2009 (NSW); Personal Property Securities (Commonwealth Powers) Act 2009 (Vic); Personal Property Securities (Commonwealth Powers) Act 2009 (Qld); Personal Property Securities (Commonwealth Powers) Act 2000 (SA). B Whittaker, Review of the Personal Property Securities Act 2009: Final Report (Commonwealth of Australia, 2015). This report is available at: www.ag.gov.au/consultations/pages/StatutoryreviewofthePersonalPropertySecuritiesAct2009.aspx.

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(a)

the grantor of the security interest; and

(b)

against third parties who, for example, may have purchased the goods, the subject of the security interest from the grantor unaware of the existence of the security interest.

An important issue which arises is the position where the grantor of the security interest, for example a debtor who has provided the security for a loan, subsequently gives security over the same personal property to another lender. This raises the question of which of the lenders has priority in respect of the security interest under the priority rules set down by the Act. In certain circumstances, a third party may acquire the property free from the security interest which had earlier been given by the grantor, for example a debtor in return for a loan. The relevant provisions of the Act detailing these circumstances are considered. Following the discussion of the application of the Act to these basic issues, consideration will be given to the enforcement of security interests and the Personal Property Securities Register.

The main concepts of the Act The meaning of security interest [19.930] The Personal Property Securities Act 2009 (Cth) defines a “security interest” as an interest in personal property provided for by a transaction that in substance secures a payment or performance of an obligation: s 12(1). This is a functional approach which focuses on the substance of the transaction rather than its particular form and regardless of who has title to the property. 29 Examples of security interests included in the definition are: a chattel mortgage, conditional sale agreement (including an agreement to sell subject to retention of title), hire-purchase agreement, lease of goods, pledge, trust receipt, consignment, fixed charge, floating charge, assignment or transfer of title that in substance secures payment or performance of an obligation: s 12(2). In addition, a “security interest” is deemed by the Personal Property Securities Act 2009 (Cth) to extend to three classes of transaction: (a)

transfers of accounts and chattel paper;

(b)

commercial consignments of goods; and

(c)

certain leases and bailments of goods.

This is regardless of whether these deemed security interests secure in substance the payment or performance of obligations: s 12(3). Personal property means any kind of property (tangible and intangible) other than real property. It is also defined to include licences: s 9. Examples of personal property include motor vehicles, household goods, business inventory, intellectual property and company shares. The Personal Property Securities Act 2009 (Cth) does not apply to certain specified security interests, regardless of these interests securing in substance the payment or performance of obligations. An example of an excluded security interest is the class of liens that arise by operation of law (see [22.270]): s 8(1)(b). Also, security interests in fixtures are excluded, even though fixtures fall within the Act’s definition of personal property: s 8(1)(j). The Act applies to security interests given by corporations, partnerships, other legal entities and individuals. 29

See further J Stumbles, “The PPSA: The Extended Reach of the Definition of the PPSA Security Interest” (2011) 34 University of New South Wales Law Journal 448.

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Enforceability, attachment and perfection of security interests Attachment [19.940] Personal property is known as collateral if it is the subject of a security interest. A security interest is enforceable against a grantor in respect of particular collateral (for example in respect of the personal property provided as security for a loan) when it attaches to the collateral: Personal Property Securities Act 2009 (Cth), s 19(1). 30 This raises the question of what requirements must be satisfied for a security interest to attach to collateral. Two requirements must be met for attachment to occur: (a)

the grantor has rights in the collateral, or has the power to transfer rights in the collateral to the secured party; 31 and

(b)

either value is given for the security interest or the grantor does an act by which the security interest arises: s 19(2).

Enforceability against third parties [19.950] A security interest will generally be enforceable against a third party in respect of particular collateral only if the security interest is attached to the collateral and one of the following applies: (a)

the secured party has possession of the collateral;

(b)

the secured party has perfected the security interest by control; or

(c)

a security agreement is evidenced in writing that is: (i)

signed by the grantor; or

(ii)

adopted or accepted by the grantor by an act or omission that reasonably appears to be done with the intention of adopting or accepting the writing; and contains:

(iii)

a description of the particular collateral; or

(iv)

a statement that a security interest is taken in all of the grantor’s present and after-acquired property (or specifying certain excluded property): Personal Property Securities Act 2009 (Cth), s 20.

Perfection [19.960] Broadly, a security interest is perfected when the secured party has done all they can do to protect their security interest from competing security interests. A security interest will generally be perfected in relation to collateral if it has attached to the collateral and is enforceable against a third party and: (a)

the security interest is registered in the Personal Property Securities Register; or

(b)

the secured party has possession of the collateral (other than as a result of seizure or repossession); or

30

31

The attachment (and perfection) of a security interest continues in respect of identifiable or traceable personal property (proceeds) derived from dealing with the collateral: ss 31–33. See further M Broderick, “Tracing under the PPSA” (2014) 32 Company and Securities Law Journal 379. See further B Whittaker, “The Scope of ‘Rights in the Collateral’ in Section 192 of the PPSA – Can Bare Possession support Attachment of a Security Interest?” (2011) 34 University of New South Wales Law Journal 524; C Clarke, “The Threshold Requirements of the PPSA: Does s 12 Require an Interest in rem in Order to Create a Security Interest?” (2016) 27 Journal of Banking and Finance Law and Practice 6.

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(c)

for certain kinds of collateral such as bank accounts and investment instruments (for example, shares or debentures), the secured party has control of the collateral: Personal Property Securities Act 2009 (Cth), s 21.

An unperfected security interest will vest in the grantor upon the grantor’s winding-up or bankruptcy: Personal Property Securities Act 2009 (Cth), s 267. This does not apply to certain deemed security interests (transfers of accounts and chattel paper, and commercial consignments of goods): Personal Property Securities Act 2009 (Cth), s 268. 32

Priority between security interests [19.970] The Personal Property Securities Act 2009 (Cth) contains provisions to deal with the priority between competing security interests in collateral. Priority rules are relevant when the same personal property is subject to two or more security interests. If the debtor defaults, the rules determine the order of priority in which collateral is to be applied to meet the claims of the various secured parties.

The general priority rules [19.980] The general priority rules are as follows: 1.

A perfected security interest has priority over an unperfected security interest. A perfected security interest in collateral has priority over an unperfected interest in the same collateral: Personal Property Securities Act 2009 (Cth), s 55(3). In other words, a security interest in personal property which has been registered in the Personal Property Securities Register will take priority over an interest in the property which has not been registered (or perfected by possession or control). For example, a borrower grants a security interest over its assets to a first financier and later grants a security interest over the same assets to a second financier. The second financier registers a security interest in the assets whereas the first financier does not register or otherwise perfect its security interest. The second financier’s security interest will have priority over the first financier’s security interest notwithstanding that the second financier’s security interest was given later.

2.

Priority between unperfected security interests. Priority between unperfected security interests in the same collateral is determined by the order of attachment of the security interests so that the first unperfected security interest to be attached takes priority over later ones: s 55(2).

3.

Priority between perfected security interests. Priority between two or more security interests in collateral that are perfected is determined by the time perfection occurred: s 55(4), (5). For example, if two security interests have been perfected by registration the first-in-time will take priority. However, if the secured party takes possession of the collateral before the security interest of another person has been registered, the secured party who has taken possession will take priority. The Personal Property Securities Act 2009 (Cth) confers “super-priority” on security interests perfected by control. A security interest perfected by control has priority over all other security interests in the same collateral perfected by registration or possession: s 57(1).

Priority of purchase money security interests [19.990] A security interest is a purchase money security interest (PMSI) when the secured party has provided the finance required by the grantor to acquire the collateral. Examples include:  a security interest that secures an obligation to the seller to pay the purchase price, for example property sold on a retention of title basis; 32

See further M Broderick and D Morrison, “Vesting of Personal Property in Insolvency under the PPSA” (2014) 22 Insolvency Law Journal 20.

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 a security interest that secures an obligation to a secured party in relation to new value the secured party to allow the grantor to acquire the collateral;

33

provided by

 certain leases and bailments of goods; and  commercial consignments of goods. The holder of a purchase money security interest has a “super-priority” in respect of the collateral because the security interest has a higher priority than another security interest in the same collateral granted by the same grantor that is perfected by either possession or registration: Personal Property Securities Act 2009 (Cth), s 62.

Other special priority rules [19.1000] The Personal Property Securities Act 2009 (Cth) contains specific provisions, including rules dealing with priority of security interests in relation to:  certain agricultural interests (ss 84 – 86);  security interests in goods that become an accession 34 to other goods (ss 88 – 97);  security interests in personal property that has been manufactured, processed, assembled or commingled 35 with other property (ss 99 – 103); and  intellectual property (that is, patents, trade marks, designs, copyright, circuit layouts and plant breeders’ rights) and intellectual property licences: ss 105 – 106.

Acquiring personal property free of security interests [19.1010] The Act provides for situations in which personal property may be acquired by a third party free of a security interest. The circumstances in which this may occur include the following: 1.

Unperfected security interests. A buyer or lessee of personal property for value takes the personal property free of an unperfected security interest in the property (for example, where the security interest has not been registered): Personal Property Securities Act 2009 (Cth), s 43.

2.

Serial number incorrect. A buyer or lessee of personal property takes the property free of a security interest in the property if:

3.

(a)

the regulations provide that personal property of that kind may or must be described by serial number in a registration; and

(b)

searching the register, immediately before the time of sale or lease, by reference to the correct serial number of the property, would not disclose the registration of the security interest: s 44.

Motor vehicles. A buyer or lessee for value of a motor vehicle takes the motor vehicle free of a security interest in the vehicle if: (a)

the regulations provide that motor vehicles of that kind may or must be described by serial number (see the definition of “motor vehicle” in Personal Property Securities Regulations 2010 (Cth), reg 1.17). This definition includes all motor vehicles that have been assigned

33

“New value” in this context means a new debt and does not extend to forgiving an antecedent debt or liability: Personal Property Securities Act 2009 (Cth), s 10.

34

“Accession to other goods means goods that are installed in, or affixed to, the other goods, unless both the accession and the other goods are required or permitted by the regulations to be described by serial number”: Personal Property Securities Act 2009 (Cth), s 10.

35

“Commingled: goods that are commingled include goods that are mixed with goods of the same kind”: Personal Property Securities Act 2009 (Cth), s 10.

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vehicle identification numbers under the Motor Vehicle Standards Act 1989 (Cth) or have chassis numbers or have been assigned a manufacturer’s number): Personal Property Securities Regulations 2010 (Cth), reg 2.1; and (b)

(i) searching the register between the start of the previous day and the time of the sale or lease would not disclose the registration of the security interest; or (ii) the seller or lessor is in a class of persons prescribed by the regulations (that is, holds a licence to deal or trade in motor vehicles: Personal Property Securities Regulations 2010 (Cth), reg 2.2): s 45(1), (3). This does not apply if the buyer or lessee has actual or constructive knowledge of the security interest or that the sale or lease constitutes a breach of the security agreement: Personal Property Securities Act 2009 (Cth), s 45(2), (4). In other words, the bona fide purchaser of a motor vehicle from a car dealer will normally acquire the vehicle free from the security interest created over the vehicle.

4.

Ordinary course of business. A buyer or lessee of personal property takes the personal property free of a security interest given by the seller or lessor if the personal property was sold or leased in the ordinary course of the seller’s or lessor’s business of selling or leasing personal property of that kind. This does not apply if the buyer or lessee has actual knowledge that the sale or lease constitutes a breach of the security agreement: s 46.

5.

Personal, domestic or household property. A buyer or lessee of personal property for value that the buyer or lessee intends to use predominantly for personal, domestic or household purposes takes the property free of a security interest if the market value given for the property is not more than $5,000 or such greater amount (if any) prescribed by the regulations. This does not apply if the personal property is of a kind that the regulations provide may or must by described by serial number in a registration. The provision also does not apply if the buyer or lessee has actual or constructive knowledge that the sale or lease constitutes a breach of the security agreement: s 47.

6.

Investment interest in the ordinary course of trading. A person who buys an investment instrument (for example, shares or debentures) in the ordinary course of trading on a prescribed financial market takes the investment instrument free of a security interest: s 49.

Rights of secured party [19.1020] The Personal Property Securities Act 2009 (Cth) contains provision concerning the rights of a secured party where a transferee takes personal property from a transferor (who gave the security) free from the security interest in the property. The rights of the secured party are subrogated to the rights (if any) of the transferor including the transferor’s right to receive any part of the purchase price for the property which has not been paid. However, payment of the purchase price by the transferee before receiving notice of the secured party’s right discharges the obligation of the transferee to the extent of the payment: s 53.

Enforcement of security interests [19.1030] The Personal Property Securities Act 2009 (Cth) includes detailed enforcement provisions dealing with the seizure, disposal and retention of collateral in the event that the debtor defaults on the secured obligation: Pt 4, ss 108 – 144. Many of the provisions can be excluded by agreement between the parties when the collateral is not used predominantly for personal, domestic or household purposes: s 115.

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All rights, duties and obligations which arise in relation to the enforcement provisions must be exercised honestly and in a “commercially reasonable manner”: s 111. 36 The provisions do not apply to property in the hands of receivers or receivers and managers: s 116.

Relationship with the National Credit Code [19.1040] Where collateral is used for consumer purposes and the National Credit Code applies to the security interest, the Personal Property Securities Act 2009 (Cth) and the National Credit Code will operate concurrently and a secured party will have to comply with both the requirements in the Personal Property Securities Act 2009 and the National Credit Code: Personal Property Securities Act 2009 (Cth), s 119. Where both the National Credit Code and the Personal Property Securities Act 2009 contain similar obligations relating to enforcement, a secured party who has complied with the relevant provision in the Code is taken to have complied with the corresponding obligation in the Act: Personal Property Securities Act 2009 (Cth), s 119(2) and Personal Property Securities Regulations 2010 (Cth), reg 4.1.

Personal Property Securities Register [19.1050] The Personal Property Securities Act 2009 (Cth) provides for the establishment and maintenance of a Personal Property Securities Register by the Registrar: s 147. 37 A person may apply to register what is referred to as a “financing statement” with respect to a security interest or certain personal property: s 150. The financing statement can be registered before any secured transaction takes place. In general, a financing statement will contain information which includes: details of the secured party; the grantor’s details (unless the collateral is consumer property and required to be described by serial number); an address for service of notices on secured parties; a description of the collateral (particularly whether it is consumer or commercial property); and the period of registration. Registration for consumer property, or property described by serial number, may be made for up to seven years and renewed for further periods of up to seven years. Commercial property may be registered for an indefinite period, or for a term of up to 25 years and subsequently renewed: s 153. On application to the Registrar, a person may be given access to search the register provided that it is for an authorised purpose: ss 170 – 173. The register can be searched by reference to either the grantor’s details, which will disclose security interests registered against the grantor, or in the case of serial-numbered property, the unique serial number referable to that property (as in the case, for example, of a motor vehicle): s 171. However, the grantor’s details will not be registered if the security interest relates to collateral that is serial-numbered consumer property. The Personal Property Securities Register is a single online register for all personal property securities in Australia. It is not mandatory to register security interests and there is no time limit for registering an interest. However, the failure to register, and thereby perfect, a security interest will have important consequences for the secured party should an issue as to the priority of competing security interests arise as discussed at [19.980]. In addition, the Personal Property Securities Act 2009 (Cth) invalidates unperfected security 36

S Colley, “Enforcing Rights under the PPSA: Honestly and in a Commercially Reasonable Manner” (2013) 21 Insolvency Law Journal 109.

37

See further N Mirzai, “A Year with the Personal Property Securities Act 2009 (Cth): The Personal Property Securities Register, Amendment Demands and Judicial Proceedings” (2013) 31 Company and Securities Law Journal 295; N Mirzai, “Pollution on the PPSR – And What to Do About It” (2015) 33 Company and Securities Law Journal 30.

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interests (but not deemed security interests that are unperfected) on the bankruptcy, winding up or administration of the grantor: ss 267, 267A, 268, and see Albarran v Queensland Excavation Services Pty Ltd (2013) 277 FLR 337.

Further reading National Credit Code Gadens and ASIC, National Credit Regulation (subscription service, Thomson Reuters). Personal Property Securities J O'Donovan, Personal Property Securities Law in Australia (subscription service, Thomson Reuters). C Wappett, B Whittaker and S Edwards, Personal Property Securities in Australia (subscription service, LexisNexis Butterworths). C Wappett, Essential Personal Property Securities Law in Australia (3rd ed, LexisNexis Butterworths, 2015).

Internet sites National Consumer Credit Code Consumer Credit http://consumercredit.treasury.gov.au (Commonwealth Government Consumer Credit website.) ASIC http://www.asic.gov.au/credit (The Australian Securities and Investments Commission (ASIC) website contains information concerning the licensing and regulation of credit providers and general credit information for consumers.) Fido http://www.fido.gov.au/credit (An ASIC website which provides general information for consumers about credit, loans and borrowing.) Personal Property Securities Personal Property Securities reform http://www.ag.gov.au/LegalSystem/Pages/Personalpropertysecurities.aspx (The Commonwealth Attorney-General's website on the new personal property securities regime. The website contains a broad range of information on the development and current issues in relation to the new scheme.) Personal Property Securities Register http://www.ppsr.gov.au (General information on the new personal property securities regime and the Personal Property Securities Register.)

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Journal Journal of Banking and Finance Law and Practice

481

chapter 20

Guarantees [20.20] Nature of a contract of guarantee .......................................................................................................... 484 [20.90] Liabilities and rights of guarantors......................................................................................................... 486 [20.180] Discharge of guarantor ............................................................................................................................. 489 [20.250] Statutory provisions affecting guarantees..................................................................................... 492

Introduction [20.10] A guarantee is a contract made by one person with another to answer for the debt or obligation of a third person should the latter default. In other words, it is a promise made by one person (the guarantor or surety) to another (the creditor) that should a third person (the principal debtor) fail to carry out the obligation made with the creditor, the guarantor will be answerable to the creditor. Put briefly, a guarantee is “a promise to ‘answer for’ the debt or default of the debtor”: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 256 per Mason CJ. The terminology of creditor, guarantor and principal debtor is used because many guarantees are given in relation to the payment of debts. “However, the payment of a debt is but one instance of the wide range of obligations the performance of which may be made the subject of a guarantee. Just as I may guarantee the payment of a debt so I may guarantee the performance of a contractual obligation which does not involve the payment of money”: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 255 per Mason CJ. In this context, the terms “guarantor” and “surety” are used interchangeably.

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Nature of a contract of guarantee [20.20] For the existence of a contract of guarantee, three parties are required: (a)

the party promising to do something (the principal debtor);

(b)

the party to whom such promise is made (the creditor); and

(c)

the party undertaking to be answerable (the guarantor or surety) should the promisor fail to adhere to her or his promise.

The contract may be guaranteed by more than one guarantor or surety, in which case liability may be joint or joint and several. These sureties are referred to as “co-sureties”.

Distinction between a guarantee and an indemnity [20.30] A contract of guarantee should be distinguished from a contract of indemnity which may also be used to secure the payment of a debt or the performance of an obligation by another. The reasons for distinguishing between a contract of guarantee and a contract of indemnity are: (a)

the requirement in certain States that a guarantee be evidenced in writing which does not apply to an indemnity: 1 Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 at [61]-[63]; and

(b)

a guarantor’s liability is treated as being co-extensive with that of the principal debtor so that if the principal contract is void or unenforceable, the guarantor will generally be discharged from liability, whereas under a contract of indemnity the indemnifier will still be liable to the creditor: Yeoman Credit Ltd v Latter [1961] 1 WLR 828 at 831.

The essential distinction between the two is that in a contract of indemnity, the person giving the indemnity is primarily liable whether or not a third party makes default; whereas in a contract of guarantee the guarantor or surety is secondarily liable to the creditor for the default of the principal debtor who remains primarily liable to the creditor: Canty v PaperlinX Australia Pty Ltd (2014) 9 BFRA 524; [2014] NSWCA 309 at [1], [4], [38]-[39]; Caltex Australia Petroleum Pty Ltd v Troost [2015] NSWCA 64 at [50]-[51]. A true guarantee “involves a secondary obligation. A true indemnity involves a primary obligation”: Re Taylor; Ex parte Century 21 Real Estate Corp (1995) 130 ALR 723 at 728 per Burchett J. An indemnity was described by Mason CJ in the High Court as “a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party”: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254. The mere use of the words guarantee or indemnify are not conclusive as to whether the contract is one of guarantee or indemnity and the issue will be determined by construing the terms of the contract as a whole: Total Oil Products (Aust) Pty Ltd v Robinson [1970] 1 NSWR 701 at 703. The principles applying to the construction of guarantees also apply to the construction of contracts of indemnity: Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at [23]. An ambiguous indemnity or guarantee clause is 1

This requirement originated with the Statute of Frauds 1677 (IMP), s 4. The provision has been re-enacted in the same terms with respect to guarantees in Victoria (Instruments Act 1958 (Vic), s 126) and Tasmania (Mercantile Law Act 1935 (Tas), s 6). In Western Australia the Statute of Frauds 1677 (IMP), s 4 applies: Law Reform (Statute of Frauds) Act 1962 (WA), s 2. In Queensland guarantees must be evidenced in writing by virtue of the Property Law Act 1974 (Qld), s 56 and in the Northern Territory by the Law of Property Act 2000 (NT), s 58. The requirement does not apply in New South Wales, South Australia, or the Australian Capital Territory.

chapter 20 Guarantees

interpreted in favour of the surety: Erect Safe Scaffolding (Australia) Pty Ltd v Sutton (2008) 72 NSWLR 1 at [155]; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [53]; Laresu Pty Ltd v Clark [2010] Aust Torts Reports 82-068; [2010] NSWCA 180 at [88].

Consideration for guarantee [20.40] A contract of guarantee (unless under seal), like all simple contracts, requires consideration to support it: Coghlan v SH Lock (Aust) Ltd (1987) 8 NSWLR 88 at 94. The consideration must move from the creditor; consideration moving from the debtor to the surety is insufficient. Examples of consideration sufficient to support a contract of guarantee are as follows: 1.

An original granting of credit, for example by a loan of money or supplying of goods, to the debtor by the creditor at the request of the guarantor would be consideration for the guarantee.

2.

The consideration will be sufficient if the creditor gives the debtor extra time for payment because of the guarantee or agrees to defer suing the debtor for the debt at the request of the surety. On the other hand, where a new or further guarantee is expressed to be given in consideration of a bank “providing banking accommodation” but no new financial accommodation is provided to the principal debtor, the guarantee will be unenforceable for lack of consideration if it merely covers the continuation of an existing credit facility or arrangement: Mackay v National Australia Bank Ltd [1998] 1 VR 173 at 177, 186.

3.

The consideration may be a payment by or on behalf of the creditor to the surety.

Guarantee not a contract uberrimae fidei [20.50] A contract of guarantee is not a contract “uberrimae fidei” (that is, of the utmost good faith). However, it is “readily set aside on the ground of misrepresentation (innocent or fraudulent), or non-disclosure amounting to misrepresentation”: Yerkey v Jones (1939) 63 CLR 649 at 663. If the guarantor would not have entered into the contract of guarantee at all had he or she been aware of the true situation misrepresented, the guarantee may be set side in its entirety. However, if the misrepresentation concerns only part of the guarantee, that part may be set aside and the remainder of the guarantee enforced.

case [20.60] The appellant was a director of a company which carried on business as a foundation piling contractor. The company was in financial difficulty. The respondent supplier was only prepared to continue supplying the company with concrete provided the director entered into a personal guarantee: at 106. The director was induced to sign the guarantee by the supplier’s representation that the guarantee only concerned the future indebtedness of the company for further supplies of concrete. In fact, the guarantee also covered the past indebtedness of the company to the supplier: at 107. The company failed and the supplier sued the director under the guarantee. The High Court held that the contract of guarantee was not rescinded in its entirety for the supplier’s misrepresentation. Although the director was entitled to avoid liability under the guarantee to the extent of the company’s past indebtedness, he remained liable for concrete supplied after the guarantee was entered into: Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 115. 2

2

See A Robertson, “Partial Rescission, Causation and Benefit” (2001) 17 Journal of Contract Law 163.

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[20.70] A contract of guarantee may also be set aside if the guarantor was induced to enter into it while acting under the undue influence of another (Bank of New South Wales v Rogers (1941) 65 CLR 42 at 51, 60, 85), or where it is harsh or unconscionable: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, discussed at [7.880]. The Queensland Court of Appeal declined to imply a term that a guarantee comply with the Code of Banking Practice as that was not necessary to give business efficacy to the guarantee: ING Bank (Australia) Ltd v Leagrove Pty Ltd [2012] 1 Qd R 140 at [34]-[35]. A creditor is under no obligation to inform the intending guarantor as to matters affecting the credit of the debtor: National Provincial Bank of England Ltd v Glanusk [1913] 3 KB 335 at 338. It would also seem that a creditor is under no duty to inform a proposed surety of information the creditor has concerning the lack of financial resources of a proposed co-surety: Behan v Obelon Pty Ltd (1985) 157 CLR 326 at 330. Where a guarantee relates to the hire of goods, the hire company is not obliged to inform the guarantor of the length of the hire period: Zachariadis v Allforks Australia Pty Ltd (2009) 26 VR 47 at [12], [73]. Although a creditor is under no general obligation to an intending guarantor to disclose all material matters relating to the creditor’s dealings with the principal debtor or affecting the debtor’s financial position, a guarantor is entitled to be informed of unusual matters affecting the principal transaction which makes the position of the surety different from that which he or she would naturally expect in the circumstances: Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173 at 175.

Fidelity guarantees [20.80] Guarantees need not always be given in respect of indebtedness for goods or services supplied or for money lent. Sometimes it is necessary to find a surety who will agree to guarantee the integrity or good behaviour of a person who is entrusted with an office or position of trust. Such guarantees are called “fidelity guarantees”. In the case of fidelity guarantees all material facts must be disclosed, otherwise the guarantor can avoid the contract: London General Omnibus Co Ltd v Holloway [1912] 2 KB 72 at 80, 82, 88.

Liabilities and rights of guarantors [20.90] A guarantor is liable to the creditor only where the debtor has made default, or fails to perform her or his promise, or to discharge her or his liability, within the time limited by the contract. 3 If the subject of a guarantee is payment of a sum of money, then on default by the principal debtor, the creditor may sue the guarantor for that sum. If the guarantee is of the performance of some other obligation then, on default in performance, the beneficiary of the guarantee may sue the guarantor for damages for breach of contract. For example, it was held that the guarantor of the obligations of a purchaser of land under a contract for sale of land was liable for damages for the deficiency on resale of the land following rescission of the contract by the vendor for non-compliance by the purchaser with a notice to complete: Womboin Pty Ltd v Savannah Island Trading Pty Ltd (1990) 19 NSWLR 364 at 370-371.

Guarantees and minors [20.100] Since the liability of a guarantor depends on an existing enforceable liability in the principal debtor, if the principal contract is void the contract of guarantee is unenforceable. For example, in Coutts & Co v Browne-Lecky [1947] KB 104 the fact that a customer of a bank was a minor was known to all 3

See generally B Dixon, “Bank Guarantees and the Reasonable Expectations of Beneficiaries” (2015) 43 Australian Business Law Review 462.

chapter 20 Guarantees

parties. When the guarantors were sued for the overdraft they refused to pay on the ground that there could be no liability on a guarantee of a debt which was void. This defence was upheld by the court: at 111. This decision is no longer applicable in New South Wales. The Minors (Property and Contracts) Act 1970 (NSW), s 47 provides that the guarantor of an obligation of a minor is bound to the extent to which the guarantor would be bound if the minor was of full age. In South Australia, the Minors Contracts (Miscellaneous Provisions) Act 1979 (SA), s 5 provides that when a person (other than a minor) guarantees the performance by a minor of her or his obligations under a contract, the guarantee is enforceable against the guarantor to the same extent as if the minor was an adult before entering into the principal transaction. In Victoria the Australian Consumer Law and Fair Trading Act 2012 (Vic), s 32(2) provides that a guarantor of a minor’s obligations as purchaser under a contract for the supply of goods or services is liable as if the purchaser was not a minor at the time the contract was made. However, the guarantee must carry a prominent statement that the guarantor may not have a right of recovery from the purchaser: s 32(3).

Effect of breach of duty by creditor [20.110] Where a creditor is in breach of a duty owed to the debtor, this will be taken into consideration in determining the liability of a guarantor.

case [20.120] A bank breached its equitable duties when exercising its power of sale of mortgaged property. The loan was secured by a guarantee. The borrower was entitled to have the loss from the bank’s breach of duty taken into account in relation to its liability. The guarantor was similarly entitled to a set-off for the loss caused by the bank’s breach of duty: Jovanovic v Commonwealth Bank (2004) 87 SASR 570 at [114]. [20.130] In Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122, the Court held that a clause in the guarantee which expressly prohibited set-offs or counterclaims did not preclude a claim going to the validity of the guarantee: at [17].

Continuing guarantees [20.140] A guarantee may be limited to a particular transaction, for example, the guarantee of a loan contract to buy a car. A guarantee may also be given to secure a series of future transactions to be entered into between the principal debtor and the creditor, such as where money is to be advanced to the principal debtor from time to time. Where a guarantee is given to secure a series of transactions it is called a continuing guarantee. A guarantee for an ordinary bank overdraft is normally a continuing guarantee as it extends beyond the first sum advanced and continues in force notwithstanding that the account may from time to time have been in credit. The guarantee in such a case usually contains a provision to the effect that it relates to “all moneys which are now or may from time to time be owing or remain unpaid” by the principal debtor to the creditor.

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case [20.142] In Henderson-Smart v Quality Blow Moulders Pty Ltd (2010) 25 VR 724 Quality Blow Moulders manufactured plastic containers. Redwin manufactured skin creams, which they packaged in Quality Blow Moulders’ containers: at [2]. Redwin fell well behind in payment for the containers and Quality Blow Moulders indicated that it would cease supplying further containers: at [4]. A director of Redwin then sent an email in which he stated that “I am prepared to guarantee the amount owed by Redwin on the basis that you will continue to support and supply us at our current level of demand”: at [6]. The Victorian Court of Appeal held that this email constituted a guarantee of “both past and future indebtedness”: at [15].

Guarantees by married women of their husbands' debts [20.150] In Yerkey v Jones (1939) 63 CLR 649 at 683, Dixon J stated that if a married woman’s consent to become a guarantor for her husband’s debt was procured by her husband without her understanding its essential effect, and the creditor accepted the guarantee without taking steps to inform the wife of her obligations, the guarantee could be set aside. This principle was essentially affirmed in Garcia v National Australia Bank Ltd (1998) 194 CLR 395. Significantly, the majority judgment in the Garcia decision foreshadowed the possibility of this principle being applied in the future to other relationships, that is, “to long term and publicly declared relationships short of marriage between members of the same or opposite sex” and where a husband acted as surety for his wife: see [7.930]. In Narain v Euroasia (Pacific) Pty Ltd (2009) 26 VR 387 the Victorian Court of Appeal held that the principle in Yerkey v Jones was limited to contracts of guarantee and did not apply to a settlement deed. The Court considered that the principle in Yerkey was open to such an extension, but held that it was bound by interstate precedent not to extend the principle: at [39], [41], [43].

Rights of guarantor after payment of debt [20.160] On default of the principal debtor, the guarantor will be called upon by the creditor to perform their part of the contract. After payment of the debt the guarantor has the following rights: 1.

To recover from the principal debtor all moneys so paid. “Once default has occurred, the party having the benefit of the guarantee can call on the guarantor to honour his promise before calling on the principal contracting party to perform his obligation, but the guarantor, having honoured his promise, can hold the principal contracting party to account by virtue of the doctrine of subrogation”: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254 per Mason CJ.

2.

To have all securities in the hands of the creditor assigned to the guarantor and generally, as far as possible, to be placed in the same position as the creditor: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [10]. The surety does not have to pay the whole debt before a right of subrogation arises. Provided the surety pays the amount he or she has guaranteed and the balance of the creditor’s account is discharged, the surety is subrogated to the creditor’s right to the securities. “The debtor is bound to indemnify the surety for what he has paid, and to deny the surety the right to the securities may deny him the means of enforcing his indemnity”: Equity Trustees Executors & Agency Co Ltd v New Zealand Loan & Mercantile Agency Co Ltd [1940] VLR 201 at 207; see also McColl’s Wholesale Pty Ltd v State Bank of New South Wales [1984] 3 NSWLR 365 at 378.

3.

To recover contribution from her or his co-sureties: see [20.170].

chapter 20 Guarantees

Rights of co-sureties among themselves [20.170] Where in the one transaction there are a number of sureties, it would be inequitable if one only of such sureties could be forced to pay the whole debt without any recourse against the co-sureties. It is not uncommon for one surety to be called upon to pay the debt and then such a surety has a right of contribution from the co-sureties. “A surety is entitled to contribution from his co-sureties so that the common burden is borne equally and so that no surety is required, as between himself and his co-sureties, to pay more than his due share. The right arises whether the sureties are bound jointly, jointly and severally, or severally, and whether by the same or different instruments, and whether or not the sureties knew of each other’s existence, provided that they are liable in respect of the same debt”: Mahoney v McManus (1981) 180 CLR 370 at 376 per Gibbs CJ. In calculating the contributions payable by co-sureties, those sureties unable to pay are not included. For example, if A, B and C are joint sureties for a debt of $60,000 owed by D to E, and A, on default by D, pays the whole amount of $60,000 to E, then A is entitled to contributions of $20,000 each from B and C: Re Ennis [1893] 3 Ch 238 at 243-244. However, if B is unable to contribute, then A can claim $30,000 from C. To have a right of contribution co-sureties must have guaranteed the same debt or the obligations of the same debtor. Where a lease had been assigned, the new tenant’s guarantor did not have a right of contribution from the original guarantor. The debtors were different. The guaranteed debt was also different. The original guarantee related to the whole term of the lease, while the new guarantee related to the remainder of the lease: Willis v Teparyl Pty Ltd (2010) 30 VR 485 at [12]-[16]. In the absence of an agreement to the contrary, all sureties are liable to contribute equally to the common debt: Lavin v Toppi (2015) 254 CLR 459 at [32], [36]. If they are not equally liable, then they must contribute in proportion to the amount for which they are respectively liable. The right of contribution arises at law or in equity and is not dependent on contractual provision. However, the parties to a guarantee can exclude or modify the right to contribution. In particular, a clause in a contract of guarantee to the effect that the guarantor of a debt is not to exercise their right of contribution against the other guarantors until the guaranteed sum has been repaid to the creditor/lender is not void. Such a provision is simply a time limitation clause which has the effect that each guarantor agrees not to attempt to enforce any right to contribution which they might otherwise acquire against other guarantors until the occurrence of a specified event, that is, until payment of the creditor/lender in full: Hong Kong Bank of Australia Ltd v Larobi Pty Ltd (1991) 23 NSWLR 593 at 598; Bond v Larobi Pty Ltd (1992) 6 WAR 489 at 499-500. Where the creditor agrees not to sue a co-surety for the guaranteed debt, that agreement not to sue does not affect the other co-surety’s right to contribution: Lavin v Toppi (2015) 254 CLR 459 at [39].

Discharge of guarantor [20.180] Basically, conduct on the part of the creditor which materially alters the surety’s obligations will discharge the surety: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 559. The guarantor must consent to any variation which alters his or her rights, unless the change is insubstantial and does not prejudice the guarantor’s rights: Gibbons v Pozzan (2007) 209 FLR 233 at [57]-[58]; Caltex Australia Petroleum Pty Ltd v Troost [2015] NSWCA 64 at [52]. The agreement of the creditor not to sue a co-surety does not discharge the guaranteed liability: Lavin v Toppi (2015) 254 CLR 459 at [37].

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Subject to contrary provision in the contract of guarantee, a guarantor will be discharged from their obligations in the following cases: 1.

When the creditor gives a discharge to the principal debtor either upon payment or otherwise: Hancock v Williams (1942) 42 SR (NSW) 252 at 256.

2.

When the creditor varies the original agreement in any material way without the sanction of the surety: Egbert v National Crown Bank [1918] AC 903 at 909. The creditor must show that the variation “could not in any circumstances have increased the risk” run by the guarantor: Willis v Teparyl Pty Ltd (2010) 30 VR 485 at [26]. There will be no discharge if the contract of guarantee provides that it will not be affected by a variation of the principal contract: Sabemo Pty Ltd v De Groot (1991) 8 BCL 132 at 146. Where a guarantee provided that the guarantor’s obligation would not be affected by anything that would otherwise constitute a release, the guarantee was not extinguished by the lessor’s grant to the tenant of a licence to enter after a repudiation of the lease: Tebb v Filsee Pty Ltd (2010) 30 VR 473 at [33]-[34].

3.

If it is a term, whether express or implied, of the arrangements leading to the execution of a guarantee that there will be another co-surety, then failure of the other co-surety to execute the guarantee relieves the intended co-surety of liability under the guarantee despite their execution of it, unless they have consented to the other co-surety not executing the guarantee: Gattellaro v Westpac Banking Corporation (2004) 204 ALR 258 at [31]. A guarantor will not be discharged unless there is evidence of a common intention that there was to be another co-surety or co-sureties: Taubmans Pty Ltd v Loakes [1991] 2 Qd R 109 at 112, 118.

4.

Where a guarantee is given on a condition, whether express or implied from the circumstances, that a specific security be obtained, completed or maintained, any failure in performance of the condition operates to discharge the surety: Williams v Frayne (1937) 58 CLR 710 at 738; cf JGL Investments Pty Ltd v Maracorp Financial Services Ltd [1991] 2 VR 168 at 175-176.

5.

When the creditor relinquishes or loses the benefit of any security held by the creditor, the guarantor’s liability will be reduced by the value of the security: Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654 at 675 per Brennan J.

case [20.190] Security by way of a bill of sale over certain machinery proved ineffective because of the failure of the creditor to duly register the bill of sale. The guarantor was discharged from liability since the assets which would have been secured by the bill of sale had it been registered would have been sufficient to discharge the indebtedness to the creditor: Re Kwan; Ex parte Hastings Deering (Solomon Islands) Ltd (1987) 15 FCR 264 at 266. [20.200] On the other hand, it has been held that a creditor does not owe a duty to a guarantor to enforce a security available to the creditor, notwithstanding the loss which may be suffered by the guarantor as a result: Omlaw Pty Ltd v Delahunty [1995] 2 Qd R 389 at 393-394. 6.

When the creditor extends the time allowed to the principal debtor to pay or perform any act: Croydon Gas Co v Dickinson (1876) 2 CPD 46 at 48–49.

The principles as to the discharge of a guarantor outlined above are subject to contrary provision in the contract of guarantee. For example, it is not uncommon for the guarantee to provide that the guarantor is

chapter 20 Guarantees

to remain liable despite a future variation of the contract between the creditor and the principal debtor: Esanda Ltd v Powell and Dorsett (1986) 4 SR (WA) 22 at 26. A provision in the contract of guarantee may deprive the surety of the right the surety would otherwise have against the creditor to be discharged by the release of a security without the surety’s consent: Fletcher Organisation Pty Ltd v Crocus Investments Pty Ltd [1988] 2 Qd R 517 at 526–527, 537, 544. Even a creditor’s equitable obligation to a surety not to impair securities may be effectively excluded by the terms of the guarantee: Johnson v Australian Guarantee Corp Ltd (1992) 59 SASR 382 at 386, 399. A surety will be discharged from their obligations under a contract of guarantee where the creditor is in breach of an essential condition of the contract.

case [20.210] In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, the appellant (Ankar) had entered into a security deposit agreement with the respondent (Lombard) under which Ankar deposited a sum of $125,000 and gave a charge over it to secure performance of the obligations of a company (Manufacturing) under a lease agreement of certain plant and equipment from Lombard as lessor. The security deposit agreement, which essentially guaranteed the rental payments by Manufacturing under the lease with Lombard, provided: (a)

that Lombard was to notify Ankar should Manufacturing propose to assign its interest under the lease; and

(b)

that Lombard was to notify Ankar if Manufacturing was in default in rental payments under the lease and consult with Ankar to determine what course of action should be taken in that event. Lombard breached both of these provisions: at 554.

The High Court held that the provisions constituted conditions of the contract, breach of which at Ankar’s option discharged it from performance of its obligations, and entitled it to recover the $125,000 it had deposited with the respondent under the security deposit agreement: at 561-562.

Effect of bankruptcy of the debtor [20.220] The making of a sequestration order against the debtor, or the granting of an order of discharge in bankruptcy, 4 does not act as a release of the surety. Where the debtor has entered into a deed of arrangement with their creditors, under the Corporations Act 2001 (Cth), s 444E the right of those who are party to the deed to bring enforcement proceedings against the debtor is suspended, except by leave of the Court. However, the deed does not defeat the liability of a guarantor to those who are party to the deed of arrangement, where the guarantee is intended to take effect upon insolvency: Helou v PD Mulligan Pty Ltd (2003) 57 NSWLR 74 at [36].

Effect of death of surety [20.230] The death of a surety does not discharge their estate from liability for past transactions under the contract. Where the creditor has no notice of the death of a guarantor the right to continue advances upon the security continues if the guarantee is a continuing guarantee. 4

See Bankruptcy Act 1966 (Cth), s 153(4).

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In practice, most contracts of guarantee of a continuing nature contain a term to the effect that: “This guarantee shall not be determined by the guarantor’s death”, which provision will be effective to preserve the liability of the guarantor’s estate even after the creditor has notice of the guarantor’s death until notice of termination as provided by the guarantee has been given by the executors: Carlton and United Breweries Ltd v Wilson [1933] VLR 113 at 117–118.

Revocation of the guarantee [20.240] The general rule as to whether or not a guarantee can be revoked, in the absence of express condition in the contract, depends on whether the consideration is divisible or indivisible. Where the guarantee is a continuing guarantee and the consideration is divisible, for example where the guarantee is given in respect of advances made or goods supplied from time to time by the creditor to the principal debtor, the guarantee is revocable as regards liability to accrue in the future: Coulthart v Clementson (1879) 5 QBD 42 at 46. On the other hand, if the consideration is indivisible and has irrevocably past, then the guarantee cannot be revoked by notice: Re Crace; Balfour v Crace [1902] 1 Ch 733 at 738. The guarantee may itself provide that it is revocable by notice. In such a case, the notice of revocation must be clear and comply strictly with the terms of the revocation clause. The effect of the guarantor revoking the guarantee in accordance with a revocation clause in the contract is to prevent any future liability arising under the guarantee but the revocation does not relieve the guarantor from liability which he or she has already incurred under the guarantee: Commercial Bank of Australia v Cavanaugh (1980) 7 NTR 12 at 14-15.

Statutory provisions affecting guarantees [20.250] The circumstances surrounding the entering into of the guarantee may be such as to constitute misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law. 5 In New South Wales relief may be sought under the Contracts Review Act 1980 (NSW): see [7.980]. The National Credit Code contains important provisions regulating guarantees which secure the repayment of money under a consumer credit contract: see [19.450] and [19.560].

Further reading G Andrews and R Millett, The Modern Contract of Guarantee (7th ed, Sweet & Maxwell, London, 2015). J O'Donovan and J Phillips, Law of Guarantees (2nd English ed, Sweet & Maxwell, London, 2010).

5

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

chapter 21

Bailments [21.20] Nature and classification of bailments ................................................................................................ 494 [21.60] Duties of a bailee.............................................................................................................................................. 495 [21.240] Duties of a bailor ........................................................................................................................................... 500 [21.310] Termination of bailments......................................................................................................................... 502 [21.390] Special types of bailee ............................................................................................................................... 504

Introduction [21.10] A bailment is a delivery of goods from one person (the bailor) to another (the bailee) on a condition, either express or implied, that when the purpose for which the goods were bailed has been fulfilled, the goods will be returned to the bailor or delivered according to their instructions. Bailments are of everyday occurrence, for example leaving a car at a garage for repair; depositing items at a bank for safe custody; hiring goods; handing goods over to a carrier for delivery; or loaning goods to a friend. These actions all create bailments and give rise to the legal relationship of bailor and bailee. Bailment is not dependent upon the existence of a contract between the parties: Strange Investments (WA) Pty Ltd v Coretrack Ltd (2014) 107 IPR 102 at [138].

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Nature and classification of bailments [21.20] To constitute a bailment there must be a transfer of possession of the goods from one person to another person without any intention on the part of the bailor to transfer the ownership of the goods to the bailee. The bailee receives the goods for the purpose of fulfilling the instructions of the bailor which may be to keep the goods in safe custody, or to carry the goods from one place to another, or to do something to the goods and then return them. The requirement that there be a transfer of possession distinguishes the relationship of bailor and bailee from that of licensor and licensee. A mere licence or permission to use particular premises or facilities for the purpose of temporarily leaving or storing goods does not involve a transfer of possession. The importance of the distinction between a bailment of goods on the one hand, and a mere licence to use premises or facilities on the other, is that the relationship of bailor and bailee gives rise to certain duties and liabilities which do not apply where the relationship is that of licensor and licensee. However, it is not always easy to determine whether the relationship between the parties is that of bailor and bailee or licensor and licensee, as is illustrated by the following case:

case [21.30] The plaintiff, G, paid a fee to hire a locker in the defendant council’s dressing sheds at Bondi Beach. After putting his clothes in the locker, G ensured that it was locked. G was not given a key but was supplied with a numbered disc to identify the locker. On returning from the beach G presented the disc to the attendant who opened the locker which was found to be empty. G sued the council contending that it was a bailee of his clothes and as such owed him a duty of reasonable care. However, it was held that the council was not a bailee since possession of the clothes had not passed to the council and had always remained in G. The council had merely let the locker to G which did not give rise to a duty of care in respect of the contents of the locker: Greenwood v Council of the Municipality of Waverley (1928) 28 SR (NSW) 219 at 221. [21.40] There is a divergence of authority on whether parking a car in an attended parking lot or parking station gives rise to a bailment. The trend of United Kingdom cases is to regard the position as merely that of licensor and licensee: BG Transport Service Ltd v Marston Motor Co Ltd [1970] 1 Lloyd’s Rep 371. However, Australian courts are more disposed to find that there has been a transfer of possession, that is control over the vehicle, giving rise to the relationship of bailor and bailee, particularly where some card or ticket has to be presented before regaining the vehicle: Council of the City of Sydney v West (1965) 114 CLR 481 at 489, 501; Walton Stores Ltd v Sydney City Council (1968) 88 WN (NSW) (Pt 2) 153 at 158.

Classification of bailments [21.50] The traditional classification of bailments is that based, with certain modifications, on the judgment of Lord Holt in Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 at 912–913 (Ld Raym); 109 (ER), namely: 1.

The deposit of goods for gratuitous safekeeping by the bailee, for example the handing over of jewellery to a bank for safe custody where no charge is made for the service.

chapter 21 Bailments

2.

The delivery of goods to a bailee for work to be done on the goods for the benefit of the bailor without reward, for example where A leaves his watch with B for repair without a charge being made for the repair.

3.

The delivery of goods by way of gratuitous loan for use by the bailee, for example where A lends his car to his friend B without charge.

4.

The deposit of goods for safekeeping for reward, for example where jewellery is handed over to a bank for safe custody and a fee is charged for the service.

5.

The delivery of goods to have something done to them for reward, for example where a car is left at a garage for repair.

6.

The delivery of goods for use by the bailee for reward, that is, the hiring of goods.

7.

The delivery of chattels to be held as security for a loan, that is, a pledge or pawn: see [19.1290].

It will be observed that the first three types of bailment listed above are gratuitous, whereas the following three are bailments for reward. The distinction between a gratuitous bailment and a bailment for reward is relevant in considering the extent of the duty of care owed by a bailee to the bailor. The distinction is also important in considering the rights and liabilities of the bailor or bailee against third parties.

Duties of a bailee Duties of a bailee for reward [21.60] A bailee for reward has a duty to take such care of the goods as is reasonable in the circumstances. 1 In the event of loss of, or damage to, the goods during the bailment, the onus is upon the bailee to prove that such loss or damage was not the result of their failure to take reasonable care. For example, if goods are stolen from a bailee, the latter will be liable to the bailor for the loss of the goods unless the bailee can show that he or she took reasonable precautions to secure the premises against intruders.

case [21.70] The bailee stored bales of wool in an old timber building, the fencing around which was clearly inadequate to keep out intruders. The High Court held that the bailee was liable for breach of his duty to take reasonable care of the wool when it was destroyed in a fire deliberately lit by an intruder who had gained access to the wool store through the inadequate fencing: Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644 at 647–648.

case [21.80] The plaintiff left a valuable car with the defendants for repair. Overnight, thieves entered the defendants’ premises through a skylight in the roof, started the car with the keys that had been left in the ignition, opened the roller doors to the premises and drove off with the vehicle. Shortly after the break-in, the defendants placed security bars over the skylight, installed an alarm system and placed signs on the outside of the building warning possible intruders of the presence of alarms: at 61,552-61,553. 1

See J Tarrant, “Duties of a Bailee for Reward” (2008) 22(3) Commercial Law Quarterly 18.

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The New South Wales Court of Appeal held that the defendants were liable to the plaintiff for the loss of the vehicle since they had failed to discharge the onus of establishing that they had taken reasonable care appropriate in the circumstances. The precautions taken to secure their premises subsequent to the break-in should have been implemented earlier. However, leaving the ignition keys in the vehicle did not of itself constitute a failure to take reasonable care: Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd [1994] Aust Torts Reports 81-292 at 61,559–61,560; see also A1 Perfect Plumbing Pty Ltd v BMW Prestige Pty Ltd (2006) 230 ALR 331 at [11] (inadequate security for bailed vehicle). [21.90] The duty of a bailee for reward is not that of an insurer. Accordingly, the bailee is not obliged to take every conceivable or possible precaution to prevent the loss of goods. The bailee’s duty is simply to act reasonably. Where the bailee can show that he or she had taken reasonable care for the safekeeping of the goods, the bailee will not be liable if they are stolen. The standard of care required is to use such care as a careful and vigilant person would exercise in the custody of their own property of the like character and in the like circumstances: Nibali v Sweeting & Denney (WA) Pty Ltd [1989] Aust Torts Reports 80-258 at 68,748; 68,751. A bailee for reward is not obliged to insure the bailed goods. Where the loss of the goods was not due to the negligence of the bailee, a bailee for reward who lacks insurance protection for the loss is not required to inform the bailee of that fact, unless the bailee could foresee an unusual risk to the goods: All Covers and Accessories Pty Ltd v Sidawi (2012) 36 VR 113 at [10]–[11], [49]. A bailee’s primary duty is to redeliver the goods to the bailor or as the bailor may direct. Hence, if the bailee delivers the goods to a third person other than in accordance with the bailor’s express authority or mandate, the bailee will be liable for their loss.

case [21.100] The owner of a caravan gave possession of it to a motor dealer to sell “on consignment”. The motor dealer allowed three strangers to tow it away on their persuading her that they had the authority of the owner to do so when such was not the case. It was held that the motor dealer was liable to the owner for the loss of the caravan: Jackson v Cochrane [1989] 2 Qd R 23 at 26–27. [21.110] It appears from the latter case that the bailee will be liable for such misdelivery even in the absence of negligence. In addition to the general obligation to take reasonable care in the case of the delivery of a chattel for work to be done upon it for reward, if the work is of the type which the bailee holds herself or himself out as skilled to do, for example as a watch repairer, the bailee warrants that he or she possesses the technical skill and ability to do the work. In the case of the carriage of goods, where the bailee is a common carrier, more onerous rules of liability for loss or damage apply: see [21.400].

chapter 21 Bailments

Duties of a gratuitous bailee [21.120] The modern trend is for the courts to apply the same basic principle to both a bailment for reward and a gratuitous bailment, namely, whether the bailee took such care of the goods as was reasonable in the circumstances.

case [21.130] The plaintiff jeweller had insisted that the defendant husband T take a particular ring to show his wife. On his way home T went to a hotel where the ring was apparently stolen from his coat: at 118. The jeweller sued T for damages for negligence. However, it was held that, having regard to the totality of the circumstances, T had not been negligent and accordingly was not liable to the jeweller for the loss of the ring: WGH Nominees Pty Ltd v Tomblin (1985) 39 SASR 117 at 124. [21.140] Although the general position would seem to be that a bailee, whether a gratuitous bailee or a bailee for reward, has a duty to take reasonable care of the goods, what constitutes a breach of that duty will depend upon the particular circumstances and the nature of the bailment. A gratuitous bailee who negligently fails to return the goods within a reasonable time of a demand being made for them will be liable for their loss to the bailor: Mitchell v Ealing London Borough Council [1979] QB 1 at 6.

case [21.150] A landlady was held liable for failing to return a former boarder’s possessions, including a number of valuable stamp albums, which had been left with her for some eight months. As a gratuitous bailee, the landlady was “bound to take reasonable care of the goods … and to deliver them up [on] an unequivocal demand” for their return being made. Since she failed to deliver the goods and could not show that they had “been lost without negligence or default on her part” she was held liable for their value: Graham v Voigt (1989) 89 ACTR 11 at 19. [21.160] Where goods under a gratuitous bailment are damaged, it has been held that the onus is on the bailee to show that he or she took reasonable care of them while they were in their possession: McComb v Martin Box Marine Holdings Pty Ltd (1992) 8 SR (WA) 193 at 194.

Liability of bailee for employees and agents [21.170] Where a bailee for reward entrusts the article bailed to their employee for safekeeping and the article is lost owing to the negligence of the employee, the bailee is liable even though he or she proves to the satisfaction of the court that a reasonably prudent person in similar circumstances would have entrusted such an article to an employee. The bailee would be liable because the bailee undertakes that all reasonable care will be exercised by themselves and their employees, in other words, a bailee for reward is liable for their own negligence and vicariously liable for the negligence of their employees: Makower, McBeath & Co Pty Ltd v Dalgety & Co Ltd [1921] VLR 365 at 375; Morris v CW Martin & Sons Ltd [1966] 1 QB 716 at 728, 737, 740–741. Similarly, a bailee whose employee sells the goods entrusted to the bailee is liable to their owner though an exemption clause may avoid that liability: Rick Cobby Haulage Pty Ltd v Simsmetal Pty Ltd (1986) 43 SASR 533 at 540.

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Sub-bailments [21.180] A bailee to whom goods have been entrusted will often transfer possession of the goods to a third party thereby creating a sub-bailment of the goods. 2 The nature of a sub-bailment was well described by Professor Palmer in his classic text on Bailment (3rd ed, 2009), p 1240: “A true sub-bailment may be defined as that relationship which arises whenever a bailee of goods transfers possession to a third party for a limited period or a specific purpose, on the understanding (express or implied) that his own position as bailee is to persist throughout the subsidiary disposition. … The third party, by taking possession and by consenting to the limits set upon it, assumes the role of a special class of bailee. He will owe to the original bailor all the common law duties which would traditionally arise upon a direct bailment of the kind in question.” The leading authority on the duty owed by a sub-bailee to the original bailor to take reasonable care of the goods entrusted to their possession is Morris v CW Martin & Sons Ltd [1966] 1 QB 716:

case [21.190] In Morris v CW Martin & Sons Ltd [1966] 1 QB 716, the plaintiff sent her mink stole to a furrier, B, for cleaning. B explained that he did not provide this service and, with the plaintiff’s consent, forwarded the mink to the defendant drycleaners, who accordingly became sub-bailees. While in the defendants’ possession, the mink was stolen by the employee entrusted with cleaning it, although the defendants had not themselves been negligent either in failing to take proper steps to safeguard the mink or in employing the particular employee. The Court of Appeal held that the sub-bailee was liable to the bailor for the unauthorised theft of the mink by their employee, notwithstanding the absence of a contractual relationship between the original bailor and sub-bailee: at 729, 732. See similarly, Westrac Equipment Pty Ltd v Owners of the Ship Assets Venture (2002) 192 ALR 277 at [18], [20]. [21.200] In an action by the owner of goods against a sub-bailee for loss of the goods, the sub-bailee can rely as against the owner on the terms of the contract between the bailee and the sub-bailee if the owner has expressly or impliedly consented to the bailee making a sub-bailment containing such terms, but not otherwise. Thus, where the owners (the bailors) of goods arranged with freight carriers (the bailees) for the carriage of the goods to a foreign port, and the carriers subcontracted with shipowners (the sub-bailees) for shipment of the goods, it was held that the owners were bound by the terms of the contract between the freight carriers and shipowners, since the owners were regarded as having authorised the freight carriers to entrust the goods to the shipowners on those terms: Pioneer Container KH Enterprise (cargo owners) v Pioneer Container (owners) [1994] 2 AC 324 at 345.

Exclusion of liability [21.210] A bailee may seek to limit or exempt their liability for negligence in a contract of bailment. The general principles relating to exemption clauses are discussed at [9.320].

2

See generally K Lewins, “Sub-Bailment On Terms and the Australian Consumer” (2002) 9(3) E LAW: Murdoch University Electronic Journal of Law, available at http://www.austlii.edu.au/au/journals/MurUEJL; H Austin, “The Essentiality of Possession in Bailment: Sub-bailment on Terms, Quasi-bailment and Freight Forwarders” (2004) 20 Journal of Contract Law 145.

chapter 21 Bailments

case [21.220] The appellant was an interstate transport company which regularly employed a subcontractor to pick up goods around Melbourne and transport them to the appellant’s central depot in Melbourne where they were sorted for interstate carriage. The appellant’s depot closed at 5.30 pm. On the day the subcontractor collected the respondent’s goods he finished his round at 5.40 pm and consequently took his loaded truck home, as he had been directed to do by the appellant on a number of previous occasions when he had been late in completing his collections. The subcontractor backed the truck into his garage but in the early hours of the morning a fire broke out damaging the respondent’s goods. In an action for damages by the respondent, the High Court held that it was implicit in the contract between the appellant and the respondent that the latter’s goods would be taken to and received by the appellant’s depot at the conclusion of the subcontractor’s pick-up round. Accordingly, the subcontractor’s act in taking the goods home for the night constituted such an unauthorised departure or deviation from the terms of the contract between the appellant and the respondent as to preclude the appellant from relying on the exemption clause in the contract which purported to exempt it from liability: Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Aust) Pty Ltd (1966) 115 CLR 353 at 360, 366.

Statutory obligations where services are provided to a consumer [21.230] The widespread use of exemption clauses designed to limit or exclude the common law obligations of, for example a bailee for the work performed on chattels delivered for repair, has resulted in statutory provisions to protect “consumers” in respect of the quality of the work or services so provided. Thus, the Australian Consumer Law, 3 ss 60 and 61 provide: 60.

If a person supplies, in trade or commerce, services to a consumer, there is a guarantee that the services will be rendered with due care and skill.

61. (1)

If: (a)

a person (the supplier) supplies, in trade or commerce, services to a consumer; and

(b)

the consumer, expressly or by implication, makes known to the supplier any particular purpose for which the services are being acquired by the consumer; there is a guarantee that the services, and any product resulting from the services, will be reasonably fit for that purpose. (2)

If: (a)

a person (the supplier) supplies, in trade or commerce, services to a consumer; and

(b)

the consumer makes known, expressly or by implication, to: (i)

3

the supplier; or

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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(ii)

a person by whom any prior negotiations or arrangements in relation to the acquisition of the services were conducted or made; the result that the consumer wishes the services to achieve; there is a guarantee that the services, and any product resulting from the services, will be of such a nature, and quality, state or condition, that they might reasonably be expected to achieve that result. The obligations imposed by these provisions cannot be excluded (s 64(1)), at least where the services are of a kind ordinarily acquired for personal, domestic or household use or consumption. If the services are not of that kind, then liability for breach of the provisions can be limited to supplying the services again or payment of the cost of having the services supplied again: s 64A(2). However, a term so limiting liability cannot be relied on if the person to whom the services were supplied establishes that it is not fair or reasonable in the circumstances for the supplier to rely on such limiting term: s 64A(3). The scope of the statutory guarantees in contracts for the provision of services is very wide since “services” is broadly defined: s 2(1). A person is taken to have acquired particular services as a consumer if either: (a)

the price of the services did not exceed $40,000 (or a greater amount prescribed by regulation); or

(b)

where the price exceeded that amount, the services were of a kind ordinarily acquired for personal, domestic or household use or consumption: s 3(3).

Duties of a bailor [21.240] Where a bailment for reward is for a fixed term, the bailor is under a duty not to interfere with the bailee’s possession of the goods until the expiry of the period of the bailment. If the bailor retakes possession of the goods during the term of the bailment, the bailor may be liable to the bailee for trespass, conversion, or breach of contract. On the other hand, a gratuitous bailment is revocable at the will of the bailor: Parastatidis v Kotaridis [1978] VR 449 at 455–456. A further duty of the bailor is that they must inform the bailee of dangers in the goods of which the bailor is aware, whether the bailment is gratuitous or for reward. A gratuitous bailor has a duty “to communicate to the borrower defects in the article lent of which he is aware, and if either deliberately or by gross negligence he does not discharge this duty, he is liable for injury resulting to the borrower”: Coughlin v Gillison [1899] 1 QB 145 at 149. Where the bailee accepts possession of the goods after being sufficiently warned of their dangerous qualities, the bailor will not be liable for subsequent loss or damage suffered by the bailee:

case [21.250] A market gardener gratuitously lent an onion-sorting machine to a fellow market gardener. While giving directions to the bailee on how to use the machine, the bailor warned the bailee not to allow children near it: at 10. However, the bailee operated the machine assisted by a 13-year-old boy whose hand became caught in the machine and was mutilated: at 16. In an action by the boy against both the bailor and bailee, it was held that the bailor was not liable since he had sufficiently discharged his duty to warn of dangers that might arise from the operation of the machine by the directions he had given to the bailee: at 21. It was further held that the bailee was liable in negligence for the injuries suffered by the boy: Pivovaroff v Chernabaeff (1978) 21 SASR 1 at 22.

chapter 21 Bailments

Hire of goods [21.260] This section considers the obligations imposed on the bailor/lessor in the case of the hiring of goods for reward. These obligations may be imposed by common law or statute.

At common law [21.270] Where goods are hired for use by the hirer, the common law implies in the contract of hire a condition that the goods are reasonably fit for the particular purpose made known to the bailor/lessor for which they are being hired: Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633 at 642, 645, 650, 657, 660; Star Express Merchandising Co Pty Ltd v VG McGrath Pty Ltd [1959] VR 443 at 443, 448, 450.

case [21.280] The plaintiff was injured when she attempted to prevent a laden shopping trolley from toppling over when one of its wheels collapsed. The trolley had been supplied to the plaintiff by an employee of the defendant supermarket: at 471. It was held by the Queensland Court of Appeal that there was a contract of hire between the plaintiff and the defendant supermarket: at 474. Implied in the contract was a term that the trolley would be reasonably fit for its contemplated purpose or use: at 477, 479-480. The plaintiff was awarded $25,000 damages for the injuries she suffered as a result of the breach of the implied term. Macrossan CJ expressed the view that since the trolley had been supplied to the plaintiff at the checkout counter, there was a contract of hire for reward between the plaintiff and the supermarket, the consideration for the contract being the plaintiff’s payment of the price for her selected goods at the checkout: Cottee v Franklins Self-Serve Pty Ltd [1997] 1 Qd R 469 at 475. [21.290] Since the condition of fitness for purpose is implied at common law, it can be excluded by an appropriately drafted exclusion clause.

The Australian Consumer Law [21.300] Further protection is afforded by the Australian Consumer Law 4 where goods are hired or leased by a consumer. The guarantees of undisturbed possession and the conditions of correspondence with description, acceptable quality and fitness for purpose which apply to contracts of sale under the Australian Consumer Law are applied to contracts of hire: ss 54 – 56. This is because these guarantees apply to contracts for the “supply” of goods, which is defined as including the hiring or leasing of goods: s 2(1). A person (including a corporation) is taken to have acquired particular goods as a consumer in the present context if the price at which the hirer or lessee could have purchased the goods from the supplier either: (a)

4

did not exceed $40,000 or a greater amount prescribed by regulation; or

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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(b)

if it exceeded that amount, the goods are of a kind ordinarily acquired for personal, domestic or household use; or

(c)

if it exceeded that amount, the goods are a vehicle or trailer acquired for use principally for transport of goods on public roads (s 3(1));

provided that the goods are not acquired for the purpose of resupply or for the purposes of transformation as part of a manufacturing process: s 3(2). These guarantees cannot be excluded (s 64(1)), at least where the goods are of a kind ordinarily acquired for personal, domestic or household use. If the goods are not of that kind, liability for breach of implied condition can be limited to the replacement or repair of the goods or to the cost of replacement or repair: s 64A(1). However, a term so limiting liability cannot be relied on if the person to whom the goods were supplied establishes that it is not fair or reasonable in the circumstances for the supplier to rely on the limitation: s 64A(3).

Termination of bailments [21.310] A bailment may be terminated in a number of ways, of which the following are the most common:

1. By expiry of the term [21.320] A bailment will terminate when the period for which the goods were bailed expires. Similarly, the bailment will terminate when the purpose for which the bailment was created has been fulfilled.

2. By demand of a gratuitous bailor [21.330] In the case of gratuitous bailments, the bailment may be determined at any time by the bailor: Parastatidis v Kotaridis [1978] VR 449 at 455–456.

3. By wrongful act of the bailee [21.340] Where the bailee commits a wrongful act of such a nature as to jeopardise the title of the bailor to the goods or otherwise to amount to a repudiation of the transaction, such as purporting to sell the goods, the bailment may be terminated. The bailment is not automatically terminated but the bailor has an option whether to terminate it.

case [21.350] In Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR 400, Anderson hired a valuable car under a hire-purchase agreement with finance company Esanda. The agreement provided that Anderson would not part with possession of the car unless Esanda gave prior written consent. Anderson told Esanda that it had decided to sell the car and was given a payout figure by Esanda. Esanda did not give its prior written consent to the sale. Anderson brought the vehicle to a car yard, from which it was stolen. Esanda then sought to repossess the vehicle. Anderson sued the car yard for breach of its duty as a bailee. The car yard argued that Anderson had committed a fundamental breach of the hire-purchase agreement and therefore had no right to sue it in bailment.

chapter 21 Bailments

The New South Wales Court of Appeal observed that a repudiation of a simple bailment terminates the bailment: at [63]. However, where there is a bailment within a contract a bailee does not forfeit their right to immediate possession by any dealing that is unwarranted by the bailment: at [64]. Here there was a bailment of the vehicle to Anderson under a contract (the hire-purchase agreement). A term providing for the way in which the bailee’s right of possession could be terminated would need to be expressed in the “clearest express terms”: at [70]. A term that allows termination by notice for breach of any term of the bailment will not be construed to have the effect of terminating the bailee’s right of possession: at [70]. An act would need to be “very serious” to justify termination of the bailment, “virtually a disclaimer of the contract of bailment”: at [72]. Conversion was not necessarily sufficient to justify termination. Here there was no attempt to defraud Esanda: at [73]. Accordingly, Anderson had a right to immediate possession of the vehicle and had standing to sue the car yard in bailment. 5

4. By destruction of the subject matter [21.360] A bailment is terminated when the subject matter of the bailment is lost or destroyed, or by reason of some change in its nature becomes incapable of use for the purposes of the bailment.

Repossession of bailed goods [21.370] At common law the owner of a bailed chattel cannot use force to repossess the chattel since the bailee’s possession was not wrongful from its inception: Toyota Finance Australia Ltd v Dennis (2002) 58 NSWLR 101 at [126]. In that case it was held that the lessor of a car was not entitled to use force in repossessing the car from a lessee who wrongfully refused to return the vehicle. In some jurisdictions legislation has provided that limited force may be used in repossessing a chattel. 6

Rights against third parties [21.380] If a third party commits a wrongful act against the chattel bailed, for example wrongfully takes possession of it, the bailor has the right to sue the third party in tort for damages for conversion if the bailment is a bailment at will. A bailee is also entitled to bring an action against a tortfeasor who has negligently caused damage to the bailed chattel while the chattel was in the bailee’s possession. Such an independent cause of action arises because the bailee’s possession is good against any tortfeasor: Goodwin v Ron Heath Tyre Service (SA) Pty Ltd (1999) 74 SASR 508 at [80], [85]. Where the bailment is for reward, the bailor’s right to possession of the goods is suspended, and accordingly the general position is that only the bailee can sue the third party for the wrongful interference with the goods. However, if the interference with the goods adversely affects the bailor’s reversionary interest, for example where the goods are destroyed or permanently damaged so that they will not be returned to the bailor in good order at the expiry of the bailment, the bailor may bring an action against the third party: Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 226-227. Where the bailee wrongfully 5 6

See N Palmer, “Title to Sue in Bailment: Repudiation and the Contractual Basis of Liability for Wrongs to Chattels” (2008) 24 Journal of Contract Law 132. See, for example, Criminal Code Act 1924 (Tas), Sch 1, s 45; Criminal Code 1899 (Qld), s 276; Criminal Code 1913 (WA), s 253.

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disposes of the chattel, such act entitles the bailor to terminate the bailment; if the bailor does so, he or she will have an immediate right to possession of the goods enabling the bailor to sue not only the bailee but also the third party in an action for conversion. In each State and Territory legislation provides a statutory framework for the disposal of uncollected goods. 7

Special types of bailee [21.390] At common law a bailee is under a duty to take reasonable care of the goods entrusted to their possession. However, in two cases, namely that of the common carrier of goods and the innkeeper, the common law imposes a strict liability to make good any loss of the goods of the bailor, the effect of which is to make the common carrier or innkeeper an insurer of the goods in their possession. The legal position of these special types of bailee requires separate consideration, particularly since legislation has modified the common law principles.

Common carriers [21.400] A common carrier of goods is one whose business it is, and who holds themselves out as willing, to carry goods from place to place for anyone who thinks fit to employ the carrier. The principles underlying this definition are as follows: 1.

The person must carry on business as a carrier and must not simply be a casual carrier.

2.

If the carrier reserves the right to accept or reject the transport of goods irrespective of whether their vehicles are full or not, they are not a common carrier: James v Commonwealth (1939) 62 CLR 339 at 368.

3.

It is always a question of fact whether a person is or is not a common carrier. The holding out of being a common carrier may be express or implied by a course of business or other conduct.

Private carriers [21.410] To be contrasted with the common carrier is the private carrier. A private carrier does not hold themselves out as willing to convey the goods of any person who chooses to employ them and usually considers the terms and nature of every offer before deciding whether to accept it. Private carriers are not necessarily liable if goods are lost or damaged as they are not insurers of the goods but the onus is on them to prove that the damage was not caused through their neglect: Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 at 234. They are liable for damages if the loss is caused through their neglect, unless the contract of carriage specifically exempts them from liability.

case [21.420] The defendant company contracted to carry the plaintiffs’ valuable mare by road from South Australia to New South Wales. On arrival the mare was found to be seriously ill from travel sickness and died a few days later: at 459-460. The plaintiffs sued the defendant for damages for the loss of the mare. 7

Uncollected Goods Act 1995 (NSW); Australian Consumer Law and Fair Trading Act 2012 (Vic), ss 54-77; Disposal of Uncollected Goods Act 1967 (Qld); Unclaimed Goods Act 1987 (SA); Disposal of Uncollected Goods Act 1970 (WA); Disposal of Uncollected Goods Act 1968 (Tas); Uncollected Goods Act 1996 (ACT); Uncollected Goods Act 2004 (NT).

chapter 21 Bailments

It was held that the defendant had not discharged the onus of proving that the death of the mare had not resulted from a failure to take reasonable care in inspecting the mare during the course of the journey. The defendant was therefore liable in negligence for the loss: Cowper v JG Goldner Pty Ltd (1986) 40 SASR 457 at 463, 472.

Duties of a common carrier [21.430] The duties of a common carrier are: 1.

To carry the class of goods they profess to handle for any person who offers to pay the usual charge.

2.

To carry the goods by the usual route and not to deviate unnecessarily.

3.

To deliver the goods without any unreasonable delay. The carrier is excused from any loss resulting through a delay in delivery caused by the consignee.

4.

To carry out the instructions of the consignor for delivery to the consignee.

There is a duty imposed on the consignor of the goods to take reasonable precautions when sending dangerous articles and to give notice of their dangerous nature to the carrier.

Liability of a common carrier [21.440] At common law, common carriers of goods are liable for any loss or damage, whether due to their negligence or not, that may result to the goods whilst the goods are in their control. In other words, a carrier is an insurer for the safe carriage of the goods, which liability begins from the moment the carrier accepts the goods for carriage until they are delivered to the destination to which the carrier has contracted to carry them. Exceptions to this are loss or damage caused through “acts of God”, the acts of the Queen’s enemies, an inherent fault or deterioration of the goods or faulty and defective packaging: Gould v SE & C Rly Co [1920] 2 KB 186 at 190–191.

Statutory limitations on the liability of a common carrier [21.450] Legislation in some States limits the liability of common carriers in certain respects. 8 The legislation varies from State to State.

New South Wales [21.460] In New South Wales, the Common Carriers Act 1902 (NSW) provides that a common carrier by land is not liable for the loss of valuable items such as gold, silver, bills and notes, silks, furs, jewellery, watches, paintings, etc, if the value exceeds $20 per package, unless at the time of delivery to the carrier, the value and nature of the articles are declared by the consignor and a special rate specified in a conspicuous notice on the carrier’s premises is paid: s 4. Conversely, no other public notice or declaration made by the carrier is deemed to limit or affect their common law liability: s 7. However, these provisions do not affect any special contract made between the carrier and consignor for varying the carrier’s common law liability provided that such contract is signed by the consignor: s 9(c). The common carriers legislation in Tasmania and the Australian Capital Territory is generally to similar effect. 8

Common Carriers Act 1902 (NSW); Common Carriers Act 1874 (Tas); Civil Law (Wrongs) Act 2002 (ACT), Pt 11.2. In Western Australia, the Carriers Act 1920 (WA) was repealed by the Statute Law Revision Act 2006 (WA). In Victoria the Carriers and Innkeepers Act 1958 (Vic) was repealed by the Australian Consumer Law and Fair Trading Act 2012 (Vic), s 235.

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Queensland [21.470] In Queensland, the Carriage of Goods by Land (Carriers’ Liabilities) Act 1967 (Qld) effectively abolished the special status and responsibilities of a common carrier by road within the State. However, the legislation was repealed by the Carriage of Goods by Land (Carriers’ Liabilities) Repeal Act 1993 (Qld). The current position in Queensland would therefore appear to be that neither the common law principles concerning common carriers apply, nor is there any State legislation limiting the liability of a common carrier for the loss of, or damage to, goods which are carried. Accordingly, apart from a situation where the Australian Consumer Law, ss 60, 61 may apply, the liability of the carrier will be determined by the general principles of bailment, tort and contract. Briefly, the position would appear to be that the carrier will be liable to the owner of the goods if the carrier fails to take reasonable care of them, subject to any limitation on that liability by the terms of the contract between the carrier and the owner.

Application of the Australian Consumer Law [21.480] Where the common carrier is carrying goods for a “consumer” the guarantees applying to contracts for the provision of services by the Australian Consumer Law, 9 s 60 may apply. Section 60 provides that there is a guarantee that the services “will be rendered with due care and skill”. This obligation cannot be excluded where the services are of a kind ordinarily acquired for personal, domestic or household use: see [21.230]. Where s 60 applies, it will do so unaffected by the limitations on the liability of a common carrier contained in, for example, the State Carriers Acts (see [21.450]: Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388 at 396–397). However, a significant limitation on the application of s 60 is that the section does not apply in respect of the transportation of goods for the purposes of a business, trade, profession or occupation carried on by the person for whom the goods are transported: s 63.

Rights of a common carrier [21.490] The rights of a common carrier are: 1.

To be paid their charges in advance before they carry the goods.

2.

To claim a lien on the goods until their charges are paid: Stapley v Towing Masters Pty Ltd [2009] NSWCA 382 at [94], [120].

3.

To refuse to carry goods in certain cases, namely, where: (a)

the goods are not of a class the carrier professes to carry (Cowper v JG Goldner Pty Ltd (1986) 40 SASR 457 at 461);

(b)

the goods are improperly or insufficiently packed;

(c)

the carrier’s vehicles have no available space; or

(d)

the destination is not within the carrier’s usual route or radius.

Carriage of goods by rail [21.500] Legislation in New South Wales and Queensland provides that the relevant State railway authority is not a common carrier. 10 In Victoria the Transport Act 1983 (Vic), s 49 formerly provided that the State rail authority was not a common carrier. That provision was repealed by the Transport 9 10

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17. Transport Administration Act 1988 (NSW), s 90; Transport Infrastructure Act 1994 (Qld), s 248.

chapter 21 Bailments

(Amendment) Act 2000 (Vic), s 9. In South Australia an industry participant is not a common carrier: Railways (Operations and Access) Act 1997 (SA), s 17. In Western Australia the government railways are common carriers: Government Railways Act 1904 (WA), ss 2, 37(3). Even where the respective Acts declare the Railways Commissioner to be a common carrier there are frequently provisions which give the Commissioners special exemptions. It is common to have by-laws which limit the amount of the Commissioner’s liability, or the time within which claims must be made, or impose special conditions as to declaration of the nature of the goods and payment of increased charges.

Carriage of goods by air [21.510] The Commonwealth Civil Aviation (Carriers’ Liability) Act 1959 (Cth) gives effect to the Warsaw Convention (as amended), which deals with international carriage by air. The limitation of liability under the Convention applies only to carriage by air, which does not include any travel by land outside the airport: Siemens Ltd v Schenker International (Australia) Pty Ltd (2004) 216 CLR 418 at [23], [83]–[84], [119].

case [21.520] The High Court has held that the failure of an airline to warn of the risk of deep venuous thrombosis (DVT) does not constitute an “accident” under the Convention. An accident is “something external to the passenger”, so it is not an “accident” if a passenger develops DVT: Povey v Qantas Airways Ltd (2005) 223 CLR 189 at [43]–[45], [204]. [21.530] The Civil Aviation (Carriers’ Liability) Act 1959 (Cth) also contains provisions applicable to carriage wholly within Australia and its Territories (except wholly intrastate carriage) and to such carriage between Australia and places outside Australia to which the Warsaw Convention does not apply: Pt IV. With respect to international carriage, the Act imposes on a carrier a liability which is virtually absolute because of the limited defences available to it for death of or injury to passengers and loss of, damage to and delay in delivering baggage and cargo. In each case upper limits are prescribed. Liability to compensate beyond these limits occurs only if the carrier has been guilty of wilful misconduct or fails to issue a ticket or consignment note in a prescribed form. Part IV of the Act has been adopted in all States for intrastate carriage. 11 In respect of intrastate or Pt IV carriage, the liability of a carrier for death or injury is absolute but limited to a stated amount. Provision is also made for compensation for loss of or damage to baggage, again to prescribed limits. The Act provides for the making of regulations to cover loss of or damage to cargo but to date no such regulations have been made. The Act, in respect of all carriage, renders null and void any provision in a contract of carriage which tends to relieve a carrier of liability or to fix limits lower than those laid down in the Act. There is nothing to prevent carriers from voluntarily agreeing to higher limits of liability.

11

Civil Aviation (Carriers’ Liability) Act 1967 (NSW); Civil Aviation (Carriers’ Liability) Act 1961 (Vic); Civil Aviation (Carriers’ Liability) Act 1964 (Qld); Civil Aviation (Carriers’ Liability) Act 1962 (SA); Civil Aviation (Carriers’ Liability) Act 1961 (WA); Civil Aviation (Carriers’ Liability) Act 1963 (Tas).

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Carriage of goods by sea [21.540] The Commonwealth Carriage of Goods by Sea Act 1991 (Cth) contains provisions governing the carriage of goods by sea from any port in Australia to any other port, whether in or outside Australia, but does not cover the carriage of goods by sea from a port in a State to another port in the same State. Intrastate shipping is governed by the common law as modified by State legislation on the subject.

Innkeepers [21.550] A further type of special bailment is that of an innkeeper in respect of the goods of a guest. An innkeeper is essentially a person who holds themself out as providing accommodation for travellers in the course of their journeys. A common example of an innkeeper in more modern terminology is the hotel-keeper. Where an innkeeper without just cause refuses to receive and lodge a traveller, an action is maintainable against the innkeeper without proof of special damage: Constantine v Imperial London Hotels Ltd [1944] KB 693 at 697, 708. The premises operated by an innkeeper are called a “common inn”. In Australia most licensed hotels would technically be common inns. On the other hand a “private” or residential hotel is not generally a common inn. It would seem that a motel is an “inn” in this context since the function of motels is to provide accommodation and food on a casual basis for travellers in the course of their journeys: see Turner v Queensland Motels Pty Ltd [1968] Qd R 189 at 191, 194, where the point appears to have been conceded without argument, and Irving v Heferen [1995] 1 Qd R 255 at 261. At common law innkeepers are insurers of the goods of their guests and may be liable for loss even in the absence of negligence on their part: Williams v Linnitt [1951] 1 KB 565 at 577, 580. However, an innkeeper is not liable for an act of God (for example, a storm). An innkeeper is strictly liable for the loss of the goods of their guest, but is only liable for damage to the goods of a guest where such damage was caused by negligence on the part of the innkeeper or the innkeeper’s employees: Winkworth v Raven [1931] 1 KB 652 at 657. The common law differentiates between a “guest” and a “lodger”. A person who stays at an inn or hotel, regardless of the length of such person’s stay but so long as he or she retains the character of a traveller, is a guest. If a person arranges for accommodation for a definite period at an agreed rate he or she is termed a lodger. The strict liability of an innkeeper for the goods of a guest does not apply in respect of the goods of a lodger or boarder: Ex parte Coulson; Re Jones (1947) 48 SR (NSW) 178 at 184, 202. What is meant by special contract in this context is some contract whereby a person is received on terms other than those on which the owner of an inn holds out that they will receive all travellers, who are willing to pay a price adequate to the sort of accommodation provided: Turner v Queensland Motels Pty Ltd [1968] Qd R 189 at 200. The distinction can be illustrated by the case of Daniel v Hotel Pacific Pty Ltd [1953] VLR 447:

case [21.560] The plaintiff, D, booked accommodation in advance at the defendant’s hotel at a holiday resort. D subsequently arrived at the hotel where he claimed the accommodation on the terms of the prior booking. Without the booking D would not have been received at the hotel except in the event of a cancellation. D, at the invitation of the defendant’s employee, put his money in the hotel safe. The safe was kept locked in the hotel office which was itself locked at night. During the night, thieves entered the hotel and stole the safe.

chapter 21 Bailments

It was held that D was not a guest but a lodger and therefore the hotel was not strictly liable for the loss of D’s money: at 452–453, 455. The hotel, as a bailee, owed D a duty to take reasonable care of goods entrusted to it but it was held that on the facts there had been no breach of that duty: Daniel v Hotel Pacific Pty Ltd [1953] VLR 447 at 450, 456. [21.570] It has been held that a prior booking of accommodation and the booking of accommodation for a specified period, although relevant matters to consider, do not conclude the question whether a person occupying accommodation at an inn is a guest or a lodger which is a question of fact depending in each case on the contract between the parties: Theeman v Forte Properties Pty Ltd [1973] 1 NSWLR 418 at 429.

Statutory limitations on the liability of innkeepers [21.580] Legislation in most States limits the common law liability of innkeepers. The legislation differs in each State.

New South Wales [21.590] The Innkeepers Act 1968 (NSW), s 7 limits an innkeeper’s liability for the loss of, or damage to, a guest’s property to $100, unless: (a)

the cause of the loss or damage was some default, neglect or wilful act of the innkeeper or their employee; or

(b)

the property was deposited with the innkeeper or their employee expressly for safe custody, or the innkeeper refused to receive the property for safe custody.

The innkeeper only obtains this statutory protection if a notice is displayed near the reception office and in the guest’s room notifying the guest of the limitation on the innkeeper’s liability: s 7(2). Where a guest deposits jewellery expressly for safe custody, the innkeeper will be liable for the full value of the jewellery if it is subsequently lost or stolen, notwithstanding that the guest did not indicate the value of the jewellery at the time of depositing it: Theeman v Forte Properties Pty Ltd [1973] 1 NSWLR 418 at 424. The Act exempts an innkeeper from liability for vehicles and any property left in them unless the cause of the loss or damage was some default, neglect or wilful act of the innkeeper or her or his employee: s 6.

Victoria [21.600] The Australian Consumer Law and Fair Trading Act 2012 (Vic) provides that only an accommodation provider is an innkeeper for the purposes of innkeeper’s liability: s 100. An accommodation provider is liable to compensate a guest for the loss of their property in the place of accommodation or while deposited for safekeeping: s 101(1). The accommodation provider is not liable where the loss was due to the guest’s intentional or negligent act or omission: s 101(2). The accommodation provider’s liability is limited to $300 per room, or any higher prescribed amount, provided that the notice set out in Sch 3 is displayed at the reception and in the guest’s room: ss 102(1), 104. No limitation applies where loss was caused by the intentional or negligent act or omission of the accommodation provider or their employees: s 102(2)(c). The accommodation provider’s liability for the loss of property deposited for safekeeping is limited to $3,000 per room, or another prescribed amount: s 103(4).

Queensland [21.610] The Traveller Accommodation Providers (Liability) Act 2001 (Qld) modifies the common law position of strict liability. An accommodation provider’s liability for loss of a guest’s property is limited to

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$250 per room per day despite the amount of the loss or the number of guests who suffer loss in that room: s 12(2). An innkeeper’s common law defences are preserved: s 12(3). This limitation does not apply if the loss is caused by the fault of the accommodation provider or if various conditions relating to notice to guests of the statutory limitation of liability are breached: ss 13(2), 15. In the case of property accepted for deposit in safe custody, the relevant limitation of liability is $50,000: s 14.

South Australia [21.620] Formerly, the Licensing Act 1967 (SA), s 120 limited the liability of a licensed publican for goods brought onto the premises by a guest to $60, except where the goods were lost or damaged through the publican’s default or neglect, or the goods were deposited expressly for safe custody. However, that Act was repealed by the Liquor Licensing Act 1985 (SA) which did not contain any corresponding limiting provision. The 1985 Act was repealed by the Liquor Licensing Act 1997 (SA), which also does not contain any corresponding provision.

Western Australia [21.630] The strict common law liability of an innkeeper was abolished in Western Australia by the Liquor Act 1970 (WA), s 173(1). The Liquor Act 1970 (WA) was in turn repealed by the Liquor Licensing Act 1988 (WA), s 176. The renamed Liquor Control Act 1988 (WA), s 107 now provides that a “licensee” is not liable, beyond such amount as may be “prescribed”, to a “lodger” for loss or damage to the property of the lodger while the property is on the licensed premises, unless: (a)

the property was lost or damaged due to the wilful act, default or neglect of the licensee or a person in the employment of the licensee;

(b)

the property was entrusted to the licensee expressly for safekeeping and the lodger complied with the requirements of the licensee with respect to safekeeping; or

(c)

the licensee did not, at the time the lodger brought the property onto the licensed premises, have displayed, in a manner easily visible to potential lodgers, a notice indicating that liability for loss or damage to the property of the lodger may be limited to the prescribed amount.

A “licensee” is defined as meaning a person who holds a licence or permit under the Act, and a “lodger” is “a person residing, whether casually or permanently, on the premises”: s 3(1). 12

Tasmania [21.640] The Civil Liability Act 2002 (Tas) modifies the common law position of strict liability. An accommodation provider is only liable to compensate a guest for the loss, destruction or damage of property in three circumstances. The first circumstance is where the damage was attributable to the negligence or deliberate or reckless act or default of the accommodation provider or its staff. The second circumstance is where the property is deposited for safe custody and is damaged therein. The third circumstance is where the accommodation provider does not conspicuously display a sign describing these limitations upon liability: s 49A(3). 12

See generally T Atherton, “Innkeepers Liability in WA: Tourist Accommodation Operates Under Uncertain Laws” (1996) 26 University of Western Australia Law Review 160.

chapter 21 Bailments

Australian Capital Territory [21.650] Chapter 11 of the Civil Law (Wrongs) Act 2002 (ACT) mitigates the common law strict liability of traveller accommodation providers. The Act defines “traveller accommodation” as accommodation provided for the use of the travelling public as part of a commercial transaction: s 145(1). The term includes backpacker establishments, bed and breakfast establishments, hotels, motels, resorts and serviced apartments: s 145(2). The liability of a traveller accommodation provider for loss or damage to a guest’s property is limited to the limitation amount: s 151(2). The limitation amount is set by regulations under the Act: s 144. Despite the limitation upon strict liability at common law, the accommodation provider is able to invoke any defences available under the common law: s 151(3). The term “property” does not include a motor vehicle brought onto the grounds by the guest: s 149(2). This limitation of strict liability does not apply if the loss or damage to the guest’s property is caused by the fault of the accommodation provider, or occurs while the property has been placed in safe custody with the accommodation provider, or occurs while the property is left (at the accommodation provider’s request) at a place outside of the guest’s room: s 152(1). The limitation upon strict liability also does not apply if the accommodation provider did not conspicuously display the statutory notice about the limitation in the reception area or room: ss 152(2), 154(1). A copy of the notice may also be given to the guest instead of being displayed in the room: s 154(2). The statutory notice is set out in Sch 1 of the Act.

Northern Territory [21.660] The Accommodation Providers Act 1981 (NT) contains similar provisions to those outlined at [21.590] in relation to New South Wales, except that the statutory limitation on an accommodation provider’s liability in the absence of negligence, etc, is $200, or another amount provided by regulation. An “accommodation provider” is the operator of an “accommodation establishment”. The term “accommodation establishment” is defined to include not only a common inn or other establishment held out as providing, without special contract, sleeping accommodation to a person presenting themselves, but also any premises used for the purpose of providing board and lodgings for members of the public as a commercial enterprise, including a boarding house, guesthouse and lodging house: s 3(1). The term does not include a caravan park or board and lodgings provided through mobile homes, tents or cabins.

Innkeeper's lien [21.670] At common law an innkeeper (including a motel proprietor) has a lien on the goods of a traveller or guest upon a debt for accommodation or services being incurred by the guest. The lien attaches to the goods of a traveller or guest which are situated in the inn and gives the innkeeper the right to take the goods peaceably into their possession and retain them until the debt is paid. However, the lien does not entitle the innkeeper to search through a guest’s belongings and appropriate part of them, for example by removing money from a guest’s wallet: Irving v Heferen [1995] 1 Qd R 255 at 257, 266. The innkeeper’s common law lien carries with it no power of sale but merely a right to detain the goods. In Victoria an accommodation provider will have a lien over the guest’s property where they would have a lien under the common law: Australian Consumer Law and Fair Trading Act 2012 (Vic), s 105. In New

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South Wales an innkeeper has no right of lien over a guest’s vehicle. In the Northern Territory a hotel-keeper has no right of lien over a vehicle or property left in or used in connection with such. 13

Further reading NE Palmer, Palmer on Bailment (3rd ed, Sweet and Maxwell, London, 2009).

13

Innkeepers Act 1968 (NSW), s 8; Accommodation Providers Act 1981 (NT), s 7(2).

chapter 22

Property [22.20] General principles............................................................................................................................................ 514 [22.200] Personal property ........................................................................................................................................ 517 [22.320] Real property .................................................................................................................................................. 520 [22.470] Title to real property.................................................................................................................................... 525 [22.510] Legal and equitable mortgages of land............................................................................................. 527 [22.730] Leases ................................................................................................................................................................ 533 [22.880] Indigenous lands........................................................................................................................................... 537 [22.890] Statutory land rights schemes.............................................................................................................. 537 [22.900] Native title........................................................................................................................................................ 537

Introduction [22.10] After a general introduction to the concept of property, this chapter examines the two types of property: personal and real. Real property relates to interests in land. All other property is personal property. Given its practical importance, real property is examined in more depth in this chapter, with particular attention being given to co-ownership, mortgages, leases, Torrens title, and indigenous title to lands including native title.

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General principles Meaning of property [22.20] Property as a legal concept has two distinct meanings. Property can be either an object or thing which is capable of being owned by a person, or the proprietary rights (rights of ownership) to that object or thing. For example, land and a car are objects that are capable of being owned. The proprietary rights to the land and the car will be vested in a particular person or persons, for example, X. Accordingly, it can be said that the land and the car are property, and that the property (that is, rights of ownership) in the land and the car is vested in X.

Real and personal property [22.30] The law has traditionally classified property as either real property or personal property. Real property comprises land, and all things embedded in the land or attached to it such as minerals, trees and buildings. All interests in land are real except for leases which are classed as personalty. Personal property is all property that is not real property; it includes tangible things that are movable such as a car, books and so on, which are generally referred to as chattels. These are also referred to as choses in possession since they are capable of actual physical possession. Personal property also includes property of an intangible nature, that is, property which does not exist in a physical form but which has economic value such as intellectual property rights, debts, and shares in a company. These are referred to as choses in action since they are not capable of actual physical possession but give rise to rights that are enforceable by taking legal action, for example, to compel the payment of a debt. A share certificate has a physical form but its primary value lies in the intangible property rights it represents – a share in the profits earned by the company. Sometimes property may change from being classified as real property to being classified as personal property and vice versa. For example, trees growing on land are classified as real property; however, once cut down they become personal property. Similarly, bricks, mortar and timber constitute personal property but once affixed to land as a house they become part of the realty – real property. Figure 22.1: Classification of Real and Personal Property

chapter 22 Property

Distinction between ownership and possession [22.40] The legal concept of property in the sense of rights of ownership to a particular object is contrasted with the legal concept of possession. A person has possession of an object (that is, an item of property) at law if he or she has control of it and intends to retain that control. Clearly, ownership and possession often coexist but they may also vest in different persons. For example, X may own a car but give possession of the car to Y. In other words, the legal owner of an object need not also be in possession of the object. A person in possession of an object has rights which are recognised at law even where that person is not the owner. Possession confers a right to retain control of an object against any other person except the person who has rights of ownership in the object. In other words, possession is good against all the world except the true owner. The old case of Armory v Delamirie (1722) 1 Stra 505; 93 ER 664 established this principle:

case [22.50] In Armory v Delamirie (1722) 1 Stra 505; 93 ER 664, a chimney sweep’s boy found a jewel and offered it to a jeweller for sale. The jeweller refused either to pay a price acceptable to the boy or to return it. It was held that the jeweller was liable to the boy for the value of the jewel. Pratt CJ said: “[T]he finder of a jewel, though he does not by such finding acquire an absolute property or ownership, yet he has such a property as will enable him to keep it against all but the rightful owner.” [22.60] A later illustration of the same principle is Hannah v Peel [1945] 1 KB 509:

case [22.70] In Hannah v Peel [1945] 1 KB 509, the defendant was the owner of a house that he had never occupied. The house was requisitioned during the war. The plaintiff, a soldier who was stationed in the house, found a brooch in a crevice on a windowsill. The soldier gave the brooch to the police who subsequently gave it to the owner of the house who sold it. There was no evidence that the owner had any knowledge of the existence of the brooch before the soldier found it. It was held that the soldier had a better claim to the brooch by virtue of his possession than anyone except the true owner, who could not be found. Accordingly, the court awarded him damages against the homeowner equal to the value of the brooch.

The principles applied in the “finding” cases [22.80] The principles applied vary according to whether the articles are found in, or attached to land; or the articles are found on land.

(a) Articles found in, or attached to land [22.90] Where an article is found in, or attached to land, then as between the owner or possessor of the land and the finder of the article, the owner or lawful possessor of land has the better title.

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case [22.100] The plaintiff leased land to the defendants for 99 years. While excavating foundations for a gasholder, the defendants found a prehistoric boat 6 feet below the surface. The lessor claimed the boat. It was held that the plaintiff lessor was entitled to the boat; he had lawful possession good against the world. It was immaterial that he had not been aware of the existence of the boat: Elwes v Brigg Gas Co (1886) 33 Ch D 562. [22.110] A similar situation arose in South Staffordshire Water Co v Sharman [1896] 2 QB 44:

case [22.120] The plaintiff water company owned land containing a pool and employed the defendant, with other workmen, to clean it. While doing so, a workman found two gold rings in the mud at the bottom of the pool. He gave the rings to the police who could not find their true owner and later handed them back to him. The water company sued to recover the rings. The court held that the plaintiff company, as owner of the land containing the pool, was entitled to the rings: South Staffordshire Water Co v Sharman [1896] 2 QB 44. [22.130] The legal position of the finder of an article under the surface of land was considered in Waverley Borough Council v Fletcher [1996] QB 334:

case [22.140] While using a metal detector in a public park owned by the plaintiff local authority, the defendant discovered the presence of an object below the surface. He dug some nine inches and found a valuable medieval gold brooch. The local authority claimed the brooch. The court held that applying the principle that the owner or lawful possessor of land has better title to an object found in or attached to the land than the finder; the plaintiff local authority was entitled to the brooch. The defendant’s right as a member of the public to engage in recreational pursuits in the park did not confer on him a superior right to the brooch. The defendant’s digging and removal of property in the land were acts of trespass that, together with metal detecting, were not recreational pursuits permitted under the terms by which the park was owned: Waverley Borough Council v Fletcher [1996] QB 334.

(b) Articles found on land [22.150] Where an article is found unattached on land, then between the owner or lawful possessor of land and the finder of the article, the owner or lawful possessor of the land has a better title only if he or she exercised such manifest control over the land as to indicate an intention to control the land and anything that might be found on it. On the other hand, where there is no evidence of a manifest intention on the part of the owner or occupier of premises to exercise control over everything on the premises, then the finder will be entitled to possession as against the occupier in the event that the true owner cannot be found. Thus, where the customer of a shop found a roll of banknotes on the shop floor, the customer was held entitled to the banknotes as against the shopkeeper: Bridges v Hawkesworth (1851) 21 LJ QB 75.

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The issue also arose in the case of Parker v British Airways Board [1982] 1 QB 1004:

case [22.160] The plaintiff aircraft passenger found a gold bracelet on the floor of the executive lounge at Heathrow Airport in London. He handed the bracelet to an employee of the defendant Airways Board, which was the licensee of the premises. The owner of the bracelet was never found and the defendants sold it for £850. The finder sued the Board for the value of the bracelet. The court held that since there was no evidence that the Board had manifested an intention to exercise control over all things that might be upon or in the premises (for example, by searching for lost items on a regular basis) the finder had a better right to possession of the bracelet: Parker v British Airways Board [1982] 1 QB 1004. [22.170] Nonetheless, it is clear from the judgments given in Parker v British Airways Board [1982] 1 QB 1004 that the court would have taken a different view had the bracelet been found on the floor of a private home or in a bank vault, where a manifest intention to exercise control over all chattels on the premises would be more readily apparent. This principle was applied in Chairperson, National Crime Authority v Flack (1998) 86 FCR 16 where the occupier of premises was held entitled to the return of a briefcase containing $433,000 found by police during a search under warrant.

(c) Articles found in the course of employment [22.180] Where an employee finds goods in the course of employment, the general principle is that they belong to the employer: City of London Corp v Appleyard [1963] 1 WLR 982. However, where the employment is not the cause of the finding but merely incidental to it, it has been held that the employee is entitled to the goods as against the employer.

case [22.190] The plaintiff, a Queensland policeman, was performing special duty at a drive-in picture theatre. While walking towards the area where he was to supervise traffic leaving the drive-in, he found a small ingot of gold. He claimed the ingot as against the Crown. A majority of the Queensland Supreme Court held that in finding the ingot he was in the same position as any casual passer-by, and that the performance of his duties was not the real or effective cause of the finding. Accordingly, he was entitled to the ingot. The plaintiff as finder was entitled to possession of the ingot against the world – except the true owner who could not be found: Byrne v Hoare [1965] Qd R 135.

Personal property [22.200] The most important aspects of the law of personal property concern ownership and possession.

Acquisition of ownership [22.210] Ownership of personal property can be acquired in various ways: (a)

by purchase;

(b)

by gift;

(c)

by will or descent; or

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(d)

by taking possession of abandoned property.

Acquisition by purchase [22.220] The most common method of acquiring ownership of personal property is by purchase of the property from the owner. In the case of the sale of tangible personal property, such as the sale of a car, television set, or book, there is a contract for the sale of goods, the principles applicable to which have been dealt with separately in this work: see Chapter 14. In the case of the sale or assignment of intangible personal property, such as a debt, or copyright in a book or painting, statutory provisions may require compliance with certain formalities. For example, the Copyright Act 1968 (Cth), s 196(3) provides that an assignment of copyright does not have effect unless it is in writing signed by, or on behalf of the assignor.

Acquisition by gift [22.230] Ownership of personal property may be acquired by gift. The person who makes the gift is the donor, and the person who receives the gift the donee. For a valid gift, the donor must intend to make an unconditional transfer of rights to the property. There must be delivery of the property, handing it over to the donee and thereby giving up control and possession of it.

Acquisition by will or intestacy [22.240] Personal property may be left to a person by will. Alternatively, personal property may pass to a person according to the rules of intestacy, where a person has died leaving property but without having made a will. In all States there is legislation setting out the rules to be applied in determining which of the intestate’s next of kin is entitled to the property.

Acquisition by taking possession of abandoned property [22.250] Ownership of personal property may be acquired by taking possession of abandoned property with the intention of excluding others. However, the owner of the property must have intended to abandon it, that is, relinquish ownership permanently. Thus, “to attract the principle, it would be necessary for the party asserting the abandonment to present evidence which established an express intention to abandon or from which such an intention might be inferred”: Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700 at 706 per Samuels JA. In Moorhouse it was held that the plaintiff author of short stories published by the defendant publishers had not abandoned his ownership in the original typewritten manuscripts of the stories, although he did not request the return of the original manuscripts for some years after their publication. The publishers were liable for the loss of his manuscripts.

Co-ownership of personal property [22.260] Two or more persons may own personal property together. Where they do so, they will hold the property either as joint tenants or tenants in common. For example, in Calabrese v Miuccio [1984] 1 Qd R 430 a husband and wife originally held a savings bank account as joint tenants, and on severance of the joint tenancy held the funds in the account as tenants in common. The distinction between tenancies in common and joint tenancies is discussed in the context of the co-ownership of real property at [22.390]. The principles are applicable to co-ownership of both real and personal property.

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Liens [22.270] A lien is a right of one person to retain the possession of goods, property or securities of another until a liability is satisfied. Liens as a class are very large but one common characteristic is that they arise not by contract to create them but by implication of law. The most common type of lien is the possessory lien. A possessory lien is a right to retain possession of the goods, property or securities of another until the liability of that person has been discharged. For example, at common law a person who does work upon goods is entitled to retain possession of the goods until the charges for the work have been paid, provided the work was done by the order or at the request of the owner or some person authorised by them. Possession is essential to the existence of this type of lien. Such possession must be continuous (that is, uninterrupted possession). For example, a trainer of racehorses who would on general principle have a lien because of their skill and care in improving the horse would have no lien if the owner retained the right to remove the horse and send it to run in races: Thomas v Ranford (1922) 24 WALR 137. Possessory liens are divided into two classes: (a)

general liens; and

(b)

particular liens.

General (possessory) lien [22.280] A general lien entitles a person in possession of chattels to retain them until all claims or accounts of the person in possession against the owner of the chattels are satisfied. Such a lien arises by usage of trade, custom or express contract. Solicitors or bankers (except as to documents specially lodged for safe custody) have a general lien on the documents of their clients which are in their possession until their professional charges have been paid: Hamilton v Bank of New South Wales (1894) 15 LR (NSW) 100. General liens have also been established in the case of mercantile agents, stockbrokers and insurance brokers. Outside those occupations which the common law has previously recognised as giving rise to a right of general lien, the existence of a trade custom or usage establishing such lien is a question of fact and like all other customs must be strictly proved. It must be so notorious that everybody in the trade enters into a contract with that usage as an implied term. It must be uniform as well as reasonable and must be certain: Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48. In Fearnley v Finlay [2014] 2 Qd R 392 the question at issue was whether the Storage Liens Act 1973 (Qld) applied to an oral contract for the agistment of cattle. The Act provides for a lien over goods deposited with a “storer” for storage and the definition of “goods” is wide enough to include cattle. The Queensland Court of Appeal held that no lien arose under the Act since the purpose of the agistment contract was not for “storage” and: “As a matter of ordinary meaning, the cattle are not ‘deposited with the storer for storage’…” (at [24] per Jackson J).

Particular (possessory) lien [22.290] A particular lien is the right of holding particular goods until all charges in respect of those goods only are paid. If the owner of such goods is prepared to pay such charges they cannot be retained pending payment of a general balance due to the person having the particular lien. Examples of a particular lien include situations where: (a)

the person in possession of goods has employed skill in working on the goods, and the goods are thereby improved, for example an accountant has a lien in respect of work done on books of

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account (Re Gleebs Pty Ltd [1933] VLR 293) and a repairer has a lien for the cost of repairs to goods (Stoker v Picken (2012) 209 FCR 132); and (b)

a person is compelled to accept and maintain goods on behalf of another and the charges remain unpaid.

Personal property as security [22.300] Personal property can be security for the payment of a debt. A mortgage over personal property can be given, allowing the mortgagee to take possession of the goods and sell them in the event of default by the mortgagor under the contract for the loan of money. Where security over personal property is given in writing, it will usually constitute a bill of sale and, historically, would have to be registered under the relevant bills of sale or other chattel securities legislation in the various States and Territories. To harmonise regulation across jurisdictions and to minimise complexity caused by multiple registers, a new national personal property securities regime came into force on 30 January 2012 through a single national law (the Personal Property Securities Act 2009 (Cth)) supported by a national online register of security interests. The Act applies to personal property security interest transactions, which have the effect of securing payment or performance of an obligation, having regard to the substance of the transaction, rather than the form: see further [19.900].

Bailments [22.310] A bailment is the legal relationship arising from the transfer of possession of personal property from one person (the bailor) to another person (the bailee) under circumstances that when the purpose for which the goods were bailed has been fulfilled, the bailee is under a duty to return the property to the bailor, or deliver them according to the bailor’s instructions. The subject of bailments does not involve the transfer of ownership in personal property but rather the legal incidents arising from the temporary transfer of possession to a person who is not the owner. The relationship of bailor and bailee gives rise to certain legal rights and obligations considered separately in Chapter 21.

Real property [22.320] This brings us to the nature of the interests (that is, rights of ownership, mortgages, etc) that may be created in real property.

Nature of land [22.330] Land generally includes not only the surface of the land but also things attached to it, substances below the surface, and the airspace above. The surface of the land includes not only natural things like soil and water but also those added by human endeavour such as buildings and crops. At common law, land included whatever was beneath the surface of the land extending down to the centre of the earth, for example, minerals and other items. The common law principle that the owner of land owned the minerals beneath the surface of the land did not apply to gold and silver, which belonged to the Crown. 1 Legislation has modified the common law principles; the general effect is to reserve minerals below the surface of land to the Crown. 2 1 2

Case of Mines (1568) 1 Plow 310; 75 ER 472; Wolley v Attorney-General (Vic) (1877) 2 App Cas 163. See, for example, Crown Lands Act 1989 (NSW), s 171; Coal Acquisition Act 1981 (NSW), s 5 (now repealed); Petroleum (Onshore) Act 1991 (NSW), s 6; Mineral Resources (Sustainable Development) Act 1990 (Vic), s 9; Petroleum Act 1998

chapter 22 Property

At common law, land also included the airspace above the land but only to the extent necessary for the ordinary use and enjoyment of the land, including any structures on the land: Bernstein v Skyviews & General Ltd [1978] QB 479. An argument that a similar approach should be taken in relation to subsurface ownership was rejected by the United Kingdom Supreme Court in Bocardo SA v Star Energy UK Onshore Ltd [2011] 1 AC 380.

Fixtures [22.340] Land includes things fixed to the land such as buildings and fences. The test for determining whether an object is a fixture is whether the object is affixed to land with the intention of becoming a permanent feature. The necessary intention is ascertained by reference to the facts and circumstances surrounding the fixing of the object to the land. Jordan CJ explained the relevant principles in Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712: “If a chattel is actually fixed to land to any extent, by any means other than its own weight, then prima facie it is a fixture; and the burden of proof is upon anyone who asserts that it is not. … The test of whether a chattel which has been to some extent fixed to land as a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period, or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose. In the former case it is a fixture. … If it is proved to have been fixed merely for a temporary purpose it is not a fixture. The intention of the person fixing it must be gathered from the purpose for which and the time during which user in the fixed position is contemplated.” In National Australia Bank v Blacker (2000) 104 FCR 288 at [16], Conti J emphasised that: “There is no single test which is sufficient to determine whether an item of property is a chattel or a fixture. It is clear that the court ought to have regard to all the circumstances of the case in making its determination … No particular factor has primacy and each case depends on its own facts.” Applying these principles, it has been held that air-conditioning plants installed in certain buildings were fixtures: Pan Australian Credits (SA) Pty Ltd v Kolim Pty Ltd (1981) 27 SASR 353. Similarly, a fibreglass home erected at an exhibition centre and attached to the floor by steel rods driven into the ground and bent over onto welded metal plates had become a fixture: Wellsmore v Ratford (1973) 23 FLR 295. On the other hand, the construction of a temporary office by the licensee of a warehouse was not a fixture: Ball-Guymer v Livantes (1990) 102 FLR 327. In that case, the office’s partition walls were fixed to the floor with masonry nails and bolted to the warehouse’s sidewalls. In Agripower Barraba Pty Ltd v Blomfield (2015) 317 ALR 202 (NSWCA) some fifteen items, including a mineral processing plant and associated equipment, were in dispute: at [91] – [103].

Interests in land [22.350] This brings us to the nature of the interests that may be created in land. Such interests fall under the following headings: (a)

estates in land;

(b)

co-ownership of land (that is, joint tenancies and tenants in common);

(c)

legal and equitable mortgages; and (Vic), s 13; Mineral Resources Act 1989 (Qld), s 8; Petroleum Act 1923 (Qld), ss 9, 10; Mining Act 1971 (SA), s 16; Petroleum Act and Geothermal Energy 2000 (SA), s 5; Mining Act 1978 (WA), s 9; Petroleum and Geothermal Energy Resources Act 1967 (WA), s 9; Mineral Resources Development Act 1995 (Tas), s 6; Crown Lands Act 1976 (Tas), ss 16, 54.

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(d)

other equitable interests in land.

Estates in land [22.360] Due to the historic growth of the feudal system of landholding (known as “tenures”), one of the basic doctrines of real property law is that the Crown owns all land. Owners of interests in land hold the land directly or indirectly from the Crown. In other words, a person cannot own land absolutely; what they own is an interest in the land. This is an estate in land, separate from the land itself. Estates in land vary according to the length of time they are held. Estates in land are classified as either: (a)

freehold estates; or

(b)

leasehold estates.

Freehold estates are of uncertain duration, while leasehold estates are of certain duration, or at least for a period capable of being rendered certain.

Freehold estates [22.370] There are two main types of freehold estate. They are: (a)

the estate in fee simple; and

(b)

the life estate.

Fee simple is the most absolute form of ownership in land. It confers ownership on the holder of the fee simple estate and their assigns and successors indefinitely. It is the most common estate in land and is the interest usually acquired in real property transactions. The holder of a fee simple estate can freely dispose of the estate by sale, gift, or will. The other main type of freehold estate in land, the life estate, is granted to a person for the duration of his or her life, or for the life of some other identified person. A life estate can be created by sale, or gift, or by will. The holder of a life estate, who is called the life tenant, is entitled to occupy the land for the duration of his or her life, or the life of some other identified person. The life tenant is entitled to receive the rents and profits of the land while his or her life estate endures. The life tenant is obliged not to commit acts of waste which will diminish the value of the land, like permitting the house or fences to fall into disrepair, unless the terms of the instrument creating the life estate expressly allow the life tenant to commit waste. When the person who defines the duration of the life estate dies, the estate ceases and vests in the person who is entitled to the future interest in the land. A future interest arises where a person is granted an estate which does not allow immediate possession; rights to the land are to begin at some future time. A future interest may be a remainder or a reversion. The holder of an estate creates a reversion when he or she grants a lesser estate to another person – for example, when the owner of a fee simple estate grants a life estate to another person. In this case the land will revert to the grantor upon termination of the life estate. A remainder is the grant of a future interest to a person not previously entitled to such an interest, for example where A grants land to B “for her life, then to C”, C acquires a future interest in the property by remainder.

Leasehold estates [22.380] The other principal type of estate is the leasehold estate where, for example X, as lessor, grants a lease to Y, the lessee, for a period of 20 years. A leasehold estate creates an interest in land; a lease is more than a personal contract between landlord and tenant. Leases are discussed at [22.730].

chapter 22 Property

Co-ownership [22.390] Two or more persons can hold concurrent interests in land. There are two types of concurrent interest in land: (a)

joint tenancy; and

(b)

tenancy in common.

Joint tenancy [22.400] In a joint tenancy, each joint tenant owns an equal, undivided interest in the whole of the property. If A, B and C purchase 100 hectares of land as joint tenants, each of them owns an undivided one-third interest in the whole 100 hectares. It follows that none of the joint tenants is entitled to a distinct parcel of the land separate from the others. The distinguishing elements of a joint tenancy are the “four unities” and the right of survivorship.

Unities of a joint tenancy [22.410] The four unities must be present for a joint tenancy to exist. They are: (a)

unity of possession;

(b)

unity of interest;

(c)

unity of title; and

(d)

unity of time.

Unity of possession means that each joint tenant is entitled to possession of the whole of the land concurrently with the other joint tenants. Unity of interest means that each joint tenant is entitled to the same kind of estate in the land (such as a fee simple, or life estate). Each joint tenant’s estate must be of the same nature, extent and duration. If A, the owner in fee simple of an estate, grants a life estate to B (a freehold estate) and a lease to C (a leasehold estate), B and C cannot be joint tenants because they have estates of a different nature and duration. Likewise, if A grants a two thirds interest to B and a one third interest to C, B and C are not joint tenants for they have estates of a different extent. Unity of title means that the title of all the joint tenants must have arisen by virtue of the same legal instrument such as a will or a deed. Unity of time means that the concurrent interest of each joint tenant must vest at the same point in time.

Right of survivorship [22.420] The final element of a joint tenancy is the right of survivorship. “Survivorship is the most important incident of a joint tenancy and unless the right of survivorship exists the tenancy is not joint”: Re Robertson (1943) 44 SR (NSW) 103 at 105 per Roper J. The right of survivorship means that on the death of one joint tenant, that concurrent interest automatically passes to the surviving joint tenant or tenants. Accordingly, a deceased joint tenant’s interest cannot be disposed of by will, nor does it pass to the deceased’s heirs under the rules of intestacy. “If one joint tenant dies his interest is extinguished. He falls out, and the interest of the surviving joint tenant or joint tenants is correspondingly enlarged”: Wright v Gibbons (1949) 78 CLR 313 at 323 per Latham CJ.

Severance [22.430] Severance of a joint tenancy occurs on destruction of one of the four unities. A joint tenancy can be severed by:

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1.

Sale or assignment of a joint tenant’s interest. A joint tenant can dispose of his or her interest by way of sale. This effects a severance of the joint tenancy – converting it into a tenancy in common. In other words, a joint tenancy no longer exists as between the interest of the joint tenant who has sold and the other joint tenants. The purchaser of the alienated interest is entitled to dispose of it – by will, for example.

2.

An agreement, or a course of dealing, which shows that the joint tenants are mutually treating the joint tenancy as having been severed: Abela v Public Trustee [1983] 1 NSWLR 308; Saleeba v Wilke [2007] QSC 298; Hycenko v Hrycenko [2016] VSC 247 at [44].

3.

Merger, that is, where one of the joint tenants acquires an interest in the estate larger than that held by the other joint tenants. This destroys the unity of interest in the joint tenancy.

4.

Partition, that is, where the joint tenants agree to or seek a court order to compel severance of the joint tenancy.

5.

A maintenance agreement approved by, or a court order of the Family Court.

Tenancy in common [22.440] A tenancy in common is a form of co-ownership where two or more persons own distinct shares in land, although each is equally entitled to possession of the land. In other words, although they have distinct and several title to shares in the land, it is not physically divided between them. Accordingly, tenants in common have unity of possession. This is the only similarity between a joint tenancy and a tenancy in common. A tenancy in common need not have the elements of unity of title, unity of time or unity of interest, all necessary for a joint tenancy. Tenants in common can acquire their interests at different points of time, and the size of the estates or interests in the land held by them need not be equal. One tenant in common can hold a two-thirds interest and the other, a one-third interest. Tenants in common are in the same position as owners of an entire separate estate with respect to their undivided shares. Accordingly, a tenant in common can dispose of that interest by way of sale, gift, or will. The most important difference between a tenancy in common and a joint tenancy is that there is no right of survivorship for a tenancy in common: in other words, the interest of a tenant in common does not terminate on their death and pass to the surviving tenants in common. If A and B acquire the ownership of land as tenants in common and B dies, B’s undivided interest in the land passes to the beneficiaries named in the will or, in the event of intestate death, to the next of kin under the intestacy rules.

Termination of co-ownership [22.450] Both a joint tenancy and a tenancy in common can be terminated either by partition or by a statutory trust for sale pursuant to a court order. If the court orders a statutory trust for sale, the property is sold and the proceeds divided between the co-owners. If the property is partitioned, it will be subdivided and a separate lot transferred to each of the former co-owners.

Creation of concurrent interests [22.460] Where an estate in land is disposed of to two or more people concurrently, then the nature of their concurrent interests (that is, whether there is a joint tenancy or a tenancy in common) will be determined by the express or implied intention of the words used in the conveyance.

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At common law, a disposition “to X and Y” was presumed to create a joint tenancy. Some jurisdictions have statutorily affirmed this presumption, 3 while others have reversed it. 4 It is possible for two or more people to hold an estate as joint tenants between themselves and as a tenant in common with respect to a third person. If X, Y and Z are joint tenants and Z sells his interest to A, A is a tenant in common as to one third of the estate, while X and Y hold the remaining two thirds as joint tenants between themselves but as tenants in common with A.

Title to real property [22.470] There are two systems of title to real property in Australia: (a)

old system title; and

(b)

Torrens title.

Old system title [22.480] “Old system” title is “general law” or “common law” title. Documents (called “deeds of conveyance”) trace the “chain of title” to the land by reference to the various owners of the land. To establish the title of the present owner, a potential purchaser of the land must trace the owner’s title back over a period of years. This involves examination of all documents (that is, deeds of conveyance, mortgages, wills and other documents relevant to title) to ensure that the land is not subject to interests not mentioned in the contract of sale that might take priority over that of the purchaser. Purchasers had to make a time-consuming search, sometimes back to the original Crown grant of title, laboriously tracing a vendor’s title to an unchallengeable beginning – to a “good root of title”. Legislation lessened this task, obliging a purchaser to trace the vendor’s chain of title back for a period of 30 years only. 5 In time, authorities established a general registry of documents, enabling the registration of documents affecting land. This alleviated some of the problems arising from checking a vendor’s title to land. 6 All documents registered in conformity with the registration of deeds legislation have priority over other instruments, whether registered or not, according to the date of their registration, not creation. However, registration does not give a document any greater validity than that which it possesses intrinsically. It gives a document priority and no more. Even if a deed is registered, the efficacy of a transaction depends on the deeds that, if inherently defective, create similar defects in the chain of title.

3

For example, with respect to Torrens title land: Real Property Act 1900 (NSW), s 100: for the construction of this provision, see Cassegrain v Gerard Cassegrain & Co (2015) 254 CLR 425; Transfer of Land Act 1958 (Vic), s 30(2); Real Property Act 1886 (SA), s 74; Transfer of Land Act 1893 (WA), s 60; Land Titles Act 1980 (Tas), s 44.

4

For example, with respect to “old system” land: Conveyancing Act 1919 (NSW), s 26; Property Law Act 1974 (Qld), s 35. Also in Queensland as regards Torrens title land: Land Title Act 1994 (Qld), s 56. Conveyancing Act 1919 (NSW), s 53(1); Property Law Act 1958 (Vic), s 44(1); Property Law Act 1974 (Qld), Pt 18, Div 3 (s 237(1); Sale of Land Act 1970 (WA), s 22; Conveyancing and Law of Property Act 1884 (Tas), s 35 (20 years).

5 6

Conveyancing Act 1919 (NSW), Pt 23; Property Law Act 1958 (Vic), Pt 1; Property Law Act 1974 (Qld), Pt 18, Div 3, (ss 241 – 249); Registration of Deeds Act 1935 (SA); Registration of Deeds Act 1856 (WA); Registration of Deeds Act 1935 (Tas); Land Title Act 2000 (NT), Pt 2, Div 1.

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Torrens title [22.490] Torrens title is a system of registered title. It was introduced in South Australia in 1858 by Sir Robert Torrens with the object of simplifying title to land, facilitating dealings with it, and securing indefeasibility of title to all registered proprietors except in certain specified cases. Other Australian States adopted it soon after under the Real Property Acts and the Land Titles Acts, and the bulk of land in Australia is now held subject to it. 7 Torrens is based upon a document of certification (the Certificate of Title) issued by the State in duplicate. This certifies as to the title of the person named. One copy of this certificate is held by the owner or registered proprietor and the other by the State, and is recorded in the Register. 8 The proper government office must register all dealings with land on the duplicate deeds. The certificate of title reveals a person’s title to land and dealings with it; it does away with the necessity of keeping many documents. The cost of dealing (by sale, mortgage, etc) with land under the Torrens system is much less than dealing with old system title. To confer a legal interest under the Torrens system, only certain statutory instruments, such as transfer, lease and mortgage are acceptable. These statutory instruments must be registered. If the land is dealt with in some other way, even when still in the form prescribed by the relevant Torrens statute, but not registered, the interest conferred is equitable only. Torrens title is more than a system of merely registering documents to obtain priority and enable accurate searching (as with the registry of deeds legislation). Torrens title is a system of title by registration. Registration of dealings under the Act vests title to the interest in the proprietary owner of that interest. On registration, the owner of a registered interest in land has a paramount estate, subject only to certain limited exceptions. Exceptions may arise where the title was obtained by fraud or where a claim can be enforced in personam against a registered proprietor: Bahr v Nicolay (No 2) (1988) 164 CLR 604; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; and Australia and New Zealand Banking Group Ltd v Loftus [2016] VSC 58. 9 Subject to limited statutory exceptions, the title obtained through registration is absolute and indefeasible, a state-guaranteed title: Breskvar v Wall (1971) 126 CLR 376; Frazer v Walker [1967] 1 AC 569. A registered proprietor takes the interest free from any other unregistered interests like equitable interests. While these equitable interests could have been enforceable against the earlier registered proprietor who created them, they are not enforceable against a properly registered purchaser’s interest. Registration cures any defects in the previously registered proprietor’s title. Contrast this with the registry of deeds legislation for old system land, which does not cure defects in title. The owner of an estate in fee simple who is the registered proprietor of Torrens title land has an interest recorded on the Register. If he or she transfers this estate, creates a leasehold estate, or grants a mortgage, upon the registration of the appropriate instrument, the new registered proprietor’s lease, mortgage, etc, is recorded on the Register. 7 8 9

Real Property Act 1900 (NSW); Transfer of Land Act 1958 (Vic); Land Title Act 1994 (Qld); Real Property Act 1886 (SA); Transfer of Land Act 1893 (WA); Land Titles Act 1980 (Tas); Land Titles Act 1925 (ACT); Land Title Act 2000 (NT). In Queensland, a certificate of title no longer issues automatically in paper form. Such certificate will be issued only where the registered proprietor lodges a written request with the Registrar: Land Title Act 1994 (Qld), s 42(1). See further LB Moses and B Edgeworth, “Taking it Personally: Ebb and Flow in the Torrens System’s In Personam Exception to Indefeasibility” (2013) 35 Sydney Law Review 107. A recent example is Smilevska v Smilevska (No 2) [2016] NSWSC 397.

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Caveats under Torrens title [22.500] Unregistered interests are not invalid; they take effect in equity. Although an equitable interest will be defeated by due registration of another interest, there is provision for the protection of equitable interests with caveats. A caveat is a written document lodged at the registry which prevents registration of a later instrument until the caveat lapses, is withdrawn, or the matter is determined by order of a court. A person who claims an equitable interest in the land can lodge a caveat forbidding the registration of any dealings affecting the land. A caveat “freezes” the Register. In J & H Just Holdings Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 552, Barwick CJ described the purpose of a caveat: “Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator’s estate or interest though if noted on the certificate of title, it may operate to give such notice.” In Black v Garnock (2007) 230 CLR 438 at [80], Callinan J disagreed with Barwick CJ’s purpose of a caveat and stated that: “What is much more likely to be subversive of the whole of the scheme of the Torrens system is that a person interested in, or entitled to deal with land, who has not acted fraudulently might suddenly and unexpectedly be saddled with, or postponed to, an equitable estate or interest in land which could have been, but was not made the subject of protection by prompt lodgment of an instrument or the filing of a caveat pending the lodgment.” Caveatable interests include the interest of a purchaser under a valid contract of sale, and the interest of an equitable mortgagee. Failure by the holder of an equitable interest (for example an unregistered mortgage) to lodge a caveat in respect of that interest (where a caveat might have alerted the holder of a subsequent equitable interest to the existence of the earlier interest) will not necessarily result in the postponement of the earlier interest but is capable of doing so: Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745 and Clark v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790; Stone Leaf Capital Pty Ltd v Daly [2014] NSWSC 477 at [49]-[50].

Legal and equitable mortgages of land [22.510] A mortgage of land at common law (that is, “old system”) title 10 takes the form of a transfer or conveyance of ownership, either legal or equitable, to the creditor (the mortgagee) in consideration of the debt, coupled with a provision, called the “proviso for redemption”, that on repayment by the debtor (the mortgagor) the mortgagee will re-transfer the property to the mortgagor. Mortgages are of two kinds: legal and equitable. A legal mortgage is one that is recognised both at law and in equity; and an equitable mortgage is one that is recognised in equity only.

Legal mortgages [22.520] A legal mortgage of land under common law (that is, “old system”) title is created by a conveyance or assignment of the legal estate by the mortgagor to the mortgagee subject to a proviso for reconveyance by the mortgagee on repayment of principal and interest by the mortgagor by the due date. Unless the mortgage document otherwise provides, the mortgagee is entitled to the possession of the subject 10

That is, the system of title-holding applicable to land in Australia, which has not been brought under the Torrens system of land registration.

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property immediately upon the execution of the mortgage document. In practice the mortgagor is left in possession and many forms of mortgage permit the mortgagor to retain possession of the property until default is made. The mortgage deed is usually a lengthy document as clauses designed to give the mortgagee various powers in order to secure the mortgagee’s rights are incorporated, one of the most important being the power of sale on default in payment or in performance of the covenants. At common law, the property conveyed vested in the mortgagee immediately and once the day named in the mortgage deed for payment had passed without the mortgagor effecting repayment, the estate of the mortgagee became absolute and all rights of the mortgagor were forfeited. This is still the strict common law position. In equity, by contrast, the mortgage is only a security. Notwithstanding default, the mortgagor has a right to redeem the property after the agreed time on payment of all moneys due to the mortgagee. This right is called the “equity of redemption”. Equity has regard to the intention of the parties rather than the form of the deed, and considers that the parties intended the mortgage as a security for the payment of money to the mortgagee. So long as the mortgagee receives all that is due, no injustice is done in compelling the mortgagee to restore the property to the mortgagor. The mortgagor’s “equity of redemption” is regarded by all modern courts possessing equitable jurisdiction as not only a personal right to “redeem” after default but also an equitable estate in the land. This estate can be conveyed by the mortgagor by second mortgage, or dealt with by will. The Court of Chancery from early times laid down that an agreement by the parties to a mortgage that the mortgage should not be redeemable, should not have any effect in equity. Whenever a conveyance of an estate is originally intended as a security for the payment of money, whether this intention appears from the deed itself, or by any other instrument, or even by parol evidence, it is always to be considered in equity as a mortgage and to be redeemable on the usual terms. This is so even though at the time of the transaction there may have been an express agreement between the parties that the property should not be redeemable, or that the right of redemption should be confined to a particular time, or to a particular person, or description of persons. Such an agreement is void. Any agreement to “clog” or fetter this equitable right is invalid.

Equitable mortgages [22.530] An equitable mortgage is a transaction that creates an interest in favour of the creditor (the mortgagee) but does not vest the legal estate in the mortgagee. It gives to the mortgagee equitable rights and remedies that may be similar to those possessed by the holder of a legal mortgage. Equitable mortgages are of two kinds: (a)

mortgages of equitable interests in land; a second mortgage of land under common law title; and

(b)

mortgages of legal interests that do not convey the legal estate to the mortgagee, notably when the transaction is not by deed but is effectuated by an informal contract.

Equitable mortgages of legal interests, which do not convey the legal estate to the mortgagee, may be created in the following ways: (a)

by an agreement to give a legal mortgage;

(b)

by mere deposit of title deeds; and

(c)

by an informal agreement creating an equitable interest by way of security in land.

Agreement to give a legal mortgage [22.540] An agreement to give a legal mortgage is treated by courts exercising equitable jurisdiction as creating a mortgage. Equity may order specific performance of the agreement to grant the mortgage. The loan money must generally be advanced before equity will regard a mortgage as implied.

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The fact that a person is not possessed of the legal estate in property does not preclude them from giving a mortgage over the interest. Any agreement by which a person agrees to transfer or assign their rights in property, whatever those rights may be and whether they are in existence or whether they may come into existence in the future, is sufficient to operate as a valid equitable assignment. This is the case provided that it is made for valuable consideration and the subject property is capable of being identified.

Deposit of title deeds [22.550] Depositing real property title deeds creates a good equitable mortgage. The deposit of a title deed with the mortgagee is regarded as a sufficient act of part performance. The mortgagor agrees that the interest in the property (comprised in the deeds) will be liable for the debt. The mortgagor binds himself to do all that is necessary to effect the vesting in the mortgagee of such estate as a mortgage creates. Such a deposit may be accompanied by a memorandum as to the terms of the deposit. Although the mere deposit of the deeds is sufficient to create an equitable mortgage, the prudent course to adopt is to ensure that a memorandum is executed at the same time setting out the terms upon which the deposit is made and defining the powers of the mortgagee in the event of default.

Rights and liabilities of mortgagors [22.560] With a legal mortgage at common law (“old system” title), the mortgagee becomes the owner. In equity, however, the mortgagor has, by virtue of the equity of redemption, an equitable estate in the land corresponding to the original legal estate. This equitable estate may be transferred or otherwise dealt with by the mortgagor and is liable for debts. The mortgagor is not entitled to remain in possession in the absence of agreement. A clause to the effect that the mortgagor may remain in possession until default is usually inserted in a mortgage deed. In practice the mortgagor is left in possession until default and the mortgagee decides to enter into possession. The mortgagor, if in possession, is not bound to account to the mortgagee. The mortgagor must not do anything to reduce the mortgagee’s security. Apart from statute, a mortgagor in possession can make a lease binding against himself or herself but not against the mortgagee. Statutes in most States regulate the power of leasing by the mortgagor and provide for the mortgagor’s granting of a lease binding on the mortgagee. On payment of the principal and interest on the due date (at common law) or thereafter before foreclosure or exercise by the mortgagee of their power of sale (in equity), the mortgagor is entitled to have the mortgaged property revested. The right to have the land reconveyed to the mortgagor is known as the “legal right to redeem”. Apart from statutory provision in a number of States, the mortgagor is not entitled to redeem the mortgage before the due date. The estate of the mortgagor may be terminated by: (a)

foreclosure;

(b)

exercise by the mortgagee of their power of sale; or

(c)

merger of the two estates.

Rights and liabilities of mortgagees [22.570] Upon the execution of a legal mortgage, a mortgagee is, in the absence of agreement or statutory provision to the contrary, entitled to possession of the property mortgaged. A mortgagee in possession is liable to account for rents and profits. If in personal occupation the mortgagee may be charged an occupation rent. The mortgagee may not charge for their own services but is

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entitled to be recompensed for expenses incurred in repairing the property. The mortgagee may lease the property but the extent of their common law power to lease is uncertain; the power of a mortgagee to lease the mortgaged property is usually regulated by statute. A mortgagee’s interest is alienable either by transfer or by sub-mortgage (that is, a mortgage of their interest as mortgagee), is transmissible on death, and is liable for the mortgagee’s debts.

Mortgagees' remedies [22.580] A mortgagee, on default by the mortgagor may take proceedings: (a)

for foreclosure;

(b)

to compel payment of the principal;

(c)

to enter into possession;

(d)

to appoint a receiver of the rents and profits;

(e)

to exercise their power of sale.

Foreclosure [22.590] Although on default equity protects the mortgagor from the loss of their interest in the mortgaged property, if the mortgagor continues in default the mortgagee may institute proceedings for foreclosure. This is effected by suit in equity in the case of common law mortgages. The procedure is by order nisi which gives the mortgagor at least a six-month period to redeem and, finally, by order absolute if the mortgagor has not redeemed within the six months. The court has discretion to make an order for sale in lieu of foreclosure. The effect of a foreclosure order absolute is that the estate of the mortgagee becomes absolute in equity as well as in law, and the right to redeem is removed altogether. In other words, a decree for foreclosure extinguishes the interest of the mortgagor in the land. It does not terminate the right of the mortgagee to bring an action for the recovery of the mortgage debt, but the bringing of such an action revives the mortgagor’s right to redeem.

Compel payment of the principal [22.600] If payment is overdue, the mortgagee may sue at law on the covenant to pay contained in the mortgage instrument.

Entry into possession [22.610] A mortgagee under a legal mortgage of land at common law is entitled to possession in the absence of provision to the contrary. However, most old system mortgages permit the mortgagor to remain in possession until default and provide that, upon default, the mortgagee may enter into possession. Most of the relevant statutes provide, in addition, that upon the mortgagor’s default the mortgagee may enter into possession. A mortgagee may enter into possession either by actual physical entry or by taking legal proceedings to eject the mortgagor from the property.

Appointment of a receiver [22.620] The appointment of a receiver may be under an express or statutory power.

Power of sale [22.630] The mortgagee is given power by statute in all States to sell the mortgaged property. The mortgagee must exercise this power in good faith. Although the power of sale is given for the mortgagee’s benefit, the mortgagee must not use it recklessly as the mortgagor has an interest in any surplus: Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; Leach v Commonwealth Bank of Australia [2014] QSC 295.

chapter 22 Property

In Queensland, a mortgagee has a statutory duty “to take reasonable care to ensure that the property is sold at the market value” under the Property Law Act 1974 (Qld), s 85(1). Mortgagees in Queensland need to ensure that a sale is properly advertised and that particulars of the property are correctly stated: Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; Emerson v Custom Credit Corp Ltd [1994] 1 Qd R 516; Cameron v Brisbane Fleet Sales Pty Ltd [2002] 1 Qd R 463. Whether it is necessary to establish a causal link between the breach of Property Law Act 1974 (Qld), s 85(1) and the failure by the mortgagee to obtain a sale of the property at market value is an issue on which there is a divergence of opinion: Pola v Australia and New Zealand Banking Group Limited [2015] NSWCA 146 at [147]-[149] (considering s 85(1) of the Property Law Act 1974 (Qld)); compare Sablebrook Pty Ltd v Credit Union Australia Ltd [2008] QSC 242 at [75]-[76]. In other States, the precise nature of the mortgagee’s duty has not been completely resolved. It is uncertain whether a mortgagee has a duty to take reasonable precautions to obtain a proper price: Hallifax Property Corp Pty Ltd v GIFC Ltd (1987) 4 BPR 9708. Queensland apart, courts in other States and Territories have tended to apply a duty of good faith (that is, a duty to act without wilful or reckless disregard of the interests of the mortgagor) rather than a duty to take reasonable care to obtain a proper price: Brutan Investments Pty Ltd v Underwriting and Insurance Ltd (1980) 39 ACTR 47; Expo International Pty Ltd v Chant [1979] 2 NSWLR 820; Walsh v Doyle [2015] WASC 96. Fixing the reserve price of a property to be sold at auction at half its valuation – in the absence of fraud or collusion – does not of itself suggest that a mortgagee is not acting in good faith to obtain the best price reasonably available in all the circumstances: Southern Goldfields Ltd v General Credits Ltd (1991) 4 WAR 138. The court may grant an injunction to restrain the sale of a mortgaged property at a substantial undervaluation:

case [22.640] A property was advertised as: “Unattractive, subject to flooding, filthy, but has good sandy soil, backs on to permanent creek and has development consent to build. Would clear into excellent grazing land. Will go cheap.” The form of the advertisement was criticised by the trial judge who granted an injunction to restrain the sale of the property for $8,000, when its true value was around $15,000: National Commercial Banking Corp of Australia Ltd v Solanowski [1984] NSW Conv R 55-194. [22.650] In New South Wales, relief may be obtained under the Contracts Review Act 1980 (NSW) where the mortgage entered into was “unjust” within the meaning of that Act: compare West v AGC (Advances) Ltd (1986) 5 NSWLR 610, discussed at [7.1030]. See also Westpac Banking Corp v Robinson [2014] NSWSC 577.

Mortgages under the National Credit Code [22.660] The National Credit Code 11 governs certain mortgages including mortgages in relation to obligations under a credit contract or a guarantee to which the Code applies. The Code is applicable only where the mortgagor is a natural person or a strata corporation. The Code applies to a mortgage and a loan contract entered into by an individual for the purposes of acquiring a home. It also applies to contracts where the credit is provided to an individual to purchase, renovate, improve or refinance a residential property for investment purposes. The National Credit Code is discussed at [19.140]. 11

The National Credit Code is set out in Sch 1 of the Commonwealth National Consumer Credit Protection Act 2009 (Cth): see [19.140].

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Other equitable interests in land [22.670] There are a number of other situations that will give rise to an equitable interest in land: (a)

a contract for the sale of land;

(b)

an option to purchase land;

(c)

an agreement to lease; and

(d)

a beneficiary under a will.

Contract for the sale of land [22.680] A contract for the sale of land gives the purchaser some equitable interest in the land, provided there are no impediments that would prevent a court from specifically performing the contract. The traditional view was that the vendor became a trustee for the purchase on signing the contract of sale: Lysaght v Edwards (1876) 2 Ch D 499; Brown v Heffer (1967) 116 CLR 344. In Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [53], the High Court criticised the trust analogy and emphasised the contractual relationship between vendor and purchaser. In that case, the purchaser’s right was seen as an equitable right to performance commensurate with the terms of the contract. 12

Option to purchase land [22.690] Where the owner of land gives another person an option to purchase the land, there is in effect a contract to sell the land upon the condition that the optionee gives proper notice in accordance with the conditions stipulated in the option: Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 75-76 per Gibbs J; Grepo v Jam-Cal Bundaberg Pty Ltd [2015] QCA 131 at [58] – [64]. The grant of an option to purchase land creates an equitable interest in land because the optioner (the grantor) has given the optionee (the grantee) a right to bring a binding contract of sale into being.

An agreement to lease [22.700] A person who has the benefit of an agreement to lease land has an equitable interest in the land: Walsh v Lonsdale (1882) 21 Ch D 9.

Beneficiary under a will [22.710] The beneficiary of a deceased estate that has been completely administered has an equitable interest in land that forms part of the estate: Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411. However, a beneficiary will not have an equitable interest in any specific property while the estate is unadministered; instead the beneficiary will have a personal right against the executor to compel proper administration of the estate: Commissioner of Stamp Duties v Livingston (1964) 112 CLR 12; Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306.

Priority of competing legal and equitable interests [22.720] If the owner of property has mortgaged it to several different mortgagees, the question arises as to who is entitled to priority. Similarly, the question of the priority of competing interests arises where, for example, the mortgagor who has granted a mortgage, legal or equitable, had previously agreed to sell the property, or to lease it, or create a trust over it. The basic rules to be applied when determining this matter are: 12

See further Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd (2015) 89 NSWLR 237 and Edelman J in Westpac Banking Corp v State of Queensland [2016] FCA 269 at [13].

chapter 22 Property

1.

Where the equities are equal, the law prevails: a mortgagee who has the legal estate is preferred to a prior mortgagee of an equitable interest.

2.

However, a legal mortgagee will take subject to an equitable mortgage or other equitable interest of which the mortgagee had notice (that is, actual or implied knowledge) of its existence.

3.

Subject to the priority of a mortgagee who has the legal estate, mortgages take effect according to the date of their creation.

Leases What is a lease? [22.730] A lease is a transaction in which a price is paid for the use and possession of the land. A lease is essentially the grant of a proprietary right to the exclusive possession of land for a fixed or determinate term. The grant is usually made in consideration of rent. Leasing is used extensively for both commercial and residential purposes.

A lease distinguished from a licence [22.740] The characteristics essential to the creation of a lease are: (a)

the grant of the right to exclusive possession of the land; and

(b)

the term of the lease is of certain duration.

For a lease to exist the landlord must have a general right to exclude others, including the lessor, from the leased premises. In Radaich v Smith (1959) 101 CLR 209, the High Court held that where the parties intend to grant a legal right to exclusive possession for a determinate term then a lease will be created. 13 The lease term must be a definitive term with a certain date of commencement and a certain date of ending. A licence is a personal permission to enter or occupy land. If the occupier of land has not been granted a legal right of exclusive possession, but is in occupation of the land, then the agreement is a licence. All that is created is a contract between the parties allowing the entry into possession and the occupancy or use of the land.

Classification of leases [22.750] Several different forms of leases and tenancies exist. The most important are fixed term leases and periodic tenancies. [22.760] Fixed term leases are leases granted for any specified period of time, for example one year or one hundred years. These leases will automatically determine at the end of the specified period. Fixed term leases greater than three years of Torrens land must be registered. [22.770] Periodic tenancies are tenancies where the term is calculated by specific periods of time, such as a year, a month or a week. Here the tenancy period is repeated on a cyclic basis. When the fixed term has elapsed, the tenancy automatically continues for the next period without the need to enter into any fresh agreement. Such tenancies continue until a valid notice is given to terminate the tenancy. [22.780] Tenancies at will arise where land is occupied with the consent of the lessor on the basis that either party may end the tenancy at any time. On the regular payment and acceptance of rent the tenancy at will is converted to a periodic tenancy. 13

See also, Gnych v Polish Club Ltd (2015) 255 CLR 414.

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[22.790] Tenancies at sufferance arise when a tenant remains in possession with the consent of the landlord after a lease has expired. The tenant is said to “hold over”. The tenancy at sufferance is not a true lease because of the absence of the essential features of a lease.

Terms of the lease [22.800] The rights and obligations which a landlord and tenant undertake are usually expressly stated in the lease document. The term “covenant” is used to describe any obligation in the lease. Where no express covenant deals with the matter, covenants may also be implied by the common law by virtue of the landlord tenant relationship or by legislation. 14 Implied covenants on the part of the landlord include the following: 1.

The covenant for quiet possession. This is an undertaking by the landlord not to interfere with the tenant and the tenant’s possession of the premises.

2.

The covenant not to derogate from grant. This is an obligation on the part of the landlord to refrain from doing anything inconsistent with the purpose for which the premises were let.

3.

The covenant by the landlord that, in the case of a lease for a furnished residence, the premises are reasonably fit for habitation at the time of the commencement of the lease. 15

Covenants are implied on the part of the tenant and many of these covenants are implied by statute. 16 Some cannot be excluded while others apply only where the parties have not otherwise agreed. They include the following: (a)

the covenant to pay the rent reserved by the lease;

(b)

the covenant by the tenant to repair;

(c)

the covenant to allow the landlord to enter and view the leased premises for the purpose of inspection; and

(d)

the covenant to yield up possession to the landlord at the end of the lease.

Covenant to repair [22.810] An express covenant will usually be included in the lease requiring the tenant to keep the leased premises in repair. Where the parties have not otherwise agreed the tenant’s main obligation under the statutory covenant is to keep the premises in good and tenantable repair, having regard to the condition of the premises at the time of the letting. The repair obligation excludes defects caused by reasonable wear and tear.

Assignment (transfer) of leases [22.820] Leases, like most forms of property, are assignable. Both the reversion (the landlord’s interest in the lease) and the term (the tenant’s interest in the lease) may be assigned. An assignment of a lease will occur when the residue of the term of the lease, that is the balance of the term, is transferred to a third party. An assignment should be distinguished from a sub-lease. A sub-lease is created when a tenant (the sub-lessor) grants a smaller estate, that is less than the balance of the term of the lease (even by one day), to a sub-tenant (the sub-lessee). 14 15 16

For example, in Queensland see Property Law Act 1974 (Qld), Residential Tenancies and Rooming Accommodation Act 2008 (Qld) and Retail Shop Leases Act 1994 (Qld). Residential tenancies legislation in all States and Territories provides the basis for any obligations for residential tenancies. These covenants are now implied by statute. Conveyancing Act 1919 (NSW); Transfer of Land Act 1958 (Vic); Property Law Act 1974 (Qld); Real Property Act 1886 (SA); Transfer of Land Act 1893 (WA); Land Titles Act 1980 (Tas); Land Titles Act 1925 (ACT); Law of Property Act 2000 (NT).

chapter 22 Property

An assignment creates no contractual liability between the landlord and the assignee. Thus neither the landlord nor the assignee can enforce the covenants in the lease against each other on the basis of a binding contract. However, the assignment of the lease creates the relationship of privity of estate between the landlord and the assignee. Those covenants in the original lease that “touch and concern” the land, are enforceable between the landlord and the assignee, by virtue of the landlord and tenant relationship. It is common practice in assignments for the assignee to enter into a deed of covenant with the landlord that the assignee will perform all covenants in the lease. Thus the assignee will, in terms of the deed covenanted with the landlord, comply with all of the terms and conditions of the original lease. The original tenant’s obligations are not ended simply by the assignment, therefore the original tenant should seek to obtain a release from the landlord from the lease covenants at the time of the assignment.

Termination of leases [22.830] Leases and tenancies can be ended by a number of processes. The expiry of a fixed term lease at the end of the specified period automatically terminates the landlord tenant relationship. Periodic tenancies continue indefinitely until determined by proper notice. Notice requirements are set out in legislation that generally reflects the common law position. At common law the minimum notice that must be given is for the length of the recurring period of the tenancy. Such notice (except in the case of yearly periodic tenancies) must expire at the end of one of the complete recurring periods of the tenancy. For example, to terminate a monthly periodic tenancy, one month’s notice expiring on the completion of the month of the tenancy must be given. Surrender occurs when the tenant gives up the tenant’s estate to the landlord. When the landlord accepts this estate the tenant’s leasehold interest is extinguished. For example, where the landlord, with the original tenant’s agreement enters into a new lease with a third party then the original tenancy is surrendered. Forfeiture is the early and non-consensual termination of the lease by the landlord because of some wrongful act (for example, non-payment of rent) or breach of covenant on the part of the tenant. A landlord can forfeit a lease where the lease contains a provision for re-entry. State and Territory legislation give the landlord a statutory right of re-entry in these circumstances. However, as a pre-condition to forfeiture certain formal requirements must be followed. For example, legislation in New South Wales, Victoria and Queensland stipulates that the right of re-entry is unenforceable until the landlord has first served a notice on the tenant which: (a)

specifies the breach;

(b)

where the breach is capable of being remedied requiring the tenant to remedy the breach within a reasonable time; and

(c)

if compensation is to be paid for the breach then the notice must specify that the tenant is required to pay such compensation. 17

Where the tenant fails to remedy the breach within the time specified, the landlord may re-enter the leased property and forfeit the lease. Forfeiture terminates the lease.

Termination and repudiation [22.840] If the tenant’s breaches of covenant are so serious as to amount to a repudiation of the lease obligations, the landlord could accept the tenant’s repudiation thereby terminating the lease. The landlord could then claim damages for prospective loss, that is loss of bargain, on the basis of the tenant’s breaches: 17

Conveyancing Act 1919 (NSW), s 129; Property Law Act 1958 (Vic), s 146; Property Law Act 1974 (Qld), s 124.

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Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237. In both Shevill v Builders Licensing Board (1982) 149 CLR 620 and Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, the High Court accepted that the contractual doctrine of repudiation applies to leases. As to whether a landlord accepting a tenant’s repudiation should also serve a notice on the tenant see World Best Holdings v Sarker (2010) 14 BPR 27,549; [2010] NSWCA 24; CMA Recycling Victoria Pty Ltd v Doubt Free Investments [2012] TASFC 7 and Impact Funds Management Pty Ltd v Roy Morgan Research Ltd [2016] VSC 221.

Recovery of possession by the landlord [22.850] Two remedies for recovery of possession are available to the landlord. The landlord can re-enter the premises. However, any re-entry must be peaceable and carefully exercised as a landlord can be liable in trespass or assault if the tenant resists. Alternatively, the landlord can obtain a court order for possession.

Retail leases [22.860] All Australian States and the Northern Territory have enacted legislation designed to protect retail tenants in commercial leases in shopping centres. 18 Generally the legislation provides for mandatory minimum standards to apply to retail shop leases. Retail leases are those predominantly involving the sale, hire, or supply of goods or services. The regulation of retail leases by the legislation includes the following:  Rent and outgoings: Provisions requiring the tenant to make a payment other than for rent and the lessor’s outgoings are prohibited. Thus landlords cannot demand payments for goodwill and key money.  Outgoings: Where a tenant is required to make a payment for outgoings this must be specified in the lease, including how outgoings are to be determined, apportioned and recovered.  Compensation: A landlord is required to pay to the tenant reasonable compensation for loss or damage suffered by the tenant as a result of the landlord’s failure to rectify a breakdown in plant or equipment or the failure to comply with any requirement of an authority.  Disputes: Processes for dispute resolution are detailed and generally involve arbitration and mediation.

Residential tenancies [22.870] Special legislation to protect tenants of residential properties has been enacted in all Australian jurisdictions. 19 Generally, this legislation provides detailed regulation for most matters involving residential tenancies and includes detailed dispute resolution procedures.

18

19

Retail Leases Act 1994 (NSW); Retail Leases Act 2003 (Vic); Retail Shop Leases Act 1994 (Qld); Retail and Commercial Leases Act 1995 (SA); Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA); Australian Consumer Law (Tasmania) Act 2010 (Tas), Pt 4 and Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas); Business Tenancies (Fair Dealings) Act 2000 (NT). Landlord and Tenant Act 1899 (NSW), Landlord and Tenant (Amendment) Act 1948 (NSW); and Residential Tenancies Act 2010 (NSW); Residential Tenancies Act 1997 (Vic); Residential Tenancies and Rooming Accommodation Act 2008 (Qld) and Property Agents and Motor Dealers Act 2000 (Qld); Residential Tenancies Act 1995 (SA); Residential Tenancies Act 1987 (WA); Residential Tenancy Act 1997 (Tas); Civil Law (Property) Act 2006 (ACT); Residential Tenancies Act 2000 (NT).

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Indigenous lands [22.880] Today approximately 20 per cent of Australian land is either owned or controlled by indigenous peoples. This land is held either as a form of statutory land title (under State or Territory legislation) or as native title. Aboriginal people had developed systems of law and a relationship with the land that pre-dated white settlement in 1788 but Australian law did not always recognise the relationship of Aboriginal peoples to their traditional lands. Australia was said to be terra nullius, meaning “land belonging to no-one”, or legally unoccupied. The first Australian court case that dealt directly with the question of Aboriginal land rights was Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141. Blackburn J of the Northern Territory Supreme Court ruled against Aboriginal property rights to land in Australia.

Statutory land rights schemes [22.890] In response to the Milirrpum decision, the Commonwealth government passed land rights legislation, the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth), which permitted Aboriginals in the Northern Territory to claim traditional lands in certain circumstances. Land rights legislation provides statutory schemes for the transfer of land to Aboriginal peoples. All States, except Western Australia and Tasmania, subsequently passed land rights legislation. 20 The tenure granted to the indigenous land holders varies, but in most land rights schemes land is held as an inalienable fee simple. 21 In 2008 the High Court in Northern Territory v Arnhem Land Aboriginal Land Trust (2008) 236 CLR 24 recognised that a grant of an estate in fee simple made under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) includes exclusive rights to tidal waters (between the low and high water mark). Thus, in the Northern Territory, Aboriginal title holders have the right to control recreational and commercial fishing in the intertidal zone. Recently, Queensland passed the Aboriginal and Torres Strait Islander Land (Providing Freehold) and Other Legislation Amendment Act 2014 (Qld). This legislation amended the Aboriginal Land Act 1991 (Qld) and the Torres Strait Islander Land Act 1991 (Qld) to create processes for the allocation of designated “available land”, and to create a new power in the Land Act 1994 (Qld) to grant such land as freehold. These amendments were designed to “ensure that Aboriginal people and Torres Strait Islanders can own their own homes and pursue commercial interests in the same way as other citizens”.

Native title [22.900] The High Court of Australia in the celebrated case of Mabo v State of Queensland (No 2) (1992) 175 CLR 1, decided that native title is recognised by the common law, and that indigenous inhabitants have rights to their traditional lands. For the first time since white settlement judicial recognition was given to the rights of indigenous people with regard to land. This decision has altered the notion of land ownership in Australia.

20

21

Aboriginal Land Rights Act 1983 (NSW); Aboriginal Lands Act 1970 (Vic); Aboriginal Land Act 1991 (Qld) and Torres Strait Islander Land Act 1991 (Qld); Pitjantjatjara Land Rights Act 1981 (SA); Maralinga Tjarutja Land Rights Act 1984 (SA). However, under the Aboriginal Land Rights Act 1983 (NSW) freehold title held by a Land Council is generally alienable.

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The Mabo Case [22.910] Mabo v State of Queensland (No 2) (1992) 175 CLR 1 had a 10-year history. In May 1982, Eddie Mabo and four other Murray Islanders, who were members of the Meriam people, instituted legal proceedings in the original jurisdiction of the High Court, claiming rights to their traditional lands. Their traditional lands were the Murray Islands, in the Torres Strait off the North Queensland coast. In 1992 the High Court held in a majority decision (6-1: Mason CJ, McHugh, Brennan, Deane, Gaudron and Toohey JJ, Dawson J dissenting) that the common law of Australia recognised a form of native title, namely, the rights of the indigenous inhabitants to their traditional land in accordance with their laws and customs. The Meriam people were entitled to the occupation, use and enjoyment of the lands of the Murray Islands (except for the operation of Crown leases and some land set aside for administrative purposes). The title of the Meriam people was stated to be subject to the Queensland government’s rights to validly extinguish that title. Any such action would be subject to the Racial Discrimination Act 1975 (Cth). In summary, the High Court in Mabo (No 2) 22 decided that: 1.

Australia was not terra nullius or unoccupied in 1788.

2.

Native title survived the acquisition of sovereignty by the British in Australia.

3.

Native title was recognised by the common law, and the Crown was not the owner of all land as previously thought.

4.

On the acquisition of sovereignty the Crown acquired a radical title which is a bare title and not complete ownership of land.

5.

Native title is recognised as a burden on the Crown’s radical title.

6.

A radical title is the foundation of the Crown’s fundamental right to govern the country and gives the Crown the right to grant interests in the land to its citizens.

7.

The doctrine of tenure continues to apply but in a limited sense. (Under the feudal scheme of tenure all land belonged to the Crown, no person could own land absolutely.)

Native title legislation [22.920] The Commonwealth government’s legislative response to the High Court’s decision in Mabo (No 2) in 1992 was to enact the Native Title Act 1993 (Cth). 23 This legislation gave statutory effect to much of the decision in Mabo while also introducing new elements in relation to native title and providing a framework in which native title could operate. One of the most significant common law cases since Mabo was the decision of the High Court in the Wik Peoples v State of Queensland (1996) 187 CLR 1. The High Court held by a majority (4-3: Toohey, Gaudron, Gummow and Kirby JJ, Brennan CJ, Dawson and McHugh JJ dissenting) that native title was not necessarily extinguished by certain pastoral leases. The Commonwealth government’s legislative response to the High Court’s decision in the Wik case in 1996 was to formulate the “10 Point Plan” and in 1998 to substantially amend the original Native Title Act 1993 (Cth). These amendments also incorporated overdue amendments in relation to the constitution and functions of the National Native Title Tribunal. The Native Title Amendment Act 1998 (Cth) came into operation on 30 September 1998. 22

For a more detailed discussion of Mabo v State of Queensland (No 2) (1992) 175 CLR 1, see MA Stephenson (ed), Mabo: A Judicial Revolution (University of Queensland Press, Brisbane, 1993).

23

The Native Title Act 1993 (Cth) came into operation on 1 January 1994. For more detailed discussion of the legislation, see MA Stephenson (ed), Mabo: The Native Title Legislation (University of Queensland Press, Brisbane, 1995).

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In August 2013, the Australian Law Reform Commission commenced an inquiry into specific areas of native title law. The final report, Connection to Country: Review of the Native Title Act 1993 (Cth) (ALRC Report 126), was tabled in the Commonwealth Parliament in June 2015. At the time of writing, no legislative changes have resulted from this Report.

Why did the Commonwealth government choose to enact the original native title legislation? [22.930] Since the decision in Mabo (No 2), an important question has been: what effect does the Racial Discrimination Act 1975 (Cth) have on grants of fee simple or leasehold land made after the enactment of the Act on 31 October 1975? Sections 9 and 10 of the Act provide, in effect, that if Aboriginal people are deprived of certain rights by discriminatory laws, then those rights are not lost. The right being denied is the right not to be arbitrarily deprived of property. One possible interpretation of the application of the Act was that all title (that is, freehold or leasehold) granted by government since 1975 over land in which native title exists would be invalid. In 2002, in Western Australia v Ward (2002) 213 CLR 1, the majority of the High Court considered that if government action dealt with native title rights and interests differently from other forms of title then the government action would be invalid. However, if the government action simply failed to confer on native titleholders the same rights as other titleholders enjoy then the native titleholders will be deemed to enjoy the same rights. In the latter case government action will not be invalid. Therefore, the test of invalidity is does the government action single out native title for detrimental treatment. If it does, for example by denying native titleholders the same safeguards against loss of title as are enjoyed by other titleholders, then the grant of title or the legislation will be invalid. Although the primary objective of the native title legislation was to resolve uncertainty surrounding the validity question, the Native Title Act 1993 (Cth) was in fact designed to achieve other objectives. These included: (a)

the recognition and protection of native title;

(b)

the regulation of future dealings affecting native title;

(c)

determinations of native title and the establishment of a means to deal with native title claims, such as the Tribunal and the court processes; and

(d)

the validation of past acts if they had been invalidated because of the existence of native title.

The Commonwealth native title legislation is designed to establish a national scheme of native title that requires the States to comply with it in relation to both the validation of “past acts” and in the regulation of future dealings with land. The Commonwealth Native Title Act 1993 validates titles and acts which might have been invalid because of the existence of native title and which were granted or undertaken by the Commonwealth government. The Commonwealth Act does not validate State granted titles or acts. Complementary legislation by States is therefore necessary for validation of State granted titles and acts: s 19. 24

What is native title? [22.940] In Mabo (No 2), the High Court found that “the common law of this country recognises a form of native title which, in the cases where it has not been extinguished, reflects the entitlement of the indigenous inhabitants, in accordance with their laws or customs, to their traditional lands”. 24

Native Title (New South Wales) Act 1994 (NSW); Land Titles Validation Act 1994 (Vic); Native Title (Queensland) Act 1993 (Qld); Native Title (South Australia) Act 1994 (SA); Titles (Validation) and Native Title (Effect of Past Acts) Act 1995 (WA); Native Title (Tasmania) Act 1994 (Tas); Native Title Act 1994 (ACT); Validation (Native Title) Act 1994 (NT).

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The case law is clear: the common law of Australia does not create native title. The common law recognises native title. Native title in Australia is sourced in the “traditional laws and customs” of the Aboriginal peoples. In Mabo, Brennan J stated that: “Native title has its origin in and is given its content by the traditional laws acknowledged by and the traditional customs observed by the indigenous inhabitants of a territory”: at 58.

Content of native title [22.950] The content of native title comprises the rights that relate to the use of the traditional land and its resources. Native title rights are defined in s 223 of the Native Title Act 1993 (Cth). Section 223(1) provides that native title means the communal, group or individual rights and interests of Aboriginal and Torres Strait Islanders in relation to land and waters where: (a)

the rights and interests are “possessed under the traditional laws acknowledged, and traditional customs observed”, by the Aboriginal and Torres Strait Islander people;

(b)

the Aboriginal and Torres Strait Islander people, “by those laws and customs have a connection with the land or waters”, and

(c)

the rights and interests are recognised by the common law of Australia.

Defining native title [22.960] The High Court in Western Australia v Ward (2002) 213 CLR 1 considered that the definition of native title is that contained in s 223 of the Native Title Act 1993 (Cth). A similar approach was taken by the High Court in Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422. In Yorta Yorta the majority found that native title is what is defined and described by the Native Title Act 1993 and that native title is neither a creature of the common law nor of statute. Thus the nature and incidents of native title must be ascertained as a matter of fact by reference to the traditional laws, customs and practices of the particular indigenous community. The majority in Western Australia v Ward (2002) 213 CLR 1 endorsed the position that native title is a bundle of rights. They stated: “[I]t is a mistake to assume that what the [Native Title Act 1993] refers to as ‘native title rights and interests’ is necessarily a single set of rights relating to land that is analogous to a fee simple” (at [82]). The High Court’s narrow interpretation of native title in Ward fails to recognise native title as equivalent to full ownership of land. Native title rights include traditional rights such as hunting, gathering and fishing rights; and as part of the continuing evolution and development of customs this should include rights to commercially develop land and resources. The High Court in Ward found that the Native Title Act 1993 protects rights in relation to land or waters but claims to protection of cultural knowledge are not included as native title rights and are therefore not protected by the Native Title Act 1993. Native title is not easily categorised. It is sui generis (the only one of its kind or peculiar to itself). Native title may approach full “ownership” of land where the community has, for example, exclusive possession and control of the land but in other cases native title may simply be a right to hunt or gather food on the land. Native title is recognised as a legal right and can be protected by legal or equitable remedies that are appropriate to the particular rights and interests held. Native title is generally an inalienable interest in land because of the laws and customs from which native title derives. Section 211 of the Native Title Act 1993 allows native titleholders to continue the pursuit of their traditional activities (including hunting, fishing, gathering and cultural or spiritual activities for personal, domestic and non-commercial needs) despite regulatory laws prohibiting or restricting such activities. This section enables native title rights to be undertaken without a licence or permit being required.

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The majority of the High Court in Ward found no evidence of native title to the subsurface rights in the traditions and customs of the indigenous community and concluded that native title in Ward did not include ownership of mineral resources. The High Court declined to make a general finding about whether native title can exist in minerals and petroleum. However, the majority in Ward indicated that even if a right to minerals did exist it would have been extinguished by State mineral resource legislation. In 2001, the High Court confirmed that native title rights can exist offshore in the case of Commonwealth v Yarmirr (2001) 208 CLR 1. Offshore native title rights were found to include rights to hunt, fish and gather food for domestic and non-commercial purposes and rights of access to the seas and seabed. No exclusive native title rights were found to be in existence on the facts of this case. In their joint judgment, Gleeson CJ, Gaudron, Gummow, and Hayne JJ found that a fundamental inconsistency exists between exclusive native title rights and the common law public rights of navigation and fishing, as well as the right of innocent passage in the territorial sea. The High Court’s finding that the two sets of rights cannot exist together virtually precludes the establishment of exclusive native title offshore rights. More recently, in the Torres Strait Regional Sea Claim determination the High Court in Akiba v Commonwealth (2013) 250 CLR 209 found that a non-exclusive native title right to “take for any purpose” resources in the native title areas, could be exercised by the taking of fish or other marine resources for commercial or trading purposes: at [5], [21]. The High Court in Akiba, however, rejected the claim that reciprocal rights, which were based in private and personal Islander relationships with the holders of the primary rights for that area, were rights in relation to waters which could be construed as native title rights.

Determinations of native title [22.970] Since the decision in Mabo (No 2) (1992), native title exists independently of any statute and does not depend on any claims process for its existence. However, the Native Title Act 1993 (Cth) provides a process by which application can be made for a determination whether native title exists: s 61 . Except for the High Court, the Federal Court has exclusive jurisdiction to determine applications that relate to native title under the Act: ss 13, 81. Applications for a determination of native title will be referred by the Federal Court to the court itself, or another individual, for mediation: ss 86A – 86E. The Native Title Amendment Act 2009 (Cth) enabled the Federal Court to take a central role in the managing native title claims. Further amendments, effective from July 2012, made the Federal Court fully responsible for the mediation of native title claims and for the provision of claims-related ILUA negotiation assistance. After July 2012, the National Native Title Tribunal no longer manages mediation of claims but can mediate claims where it is appointed as mediator by the Federal Court. The Tribunal remains responsible for assisting with the negotiation of non-claim-related ILUAs and for performing its other statutory functions. 25 When introducing the Native Title Amendment Bill 2009 (Cth), the Attorney-General stated that the amendments were to encourage a more flexible approach to the resolution of native title claims and to facilitate broader and more relevant agreements allowing negotiated settlements to “extend beyond the bare recognition of legal rights”. Thus settlements could include benefits that deliver improved economic and social outcomes for traditional owners: ss 87 – 87A. Also, the 2009 amendments applied the amendments introduced by the Evidence Amendment Act 2008 (Cth) to the Evidence Act 1995 (Cth) in relation to native title: this meant that oral evidence of the traditional laws and customs would no longer be treated as prima facie inadmissible. Furthermore, the 2009 amendments allowed the Federal Court to rely on a Statement of Facts as agreed by the parties: ss 87 – 87A. 25

The Courts and Tribunals Legislation Amendment (Administration) Act 2012 facilitated the transfer of the National Native Title Tribunal’s appropriations, staff and some of its administrative functions to the Federal Court of Australia.

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The purpose of mediation is to reach an agreement and once an agreement is reached the Federal Court has the power to make any determination of native title: ss 87, 94A, 225. A determination of native title will state (ss 86A(1), 94A, 225): (a)

whether or not native title exists;

(b)

who holds native title;

(c)

what native title rights exist;

(d)

whether native title rights and interests confer possession, occupation, use and enjoyment to the exclusion of all others;

(e)

other rights and interests over the same area; and

(f)

the interaction of native title rights and interests with other rights and interests.

Section 61 of the Native Title Act 1993 (Cth) allows non-claimants to bring an application for a determination as to whether native title exists over certain lands.

Proof of native title [22.980] Under s 223 of the Native Title Act 1993 (Cth), the basis of a claim for the recognition of native title is proof of a connection with the traditional land or waters in accordance with the laws and customs of the Aboriginal group. In 2002, the High Court in Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422 delivered a stringent interpretation of the requirements for proving native title. The decision mandates that an indigenous system of laws and customs has a continuous existence and vitality since sovereignty to the present. The majority of the court found that the claimants must prove the elements contained in s 223 of the Native Title Act 1993 and focused on establishing a claimant society with continuity in the observance of traditional laws and customs and in their connection with the traditional lands and waters. The Yorta Yorta decision required that there be in existence a normative society based on the pre-sovereignty traditional laws and customs. The court was of the view that where a system of laws and customs ceases to operate for any period of time then the rights and interests that owe their existence to that system will cease to exist. 26 To prove native title it is necessary in accordance with s 223(1) of the Act to show the following: 1.

The requisite traditional laws and customs: Under s 223(1)(a) the claimant group must establish a normative body of laws and customs (the traditional laws and customs) pursuant to which native title rights and interests in relation to land and waters are held in the claim area: Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422 at [85]-[86]; De Rose v South Australia (No 2) (2005) 145 FCR 290 at [57]-[58]. The approach taken by the majority of the court in Yorta Yorta was to treat “traditional” as meaning pre-sovereignty. Thus, the laws and customs currently observed by the claimants would have to be sourced in laws and customs that were observed by their ancestors prior to the Crown’s assertion of sovereignty over the claim area. Additionally, s 223(1)(a)

26

See further, Western Australia v Sebastian (“Rubibi”) (2008) 173 FCR 1; Rubibi Community v Western Australia (No 7) [2006] FCA 459; Neowarra v Western Australia [2003] FCA 1402 at [48]; Harrington-Smith on behalf of the Wongatha People v Western Australia (No 9) (2007) 238 ALR 1 (“Wongatha”); Griffiths v Northern Territory (2007) 165 FCR 391; Moses v Western Australia (2007) 160 FCR 148; Dale v Moses [2007] FCAFC 82; Risk (“Larrakia”) v Northern Territory [2006] FCA 404; Jango v Northern Territory (2007) 159 FCR 531; Northern Territory v Alyawarr, Kaytetye, Warumungu, Wakay Native Title Claim Group (2005) 145 FCR 442; Bennell v Western Australia (2006) 153 FCR 120; Bodney v Bennell (“Noongar”) (2008) 167 FCR 84; De Rose v South Australia (No 2) (2005) 145 FCR 290; De Rose v South Australia (2003) 133 FCR 325. Regarding group membership, see Western Australia v Ward (2000) 99 FCR 316 at 380-381, Ngalakan People v Northern Territory (2001) 112 FCR 148, Shaw v Wolf (1998) 83 FCR 113 at 210, Gumana v Northern Territory of Australia (“Blue Mud Bay”) (2007) 158 FCR 349 at [135]; Sampi v Western Australia [2005] FCA 777; Sampi v Western Australia (No 2) (2010) 266 ALR 537.

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of the Act requires that the system of laws and customs have a continuous existence and vitality since sovereignty. If the system of laws and customs ceased to be observed for any period then the rights and interests that owe their existence to that system will cease to exist: Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422 per Gleeson CJ, Gummow and Hayne JJ at 443-444, per Gaudron and Kirby JJ at 463. Any attempt to revitalise the system would not support a native title claim under the Act. Adaptations and changes to traditional laws and customs were not considered by the High Court in Yorta Yorta to be fatal to proving a native title claim. 2.

The claimant society: The High Court in Yorta Yorta considered that it was implicit in s 223(1)(a) of the Act that there was “a body of persons united in and by its acknowledgement and observance of a body of laws and customs”: at [49], [55]. Thus a pre-sovereignty society with a normative system – that is, a system of laws and customs – must have existed prior to colonisation. This pre-sovereignty society must have substantially maintained its identity and existence from generation to generation, in accordance with the traditional laws and customs, through to the present time: Yorta Yorta at 443-444, [47]-[56], [89], [95]. Additionally, it must be established that the claim group today, as a whole, acknowledges and observes the traditional laws and customs: Yorta Yorta at [85]-[86]; De Rose v South Australia (No 2) (2005) 145 FCR 290 at [57]-[58]. If the society or community from whom those laws derive no longer exists, or if that society or community has extensively changed its form from the time of sovereignty, or if the laws and customs are no longer observed then this will mean an inability to claim native title: see Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422 at [49]-[57]; Bodney v Bennell (“Noongar”) (2008) 167 FCR 84. This inquiry is further complicated where more than one traditional owner group claims common observance of shared laws so as to form a single society for the purposes of native title. See for example, Sampi v Western Australia (No 2) (2010) 266 ALR 537, Daniel v Western Australia [2005] FCA 536.

3.

Connection by traditional rights and interests: Section 223(1)(b) of the Native Title Act 1993 (Cth) requires that the claimants establish that a “connection” exists with the land or waters claimed. Occupation of the land is not, in itself, enough to establish a connection (Western Australia v Ward (2000) 99 FCR 316 at [93]; De Rose v South Australia (No 2) (2005) 145 FCR 290); and neither is connection directed at how Aboriginal people use the land: Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422 at 455; Western Australia v Ward (2002) 213 CLR 1 at [64]. It is not exactly clear what connection with the land will be required. A spiritual relationship may be enough? Furthermore, consideration of whether, by the traditional laws acknowledged and the traditional customs observed the claimants have a “connection” with the land and waters is also required: Ward at [64]. First, this requires that the indigenous claimants identify the content of traditional laws and customs. Second, the majority in Ward stated that the indigenous claimants must characterise the effect of those laws and customs as constituting a “connection” of the peoples with the land or waters in question: Ward at [64]. That is, the claimants must show that by those laws and customs they have native title rights and interests in the claimed land. In other words, they must show that they have a connection with the land. In this way evidence of the existence of traditional laws and customs will be relevant in establishing a connection.

Concerns regarding this onerous burden of proof to be established, and the continuity of connection required by the Indigenous parties, have been expressed. 27 27

Connection to Country: Review of the Native Title Act 1993 (Cth) (ALRC Report 126) (2015); Chief Justice, RS French, Lifting the Burden of Native Title: Some Modest Proposals for Improvement (2009) 9 Reform Native Title 10; Paul Keating, Lowitja O’Donoghue Oration, Don Dunstan Foundation, University of Adelaide, 31 May 2011; R Bartlett, Native Title in Australia (3rd ed, LexisNexis Butterworths, Sydney, 2015), ch 7.

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It should be shown that native title has not been extinguished or is not otherwise recognisable at common law: see Native Title Act 1993 (Cth), s 223(1)(c) and Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422. An application under the Native Title Act 1993 for a determination of native title requires factual evidence that native title exists and has existed since sovereignty. Claimants must show that the group and its predecessors had an association with the area, that there are traditional laws and customs of the claimants, and that the group has continued to hold native title in accordance with those traditional laws and customs: Native Title Act 1993 (Cth), s 62(1)(b) – (c), (2)(e).

Registration of native title claims [22.990] After an application for a determination of native title is made to the Federal Court, the claim is given to the Native Title Registrar for consideration as to the entry of the claim on the Register of Native Title Claims: Native Title Act 1993 (Cth), ss 63, 190A, 186(1). The 1998 amendments to the Native Title Act 1993 oblige applicants seeking registration on the Register of Native Title Claims to pass a stringent threshold test: s 190B. This test requires that at least one member of the group must be able to establish a current or previous physical connection with the area: s 190B(7)(a). An exception, referred to as the “stolen generation/locked gates clause”, will be recognised if a physical connection cannot be established because a parent was removed from his or her traditional country: s 190B(7)(b). In relation to the evidentiary requirements in registering a claim see Gudjala People (No 2) v Native Title Registrar (2008) 171 FCR 317; Gudjala People (No 2) v Native Title Registrar (2009) 182 FCR 63 and Sambo v Western Australia [2009] FCA 940; Strickland v Western Australia (2015) 234 FCR 40. Passing the test enables applicants to become “registered native title claimants”: s 253. The advantages of registration include inter alia: (a)

access to the right to negotiate (ss 25, 26, 29, 30); and

(b)

benefits from procedural rights (including the right to enter into certain Indigenous Land Use Agreements).

Applicants seeking a native title determination only, without access to the right to negotiate, will not be subject to this registration test: ss 61, 62. It seems possible that a native title claim could succeed at common law yet be denied registration under the Act.

Extinguishment of native title [22.1000] Extinguishment is the permanent termination of native title. In Mabo (No 2) the High Court found that native title is liable to extinguishment or impairment by government action. The concept of extinguishment is a common law concept and was regarded by the Mabo Court as an incident of the Crown’s sovereignty. There is, however, an important restriction on the government’s power of extinguishment. State laws must be consistent with valid Commonwealth laws. Section 109 of the Commonwealth Constitution would render State legislation invalid in the event of inconsistency. Inconsistency would include inconsistency with the Racial Discrimination Act 1975 (Cth) and also the Native Title Act 1993 (Cth). Therefore, any attempt by a State to extinguish or impair native title is subject to both Acts. Section 10 of the Racial Discrimination Act 1975 requires equality before the law and this requires that native title holders be treated in the same manner as are other members of society. The Native Title Act 1993 (Cth), s 11(1) guarantees that native title cannot be extinguished contrary to the Act. Both Acts offer different degrees of protection.

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Different rules apply in relation to extinguishment at common law and under the Native Title Act 1993 and extinguishment will be examined under these general areas discussed at [22.1010]–[22.1050].

1. Extinguishment at common law [22.1010] The majority judges in both Mabo (No 2) and Wik Peoples v State of Queensland (1996) 187 CLR 1 found that extinguishment of native title could occur by government action which showed a “clear and plain intent” to extinguish native title. To show a clear and plain intention it was considered that it must be impossible for the legislative scheme to co-exist with native title. It was not, however, necessary for the legislation to expressly state that native title would be extinguished. In Mabo (No 2), the court accepted that non-statutory executive action would also be effective to extinguish native title. In both Mabo (No 2) and Wik, the majority view was that native title could be extinguished by an “inconsistent grant” under statutory authority where a clear and plain intention to extinguish is demonstrated. The majority of the High Court in Western Australia v Ward (2002) 213 CLR 1 acknowledged that demonstrating a “clear and plain intention” had in previous cases been considered essential to effect an extinguishment of native title. However, the Ward majority approved of extinguishment of native title by the “inconsistency of incidents test” (but without the requirement of a “clear and plain intention”). 28 The Ward test of extinguishment involves an “objective inquiry which requires identification of and comparison between the two sets of rights” (at [78]), and an assessment made as to whether the rights granted to the third party were “necessarily inconsistent” with the continued existence of the native title rights. 29 The common law does not recognise “degrees of inconsistency”: Ward at [82]. The test of inconsistency is stringent and requires a state of affairs where “the existence of one right necessarily implies the non-existence of the other”: Western Australia v Brown (2014) 253 CLR 507 at [38]. In Brown the High Court confirmed that the Ward test of inconsistency, involving an identification and comparison of the granted rights and the native title rights, must take place at the time the rights are granted and that such investigation into inconsistency is a question of law, not fact: at [37]. Accordingly, by rejecting “operational inconsistency” the High Court in Brown overruled the decision of the Full Court of the Federal Court in De Rose v South Australia (No 2) (2005) 145 FCR 290.

In what circumstances can native title be extinguished at common law? [22.1020] Statutory extinguishment: Native title can be extinguished by legislation. Under the Ward test (Western Australia v Ward (2002) 213 CLR 1) an assessment must be made as to whether the legislation is “necessarily inconsistent” with the continued existence of the native title rights. Legislation that merely regulates the enjoyment of native title rights, for example extensive legislative controls on fishing, will not extinguish native title: R v Sparrow [1990] 1 SCR 1075 at 1097; Yanner v Eaton (1999) 201 CLR 351; Karpany v Deitman (2013) 252 CLR 507 and Akiba v Commonwealth (2013) 250 CLR 209. In Akiba, the High Court found that successive Queensland and Commonwealth legislative regimes, that prohibited taking fish for commercial purposes without a licence, were regulatory and did not extinguish native title rights to commercially fish. French CJ and Crennan J stated that “a particular use of a native title right can be restricted or prohibited…without that right or interest itself being extinguished”: at [26]. Their Honours emphasised the distinction between the existence and the exercise of native title rights in considering any 28 29

See Griffiths v Minister for Lands, Planning and Environment (2008) 235 CLR 232. Kirby J (dissenting) considered that extinguishment must occur within “very specific and clear legislation that unmistakably has this effect”: at [302]. See further, Western Australia v Brown (2014) 253 CLR 507; Western Australia v Sebastian (“Rubibi”) (2008) 173 FCR 1; Rubibi Community v Western Australia (No 7) [2006] FCA 459; Risk (“Larrakia”) v Northern Territory [2006] FCA 404; Sampi v Western Australia (No 2) (“Bardi Jawi – Brue Reef”) (2005) 224 ALR 358; Alyawarr v Northern Territory (2005) 145 FCR 442; Daniel v Western Australia (2004) 212 ALR 51; Neowarra v Western Australia [2003] FCA 1402; Ward v State of Western Australia (No 3) (2015) 233 FCR 1; Queensland v Congoo (2015) 256 CLR 239.

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potential extinguishing impact of a legislative conditional prohibition: at [27]–[30]. Additionally, their Honours found that in assessing inconsistency in such circumstances the question is not whether there was inconsistency of competing rights, but “whether successive statutory regimes were inconsistent” with the recognition by the common law of native title: at [35]–[39]. In 2015 the High Court handed down its most recent decision on common law extinguishment in Queensland v Congoo (2015) 256 CLR 239. The Court split 3:3 and accordingly the decision in the Full Federal Court was affirmed: s 23(2)(a), Judiciary Act 1903 (Cth). Certain military orders had been issued by the Commonwealth in 1943, pursuant to a legislative and regulatory regime, regarding possession and control of the lands in question for military purposes. Disagreements in the interpretation of the doctrine of extinguishment were evident between the judgments of those Justices allowing the appeal and the judgments of those Justices dismissing the appeal. While all High Court Justices in Congoo applied the “inconsistency of rights” test to determine if any extinguishment occurred, key distinctions between the opinions emerged including the relevance of a “statutory purpose” or “legislative intention” in ascertaining any possible extinguishing effect of the military orders in question and whether this approach was consistent with the existing case law on extinguishment. Another point of difference was in the interpretation of the relevant regulations and military orders as to whether they conferred a “right of exclusive possession” or simply “possession”. Further divergences arose in the emphasis and application of the “clear and plain intention” requirement, in the application of the rationale of “equality” and in regard to the temporary “suspension” of native title. The Justices dismissing the appeal considered that whether the orders extinguished native title depended on whether control of the lands, as created by the military orders, was inconsistent with the continued existence of native title rights. This in turn depended on the legislative intent when control powers were conferred on the Commonwealth and whether a “clear and plain” intention to extinguish all other rights and interests in the land existed. In accordance with the decision of the Full Federal Court, the military orders were found not to extinguish the native title rights and interests of the Bar Barrum People in their North Queensland lands. Legislation purporting to vest ownership of resources (such as mineral, water, fish or wildlife) in the Crown could potentially extinguish native title. Whether such legislation will actually have this effect will depend on the interpretation given. A declaration that fauna was Crown property under State legislation failed to extinguish native title in Yanner v Eaton (1999) 201 CLR 351. [22.1030] Non-statutory extinguishment: Native title can also be extinguished by non-statutory executive action, such as Crown grants and alienations. Such executive action would need to be authorised by legislation. Extinguishment depends then on the effect that the grant has on the right to enjoy native title, that is whether the Crown grant is “necessarily inconsistent” with the right to enjoy native title.

Examples 1.

The grant of a fee simple will extinguish native title at common law. In Fejo v Northern Territory (1998) 195 CLR 96, the High Court unanimously found that a grant of a fee simple extinguishes native title.

2.

The grant of a common law “exclusive possession” lease will extinguish native title at common law. In Wilson v Anderson (2002) 213 CLR 401, the High Court found that a “lease in perpetuity”, granted pursuant to New South Wales legislation, gave the leaseholder exclusive possession over land and thus extinguished any native title in that land.

3.

“Non-exclusive possession” leases (for example, pastoral and mining leases) will not necessarily extinguish native title at common law. However, the High Court in Western Australia v Ward (2002) 213 CLR 1 found that the grant of such leases will extinguish any exclusive native title rights. Thus, the right to control access to the land will be extinguished. In both Wik Peoples v State of

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Queensland (1996) 187 CLR 1 and in Ward, the majority found that native title was not necessarily extinguished by certain pastoral leases. Native title could co-exist with the rights of the pastoralists, but the rights in the pastoral lease prevail over native title rights. The High Court in Ward extended the principles in Wik to apply to mining leases. In Western Australia v Brown (2014) 253 CLR 507 the High Court found that a non-exclusive mining lease granted to mining lessees, prior to 1975, did not extinguish native title rights and interests as the lease did not confer on the mining lessees rights that were inconsistent with the continued existence of native title. Accordingly, although the grants of the mining leases suppressed the exercise of some native title rights during the mine’s operation, core native title rights endured and took full effect at the end of the mining tenure.

2. Extinguishment under the Native Title Act [22.1050] Extinguishment of native title under the Native Title Act 1993 (Cth) is complex because it is necessary to consider extinguishment under several general categories and time frames as the law applies differently depending on when a grant or action was made by government.

(a) Extinguishment in “past acts” and “intermediate period acts” regimes [22.1060] The Native Title Act 1993 (Cth) validates “past acts” and “intermediate period acts” which may have been invalid due to native title and which are attributable to the Commonwealth and it enables State and Territory legislation to validate similar acts and grants. Validation can result in native title being extinguished in some cases, while in other cases native title is merely suspended for the term of the grant and revives at the end of that particular grant. [22.1070] “Past acts”: “Past acts” are defined as acts occurring prior to 1 July 1993 in the case of legislation, and grants occurring prior to 1 January 1994 where the act would have been valid if native title did not exist: Native Title Act 1993 (Cth), Div 2, ss 15, 228. Acts and grants made by the government prior to the passing of the Racial Discrimination Act 1975 (Cth) would not come within the definition of “past acts” in the Native Title Act 1993. Therefore, acts governed by the “past acts” regime would be those undertaken post-1975. 30 [22.1080] Validation of “past acts”: “Past acts” are grouped into four different categories of grants for the purposes of validation.  Category A “past acts” includes freehold estates, certain leases such as commercial, agricultural, pastoral or residential and certain public works on Crown lands. Category A “past acts” when validated totally extinguish native title: Native Title Act 1993 (Cth), ss 15(1), 229.  Category B “past acts” are leases that are not in Category A or C, that is, all other leases except mining leases. Category B leases would, for example, include leases for community groups that are non-commercial, such as for Girl Guide groups. Category B “past acts” when validated extinguish native title to the “extent of inconsistency”: ss 15, 230.  Category C “past acts” refer to the grant of a mining lease or licence.  Category D includes any “past act” not in the prior categories and includes other governmental acts such as the issuing of licences for fishing and pearling, tourism and transport, and for the construction of pipelines and power lines. Categories C and D “past acts” do not extinguish native title. Native title rights and interests have full effect after the Category C or D interest has come to an end. Thus, native title is suspended and revives on the expiry of the mining lease or other category C or D interests: ss 15, 231, 232. 30

As to when a mining lease is invalid and would be a “past act”, see James v Western Australia (2010) 184 FCR 582.

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[22.1090] “Intermediate period acts”: Grants or acts that occurred in the period between the commencement of the original Native Title Act 1993 (Cth) on 1 January 1994 and the date of the Wik decision (Wik Peoples v State of Queensland (1996) 187 CLR 1) on 23 December 1996 are termed “intermediate period acts” and are validated by the Native Title Act 1993: Div 2A, ss 232A, 21. Prior to the Wik decision certain grants were made under the erroneous assumption that all leases extinguished native title. Such grants failed to comply with the procedural requirements of the native title legislation and were therefore potentially invalid. [22.1100] Validation of “Intermediate period acts”: Validated acts are categorised in the same form as “past acts” (that is, A, B, C, D) to indicate their effect on native title, for example, extinguishment or non-extinguishment: Native Title Act 1993 (Cth), ss 232B, 232C, 232D, 232E, 22B. If the “intermediate period act” comprises freehold, or exclusive possession leases (but not mining leases), or the establishment of public works which were commenced prior to 23 December 1996, then native title will be extinguished by that act. The non-extinguishment principle applies to all other acts.

(b) Deemed extinguishment: “confirmation of extinguishment” provisions [22.1110] The “confirmation of past extinguishment of native title” provisions of the Native Title Act 1993 (Cth) now govern the extinguishment of all native title prior to 1996: see Pt 2, Div 2B. The 1998 amendments to the Native Title Act 1993 included different types of land tenures and certain public works, which if occurring prior to 23 December 1996, will extinguish native title. [22.1120] “Previous exclusive possession acts” (PEPAs): All acts coming within the definition of “previous exclusive possession acts”, if valid or validated (that includes both “past acts” and “intermediate period acts”) and if taking place on or before 23 December 1996, permanently extinguish native title: Native Title Act 1993 (Cth), ss 23A, 23B, 23C. PEPAs include: (a)

a scheduled interest (Sch I enumerates various interests, generally leasehold interests, on a State by State basis, which comprise the scheduled interests);

(b)

private freehold;

(c)

leasehold interests conferring a right to exclusive possession; and

(d)

construction of public works commenced on or prior to 23 December 1996.

[22.1130] “Previous non-exclusive possession acts” (PNEPAs): “Previous non-exclusive possession acts” extinguish native title only to the extent of inconsistency. “Previous non-exclusive possession acts” are valid or validated acts which take place on or before 23 December 1996, and are defined to include the grant of pastoral and agricultural leases: Native Title Act 1993 (Cth), ss 23A, 23F, 23G.

(c) Extinguishment in the “future dealings regime” [22.1140] The future dealings regime governs legislation enacted after mid-1993, and other action taken after 1 January 1994. All extinguishment in this period is governed by the Native Title Act 1993 (Cth). The general rule for future dealings with land is described as the non-extinguishment principle: s 238. Even if an act is totally or partially inconsistent with native title, native title will continue to exist and is merely suspended for the term of the interest. Once the interest expires native title will revive and again have full effect: s 24MD(3). [22.1150] Historical extinguishment disregarded: The Native Title Act 1993 (Cth), s 47 allows for prior extinguishment to be disregarded in certain cases when a native title claim is made. See Adnyamathanha People No 3 Native Title Claim v State of South Australia (2014) 218 FCR 148; CG v Western Australia [2015] FCA 204 at [1022]-[1033].

chapter 22 Property

The “future dealings regime” for native title land [22.1160] The Native Title Act 1993 (Cth) instigated a completely new regime to govern future dealings with native title land that took place after the enactment of the Act: see Pt 2, Div 3. The 1998 amendments significantly diminished this regime. These amendments permitted certain future grants and actions to prevail over native title, reduced procedural rights of native titleholders and limited the right to negotiate.

“Freehold test” [22.1170] One of the key features of the future dealings regime is the freehold equivalence status of native title. The freehold test allows “future acts” (defined at [22.1180]) in relation to native title to be valid (subject to any right to comply with the right to negotiate – discussed at [22.1190]) if such acts could also be done over freehold, and similar procedural standards are met. Thus the Crown can deal with native title land only in the same way that it can deal with “ordinary title”, that is, freehold: Native Title Act 1993 (Cth), s 253. Future acts that will pass the freehold test (apart from the exceptions specified in the Native Title Act 1993) include the compulsory acquisition of interests in land and the grant of mining or petroleum interests. Acts failing to pass the freehold test must be validated by an agreement with the native title holders unless validated by a provision of the Native Title Act 1993.

“Future acts” [22.1180] New titles granted after 1 January 1994 and legislation made after 1 July 1993 are designated as “future acts”: Native Title Act 1993 (Cth), Div 3 Pt 2 ss 226 and 233(1)(a). An essential characteristic of a “future act” is that it must affect or impact on native title to some extent: s 233. An act affects native title if it extinguishes native title rights or is wholly or partly inconsistent with the continued existence of native title: s 227. Future acts do not include acts validated as “past acts” or “intermediate period acts”: s 233(1)(b), (2). To the extent that a future act affects native title it will be valid if it is covered by the provisions of the Native Title Act 1993 and invalid if it affects native title and is not covered by the Act: s 24AA(2). A future act will be invalid only to the extent that it affects native title. Certain “future acts” may be validly undertaken on land subject to native title. These include: 1.

Future acts undertaken pursuant to a registered indigenous land use agreement: ss 24BA – 24EB.

2.

Future acts in relation to certain “primary production activities”: ss 24GA – 24GE and s 24GD.

3.

Future acts in relation to water and airspace. Legislation governing the management of surface and subterranean water, living aquatic resources, the grant of leases and licences for water activities, and the management of the airspace is permitted: s 24HA.

4.

Future acts described as “pre-existing right-based acts”, that is acts undertaken pursuant to a pre-existing right or existing reservation or lease, will be valid future acts where certain requirements are met: ss 24IA – 24IB. “Permissible lease renewals”, that is renewals, re-grants or extensions of a lease, licence, permit or authority (other than a mining lease: ss 26(1A), 26D) will be valid future acts where the original lease was granted on or before 23 December 1996: ss 24IA, 24IC, 24ID. In some instances certain lease renewals may be subject to the right to negotiate process: s 26(1)(a).

5.

Future acts in reserved areas or in areas set aside for particular purposes: ss 24JA – 24JB.

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6.

Future acts involving the construction of public housing or other public facilities: s 24JAA introduced by the Native Title Amendment Act 2010.

7.

Future acts to construct, operate, use, maintain or repair public infrastructure facilities or services to the public, including roads, railways, and bridges: s 24KA.

8.

Low-impact future acts: s 24LA.

9.

Offshore future acts are valid providing that any acquisition of native title rights is undertaken without causing native title holders greater disadvantage than if they held ordinary rights or interests: s 24NA.

10.

Future onshore acts which pass the freehold test (discussed at [22.1170]) will be valid subject to any right to comply with the right to negotiate: s 26(1)(a).

11.

Future acts which have gone through the “right to negotiate process” (discussed at [22.1190]) will be valid.

“Right to negotiate” [22.1190] A second key feature of the future dealings regime is that native titleholders and registered claimants have the right to negotiate with government (and the proposed grantee party) prior to the government’s carrying out of certain future acts: see Native Title Act 1993 (Cth), Pt 2, Div 3, subdiv P, ss 25, 26, 26A, 26B, 26C, 26D, 27, 27A, 27B, 28, 29. The right to negotiate is not a veto. Generally the right to negotiate applies to mining (ss 26(1)(c), 253, 26(1A), 26D) and to certain compulsory acquisitions of native title. Alternative State and Territory schemes may replace the right to negotiate on non-exclusive possession land such as pastoral leases.

Compliance with the right to negotiate process [22.1200] Compliance with the right to negotiate process involves the following:

1. Notice [22.1210] The government must give notice of the proposed act to any registered body corporate, to any registered native title claimant, to any representative Aboriginal or Torres Strait Islander body, to the public, to the grantee party and to the registrar of the arbitral body: Native Title Act 1993 (Cth), s 29(1), (2), (3). A native title claimant must, within four months from the notification date in the notice, become a registered claimant to be able to participate in the right to negotiate. Negotiation parties are the government, the native title parties and the grantee party: s 30A.

2. Scope of negotiations [22.1220] It is possible to negotiate, and include in agreements, royalty-like payments and income and profit sharing, although it is not possible for an arbitral body to impose such a condition upon a determination that an act may be done: Native Title Act 1993 (Cth), ss 33(1) and 38(2).

3. Duty to negotiate in good faith [22.1230] The right to negotiate requires that the negotiation parties must negotiate in good faith (Native Title Act 1993 (Cth), ss 30A and 31): Walley v Western Australia (1996) 67 FCR 366; Coppin v Western Australia (1999) 92 FCR 465 and FGM Pilbara Pty Ltd v Cox (2009) 175 FCR 141; Xstrata Coal Queensland Pty Ltd v Mark Albury (Karingbal #2) [2012] NNTTA 93. The standard requirement for good faith is the need for an actual or subjective intention to attempt to come to an agreement. A party’s intention can be assessed from observing whether their total conduct during the negotiation process, as

chapter 22 Property

viewed objectively, is reasonable. The standard of assessment is not, however, the reasonable person test: see Strickland v Minister of Lands (WA) (1998) 85 FCR 303 at 320. In Western Australia v Njamal People (1996) 134 FLR 211 at 224-225, the National Native Title Tribunal suggested certain criteria by which it could be determined whether a party has negotiated in good faith. This list of “useful indicia” includes the following: (a)

unreasonable or unexplained delays in negotiations;

(b)

failure to make an offer or counter-offer;

(c)

lack of communication or response;

(d)

refusal to attempt to reach agreement, such as by not agreeing on trivial issues, or by adopting a rigid non-negotiable position;

(e)

by adopting conduct which obstructs the negotiating process, such as by refusing to sign a written agreement in relation to the negotiation process; or

(f)

by failure to supply reasonable requests for information.

4. Agreement [22.1240] Native title holders, the government and the grantees must endeavour to reach an agreement as to the doing of an act, and as to the conditions under which the act may be done, as this is the purpose of the negotiations: Native Title Act 1993 (Cth), s 31(1)(b). The effect of an agreement made by the parties is the same as if a determination was made: ss 28, 40, 41, 41A. Any of the negotiating parties may request that the arbitral body mediate among the parties to assist in reaching an agreement: s 31(3). Any of the negotiating parties can make application to the arbitral body for a determination regarding the act provided that six months have elapsed since the notification day: s 35. Failure to negotiate in good faith precludes the arbitral body from making a determination: s 36(2). If the NNTT fails to make a determination within six months, where the NNTT is the arbitral body, the Minister may request a determination be made within a set period: s 36(3), (4). If no determination is forthcoming the Minister may make the determination: ss 36A, 36B, 36C.

5. Criteria [22.1250] In making a determination, account must be taken of the effect of the grant or act on the criteria stipulated in Native Title Act 1993 (Cth), s 39.

6. Determination or agreement [22.1260] Either an agreement is reached with each of the native title parties, otherwise the arbitral body or the Minister may make a determination. This will satisfy the right to negotiate process: Native Title Act 1993 (Cth), ss 38 and 36C. The conditions imposed in the agreement or determination will have effect as if they were the terms of a contract between the parties: s 41.

7. Ministerial override [22.1270] The Federal Minister can override a determination of the NNTT in the national interest or in the interest of the State or Territory. Such override must occur within two months of the decision: Native Title Act 1993 (Cth), s 42.

Indigenous Land Use Agreements [22.1280] The Native Title Act 1993 (Cth) promotes the status of indigenous land use agreements (ILUAs): see Pt 2, Div 3, subdivs B, C, D, E, s 24BA. There are several advantages in reaching an ILUA. It is possible for the terms of an ILUA to take precedence over other provisions in the Native Title Act 1993

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dealing with the validity of future acts: s 24AB(1). For example, the use of an ILUA would enable a mining lease to be validly granted without going through the right to negotiate process: s 26(2). In addition, a registered ILUA could have the effect of validating future acts undertaken invalidly.

Compensation [22.1290] The majority in Mabo (No 2) considered that no compensation would be available on the extinguishment of native title prior to the enactment of the Racial Discrimination Act 1975 (Cth). Compensation under the Native Title Act 1993 (Cth) is in accordance with the Div 5 provisions. The Act restricts the maximum compensation payable on the extinguishment of native title. Compensation is limited to the equivalent payable on the compulsory acquisition of a freehold estate over the same land or waters: s 51A. This freehold compensation cap is, however, subject to the “just terms” compensation requirement in s 51(xxxi) of the Commonwealth Constitution. In 2016, the Federal Court for the first time considered the calculation of compensation for loss or impairment of native title under the Native Title Act 1993 (Cth). 31 In Griffiths v Northern Territory (No 3) [2016] FCA 900, Mansfield J made a determination as to the compensation payable by the Northern Territory Government to the native title parties regarding certain specific areas in Timber Creek, a town in the Northern Territory, where native title had been extinguished and impaired by past government acts, including land tenure grants and public works. The compensation claim was preceded by an earlier determination of native title in which the Ngaliwurru and Nungali People were found to have held native title. The Court ordered the payment of $3,300,261 compensation to traditional owners comprising three elements:  The value of the native title interest: an amount of $512,000 was assessed for “economic loss”, based on 80 per cent of the freehold land value at the relevant time.  Calculation of interest: an amount of $1,488,261 interest was payable based on the economic loss and calculated as simple interest.  Compensation for non-economic loss: an amount of $1,300,000 was determined for “solatium” or non-economic/intangible loss, in recognition of the loss of the spiritual connection and traditional connection with the land. At the date of writing, the decision in Griffiths was subject to appeal on all elements except the date on which the entitlement to compensation arose, that is, the date the extinguishing or impairing acts were undertaken and not the date on which such acts were validated by legislation.

Conclusion [22.1310] Australia recognised indigenous rights to land only relatively recently and some two hundred years after white settlement. Despite this, native title is now a permanent feature of the Australian legal system. Not only has it been recognised by Australia’s highest court, it has also been enacted by Federal Parliament and the legislatures of every State and Territory.

31

In an earlier compensation case for extinguishment of native title under the Native Title Act 1993 (Cth), Jango v Northern Territory (2007) 159 FCR 531, the claimants failed to meet the evidentiary requirements of proving native title itself thus no compensation was determined. A previous decision in De Rose v South Australia [2013] FCA 988 offered little guidance on how compensation was to be calculated as the parties, having agreed on compensation, then applied for a consent determination.

chapter 22 Property

Further reading Land law P Butt, Land Law (6th ed, Thomson Reuters, Sydney, 2010). P Moore, S Grattan, L Griggs, MacCallum and Moore’s Australian Real Property Law (6th ed, Thomson Reuters, Sydney, 2015). R Chambers, An Introduction to Property Law in Australia (3rd ed, Thomson Reuters, Sydney, 2013). B Edgeworth et al, Sackville and Neave Australian Property Law (9th ed, LexisNexis Butterworths, Sydney, 2012). MA Stephenson and E Webb, Land Law (4th ed, LexisNexis Butterworths, Sydney, 2015). Native title RH Bartlett, Native Title in Australia (3rd ed, LexisNexis Butterworths, Sydney, 2015). L Strelein, Compromised Jurisprudence: Native Title Cases since Mabo (2nd ed, Aboriginal Studies Press, Canberra, 2009). MA Stephenson (ed), Mabo: A Judicial Revolution (University of Queensland Press, Brisbane, 1993). MA Stephenson (ed), Mabo: The Native Title Legislation (University of Queensland Press, Brisbane, 1995).

Internet sites National Native Title Tribunal http://www.nntt.gov.au (publications, bibliographies, determinations, agreements) Australian Institute of Aboriginal and Torres Strait Islander Studies (AIATSIS) http://www.aiatsis.gov.au (Native Title Research Unit)

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Negotiable Instruments I: Bills of Exchange [23.20] Bills of exchange .............................................................................................................................................. 557 [23.150] Parties to a bill of exchange.................................................................................................................... 560 [23.370] Matters affecting liability on a bill........................................................................................................ 565 [23.480] Position of holder, holder for value and holder in due course ............................................... 568 [23.650] Negotiation of bills ....................................................................................................................................... 570 [23.670] Indorsements ................................................................................................................................................. 571 [23.710] Acceptance ...................................................................................................................................................... 572 [23.770] Payment............................................................................................................................................................ 574 [23.820] Dishonour ......................................................................................................................................................... 576 [23.910] Noting and protesting ................................................................................................................................ 579 [23.920] Discharge.......................................................................................................................................................... 579 [23.980] Acceptance for honour .............................................................................................................................. 580 [23.1030] Miscellaneous matters .......................................................................................................................... 582 [23.1060] Promissory notes...................................................................................................................................... 582

Introduction [23.10] Certain commercial instruments have acquired by law or custom of trade the quality of negotiability enabling the holder to pass them on from hand-to-hand by simple delivery so as to give a bona fide holder for value a good title to the instrument, notwithstanding that the transferor may have had a defective title. These instruments are commonly referred to as “negotiable instruments”. The characteristics of negotiable instruments are: (a)

the title to them passes by mere delivery, or, where they are payable to “order”, by indorsement followed by delivery;

(b)

no notice of such transfer need be given to the party liable on the instrument;

(c)

a holder can sue in their own name;

(d)

consideration and bona fides are presumed; and

(e)

a holder in due course does not take the instrument subject to equities, that is, subject to defences available to prior parties, and in fact may obtain a better title than the transferor.

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Not every document of title to property has the benefit of negotiability, and in fact only those which have been specially hallmarked either by custom or statute are deemed to be such instruments. The most common types of negotiable instruments are bills of exchange, promissory notes, cheques, bearer debentures, warehouse certificates and certain government bonds. The negotiable instruments with which this work is concerned are bills of exchange, cheques, and promissory notes. The law relating to bills of exchange and promissory notes is contained in the Bills of Exchange Act 1909 (Cth). Formerly, the law relating to cheques was also contained in the Bills of Exchange Act 1909. However, separate statutory provision was made in respect of cheques by the Cheques and Payment Orders Act 1986 (Cth), since renamed the Cheques Act 1986 (Cth). The Bills of Exchange Act 1909 no longer applies to cheques. This chapter is concerned with the law relating to bills of exchange and promissory notes in the Bills of Exchange Act 1909 (Cth), and the statutory provisions concerning cheques in the Cheques Act 1986 (Cth) are dealt with separately in Chapter 24.

chapter 23 Negotiable Instruments I: Bills of Exchange

Bills of exchange [23.20] A bill of exchange is essentially an instrument or document drawn up by one person (the drawer) ordering another person (the drawee) to pay a particular sum of money (usually in return for goods sold or moneys lent) either to the person drawing up the instrument or to some third person (the payee). On the drawee accepting the bill, that is, agreeing in writing on the bill to pay the sum at the time specified in the bill (and henceforward called the acceptor), the drawer will transfer the bill to the payee, who in turn may negotiate the bill to some other person to whom he or she is indebted and so on. The person in possession of the bill at its maturity (the holder) will then present the bill to the acceptor for payment.

Uses and advantages of bills of exchange [23.30] Bills of exchange have various important uses in commerce, one common use being to fix the date of payment by the debtor and another to fix the dates of instalment payments, for example where goods are transferred on credit terms. Particular benefits are afforded by bills when goods are shipped to buyers, as the document of title (bill of lading) may be attached to the bill of exchange (which is then referred to as a documentary bill) and the service of banks utilised for the purpose of having the bill presented to the drawee and if necessary having it cleared before the documents are handed over to the purchaser. This method of trading enables the seller to arrange for the collection of their account before parting with the title to the goods. The advantages of using a bill of exchange as a means of settling debts are fairly obvious. 1.

Money, no matter how large the amount involved, may be safely transferred from place to place as the transaction involves book entries rather than the handling of cash.

2.

A bill may be discounted. This involves selling the bill to a bank. For example, X may give Y a bill of exchange due in six months’ time. Y, not desiring or being unable to wait that length of time for the money may discount the bill subject to his bank being satisfied as to the financial risk. The bank will credit Y’s account with the amount of the bill less a charge called a discount, made for the service. Of course, if X did not meet the bill on maturity, Y would be held responsible to the bank for the full amount of the bill, since, as part of the transaction of discounting, Y would be required to indorse the bill; Y would thus be liable as an indorser.

3.

By giving a bill, the debtor not only agrees to pay the debt either on demand or at some fixed future date, but gives their creditor documentary evidence of the amount owing. The creditor could sue on the bill if the debtor dishonoured it at the due date.

4.

A bill of exchange may be drawn payable to another party, for example A owes B $500; B owes C $500; B may draw a bill on A for $500 and make it payable to C.

5.

Bills may be transferred and thus “C” in the above example may transfer it to one of his creditors for the purpose of arranging a settlement of an amount due.

Analysis of definition of bill of exchange [23.40] A bill of exchange is defined by the Bills of Exchange Act 1909 (Cth) as follows: “A bill of exchange is an unconditional order in writing addressed by one person to another signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to bearer”: s 8(1).

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“Unconditional order in writing” [23.50] A bill of exchange must be an order to pay money and it must not stipulate any conditions. An instrument which merely expresses a request for payment is not a bill of exchange.

“Addressed by one person to another” [23.60] A bill is drawn by the drawer and addressed to the drawee. The drawee must be named or otherwise indicated in a bill with reasonable certainty: Bills of Exchange Act 1909 (Cth), s 11(1).

“Signed by the person giving it” [23.70] A bill of exchange must be signed by the drawer, or some duly authorised person on their behalf. Where the drawer’s signature is forged, or put on the bill by someone without authority, he or she will not have “signed” the bill as required by the Bills of Exchange Act 1909 (Cth).

“Pay on demand or at a fixed or determinable future time” [23.80] A bill is payable on demand: (a)

if it is expressed to be so payable, or is payable at sight, or on presentation; or

(b)

if no time for payment is expressed: Bills of Exchange Act 1909 (Cth), s 15(1).

A bill is payable at a determinable future time which is expressed to be payable: (a)

at a fixed period after date or sight; or

(b)

on or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening may be uncertain: s 16.

“A sum certain in money” [23.90] The sum payable is considered certain although it is required to be paid: (a)

with interest or bank charges; or

(b)

by stated instalments; or

(c)

by stated instalments, with a provision that upon default in payment of any instalment the whole shall become due; or

(d)

according to an indicated rate of exchange, or according to a rate of exchange to be ascertained as directed by the bill: Bills of Exchange Act 1909 (Cth), s 14(1).

The High Court has held that a bill payable “with interest at the rate of 8 per cent per annum until arrival of payment in London to cover” was invalid, as it was not certain because of the difficulty in determining the exact date the funds would arrive in London: Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46. Where more than one sum is expressed to be payable, for example, where there is a discrepancy between the amount in figures and the amount in words, the lesser of the sums is to be taken to be the only sum ordered to be paid: s 14(2).

“To the order of a specified person or to bearer” [23.100] Where a bill is not payable to bearer, the payee must be named or otherwise indicated in the bill with reasonable certainty: Bills of Exchange Act 1909 (Cth), s 12(1). For example, an order bill may be drawn payable to the drawer or their order, or payable to the drawee or their order, or payable to a specified third person or their order.

chapter 23 Negotiable Instruments I: Bills of Exchange

Where the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer: s 12(3). This is also the case where the person designated as payee is in fact an actual person but one who was never intended to have any rights to the bill, for example where the name was entered merely in pretence: Bank of England v Vagliano Bros [1891] AC 107 at 153. However, when there is a real drawer who has designated an existing person as the payee, and intends that that person should be the payee, the payee cannot be fictitious: North and South Wales Bank Ltd v Macbeth [1908] AC 139.

Order or bearer bills [23.110] A bill of exchange may be made payable to bearer or to order. A bearer bill does not require indorsement to be negotiated to another person, mere delivery being sufficient, whereas an order bill must be indorsed before being negotiated. A bill is payable to bearer when so expressed or when the only or last indorsement is in blank: Bills of Exchange Act 1909 (Cth), s 13(3). A bill is payable to order when: (a)

it is so expressed; or

(b)

it is expressed to be payable to a particular person and does not contain words prohibiting transfer: s 13(4). A bill expressed simply “Pay C Cameron” is payable to C Cameron or his order.

An order bill becomes a bearer bill when indorsed in blank, that is, when no indorsee is named by the indorser who simply signs her or his name on the bill.

Immaterial facts omitted [23.120] A bill of exchange is not invalid by reason only that immaterial facts have been omitted. In particular it is not invalid if: (a)

it is not dated;

(b)

it does not specify the value given, or that any value has been given for it; or

(c)

it does not specify the place where it is drawn, or the place where it is payable: Bills of Exchange Act 1909 (Cth), s 8(4).

Date of bill [23.130] As previously mentioned an undated bill is quite valid but it should be noted that if a bill is dated, such date is, prima facie, deemed to be the true date. A bill is not invalid if it is ante-dated or post-dated or if it bears the date of a Sunday: Bills of Exchange Act 1909 (Cth), s 18(2).

Simple form of a bill of exchange [23.140] The following is an example of a bill of exchange:

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Figure 23.1: Bill of Exchange No 76 $50,000

Due 4/1/17. Sydney 4/10/16. Three months after date pay C Cameron or order the sum of Fifty Thousand Dollars.

To: Albert Anderson. Bruce Brown.

When Albert Anderson “accepts” the above bill he will write across the face of it “Accepted” and indicate the bank where it is payable. His signature will appear underneath his acceptance as follows: Accepted, payable at Commonwealth Bank of Australia, Sydney. Albert Anderson. It should be noted that the mere signature of the drawee on the bill is sufficient acceptance.

Parties to a bill of exchange [23.150] Primarily there are three parties to a bill of exchange. [23.160] Drawer: The drawer in usual circumstances is the creditor of the drawee; in the example at [23.140] Bruce Brown is the drawer of the bill. [23.170] Drawee: The drawee is usually the debtor of the drawer and in the example at [23.140] Albert Anderson is the drawee. When the drawee writes their acceptance on the bill he or she is called the acceptor. [23.180] Payee: The person whom the drawee is required by the bill to pay is referred to as the payee. In the illustration C Cameron is the payee. The name of the drawer could be inserted as payee and should he or she desire to transfer the bill, this could be done by means of simple delivery in the case of a bearer bill, and where drawn to order as illustrated in the example at [23.140], by indorsement completed by delivery. Subsequent to the drawing of a bill, other persons may become connected with it and these parties are discussed at [23.190]–[23.230]. [23.190] Indorser: The holder of an order bill may desire to negotiate it to some other person and this is done by means of an indorsement plus delivery. The person negotiating is called the indorser and the person to whom it is negotiated is called the indorsee. Bearer bills are negotiated by delivery and do not require to be indorsed. [23.200] Bearer: The person in possession of a bill or note which is payable to bearer is referred to as the bearer: Bills of Exchange Act 1909 (Cth), s 4. [23.210] Holder: The Bills of Exchange Act 1909 (Cth) defines a “holder” as “the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof”: s 4. Every person who has possession of a bearer bill is considered a holder. However, in order to be a holder of a bill not payable to bearer, the person in possession of it must be either the original payee or a person to whom it has been indorsed, that is, an indorsee.

chapter 23 Negotiable Instruments I: Bills of Exchange

[23.220] Holder for value: This term embraces two classes of holder; first, any holder who has given value for the bill; and, secondly, any subsequent holder after value has been given. In reference to the latter class it will be noticed that the term is applicable even though the holder did not give value but in this case is considered a holder for value only as regards their relationship to the acceptor and persons who become parties to the bill prior to the time when value was given. For example, X gave value for a bill and indorsed it to Y without receiving value; Y is only a holder as regards her relationship to X but she is holder for value as regards her relationship to all parties prior to X. [23.230] Holder in due course: According to the Bills of Exchange Act 1909 (Cth), a holder in due course is a person who has taken a bill: (a)

complete and regular on the face of it;

(b)

before it is overdue;

(c)

without notice of dishonour (if any);

(d)

in good faith and for value; and

(e)

without notice at the time the bill was negotiated to them of any defect in the title of the person who negotiated it: s 34(1).

case [23.240] A bill was drawn in favour of “F & FN Company”. It was indorsed “F & FN” with the omission of the word “Company”. It was held the bill was not complete and regular on the face of it: Arab Bank Ltd v Ross [1952] 2 QB 216. [23.250] The question to be answered in such a case is whether the alleged irregularity “would reasonably give rise to a doubt?”: Heller Factors Pty Ltd v Toy Corp Pty Ltd [1984] 1 NSWLR 121 at 141. Every holder until the contrary is proved is deemed to be a holder in due course. This applies to all holders except the original payee as it has been held that a payee cannot be a holder in due course: RE Jones Ltd v Waring & Gillow Ltd [1926] AC 670; Inflatable Toy Co Pty Ltd v State Bank of New South Wales (1994) 34 NSWLR 243 at 253. There must be a prior negotiation before a holder can be a holder in due course. A bill is “issued” to the original payee, it is not negotiated to the payee. A holder in due course is given a privileged position by the Bills of Exchange Act 1909 (Cth) and their privileges are discussed at [23.510]–[23.630].

General position of parties [23.260] The person primarily to enforce rights under a bill of exchange is the holder, who may be an ordinary holder, a holder for value or a holder in due course, terms which have been previously defined and which have prime significance in relation to the question of the title of the holder and the question of what defences may be set up against the holder. The holder will have rights of enforcement against the acceptor, the drawer and prior indorsers (if the bill has been previously indorsed). The drawee as such is not liable as there is no contract with the drawee. If the drawee accepts, then he or she is liable under the bill as the acceptor. If the drawee refuses to accept he or she is not liable but the bill (provided it is duly presented for acceptance or presentation is excused – see below) is said to be dishonoured by non-acceptance and the holder has immediate rights of recourse against the drawer and prior indorsers if any.

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The holder has the right to present the bill for payment to the acceptor. If the drawee has previously accepted the bill so that he or she has become the acceptor then the drawee is liable to pay. Otherwise the drawee is not liable to pay. If however, in either case the drawee does not pay, then the bill is said to be dishonoured by non-payment and the holder has a right of recourse against the drawer and prior indorsers. The fact that the holder has not previously presented the bill for acceptance does not (save in special circumstances) preclude the holder from presenting the bill for payment and resorting to the drawer and indorsers if there is dishonour by non-payment, but presentation for acceptance has certain immediate advantages as outlined in the previous paragraph. If an indorser, in the case of dishonour of the bill by non-acceptance or non-payment, has paid the amount of the bill, then he or she has a right to bring an action against the acceptor (if any), the drawer or any prior indorser of the bill, for recoupment. If it is the drawer who has paid the holder or who has been forced to recoup an indorser, then the drawer has a right of recourse against the acceptor. This represents the general scheme of rights and liabilities but is subject to special rules stipulated in the Bills of Exchange Act 1909 (Cth) about presentation and excuses for non-presentation, and also to requirements of notice of dishonour which are stated in more detail at [23.730]–[23.890].

Liability of parties [23.270] The drawee of a bill, after he or she accepts it, is the person primarily liable on it; the drawer and indorsers are, in relation to the acceptor, guarantors to the holder in the event of the bill being dishonoured. The obligations of the parties to a bill when they place their signature on it is as follows: [23.280] Acceptor: The acceptor of a bill, by accepting it: (a)

engages that they will pay it according to the tenor of their acceptance; and

(b)

is precluded from denying to a holder in due course the genuineness of the drawer’s signature and the existence and capacity to act of the drawer and payee. The acceptor is not precluded from denying the validity of indorsements: Bills of Exchange Act 1909 (Cth), s 59.

[23.290] Drawer: The drawer of a bill, by drawing it: (a)

engages that on due presentment it will be accepted and paid according to its tenor, and that if it is dishonoured he or she will compensate the holder or any indorser who is compelled to pay it, provided that the requisite proceedings on dishonour are duly taken; and

(b)

is precluded from denying to a holder in due course the existence of the payee and their then capacity to indorse: Bills of Exchange Act 1909 (Cth), s 60(1).

[23.300] Indorser: The indorser of a bill, by indorsing it: (a)

engages that on due presentment it will be accepted and paid according to its tenor, and that if it is dishonoured he or she will compensate the holder or a subsequent indorser who is compelled to pay it, provided that the requisite proceedings on dishonour are duly taken;

(b)

is precluded from denying to a holder in due course the genuineness and regularity in all respects of the drawer’s signature and all previous indorsements; and

(c)

is precluded from denying to their immediate or a subsequent indorsee the validity of the bill and their title to it: Bills of Exchange Act 1909 (Cth), s 60(2).

In addition to the liability of the above parties to a bill, it is necessary to consider the liability of other persons who may be connected with the bill.

chapter 23 Negotiable Instruments I: Bills of Exchange

Persons signing in a representative capacity [23.310] Where a person signs a bill as drawer, indorser, or acceptor, and adds words to their signature indicating that it is being signed for or on behalf of a principal, or in a representative capacity, that person is not personally liable on the bill. However, the mere addition to their signature of words describing themselves as an agent, or as filling a representative capacity, does not provide exemption from personal liability: Bills of Exchange Act 1909 (Cth), s 31(1). Thus, a bill signed: “Accepted for and on behalf of A Brown & Co Ltd C Wilson, Director.” would not impose on C Wilson any personal liability. However, Wilson would be personally liable should he sign: “Accepted, C Wilson, Director, A Brown & Co Ltd.” It cannot be too strongly emphasised that a person who puts her or his name to a bill of exchange makes herself or himself personally liable unless that person states upon the bill’s face that they sign for another or by procuration of another. Unless it is clear on the face of the bill that it is made for the principal, the parties themselves will be taken to be personally liable. Many cases have been decided against directors because they did not clearly sign “in the name of the company” or “on behalf of the company”. Should the directors of a company sign a bill and fail to indicate that they sign for and on behalf of the company, they are personally liable. In determining whether an agent is personally liable, having regard to their method of signing the bill, the construction most favourable to the validity of the instrument is adopted: Bills of Exchange Act 1909 (Cth), s 31(2).

case [23.320] Where a bill of exchange drawn on a company was accepted by the company and was also indorsed on the back “Fashion Fairs Exhibition Ltd A B and C D, directors”, it was held that the directors were personally liable on the grounds: (a)

that if the indorsement was to be treated as that of the company, it gave no greater validity to the bill than was already contained in the acceptance, so that such construction should not be adopted;

(b)

that the addition of the word “directors” to the signatures must be treated as a word of description only and not as excluding liability; and

(c)

that the surrounding circumstances showed that the directors intended to guarantee payment: Elliott v Bax-Ironside [1925] 2 KB 301.

[23.330] As pointed out at the beginning of this section, where a person signs a bill as drawer, indorser, or acceptor and adds words to their signature indicating that it is being signed for or on behalf of a principal, or in a representative capacity, he or she is not personally liable on the bill. However, where a director accepts a bill “For and on behalf of” their company and, having previously agreed to personally indorse the

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bill, indorses it in precisely the same form “For and on behalf of” their company, it has been held that evidence is admissible to show that the director intended to be personally liable to the drawer/payee in the event of the company failing to pay the bill. Again, if the indorsement in such a case were to be treated as that of the company, it would give no greater validity to the bill than was already contained in the acceptance. Accordingly, “The only way in which validity can be given to this indorsement is by construing it to bind someone other than the acceptor. As soon therefore as it becomes obvious that the indorsement as worded is meaningless and of no value there is a patent ambiguity which allows evidence to be admitted to give effect to the intentions of the parties”: Rolfe Lubell & Co (a firm) v Keith [1979] 1 All ER 860 at 863 per Kilner-Brown J.

“Backing” a bill [23.340] The Bills of Exchange Act 1909 (Cth) provides that a person who signs a bill otherwise than as drawer or acceptor incurs the liabilities of an indorser to a holder in due course: s 61. The section imposes liability on a person who signs a bill otherwise than as an ordinary drawer, acceptor or indorser. Such a person is said to “back” the bill. They are sometimes referred to as a “stranger” to the bill or a “quasi-indorser” since their signature is not necessary to negotiate the bill. The object of “backing” a bill in this way is to increase its value by reason of the additional credit which it derives from the signature of the person concerned. The practice is often utilised in circumstances where goods are to be sold to a company but the sellers are not completely happy with the credit position of the company and will only accept payment by way of bill of exchange provided, for example, a director of the company also “backs” the bill, that is, signs the bill in their personal capacity. If the bill is drawn and signed by the various parties as arranged, the director’s signature will have the effect of making the director liable to a holder in due course should the company dishonour the bill. The statutory provision does not apply to the advantage of the drawer-payee of a bill since such person is not a holder in due course. However, it has been held that a person who “backs” a bill will incur liability to the drawer-payee if he or she intended to be so liable at the time of signing the bill: H Rowe & Co Pty Ltd v Pitts [1973] 2 NSWLR 159. This would also appear to be the position even though the form of the director’s signature in “backing” the bill is expressed to be “For and on behalf of” the company, provided that it can be shown that in so signing the bill the director had intended to be personally liable on the bill: Rolfe Lubell & Co (a firm) v Keith [1979] 1 All ER 860.

Accommodation bills [23.350] These bills are drawn or negotiated for the specific purpose of financing one or more of the parties and are not based on any previous debt or liability between them, as is generally the case when ordinary commercial bills are issued. The accommodation party to a bill is the person lending their name, and depending on the circumstances he or she may be the person who has signed the bill as the acceptor, drawer or indorser. The specific purpose of accommodating a person in this way is to enable them to raise money on the bill. An accommodation party is liable on the bill to a holder for value and it is immaterial whether, when such holder took the bill, he or she knew such party to be an accommodation party or not: Bills of Exchange Act 1909 (Cth), s 33. However, an accommodation bill is not discharged until it is paid by the person for whose accommodation it was drawn, he or she in reality being the principal debtor. In all accommodation bills there is an implied agreement that the person for whose accommodation the bill is

chapter 23 Negotiable Instruments I: Bills of Exchange

drawn will indemnify the accommodation party should he or she be compelled to pay the bill on maturity. Thus, if A accepts a bill for the accommodation of the drawer B, and in consequence of B failing to provide funds to meet it at maturity, A is compelled to pay it, then A has a right of indemnity from B, that is, in this particular case, the acceptor is entitled to an indemnity from the drawer of the bill, B.

Transferor by delivery [23.360] Where the holder of a bill payable to bearer negotiates it by delivery without indorsing it, he or she is called a “transferor by delivery”. Transferors by delivery are not liable on the instrument except to the extent of their warranty to their immediate transferee, being a holder for value, to whom they warrant that: (a)

the bill is what it purports to be;

(b)

they have a right to transfer it, and

(c)

at the time of transfer they are not aware of any fact which makes the bill valueless: Bills of Exchange Act 1909 (Cth), s 63.

From what has been said previously on the general question of the rights and liabilities of the parties, it will be apparent that much significance attaches to the concept of the “holder”, to the notions of negotiation and indorsement of the bill of exchange, to the rules relating to acceptance and dishonour for non-acceptance, and to the rules relating to payment and dishonour for non-payment. These topics will be investigated in turn but first it is necessary to consider certain matters affecting liability on a bill.

Matters affecting liability on a bill Legal capacity [23.370] The formal requirements of a bill of exchange according to the Bills of Exchange Act 1909 (Cth) have already been discussed. It is necessary however to consider the application of the general rules of contract law to the question of the validity of the various contracts involved in a bill of exchange. Capacity to incur liability as a party to a bill is co-extensive with capacity to contract but it has been held that a minor is not liable on a bill of exchange even if it is given for necessaries: Re Soltykoff; Ex parte Margrett [1891] 1 QB 413. The person who has supplied a minor with necessaries can sue for the price of what he or she has supplied but not on the bill of exchange. Where one of the parties to a bill has no capacity to contract, the holder may enforce their rights against any of the other parties to the bill. Thus, if one of the parties was a minor, the holder could not sue the minor but could sue any of the other parties to the bill. Every partner in a trading firm has an implied power to accept and issue bills of exchange in the name of the firm for the firm’s debts, although the power is not implied in the case of a non-trading partnership. The partnership may be estopped from denying lack of a partner’s authority in some cases.

Signature and delivery essential to liability [23.380] As a general rule a person is not liable as drawer or acceptor of a bill of exchange unless he or she signs it as such but special exceptions are provided by the Bills of Exchange Act 1909 (Cth), namely: (a)

where a person signs a bill in a trade or assumed name, he or she is liable on the bill as if it had been signed in her or his own name; and

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(b)

the signature of the name of a firm is equivalent to the signature of the names of all persons liable as partners in that firm: s 28.

However, although the signature of the firm name by a partner will bind all the partners in the firm, the signature of their own name by a partner, although making that partner liable on the bill, will not bind the other partners, notwithstanding that the bill was addressed to the firm name.

case [23.390] A husband and wife carried on business in partnership under the firm name “Artitalia”. When a bill drawn on “Artitalia” was accepted by the wife in her own name, it was held that only the wife not the husband was bound by her acceptance: Geo Thompson (Aust) Pty Ltd v Vittadello [1978] VR 199. [23.400] The basic requirement that for a person to be liable on a bill of exchange he or she must have personally signed the bill is qualified to a limited extent by Bills of Exchange Act 1909 (Cth), s 97(1). That section provides, in effect, that it is not necessary for a person to have personally signed their signature on the bill but that “it is sufficient if his signature is written [on the bill] by some other person by or under his authority”. The question of whether a person was liable on a bill in circumstances where he had not personally signed the bill arose in the Queensland Court of Appeal in Commonwealth Bank of Australia v Muirhead [1997] 1 Qd R 567:

case [23.410] In that case, the names of the drawers of a bill of exchange, who were a husband and wife, were printed on the bill as follows: “For and on behalf of GAR and SS Muirhead”. The bill was part of a financial arrangement provided by the Commonwealth Bank to lend money to the couple who were farmers and graziers. Only the wife actually signed the bill under the printed names of both the husband and wife. It was argued that the signature by the wife was insufficient to make the husband liable on the bill. The argument was rejected by the Queensland Court of Appeal which held that in signing her name as she did and was authorised to do, the wife had adopted and authenticated the printed words on the bill referring to the names of both the husband and wife: “In doing so, she thus ‘signed’ not only her own name but also that of her husband” who was therefore also liable on the bill as drawer: Commonwealth Bank of Australia v Muirhead [1997] 1 Qd R 567 at 574 per McPherson JA. [23.420] Delivery is also essential before liability is incurred. Delivery is defined by the Bills of Exchange Act 1909 (Cth) as the “transfer of possession, actual or constructive, from one person to another”: s 4. As between the parties (other than a holder in due course) delivery of a bill, in order to be effectual, must be with the authority of the party concerned, that is, the drawer, acceptor or indorser. Thus, if a person signs a bill and, before he or she delivers it, the bill is stolen, he or she is not liable on it except where it comes into the hands of a holder in due course. Where a holder in due course obtains a bill, a valid delivery by all parties prior to the holder in due course is conclusively presumed and this applies notwithstanding that the bill may have been stolen by one of the previous holders: s 26(2). The signatures, however, of all previous parties must be genuine, as the general rule is that a holder in due course cannot be constituted through a forged signature.

chapter 23 Negotiable Instruments I: Bills of Exchange

Forged or unauthorised signature [23.430] Where a signature on a bill is forged or placed on the bill without authority, the forged or unauthorised signature is wholly inoperative, unless the party against whom it is sought to enforce payment of the bill is precluded from setting up the forgery or want of authority: Bills of Exchange Act 1909 (Cth), s 29. In certain cases such party is “estopped” from setting up the forgery. For example, the acceptor is precluded from denying to a holder in due course the genuineness of the drawer’s signature (s 59); an indorser is precluded from denying to a holder in due course the genuineness of the drawer’s signature and of all previous indorsements: s 60(2).

Procuration signature [23.440] A signature by procuration operates as notice that the agent has but a limited authority to sign, and the principal is only bound by such signature if the agent in so signing was acting within the actual limits of their authority: Bills of Exchange Act 1909 (Cth), s 30. Therefore, where a bill has been so signed, inquiries should be made to ascertain whether such an authority actually exists. Should a bill be signed: “per pro Wm Carlisle, Mabel Cowper.“ it would bind Wm Carlisle only if Mabel Cowper was acting within the actual limits of her authority.

Inchoate instruments [23.450] An inchoate instrument is one which is incomplete in one or more particulars. Where a simple signature on a blank stamped paper is delivered in order that it may be converted into a bill, prima facie it operates as an authority to fill it up as a complete bill for any amount the stamp duty will cover: Bills of Exchange Act 1909 (Cth), s 25(1). The provision does not apply if there is no evidence that a document was delivered with the intention that it be converted into a bill of exchange: Wilmink v Westpac Banking Corporation (2015) 318 ALR 572 (FCAFC); Atkinson v Commissioner of Taxation (2015) 318 ALR 585 (FCAFC). When a bill is wanting in any material particular, the person in possession of it has a prima facie authority to fill up the omission in any way he or she thinks fit: s 25(2). In order that such an instrument when completed may be enforceable against any person who became a party to it prior to its completion, it must be filled up within a reasonable time and strictly in accordance with the authority given. Reasonable time for this purpose is a question of fact. However, where such an instrument after completion comes into the hands of a holder in due course, it is valid and effectual for all purposes, and the holder in due course may enforce it as if it had been filled up within a reasonable time and strictly in accordance with the authority given: s 25(3).

Fraud, duress and illegality [23.460] These elements vitiate the bill of exchange as between the immediate parties, and also any subsequent contracts in relation to it, to the same degree as in the law of contract generally. The position however is somewhat different when the bill has been negotiated and the holder is endeavouring to enforce rights against persons other than those with whom he or she has directly dealt: see [23.500].

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Consideration for a bill [23.470] As in the case of other simple contracts, there must exist valuable consideration to support a bill of exchange. The Bills of Exchange Act 1909 (Cth) provides that valuable consideration for a bill may consist of: (a)

any consideration sufficient to support a simple contract; or

(b)

an antecedent debt or liability: s 32(1).

Subject to the special statutory provision as to antecedent debts, the same general rules as to consideration apply, at least between the immediate parties, to bills of exchange as to other simple contracts. Thus, a payee of a bill given in discharge of an obligation arising out of an illegal transaction cannot sue on it. Special rules regarding construction, however, apply when the bill has been negotiated and the holder is seeking to enforce rights against parties other than those with whom he or she has directly dealt: these are discussed in the next section.

Position of holder, holder for value and holder in due course Rights of a holder [23.480] The holder of a bill has the right to present it for acceptance and payment, to negotiate it and give a valid discharge. The holder also has the right to sue on the bill in their own name and to enforce payment against all parties liable on the bill: Bills of Exchange Act 1909 (Cth), s 43. The fact that a person is a “holder” does not mean that they take their title free from defects of title in people who have previously dealt with the bill. The term “holder” is neutral. In order to secure the full protection of the principle of negotiability, the holder must be a “holder in due course”.

Presumptions as to value [23.490] A holder of a bill is assisted by certain presumptions as to value. These are: (a)

that every party whose signature appears on a bill is prima facie deemed to have become a party to the bill for value; and

(b)

that every holder of a bill is prima facie deemed to be a holder in due course: Bills of Exchange Act 1909 (Cth), s 35(1), (2).

It follows from the above that consideration is presumed to have been given and the onus of proof is on those who assert its absence. Moreover, it is not necessary in order that a person be a holder for value that he or she actually gave value, as the position is that where value has been given at any time for a bill the holder is deemed to be a holder for value as regards the acceptor and all parties to the bill who become parties prior to such time: s 32(2). It follows that those who seek to impugn the title of the holder on the ground of lack of consideration would have the onus of showing that at no stage of the issue or prior negotiation of the bill was consideration given. It is not enough to show that the holder did not give value or that there was no consideration originally as between drawer, drawee and payee. A result of this is that a person who has received a bill as a gift may sue certain parties on the bill if value has at any time been given for it. Thus, if A gave B a bill for no consideration and B gave it as a gift to C, C could not sue on the bill as value had not at any time been given for it. However, should C transfer it for

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value to D, D could sue A, B or C. Further, if D gave it as a gift to his niece E, E could not sue D, but could sue A, B or C. All holders are deemed, prima facie, to be holders for value.

Where holder's title is defective [23.500] It may be shown in any case that a holder is not a holder in due course for other reasons than lack of consideration. The holder’s title may be defective because they have obtained the bill or the acceptance of it by fraud, duress, or for an illegal consideration, or because they knew of a defect in the title of the person from whom they obtained the bill. It is not necessary that the party should know of the specific defect; if they suspect a defect and choose not to ask because of a wish to remain in ignorance, they have sufficient notice. The onus of proving these facts rests on the person who is endeavouring to show that the holder is not a holder in due course as the holder has the benefit of the presumption. There is, however, one exception to this, namely, where it is admitted or proved that the making, acceptance or later negotiation of the instrument (transactions to which the present holder was not a party) was affected with fraud or duress or illegality. Here the onus of proof shifts and the holder must prove that subsequent to the fraud, illegality, etc, value was given in good faith (that is, in ignorance of the invalidity), by someone for the instrument: Bills of Exchange Act 1909 (Cth), s 35(2). Such “someone” of course may be some prior holder. If the holder surmounts this onus, then they have established a claim to be a holder in due course.

Advantages of a holder in due course [23.510] The meaning of the phrase “holder in due course” has been previously stated. It has been seen that three of the essential elements are that the person took in good faith, that they took for value and that they had no notice at the time the bill was negotiated to them of any defect in the title of the person who negotiated it: Bills of Exchange Act 1909 (Cth), s 34(1); see [23.230]. The holder in due course is in a privileged position. A summary of the main advantages is as follows: [23.520] 1. Defects of title and personal defences: A holder in due course holds the bill free from defects of title and personal defences of prior parties and may enforce payment against all parties liable on the bill: Bills of Exchange Act 1909 (Cth), s 43. [23.530] 2. Delivery: Delivery is conclusively presumed as regards all prior parties so as to make them liable to a holder in due course: Bills of Exchange Act 1909 (Cth), s 26. [23.540] 3. Derivative title: A holder who derives title through a holder in due course (not themselves being a party to any fraud or illegality) has all the rights of a holder in due course: Bills of Exchange Act 1909 (Cth), s 34(3). [23.550] 4. Estoppel (acceptor): The acceptor is precluded from denying to a holder in due course the existence and capacity of the drawer and the genuineness of the drawer’s signature. The acceptor is not precluded from denying the validity of indorsements: Bills of Exchange Act 1909 (Cth), s 59. [23.560] 5. Estoppel (drawer and indorser): The drawer is precluded from denying to a holder in due course the existence and capacity of the payee. An indorser is precluded from denying to a holder in due course the genuineness and regularity of the drawer’s signature and of all previous indorsements: Bills of Exchange Act 1909 (Cth), s 60. [23.570] 6. Indorser: Any person signing a bill otherwise than as a drawer or acceptor is liable as an indorser to a holder in due course: Bills of Exchange Act 1909 (Cth), s 61.

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[23.580] 7. Inchoate instruments: Where a person signs an inchoate or incomplete instrument in order that it be converted into a bill of exchange, he or she will be liable to a holder in due course as if the blanks had been filled up within a reasonable time and strictly in accordance with the authority given: Bills of Exchange Act 1909 (Cth), s 25. [23.590] 8. Material alteration: Where a material alteration on a bill is not apparent, a holder in due course can insist on payment according to its original tenor: Bills of Exchange Act 1909 (Cth), s 69. [23.600] 9. Notice of dishonour: A holder in due course is not prejudiced by a prior omission to give notice of dishonour by non-acceptance: Bills of Exchange Act 1909 (Cth), s 53. [23.610] 10. Negotiation of dishonoured bill: The rights of a holder in due course are not affected by notice of dishonour of a bill which is not overdue: Bills of Exchange Act 1909 (Cth), s 41. [23.620] 11. Wrong date: A holder in due course is not affected by the insertion of the wrong date by a prior holder: Bills of Exchange Act 1909 (Cth), s 17. [23.630] 12. Renunciation: A holder in due course is not affected by a holder’s renunciation of the liability of a prior party if he or she is without notice of such renunciation: Bills of Exchange Act 1909 (Cth), s 67. The above privileges are discussed in more detail throughout this chapter. A holder (whether for value or not) who derives their title to a bill through a holder in due course, and who is not a party to any fraud or illegality affecting it, has all rights of that holder in due course against prior parties and the acceptor: s 34(3).

Effect of a forged indorsement [23.640] The rights of a person who otherwise appears to be the holder in due course do not hold in the case of a forged indorsement except as regards persons who became parties to the bill after the forgery. If a bill of exchange has been transferred by means of a forged indorsement, the rights of the present holder against persons who were parties prior to the forgery are lost, as he or she has no title: Bills of Exchange Act 1909 (Cth), s 29. Those persons who became parties to the bill after the forgery have rights and liabilities inter se. A holder in due course cannot be constituted through a forged signature even though a party may take the bill in good faith, for value and without knowledge of the forgery. As has been previously mentioned, the party against whom payment is sought may in certain cases be precluded from setting up the forgery. Thus, the acceptor is precluded from denying to a holder in due course the genuineness of the drawer’s signature, and an indorser is precluded as against a holder in due course from denying the genuineness of the signatures of the drawer and previous indorsers: ss 59, 60. Where a holder’s title is defective, and the holder obtains payment of the bill, the person who pays her or him in due course gets a valid discharge: s 64(1).

Negotiation of bills [23.650] A bill of exchange is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill. A bill payable to bearer is negotiated by delivery, whilst a bill payable to order is negotiated by the indorsement of the holder completed by delivery: Bills of Exchange Act 1909 (Cth), s 36. A negotiable bill continues to be negotiable until it has been: (a)

restrictively indorsed; or

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(b)

discharged: s 41(1).

If an overdue bill is negotiated, the parties take it subject to any defect of title affecting it at its maturity: s 41(2). A bill payable on demand is deemed to be overdue when it appears on the face of it to have been in circulation for an unreasonable length of time. Except where an indorsement bears a date after the maturity of the bill, every negotiation is deemed, prima facie, to have been effected before the bill was overdue: s 41(3), (4).

Negotiation to a party already liable [23.660] Where a bill is negotiated back to a party already liable on the bill, it may be reissued and further negotiated, but such party is not entitled to enforce payment of the bill against any intervening party to whom they were previously liable: Bills of Exchange Act 1909 (Cth), s 42. This provision in the Act is designed to prevent circuity of action. For example, if A indorsed a bill to B, B indorsed it to C, C to D, and D back to A, then the intervening parties, B, C and D, would not be liable to A, as he is already liable to them. It will be noticed that although A has no rights against B, C and D, they each have a right against A should they be required to pay the bill to a holder in due course.

Indorsements [23.670] A bill of exchange drawn to order is negotiated by the indorsement of the holder completed by delivery: Bills of Exchange Act 1909 (Cth), s 36(3). In order to operate as a negotiation, an indorsement must comply with the following conditions: 1.

It must be written on the bill and be signed by the indorser. The mere signature of the indorser on the bill without additional words is sufficient.

2.

It must be an indorsement of the entire bill. A partial indorsement, that is, an indorsement which purports to transfer a part only of the amount payable, or which purports to transfer the bill to two or more indorsees severally, does not operate as a negotiation of the bill.

3.

Where a bill is payable to the order of two or more persons who are not partners, all must indorse, unless the one indorsing has authority to indorse for the others.

4.

Where there are two or more indorsements on a bill, each indorsement is deemed to have been made in the order in which it appears on the bill until the contrary is proved.

5.

Where payees or indorsees are wrongly designated or their names are misspelt, they may indorse the bill as therein described. They may add their proper signatures if so desired: s 37.

Where there has been a mistake in the name of the payee (for example, a bill payable to “Union Bank of Australia” instead of “Union Bank of Australia Limited”), the bill may be indorsed in the proper name as the mistake amounts to no more than a mistake of misspelling the name of the payee.

Classes of indorsements [23.680] Indorsements may be divided into the following classes: 1.

Blank; that is, where no indorsee is named, only the signature of the indorser is given, for example, “E Jones”.

2.

Special; that is, where an indorsee is named in addition to the signature of the indorser, for example, “Pay A Brown, (signed) E Jones”: Bills of Exchange Act 1909 (Cth), s 39.

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3.

Restrictive; that is, where further transfer of the bill is restricted, for example, “Pay D only, (signed) E Jones”, or “Pay D for the account of X, (signed) E Jones”, or “Pay D or order for collection, (signed) E Jones”: s 40.

4.

Conditional; that is, where the indorsement contains some condition, for example, “Pay Clive Jones upon my election as Auditor of the Australian Company Ltd, (signed) E Jones”. The Act provides that the payer of a bill may disregard any condition in any indorsement and payment to the indorsee is valid even if the condition has not been fulfilled: s 38.

5.

Sans Recours; that is, an indorsement having the effect of negotiating the bill but negativing the liability of the indorser, for example, “Sans Recours, (signed) E Jones”, or “Pay A Brown or order without recourse to me – (signed) E Jones”. There is no recourse to the indorser in the event of the bill being dishonoured. It is a qualified indorsement: s 21.

Transfer of order bill without indorsement [23.690] Where the holder of a bill payable to order transfers it for value without indorsing it, the transferee gets such title as the transferor had in the bill plus a right to have the indorsement of the transferor: Bills of Exchange Act 1909 (Cth), s 36(4).

Forged indorsement [23.700] A paying banker is protected against forged indorsements if the banker pays, in good faith and in the ordinary course of business, bills payable to order on demand, including any such bills drawn by the bank at the same or other places of business on itself. The statutory protection is given by the Bills of Exchange Act 1909 (Cth), s 65 as follows: (1)

When a bill payable to order on demand is drawn on a banker, and the banker on whom it is drawn pays the bill in good faith and in the ordinary course of business, it is not incumbent on the banker to show that the indorsement of the payee or any subsequent indorsement was made by or under the authority of the person whose indorsement it purports to be, and the banker is deemed to have paid the bill in due course, although such indorsement has been forged or made without authority.

Acceptance [23.710] The acceptance of a bill is the signification by the drawee of their assent to the order of the drawer: Bills of Exchange Act 1909 (Cth), s 22(1). It is an undertaking by the acceptor to the payee and every lawful holder of the bill to pay it according to the terms of the acceptance. Reverting to the illustration of a bill of exchange at [23.140], Albert Anderson is firstly the drawee and after he has signed his name across the bill he also becomes the acceptor. The acceptance must be written on the bill and signed by the drawee, their signature alone being sufficient: s 22(2)(a). The usual method is to write the acceptance across the face of the bill. The acceptance must not express that the drawee will perform their promise by any other means than by the payment of money: s 22(2)(b). Until acceptance the drawee is not a party to the bill and accordingly is not liable on it. Therefore it is an advantage to the holder to obtain the drawee’s acceptance. Another advantage to the holder in presenting the bill for acceptance is the fact that if the bill is dishonoured through non-acceptance, the holder has an immediate right against the drawer and indorsers instead of waiting for the expiration of the period for which the bill is drawn: s 48.

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Although a bill of exchange has been accepted, the acceptance does not take effect until the delivery of the instrument. Delivery may be actual or constructive. A constructive delivery occurs where an acceptance is written on a bill, and the drawee gives notice to, or according to the directions of the person entitled to the bill that the drawee has accepted it; at that point the acceptor’s contract becomes complete and irrevocable: s 26. As acceptance is incomplete and revocable until the delivery of the bill or the communication of the acceptance, a drawee who has signed their name with the intention to accept may cancel the acceptance before the fact of acceptance is communicated, or the bill delivered: Bank of Van Diemen’s Land v Bank of Victoria (1871) LR 3 PC 526.

Types of acceptance [23.720] It is provided by the Bills of Exchange Act 1909 (Cth) that an acceptance is either: (a)

general; or

(b)

qualified: s 24(1).

A general acceptance is one in which the drawee assents without qualification to the order of the drawer: s 24(2). A qualified acceptance in express terms varies the effect of the bill as drawn and may be classified as: (a)

conditional, that is, one which makes payment by the acceptor dependent on the fulfilment of a condition, for example, “Accepted payable when goods are sold”;

(b)

partial, that is, an acceptance to pay part only of the amount for which the bill is drawn;

(c)

local, that is, an acceptance to pay only at a particular or specified place, for example, “Payable only at Commonwealth Bank of Australia, Head Office”;

(d)

qualified as to time, that is, a bill drawn for two months accepted “payable in three months”; or

(e)

acceptance by some of the drawees only, for example, a bill drawn on A, B and C, accepted by A and B only: s 24(3).

The holder may, however, refuse to take a qualified acceptance, and if the holder does not obtain an unqualified acceptance, may treat the bill as dishonoured: s 49(1).

Where presentment necessary [23.730] The general rule is that presentment for acceptance is not necessary in order for the drawer and indorsers of the bill to be liable. The Bills of Exchange Act 1909 (Cth), however, provides that presentment for acceptance is necessary where the bill: (a)

is payable after sight, so that the maturity date may be fixed;

(b)

expressly stipulates that it must be presented for acceptance;

(c)

is drawn payable elsewhere than at the residence or place of business of the drawee: s 44.

Time for acceptance [23.740] A bill may be accepted: (a)

before it has been signed by the drawer, or while otherwise incomplete;

(b)

when it is overdue, or after it has been dishonoured by a previous refusal to accept, or by non-payment: Bills of Exchange Act 1909 (Cth), s 23(1).

When a bill payable after sight is negotiated, the holder must either present it for acceptance or negotiate it within a reasonable time, otherwise the drawer and all prior indorsers are discharged from liability: s 45.

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Rules for presentation for acceptance [23.750] A bill is considered duly presented for acceptance when presented in accordance with the following rules: (a)

the presentment must be made at a reasonable hour on a business day and before the bill is overdue;

(b)

where a bill is addressed to two or more drawees who are not partners, presentment must be made to them all unless one has authority to accept for all;

(c)

where the drawee is dead, presentment may be made to their personal representative;

(d)

where the drawee is bankrupt, presentment may be made to her or him or to their trustee or assignee; or

(e)

where authorised by agreement or usage, presentment may be made through the post: Bills of Exchange Act 1909 (Cth), s 46(1).

Presentment for acceptance excused [23.760] Presentment is excused and a bill may be treated as dishonoured by non-acceptance, where: (a)

the drawee is dead, bankrupt, fictitious or incapable of contracting by means of a bill;

(b)

presentment cannot be effected after the exercise of reasonable diligence; or

(c)

acceptance has been refused on some other ground, although the presentment has been irregular: Bills of Exchange Act 1909 (Cth), s 46(2).

In the above cases, there is no obligation on the holder to present the bill for acceptance and failure so to present does not affect their rights against, nor release from liability, the drawer or any indorser. When a bill is duly presented for acceptance and is not accepted within the customary time (24 hours), the person presenting it must treat it as dishonoured by non-acceptance. If he or she does not, the holder loses the right of recourse against the drawer and indorsers: s 47. A bill is dishonoured by non-acceptance: (a)

when it is duly presented for acceptance, and such an acceptance as is prescribed by the Bills of Exchange Act 1909 is refused or cannot be obtained; or

(b)

when presentment for acceptance is excused, and the bill is not accepted.

Subject to the provisions of the Act, when a bill is dishonoured by non-acceptance an immediate right of recourse against the drawer and indorsers accrues to the holder, and no presentment for payment is necessary: s 48.

Payment [23.770] As a general rule, a bill must be duly presented for payment in order for the drawer and indorsers to be liable on it, but unless expressly provided, presentment for payment is not necessary to make the acceptor liable. Presentment for payment may be dispensed with in certain cases: see [23.800].

Rules as to presentment for payment [23.780] A bill is duly presented for payment which is presented in accordance with the following rules: 1.

Where the bill is not payable on demand, presentment must be made on the day it falls due.

chapter 23 Negotiable Instruments I: Bills of Exchange

2.

Where the bill is payable on demand, presentment must be made within a reasonable time after its issue, in order to render the drawer liable, and within a reasonable time after its indorsement, in order to render the indorser liable.

3.

Presentment must be made at a reasonable hour on a business day at the proper place.

4.

A bill is presented at the proper place: (a)

when presented at the place (if any) specified in the bill;

(b)

where no place is specified, if presented at the address of the drawee or acceptor given in the bill;

(c)

where no place of payment or address is given, if the bill is presented at the drawee’s or acceptor’s place of business, if known, and if not, at drawee’s or acceptor’s ordinary residence;

(d)

in any other case, if presented to the drawee or acceptor wherever they can be found, or if presented at their last known place of business or residence.

5.

Where a bill is presented at the proper place, and after the exercise of reasonable diligence no person authorised to pay or refuse payment can be found there, no further presentment to the drawee or acceptor is required.

6.

Where a bill is drawn upon or accepted by two or more persons who are not partners, and no place of payment is specified, presentment must be made to them all.

7.

Where the drawee or acceptor is dead, and no place of payment is specified, presentment must be made to the drawee or acceptor’s personal representative if the latter can be found with the exercise of reasonable diligence.

8.

Where authorised by agreement or usage a presentment through the post is sufficient: Bills of Exchange Act 1909 (Cth), s 50(2).

Excuses for delay [23.790] Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to the holder’s default, misconduct, or negligence. When the cause of delay ceases to operate presentment must be made with reasonable diligence: Bills of Exchange Act 1909 (Cth), s 51(1). It will be noted that “excusable delay” only justifies a postponement of presentment for payment; it does not dispense with presentment altogether. For example, the holder of a bill may meet with a serious accident just before the maturity date of the bill, and in the circumstances a delay in making presentment for payment would be excused, but when the holder recovered sufficiently from their injuries to allow them to give instructions for the presentment of the bill, the excuse for delay would end.

Presentment for payment dispensed with [23.800] Presentment for payment is dispensed with: 1.

Where, after the exercise of reasonable diligence, presentment cannot be effected. The fact that the holder has reason to believe that the bill will be dishonoured on presentment does not dispense with the necessity for presentment.

2.

Where the drawee is a fictitious person.

3.

As regards the drawer, where the drawee or acceptor is not bound as between themselves and the drawer to accept or pay the bill, and the drawer has no reason to believe that the bill would be paid

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if presented. For example, where the drawee is named purely for the accommodation of the drawer, and arrangements between the two parties had broken down at the time for presentation for payment. 4.

As regards an indorser, where the bill was accepted or made for the accommodation of that indorser and the indorser has no reason to expect that the bill will be paid if presented.

5.

By waiver of presentment by a particular party, express or implied. The waiver may be either before or after the time for presentment: Bills of Exchange Act 1909 (Cth), s 51(2).

Time of payment [23.810] A bill that is not payable on demand falls due for payment on the last day of the time of payment fixed by the bill: Bills of Exchange Act 1909 (Cth), s 19(1). In working out the time of payment of a bill, the following rules apply: 1.

Where a bill is payable at a fixed period after date, after sight, or after the happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run and by including the day of payment.

2.

Where a bill is payable at a fixed period after sight, the time begins to run from the date of the acceptance (if accepted) and from the date of the noting or protest if the bill be noted or protested for non-acceptance, or for non-delivery: s 19(2).

3.

The term “month” in a bill means a calendar month. A bill payable three months from 1 December would be payable on 1 March unless the latter is a “non-business day”.

A “non-business” day is defined by the Act as a Sunday, Good Friday, Christmas Day, or a bank holiday: s 98(3). When the day on which any payment, presentment, notice, etc, should be made, given or done in connection with a bill, cheque or note falls on a non-business day, it may be made, given or done on the business day next following: s 98(2).

Dishonour [23.820] A bill may be dishonoured through non-acceptance or non-payment. Unless a bill is duly presented for acceptance or payment, it cannot be considered dishonoured if not accepted or paid, and if it is not dishonoured no rights accrue against the drawer and the indorsers. When a bill is dishonoured an immediate right of recourse against the drawer and indorsers accrues to the holder, in addition to the holder’s rights against the acceptor.

Dishonour by non-acceptance [23.830] A bill is dishonoured by non-acceptance when: (a)

it is duly presented and acceptance is refused or cannot be obtained; or

(b)

presentment for acceptance is excused, and the bill is not accepted: Bills of Exchange Act 1909 (Cth), s 48.

Dishonour by non-payment [23.840] A bill is dishonoured by non-payment when: (a)

it is duly presented for payment, and payment is refused or cannot be obtained; or

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(b)

presentment for payment is excused, and the bill is overdue and unpaid: Bills of Exchange Act 1909 (Cth), s 52.

To whom notice given [23.850] In order that the holder of a dishonoured bill may retain their rights against the drawer and indorsers it is necessary to give such parties notice of dishonour. Any drawer or indorser to whom notice of dishonour is not properly given is discharged from liability: Bills of Exchange Act 1909 (Cth), s 53. No special form is required for the notice of dishonour but it should identify the bill and state that it has been dishonoured through non-acceptance or non-payment. It must be given in accordance with the rules stated at [23.860].

Rules as to notice of dishonour [23.860] The Bills of Exchange Act 1909 (Cth) specifies a number of rules to be followed when giving notice of dishonour, and a summary of some of the more important is as follows: (a)

a notice of dishonour given to any party liable on the bill operates for the benefit of all subsequent parties to the recipient of the notice;

(b)

the notice may be given in writing or by personal communication;

(c)

the return of a dishonoured bill is deemed to be sufficient notice of dishonour;

(d)

a written notice need not be signed, and an insufficient written notice may be supplemented and validated by verbal communication;

(e)

it may be given either to the party or to their agent;

(f)

where the party is dead, notice must be given to their personal representative;

(g)

where the party is bankrupt, notice must be given to her or him or to their trustee or assignee;

(h)

where there are two or more drawers or indorsers who are not partners, notice must be given to each of them, unless one of them has authority to receive such notice for the others;

(i)

where a party to a bill receives due notice of dishonour, he or she has, after the receipt of such notice, the same period of time for giving notice to antecedent parties as the holder has after the dishonour; and

(j)

where a notice of dishonour is duly addressed and posted the sender is deemed to have given due notice of dishonour notwithstanding any miscarriage by the post office: s 54.

In all the above cases notice must be given by the holder or an indorser who is liable on the bill. Where notice is given by or on behalf of a holder, it inures for the benefit of all subsequent holders, and all prior indorsers having a right of recourse against the party receiving the notice.

Reasonable time for notice [23.870] The notice of dishonour must be given within a reasonable time after the actual dishonour of the bill. Notice of dishonour is deemed to have been given within a reasonable time: (a)

if given in time to reach the recipient on the day after the dishonour of the bill (where both parties reside in the same place); or

(b)

where the parties reside in different places, if the notice is sent off on the day after the dishonour of the bill, or if there is no convenient hour of post on that day then by the next post: Bills of Exchange Act 1909 (Cth), s 54(1).

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Excuses for delay in giving notice [23.880] Delay in giving notice of dishonour is excused where the delay is caused by circumstances beyond the control of the party giving notice and not imputable to their default, misconduct or negligence. When the cause of delay ceases to operate the notice must be given with reasonable diligence: Bills of Exchange Act 1909 (Cth), s 55(1). This would cover the case where the holder was unaware of the address of an indorser. Of course, reasonable diligence must be exercised in an effort to trace the address, and when the address is ascertained notice must be given.

Dispensing with notice of dishonour [23.890] Notice of dishonour is dispensed with as regards the holder’s rights against: (a)

all previous parties, when notice cannot be given after the exercise of reasonable diligence, or it does not reach the drawer or indorser sought to be charged;

(b)

any previous party, by waiver express or implied;

(c)

the drawer, in the following cases, namely, where:

(d)

(i)

the drawer and drawee are the same person;

(ii)

the drawee is a fictitious person or a person not having capacity to contract;

(iii)

the drawer is the person to whom the bill is presented for payment;

(iv)

the drawer or acceptor is, as between herself or himself and the drawer, under no obligation to accept or pay the bill;

(v)

the drawer has countermanded payment;

the indorser, in the following cases, namely, where: (i)

the drawee is a fictitious person or a person not having capacity to contract, and the indorser was aware of the fact at the time he or she indorsed the bill;

(ii)

the indorser is the person to whom the bill is presented for payment; and

(iii)

the bill was accepted or made for their accommodation: Bills of Exchange Act 1909 (Cth), s 55(2).

The mere knowledge by one of the indorsers (not the accommodated party) of a bill that it will be dishonoured does not dispense with the necessity of giving her or him notice of dishonour.

Measure of damages [23.900] Where a bill is dishonoured, the measure of damages against the parties to the bill is: (a)

the amount of the bill;

(b)

interest on the bill from the time of presentment for payment if the bill is payable on demand, and from the maturity of the bill in any other case; and

(c)

the expenses of noting and protesting where such are necessary: Bills of Exchange Act 1909 (Cth), s 62.

chapter 23 Negotiable Instruments I: Bills of Exchange

Noting and protesting [23.910] Noting and protesting are procedures adopted when bills of exchange are dishonoured and for this purpose the services of a public notary are generally utilised. A public notary is specially appointed. Often a solicitor accepts such appointment and in such a case acts not as a solicitor but in their notarial capacity. It is necessary to protest dishonoured foreign bills otherwise the drawer and indorsers are discharged. Inland bills are not required to be noted or protested, except in such cases where it is proposed to present the bill to a person to “accept for honour” or to “pay for honour”: see [23.980]. The noting and protesting may be used as proof that the bill was properly presented and dishonoured. By “noting” is meant the minute made by a public notary on a dishonoured bill at the time of its dishonour. The formal notarial certificate as to dishonour is called the “protest” and is based upon the noting. Protesting is dispensed with by any circumstances which would dispense with notice of dishonour. Delay in noting or protesting is excused when the delay is caused by circumstances beyond the control of the holder. When the cause of delay ceases to operate the bill must be noted or protested with reasonable diligence. Subject to certain exceptions, a bill must be protested at the place where it is dishonoured: Bills of Exchange Act 1909 (Cth), s 56.

Discharge [23.920] A bill of exchange is discharged by: (a)

payment in due course;

(b)

acceptor becoming holder;

(c)

waiver;

(d)

cancellation; or

(e)

alteration in a material particular.

Payment [23.930] When a bill is paid at or after its maturity to the holder of it in good faith and without notice of any defect in their title to the bill, it is discharged: Bills of Exchange Act 1909 (Cth), s 64(1). When a bill is paid by the drawer or an indorser it is not discharged, that is, certain rights still exist on the bill. An accommodation bill is not discharged until it is paid by the party accommodated, that is, the real debtor: s 64(3).

Acceptor, the holder [23.940] When the acceptor of a bill becomes the holder of it at or after its maturity, in her or his own right (that is, an absolute title and not held conditionally or as an agent), the bill is discharged: Bills of Exchange Act 1909 (Cth), s 66.

Express waiver [23.950] When the holder of a bill at or after its maturity absolutely and unconditionally renounces her or his rights against the acceptor, the bill is discharged. The renunciation must be in writing, unless the bill is

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delivered up to the acceptor: Bills of Exchange Act 1909 (Cth), s 67. For a court to be satisfied that there has been a renunciation or waiver, there must be evidence of an intention to renounce: Silk Bros Interstate Traders Pty Ltd v Security Pacific National Bank (1989) 16 NSWLR 446.

Cancellation [23.960] Where a bill is intentionally cancelled by the holder or her or his agent, and the cancellation is apparent on the bill, the bill is discharged. A cancellation made unintentionally, or under a mistake or without the authority of the holder, is inoperative. However, where a bill or any signature on it appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally, or under a mistake, or without authority: Bills of Exchange Act 1909 (Cth), s 68.

Alteration of bill [23.970] Where a bill is materially altered without the assent of all parties liable, it is avoided except as against a party who has themselves made, authorised or assented to the alteration, and subsequent indorsers. These persons still remain liable even though the parties prior to the alteration are discharged. However, where a bill has been materially altered but the alteration is not apparent, and the bill is in the hands of a holder in due course, such holder may avail themselves of the bill as if it had not been altered, and may enforce payment of it according to its original tenor: Bills of Exchange Act 1909 (Cth), s 69(1). Although the Act does not in any way limit what may constitute a material alteration, it specifies the following definite cases as being material alterations: (a)

any alteration of the date;

(b)

alteration as to the sum payable;

(c)

alteration of the time of payment;

(d)

alteration of the place of payment; and

(e)

where a bill has been accepted generally, the addition of a place of payment without the acceptor’s assent: s 69(2).

The alteration must be visible or apparent as an alteration or change in the words or figures originally written or printed in the document. It may be by addition, interlineation or otherwise but it must be visible as an alteration upon inspection. An alteration is only an apparent alteration where it is apparent on inspection of the bill that its text has undergone a change, that is, that some revision of the text has taken place, or that something has been done to the document to alter its tenor: Automobile Finance Co of Australia Ltd v Law (1933) 49 CLR 1.

Acceptance for honour [23.980] When some event happens which causes a bill of exchange to be subject to dishonour before its due date, any person not being a party already liable on the bill may come forward and accept it for honour. One of the results of acceptance for honour is to save the drawer and indorsers becoming liable to pay the bill before the due date as originally arranged. An acceptance for honour supra protest, in order to be valid, must: (a)

be written on the bill and indicate that it is an acceptance for honour; and

(b)

be signed by the acceptor for honour: Bills of Exchange Act 1909 (Cth), s 70.

chapter 23 Negotiable Instruments I: Bills of Exchange

Liability of acceptor for honour [23.990] The acceptor for honour of a bill by accepting it engages that on due presentment he or she will pay the bill according to the tenor of her or his acceptance, provided: (a)

it is duly presented for payment to the drawee;

(b)

it is not paid by the drawee;

(c)

it is protested for non-payment; and

(d)

he or she receives notice of these facts.

The acceptor for honour is liable to the holder, and to all parties to the bill subsequent to the party for whose honour he or she has accepted: Bills of Exchange Act 1909 (Cth), s 71.

Payment for honour supra protest [23.1000] It is mentioned at [23.980] that when a bill is dishonoured through non-acceptance it may be accepted for honour. In a similar manner, a bill which has been accepted by the drawee and is later dishonoured by non-payment may be paid for honour. It is first necessary to have the bill protested for non-payment, and then any person may intervene and pay it supra protest for the honour of any party liable on the bill, or for the honour of the person for whose account the bill is drawn. The person offering to pay the bill for honour may be a party who is already liable on the bill. Payment for honour supra protest, in order to operate as such and not as a mere voluntary payment, must be attested by a notarial act of honour which may be appended to the protest. The notarial act of honour is founded on the declaration made by the payer for honour when he or she pays the bill. He or she must state for whose honour it is being paid: Bills of Exchange Act 1909 (Cth), s 73.

Effect of payment for honour [23.1010] Where a bill has been paid for honour all parties subsequent to the party for whose honour it is paid are discharged, but the payer for honour is subrogated to the rights and duties of the holder as regards the party for whose honour he or she pays and all parties liable to that party. Where the holder of a bill refuses to receive payments supra protest they lose their right of recourse against any party who would have been discharged by such payment: Bills of Exchange Act 1909 (Cth), s 73.

Referee in case of need [23.1020] The drawer and any indorser of a bill may insert the name of a person to whom the holder may resort in case of need, that is, in case the bill is dishonoured by non-acceptance or non-payment. Such person is called the “referee in case of need” and is a person who would consider accepting the bill for honour. When the referee accepts the bill he or she becomes known as the acceptor for honour. The holder is not bound to resort to the referee in case of need unless the holder thinks fit: Bills of Exchange Act 1909 (Cth), s 20. The name of a referee in case of need is often inserted in foreign bills as it then provides for some person locally situated to whom reference may be made in the event of dishonour of the bill. This action may save time and expense in the event of dishonour.

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Miscellaneous matters Lost instruments [23.1030] Where a bill has been lost or destroyed before it is overdue, the former holder may request the drawer in writing to give her or him a replacement bill to the same tenor as the original bill. If required, the former holder must give the drawer an indemnity in respect of any loss and expenses that the drawer may reasonably incur by drawing a replacement bill. Where the original bill was accepted and/or indorsed before its loss or destruction, the former holder may request the acceptor and/or indorser in writing to accept and/or indorse the replacement bill to the same tenor as the original bill, provided they are prepared to give an indemnity if required against any loss or expense incurred by the acceptor or indorser. If the drawer, acceptor or indorser refuses to comply with these provisions, the former holder may apply to the court for an appropriate order to give effect to them: Bills of Exchange Act 1909 (Cth), s 74.

Bills in a set [23.1040] Sometimes a bill is made out in duplicate, or even triplicate, the various parts being facsimiles of each other, except that they are numbered in the body “First of Exchange (second and third of same tenor being unpaid)”, “Second of Exchange (first and third of same tenor being unpaid)”, “Third of Exchange (first and second of same tenor being unpaid)”. These bills are referred to as bills in a set. The reason for drawing a bill in parts is to avoid the delay and inconvenience that would be caused if the sole copy of a bill happened to be lost or destroyed. Foreign or overseas bills are generally drawn in sets in this manner, the different parts being forwarded by consecutive mails. Where a bill is drawn in a set, each part of the set being numbered, and containing a reference to the other parts, the whole of the parts constitute one bill. The drawee should not accept more than one part of the bill, for if he or she does, and such accepted parts get into the hands of different holders in due course, the drawee is liable on every such part as if it were a separate bill. Where the holder of a set indorses two or more parts to different persons the holder is liable on every such part. Where any one part of a bill drawn in a set is discharged the whole bill is discharged: Bills of Exchange Act 1909 (Cth), s 76.

Conflict of laws [23.1050] Where a bill drawn in one country is accepted, negotiated or payable in another, the rights, duties and liabilities of the parties are determined in accordance with the rules set out in Bills of Exchange Act 1909 (Cth), s 77. In general, the validity of the bill is determined by the law of the place where the contract was made.

Promissory notes [23.1060] A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or to bearer: Bills of Exchange Act 1909 (Cth), s 89. The maker of the note is the debtor who promises to pay the amount to the payee. There was authority to the effect that if the document gives the maker an option to pay the amount before the date specified for payment, then the note is subject to a contingency and therefore is not a

chapter 23 Negotiable Instruments I: Bills of Exchange

promissory note as defined by s 89: Gore v Octahim Wise Ltd [1995] 2 Qd R 242. However, it appears that this is no longer the position and a promissory note which confers on the maker a right of early repayment at its discretion does not alter the unconditional promise to pay at the time fixed by the instrument which therefore remains a promissory note within s 89: Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358; Emu Brewery Mezzanine Ltd (in liq) v Australian Securities and Investments Commission (2006) 32 WAR 204 (WA, CA). Promissory notes are sometimes used in conjunction with complex investment schemes where their effect will depend on the construction of the terms in the loan deed establishing the scheme: Rocky Castle Finance Pty Ltd v Taylor (2014) 118 SASR 349 (SASCFC).

Delivery necessary [23.1070] A promissory note is inchoate and incomplete until delivery to the payee or bearer: Bills of Exchange Act 1909 (Cth), s 90.

Liability of maker [23.1080] The maker of a promissory note by making the note: (a)

engages that he or she will pay it according to its tenor; and

(b)

is precluded from denying to a holder in due course the existence of the payee and her or his then capacity to indorse: Bills of Exchange Act 1909 (Cth), s 94. Figure 23.2: Comparison of Bills of Exchange, Promissory Notes and Cheques* Bills of Exchange Drawn by the drawer on the drawee. The drawer of a bill is generally the creditor of the drawee (eg a bank) in favour of payee (creditor). An order to pay, drawn on debtor or bankers.

Promissory Notes Made out by debtor (maker).

Cheques Drawn by the drawer (debtor) on the drawee (a financial institution, eg a bank) in favour of payee (creditor).

A promise to pay.

Three parties involved, Drawer, Drawee and Payee. Acceptance necessary before drawee becomes liable. Acceptor is primarily liable.

Two parties only, Maker and Payee. No acceptance is involved as maker is automatically liable. Maker is primarily liable.

An order to pay, drawn on a bank or other financial institution only. Drawer, Financial Institution and Payee. No acceptance involved.

May be accepted or paid supra protest. Time for payment may be on demand, at sight or some fixed or determinable future time.

Not applicable.

Necessary to note and protest foreign bills in the event of dishonour.

On demand or at some fixed or determinable future time, but not after sight, as it is made out by the debtor. Noting and protesting not necessary, even of foreign notes.

The drawer of the cheque is primarily liable. Not applicable. Payable on demand.

Noting and protesting not necessary.

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Bills of Exchange Failure of a holder to present the bill for payment discharges the drawer and indorsers.

Promissory Notes Failure to present for payment does not discharge the maker, ie the debtor, except where it is made payable at a particular place.

There are certain cases when presentment is excused.

Failure to present discharges the indorsers.

Cheques Failure to present for payment does not necessarily discharge the drawer, ie debtor, although it may in the event of liquidation of the financial institution. Failure to present within a reasonable time, discharges the indorsers.

* The law relating to cheques is considered separately in Chapter 24.

Joint and several notes [23.1090] A promissory note may be made by two or more makers and they may be liable on the note jointly, or jointly and severally according to its tenor: Bills of Exchange Act 1909 (Cth), s 91. Where a note provides, “I promise to pay” and is signed by two or more persons it is deemed to be a joint and several note. Should the note read, “We promise to pay” and be signed by two persons, it is deemed to be a joint note.

Payable on demand [23.1100] Where a note payable on demand has been indorsed, it must be presented for payment within a reasonable time of the indorsement. If it is not so presented the indorser is discharged: Bills of Exchange Act 1909 (Cth), s 92.

Presentment of note for payment [23.1110] Where a promissory note is made payable at a particular place, it must be presented for payment at that place in order for the maker to be liable. In any other case presentment for payment is not necessary for the maker to be liable. Presentment for payment to the maker is necessary for the indorser of a note to be liable and, where a note is made payable at a particular place, presentment at that place is necessary in order to retain the liability of an indorser: Bills of Exchange Act 1909 (Cth), s 93.

Bills of exchange provisions applicable to notes [23.1120] Many of the provisions applicable to bills of exchange apply, with necessary modifications, to promissory notes. In applying these provisions the maker of a note is deemed to correspond with the acceptor of a bill, and the first indorser of a note is deemed to correspond with the drawer of an accepted bill payable to drawer’s order. The following provisions as to bills, however, do not apply to notes, namely, provisions relating to: (a)

presentment for acceptance;

(b)

acceptance;

(c)

acceptance supra protest;

(d)

bills in a set.

chapter 23 Negotiable Instruments I: Bills of Exchange

Where a foreign note is dishonoured, protest of the note is unnecessary: Bills of Exchange Act 1909 (Cth), s 95.

Further reading S McCracken, J Bird, J Stumbles and GJ Tolhurst, Everett and McCracken's Banking and Financial Institutions Law (8th ed, Thomson Reuters, Sydney, 2013). AL Tyree, Banking Law in Australia (8th ed, LexisNexis Butterworhs, Sydney, 2014). G Burton SC et al, The Law Relating to Banker and Customer in Australia (subscription service, Thomson Reuters).

Journal Journal of Banking and Finance Law and Practice

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chapter 24

Negotiable Instruments II: Cheques [24.20] Form of cheque ................................................................................................................................................. 589 [24.40] Rights and duties arising out of the banker/customer relationship..................................... 589 [24.50] Definition of cheque........................................................................................................................................ 591 [24.180] Matters affecting liability on cheques ............................................................................................... 595 [24.320] Negotiation of cheques ............................................................................................................................. 600 [24.360] Legal position of a holder and holder in due course ................................................................... 601 [24.460] Presentment and dishonour of cheques.......................................................................................... 603 [24.480] Liability of drawer, indorsers, etc ......................................................................................................... 604 [24.540] Discharge of liabilities................................................................................................................................ 606 [24.600] Duties, liabilities and statutory protection of financial institutions................................... 608 [24.880] Special provisions relating to FCA institutions............................................................................. 618 [24.930] Financial Transaction Reports Act 1988 ....................................................................................... 620

Introduction [24.10] A cheque is a negotiable instrument. Two of the main characteristics of negotiable instruments (as explained in more detail in Chapter 23) are that: (a)

title to them passes by mere delivery or, where they are payable to order, by indorsement followed by delivery; and

(b)

in certain circumstances, a transferee is capable of acquiring a better title to the instrument than the transferor where the latter's title is defective.

The Cheques Act 1986 (Cth) contains a code of law regulating cheques drawn by a customer on a financial institution. 1 Formerly, only banks could issue cheques. However, the Act was amended to extend the range of institutions that can issue cheques in their own name to include building societies and credit unions. In consequence, many of the former sections of the Cheques Act

1

Formerly, the provisions of the Bills of Exchange Act 1909 (Cth), which apply to bills of exchange as discussed in Chapter 23, also generally applied to cheques together with additional provisions concerning cheques. However, the Cheques and Payment Orders Act 1986 (Cth) replaced the provisions of the Bills of Exchange Act 1909 (Cth) previously applicable to cheques. The Cheques and Payment Orders Act 1986 (Cth) was renamed the Cheques Act 1986 (Cth) by the Cheques and Payment Orders Amendment Act 1998 (Cth).

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1986 which referred to a “bank” were amended to read an “institution” or “financial institution”, an expression which, in essence, is defined to include not only a bank but also a building society, a credit union and a special services provider. Cheques are a common medium of paying debts and, as in the case of other bills of exchange, enable the safe transfer of money from place to place no matter how large the amount involved, as the transaction involves book entries rather than the handling of cash.

chapter 24 Negotiable Instruments II: Cheques

Form of cheque [24.20] The following is an example of a completed cheque: Figure 24.1: Completed Cheque Form

[24.30] In the example at [24.20], D Deakin is the drawer of the cheque. He has drawn the cheque on his account at the Permanent Bank Ltd, known as the drawee bank, and which is also referred to as the paying bank, since it is the bank which will pay the proceeds of the cheque from D Deakin’s account. P Parkes is the payee of the cheque. When possession of the cheque is given to P Parkes he is referred to as the holder of the cheque. Should P Parkes negotiate the cheque to another person, I Ingham, by indorsing the cheque (that is, by signing his name on the back, and perhaps also making the cheque specifically payable to I Ingham) and delivering it to I Ingham to satisfy a debt, I Ingham would become the holder of the cheque. Had the cheque been payable to P Parkes or bearer (rather than to “order” as in the example at [24.20]), no indorsement by P Parkes would have been necessary: mere delivery of the cheque to I Ingham would have been sufficient to constitute the latter a holder of the cheque.

Rights and duties arising out of the banker/ customer relationship [24.40] A cheque is generally drawn by the customer of a bank on their account at the bank. In other words, the relationship of banker and customer will exist between them. The nature of that relationship is a contractual one and gives rise to a number of rights and duties on the part of both the bank and the customer. In outline the duties of a bank are as follows: 1.

To pay moneys deposited in the customer’s account upon demand being made by the customer at the branch of the bank where the account is kept during banking hours: Joachimson v Swiss Bank Corp [1921] 3 KB 110.

2.

To pay cheques properly drawn by the customer on the branch of the bank where the account is kept upon their presentation during banking hours. This is provided, of course, that there are sufficient funds in the account to meet the cheques, or the cheques are within the limits of an agreed overdraft,

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or other arrangements have been made for accommodation of an adequate amount. The obligation to honour cheques is probably the most important of the bank’s duties. Breach of this duty may involve the bank in a substantial claim for damages against it, particularly in the event of the cheques of a commercial concern being wrongly dishonoured. Where cheques are dishonoured when the customer has sufficient funds in her or his account to meet the amount of the cheques drawn on the account, not only will the bank be liable for breach of contract for the loss suffered but it may also be liable in defamation for damage to the customer’s reputation: Aktas v Westpac Banking Corporation Ltd (2010) 241 CLR 79. 3.

To receive cash and collect the proceeds of cheques and other orders (for example, money orders, bills of exchange, etc) paid to the credit of the account.

4.

The bank must preserve secrecy regarding its customers’ affairs: Tournier v National Provincial and Union Bank of England [1924] 1 KB 461. There are certain important exceptions to this duty including: (a)

disclosure under compulsion of law, for example, in respect of evidence given in court, or the powers given to investigating officers under, for example, taxation or companies legislation, or in relation to the reporting obligations imposed by the Financial Transaction Reports Act 1988 (Cth) (discussed at [24.930]); and

(b)

where the disclosure is made with the express or implied consent of the customer, for example where the customer gives a banker’s reference, or authorises the bank to advise their accountant of the balance of the account to facilitate preparation of a balance sheet. Where a customer has authorised their bank to reveal to a third party information which would otherwise have been confidential to the customer, and the customer then changes their instructions to the bank relating to that information, the customer impliedly authorises the bank to advise the third party of those changed instructions: Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571.

5.

To exercise reasonable care in the advice or information it provides to a customer. Failure to do so may result in the bank being liable for the loss incurred by the customer for breach of an implied term in the contract and/or in the tort of negligence for breach of the duty to take reasonable care in providing the financial advice or information: Westpac Banking Corporation v Jamieson (2015) 294 FLR 48. 2

6.

In certain circumstances a bank may assume a fiduciary role by acting as a financial adviser to its customer: Commonwealth Bank of Australia v Smith (1991) 42 FCR 390. However, the relationship between banker and customer is not ordinarily a fiduciary one. The Queensland Court of Appeal held that when a customer purchased a mortgaged hotel from his bank, the bank did not have a duty to disclose to the customer that the hotel had been valued for considerably less than the customer paid, or the hotel’s poor trading performance, which was known to the bank’s employees. In that case, the bank expressly disclaimed any role as financial adviser: Commonwealth Bank of Australia v Finding [2001] 1 Qd R 168 at [9]–[10].

7.

To give reasonable notice to the customer before closing the account or terminating the relationship.

8.

The fees charged by banks for their services to customers are subject to the general principles of common law and equity concerning penalties: Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 (see [12.330]). On the other hand, a majority of the High Court

2

C Turner, “A bank’s liability for the advice of its financial planner: Westpac Banking Corp v Jamieson: [2015] QCA 50; (2015) 294 FLR 48” (2015) 35 Qld Lawyer 48.

chapter 24 Negotiable Instruments II: Cheques

(4:1) recently held that the late payment fees charged by the respondent bank on the appellant customer’s credit cards did not constitute penalties:Paciocco v Australia and New Zealand Banking Group Ltd (2016) 90 ALJR 835. Erroneous advice, information and representations by the manager or other senior officer of a bank to a customer may constitute “misleading or deceptive” conduct in contravention of s 18 of the Australian Consumer Law 3 (formerly s 52 of the Trade Practices Act 1974 (Cth)) giving rise to an action for damages for the loss suffered by the customer: see further, [17.40]. Examples include: (a)

advice by a bank manager that a bank cheque was “as good as cash” without further stating that a forged, counterfeited, lost or stolen bank cheque may be dishonoured (Lyritzis v Westpac Banking Corp [1994] ATPR 41-360);

(b)

advice by a bank manager concerning the purchase of a business by a customer where there was no reasonable basis for the manager’s advice (Commonwealth Bank of Australia v Smith (1991) 42 FCR 390); and

(c)

misleading statements as to the likely approval of a customer’s loan application for a development project: Adour Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia [1991] ATPR 41-147.

On the customer’s part, it has been held that the customer owes a duty to the bank not to leave blank spaces on cheques so as to facilitate fraud, and if the customer fails in this duty they will have to bear the loss: see for example Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR 304. Consideration of this duty is discussed at [24.680]–[24.690].

Definition of cheque [24.50] A cheque is defined by the Cheques Act 1986 (Cth), s 10(1) as follows: A cheque is an unconditional order in writing that – (a)

is addressed by a person to another person, being a financial institution; and

(b)

is signed by the person giving it; and

(c)

requires the financial institution to pay on demand a sum certain in money.

“Unconditional order in writing” [24.60] A cheque must be an “unconditional order” in writing. The order to pay must be more than an authorisation or request to pay: Cheques Act 1986 (Cth), s 11. An order to pay on a contingency is not an unconditional order to pay notwithstanding the happening of the event: s 12(1).

“Addressed by a person to another person being a financial institution” [24.70] The order to pay must be addressed to a financial institution as defined, and no other person, in order to be a cheque: Cheques Act 1986 (Cth), ss 10(1), 13. The rather complex definition of financial institution in the Act includes not only banks, but also building societies and credit unions: s 3.

3

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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“Signed by the person giving it” [24.80] To incur liability on a cheque, the drawer must have signed it. A person is taken to sign a cheque if the person’s signature is written on the cheque by that person, or by another person acting under their authority: Cheques Act 1986 (Cth), s 114.

“Requiring the financial institution to pay on demand” [24.90] The order must require the financial institution to pay the sum specified on demand. An order to pay is an order to pay on demand if: (a)

the order is expressed to require payment on demand, at sight or on presentation; or

(b)

no time for payment is expressed in the instrument containing the order: Cheques Act 1986 (Cth), s 14(1).

“A sum certain in money” [24.100] The order must be one to pay a sum certain in money. This requires that the sum ordered to be paid is specified with reasonable certainty. Where more than one sum is expressed to be payable, the lesser of the sums is to be taken to be the only sum ordered to be paid: this changes the previous law under which, if there was a discrepancy between the amount in figures and the amount in words, the latter prevailed. An order may still be an order to pay a sum certain notwithstanding that the sum is to be paid according to a rate of exchange specified in the instrument containing the order: Cheques Act 1986 (Cth), s 15.

Date of cheque [24.110] Where a cheque, or any indorsement of a cheque, is dated, such date is presumed to be the day on which the cheque was drawn or the indorsement made unless the contrary is proved: Cheques Act 1986 (Cth), s 16(1). A cheque is not invalid by reason only that: (a)

it is dated;

(b)

it is antedated or post-dated; or

(c)

the date it bears is a Sunday: s 16(2).

Post-dated cheques [24.120] The Cheques Act 1986 (Cth) clarifies the previous uncertainties regarding post-dated cheques by recognising the validity of such cheques. The difficulty was that such cheques are not payable on demand. The Act provides that for the purpose of determining whether a post-dated instrument is a cheque, the fact that the instrument is post-dated is to be disregarded. Furthermore, a cheque is not incomplete or irregular on its face by reason only that it is post-dated (whether or not the date has arrived): s 16(3), (4). It was previously accepted that a bank should refuse payment of a post-dated cheque which was presented before the date on the cheque: Brien v Dwyer (1978) 141 CLR 378. This has now been recognised by the Act which provides that a demand for payment of a cheque before the date of the cheque arrives is not a presentment of the cheque for payment: s 61(2). The payment of the deposit on the sale of a house by auction by a post-dated cheque, contrary to the terms of the contract, was held to constitute a breach of an essential term enabling the vendor to terminate the contract notwithstanding that the post-dating of the cheque was inadvertent and the date on the cheque had been reached: Ma v Adams (2015) 18 BPR 35,557; [2015] NSWSC 1452.

chapter 24 Negotiable Instruments II: Cheques

Types of cheques [24.130] A cheque is either payable to order or to bearer: Cheques Act 1986 (Cth), s 20.

Order cheques [24.140] A cheque is payable to order if the cheque is expressed, whether originally or by indorsement, to require the drawee institution to pay the sum ordered to or to the order of a person or persons specified in the cheque as payee or indorsee: Cheques Act 1986 (Cth), s 21. For example, a cheque drawn “Pay P Parkes or order”, or “Pay P Parkes” (with the usual “or bearer” on most standard cheque forms crossed out), or indorsed “Pay I Ingham, (signed) P Parkes” are all order cheques. A person is not to be taken to be specified in a cheque as payee or indorsee (and hence the cheque would not be an order cheque but a bearer cheque) unless the person: (a)

is named, or otherwise indicated with reasonable certainty, in the cheque; and

(b)

is not a fictitious or non-existing person: s 19(1).

The significance of whether a payee is a fictitious or non-existing payee is that, where such is the case, then even though the payee’s signature on an order cheque has been forged, the title of a subsequent holder of the cheque will not be affected since the cheque can be treated as payable to bearer and the forged signature therefore ignored. Where the drawer’s signature is genuine, and the payee is a real person, the payee will not be regarded as fictitious if the drawer intended the named payee to receive payment, notwithstanding that such intention was induced by a fraudulent clerk who misappropriates the cheque: Vinden v Hughes [1905] 1 KB 795 (contrast Bank of England v Vagliano Bros [1891] AC 107 in respect of bills of exchange, discussed at [23.100]). On the other hand, where the payee is in fact a non-existing person, then even though the drawer signs the cheque in the belief that such person exists and intends them to receive payment because of a clerk’s fraudulent conduct, the payee will be a non-existing person for the purposes of the section and the cheque will be treated as payable to bearer. The drawer’s intention in such a case is immaterial, all that matters is whether the named payee exists or not: Clutton v Attenborough [1897] AC 90. A cheque made payable to the holder for the time being of an office will be an order cheque: s 19(2). An order cheque is negotiated to another party by indorsement and delivery of the cheque.

Bearer cheques [24.150] If a cheque is not payable to order, it is a cheque payable to bearer and is taken to require the drawee institution to pay the sum ordered to be paid by the cheque to bearer: Cheques Act 1986 (Cth), s 22. A “bearer” means the person in possession of a cheque payable to bearer: s 3. For example, a cheque drawn, “Pay P Parkes or bearer” or, “Pay Cash or bearer” are bearer cheques. Bearer cheques are negotiable by simple delivery to another person.

Crossings on cheques [24.160] Cheques (whether order or bearer cheques) are frequently crossed as in the example below. The effect of the crossing, which is constituted simply by the two parallel lines across the face of the cheque, is a direction to the drawee bank, Permanent Bank Ltd, to pay the cheque to another bank. In other words, a crossed cheque should not be paid by the bank in cash over the counter. This affords some protection in the event of the cheque being stolen, since payment on the cheque may be stopped before it is

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paid. In the example below, P Parkes, the payee would deposit the cheque in his bank account at, for example, City Bank Ltd, which is known as the collecting bank, since it would collect the proceeds of the cheque from the drawee or paying bank, that is, Permanent Bank Ltd. Figure 24.2: “Crossed” Cheque Form

D Deakin, in our example, has crossed the cheque “not negotiable”. The purpose is to give greater protection to the drawer in the event of the cheque falling into the wrong hands, since the effect of adding the words “not negotiable” to the crossing is that a subsequent transferee cannot get a better title to the cheque than the transferor had: hence in the event of the cheque having been stolen, a subsequent transferee will not be entitled to obtain payment on the cheque. If the bank or other financial institution on which the cheque is drawn pays it in a manner contrary to the crossing, the financial institution becomes liable if the true owner suffers loss: Cheques Act 1986 (Cth), s 93(1). The Cheques Act 1986 contains specific provisions concerning the crossing of cheques: ss 53 – 57. The Act provides in s 53(1) that: Where a cheque clearly bears across the front of the cheque the addition of – (a)

2 parallel transverse lines; or

(b)

2 parallel transverse lines with the words “not negotiable” between, or substantially between, the lines, the addition is a crossing of the cheque, and the cheque is a crossed cheque.

No other additional matter written or placed on a cheque is effective as a crossing of the cheque: s 53(2). Furthermore, the addition of the words “not negotiable” to a cheque other than between, or substantially between, two parallel transverse lines across the front of the cheque is not effective as a crossing of the cheque, that is, the words on their own are ineffective: s 53(3). Crossing a cheque has effect as a direction by the drawer/customer to their bank or other financial institution not to pay the cheque otherwise than to another bank or other financial institution: s 54. A crossing may be added to a cheque by the drawer, or any other person in possession of the cheque: s 56. A person in possession of a cheque may also add a crossing to a cheque even if it already bears one, or add the words “not negotiable” to a cheque which already bears two parallel transverse lines: s 57.

chapter 24 Negotiable Instruments II: Cheques

Effect of “not negotiable” crossing [24.170] Where the words “not negotiable” are part of a crossing on a cheque they have the effect of destroying one of the important elements of a cheque as a negotiable instrument, namely, the ability of a transferee to obtain the instrument free from defects in the title of the person who negotiated it to them. The cheque can still be transferred from one person to another but with the important qualification that the person receiving it so crossed cannot obtain or give any better title to such cheque than that of the transferor: Cheques Act 1986 (Cth), s 55. That is, instead of taking the cheque free from equities, the transferee takes subject to defects in title of the transferor. Accordingly, everyone who takes a cheque marked “not negotiable” takes it at their own risk. “In my opinion the words ‘not negotiable’, on a crossed cheque are a danger signal held out before every person invited to deal with it and are equivalent to saying ‘Take care: this cheque may be stolen’”: Commissioners of State Savings Bank of Victoria v Permewan Wright & Co Ltd (1914) 19 CLR 457 at 467 per Griffith CJ.

Matters affecting liability on cheques Legal capacity [24.180] A person who has legal capacity to contract has legal capacity to incur liability on a cheque: Cheques Act 1986 (Cth), s 30(1). The capacity of corporations to be parties to cheques depends on their powers under the law relating to corporations: s 30(2). Where a cheque is drawn, issued or indorsed by a person who does not have capacity or power to incur liability on a cheque, then although such person will not be liable on the cheque, the cheque or indorsement is nevertheless valid: ss 30(3), (4). The latter subsections preserve the validity of cheques drawn, issued or indorsed under an incapacity and the rights of holders of cheques against parties not under an incapacity.

Signature and delivery essential to liability Signature [24.190] As a general rule, a person is not liable as the drawer or an indorser of a cheque unless the person signs the cheque as the drawer or an indorser: Cheques Act 1986 (Cth), s 31(1). However, where a person signs a cheque in their business name, trade name, or some name other than their own name, the person is liable on the cheque as if it had been signed in their own name: s 31(2). Moreover, the signature of the name of a firm on a cheque is deemed to be the signature of the names of all persons liable as partners in the firm: s 31(3).

Delivery [24.200] Delivery is also essential before liability is incurred on a cheque. That is, for a cheque to create legally binding rights, it must be delivered from one person to another. The Cheques Act 1986 (Cth) defines delivery as the transfer of possession of the cheque from one person to another: s 3(1). It provides that a contract arising out of the drawing or an indorsement of a cheque is incomplete and revocable until delivery of the cheque: s 25. The delivery of a cheque is not effective to complete a contract arising out of the drawing or an indorsement of the cheque unless the delivery is made by the drawer or indorser in order to give effect to the drawing or indorsement: s 26. The delivery of a cheque by the drawer or indorser may be shown to have been conditional, or for a special purpose only, and not in order to issue the cheque or transfer it by negotiation: s 27. For example, a

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cheque might be delivered on condition that it not be negotiated unless a third party defaulted in making a payment on a certain date: Thusi Pty Ltd v Neonbrook Pty Ltd [1999] 1 Qd R 429. However, s 27 is subject to the important presumptions set out in s 28. Under s 28, there is, in effect, a conclusive presumption of delivery as regards a holder in due course of the cheque, and a rebuttable presumption of delivery to any other holder. (For the meaning of the terms “holder” and “holder in due course”, see [24.360]-[24.370].) The rules are slightly different in respect of delivery by an indorser. As regards a holder in due course who took a cheque from an indorser, the indorser of the cheque is presumed, unless the contrary is proved, to have made an effective delivery of the cheque so as to complete the indorser’s contract on the cheque. In any other case involving a holder in due course, the indorser of the cheque is conclusively presumed to have made an effective delivery of the cheque. An indorser of a cheque, as regards a holder who is not a holder in due course, is presumed to have made an effective delivery of the cheque unless the contrary is proved: s 28(2). The Act contains provision regarding delivery of a cheque payable to bearer. Where the holder of a cheque payable to bearer delivers the cheque to another person (whether or not the holder also indorses the cheque), the delivery of the cheque is effective to transfer the cheque by negotiation: s 29.

Forged or unauthorised signatures [24.210] A signature written or placed on a cheque as that of the drawer but without their authority is wholly inoperative as that of the drawer, unless: (a)

the person against whom it is sought to assert a right on the cheque is estopped from denying the genuineness of the signature, or the existence of authority for the signature; or

(b)

the drawer ratifies or adopts the signature.

However, the forged or unauthorised signature of the drawer in such a case operates as the signature of the person who wrote or placed it on the cheque in favour of any person who, in good faith and without notice that it had been written or placed on the cheque without the authority of the drawer, pays the cheque or takes it for value: Cheques Act 1986 (Cth), s 32(1). In other words, a customer will not generally be liable on a cheque on which their signature has been forged or otherwise placed on a cheque without their authority, and the signature will be treated as the signature of the person responsible for putting it on the cheque. It also follows that a bank or other financial institution is generally unable to deduct its customer’s account with the amount of a cheque on which the customer’s signature has been forged or otherwise placed on the cheque without authority. This topic is further considered at [24.640]. Similarly, where a signature is written or placed on a cheque otherwise than as that of the drawer, for example an indorser, without the authority of the person whose signature it purports to be, the signature is wholly inoperative unless: (a)

the person against whom it is sought to assert a right on the cheque is estopped from denying the genuineness of the signature or the existence of authority for the signature; or

(b)

the signature is ratified or adopted by the person whose signature it purports to be.

However, the signature operates as the signature of the person who wrote or placed it on the cheque in favour of any person who, in good faith and without notice that it had been written or placed on the cheque without the authority of the person whose signature it purports to be, pays the cheque or takes the cheque for value: s 32(2).

chapter 24 Negotiable Instruments II: Cheques

Person signing as agent or in a representative capacity [24.220] The Cheques Act 1986 (Cth) recognises that a person signing as agent for a principal is not personally liable on a cheque. The Act provides that where a person (referred to as the “signer”): (a)

signs a cheque for or on behalf of a principal or in a representative capacity; and

(b)

the signer adds words to the signature indicating that the signer signs for or on behalf of a principal or in a representative capacity; and

(c)

the person for or on whose behalf the signer signs the cheque is named, or otherwise indicated with reasonable certainty in the cheque,

the signer is not personally liable on the cheque: s 33(1). For example, a cheque signed: “For and on behalf of S Smith Pty Ltd, J Jones, Director.” would not impose personal liability on J Jones. However, where a person signs a cheque and adds words to the signature indicating that the signer signs for or on behalf of a principal or in representative capacity, but: (a)

the signer does not in fact sign for or on behalf of the principal or in a representative capacity; or

(b)

the person for or on whose behalf the signer signs the cheque is not named, or otherwise indicated with reasonable certainty in the cheque,

then the addition of those words does not prevent the signer from being personally liable on the cheque: s 33(2)(a). Furthermore, where a person signs a cheque and merely adds words to the signature describing the signer as an agent or as having a representative capacity, the addition of those words does not prevent the signer from being personally liable on the cheque: s 33(2)(b). In other words, unless it is clear on the face of the cheque that it is signed on behalf of a principal, the person signing the cheque will be taken to be personally liable on it. However, in these days of pre-printed cheque forms containing for example, the name and account number of a company, the trend is for the court to regard the mere signature of a director(s) on the cheque as that of the company even in the absence of qualifying words to indicate that they were not assuming personal liability. The rationale is that when the director(s) signed, they are adopting all of the printing and writing on the cheque and it would be obvious from looking at the resulting cheque that it is a company cheque, that is, a cheque drawn by the company and not by the director(s) who signed it: Bondina Ltd v Rollaway Shower Blinds Ltd [1986] 1 All ER 564. The same principle applies to pre-printed cheque forms for partnerships: Valamios v Demarco (2005) 63 NSWLR 191 (CA), see further [24.510].

Procuration signature [24.230] Where an agent writes or places a signature by procuration on a cheque, the signature operates as notice that the agent has only limited authority to sign for their principal: furthermore, the principal in such a case is not bound by the agent’s signature unless, in signing the cheque, the agent acts within the

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limits of their actual authority: Cheques Act 1986 (Cth), s 34. An example of a signature by procuration would be where an agent, A, signs a cheque for a principal, P, in the following way: “P per pro A”.

Consideration [24.240] Since the negotiation of a cheque amounts to a contract, consideration must be present. Valuable consideration for a cheque may be constituted by: (a)

any consideration sufficient to support a simple contract; or

(b)

an antecedent debt or liability: Cheques Act 1986 (Cth), s 35(1).

An antecedent debt or liability of a third party is capable of constituting consideration for a cheque if there is a sufficient relationship between the receipt of the cheque and the antecedent debt or liability, or some consideration moving from the payee: Walsh, Spriggs, Nolan and Finney v Hoag & Bosch Pty Ltd [1977] VR 178:

case [24.250] In Walsh, Spriggs, Nolan and Finney v Hoag & Bosch Pty Ltd [1977] VR 178, solicitors acting for the vendors of land drew a cheque payable to an estate agent in discharge of the liability of the vendors for commission on the sale of the land to which the estate agent was entitled. The cheque was delivered to the estate agent but at the request of the vendors, the solicitors stopped payment of the cheque. The estate agent sued the solicitors on the cheque but the solicitors contended that there had been no consideration for the cheque. It was held that the estate agent was entitled to recover. Thus, since both the solicitors and the estate agent intended the cheque to have the effect of a conditional payment of the debt owed by the vendors to the estate agent, there was a sufficient relationship between the debt and the cheque to justify the conclusion that the antecedent debt constituted consideration for the cheque. [24.260] An antecedent debt or liability may constitute valuable consideration for a cheque whether or not it is post-dated: Cheques Act 1986 (Cth), s 35(2). Subject to the special statutory provision as to antecedent debts, the same general rules as to consideration apply to cheques, at least between the immediate parties, as apply to other simple contracts. Thus, a payee of a cheque given in discharge of an obligation arising out of an illegal transaction cannot sue on it.

case [24.270] For example, P leased certain premises to D, the lease containing a covenant on the part of D not to use the premises except for the purpose of a dancing studio. However, because of certain provisions in a local government ordinance, the use of the premises as a dancing studio would have been illegal. When D ascertained the position he stopped payment on a cheque he had given P for rent, whereupon P sued D on the cheque. It was held that the lease was void as being illegal, and accordingly, there was no enforceable obligation to pay rent nor any consideration for the cheque: TP Rich Investments Pty Ltd v Calderon [1964] NSWR 709.

chapter 24 Negotiable Instruments II: Cheques

[24.280] The Act contains provisions facilitating proof of consideration. The drawer and each indorser of a cheque are presumed to have received value for the cheque unless the contrary is proved: Cheques Act 1986 (Cth), s 36. Where value has at any time been given for a cheque, the holder is conclusively presumed to have taken the cheque for value as regards the drawer and indorsers who became indorsers before that time: s 37. Furthermore, a holder who has a lien on a cheque is conclusively presumed to have taken the cheque for value for the amount of the lien: s 38.

Inchoate instruments [24.290] The Cheques Act 1986 (Cth) contains provisions concerning liability on cheques which have been signed in blank by the drawer and handed over to another person for completion: these are known as inchoate (that is, incomplete) instruments. Section 18 provides that where the drawer of an instrument that is signed but is otherwise wanting in a material particular necessary for the instrument to be, on its face, a complete cheque, delivers the instrument to another person in order that the instrument may be filled up as a complete cheque, any person in possession of the instrument is presumed to have authority, unless the contrary is proved, to fill up the instrument as a complete cheque in any way the person sees fit. However, such an instrument is not enforceable against the drawer, or a person who becomes an indorser of the cheque before it is filled up as a complete cheque, unless the instrument is filled up within a reasonable time and strictly in accordance with the authority given. Reasonable time in this context is a question of fact.

case [24.300] The defendant, a heavy gambler, had signed some 19 instruments, described as “house cheques”, totalling $620,000 made payable to the plaintiff company which operated the Darwin Casino. The “house cheques” were exchanged for “cheque credit slips”, which in turn were exchanged for betting chips used for gambling at the Casino. At the time they were exchanged for cheque credit slips, the “house cheques” were incomplete because they contained no words or figures after the words “Bank”, “Branch” and “Account No”. An employee of the plaintiff company subsequently completed the name of the defendant’s bank, branch and account number before presentation of the “house cheques” for payment. They were dishonoured by the defendant’s bank after he requested that payment be stopped. The plaintiff sued on the “house cheques” as dishonoured cheques. It was held that the “house cheques” signed by the defendant were “cheques” for the purposes of the Cheques Act 1986 (Cth) because the plaintiff had been authorised by the defendant to complete them as cheques and this authority had not been withdrawn at the time they were completed, that is, the provisions of s 18 had been complied with. The defendant was accordingly liable for the amount of the cheques: Diamond Leisure Pty Ltd v Newham (1993) 4 NTLR 1. [24.310] Section 18 of the Cheques Act 1986 (Cth) contains a further important provision where the cheque is negotiated to a holder in due course. Where the signed, inchoate or incomplete, instrument has been filled up as a complete cheque, it is conclusively presumed as regards a holder in due course: (a)

to have been delivered to another person in order that the instrument might be filled up as a complete cheque; and

(b)

to have been filled up within a reasonable time and strictly in accordance with the authority given.

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Negotiation of cheques [24.320] The transfer of a cheque by negotiation is the transfer of the cheque from the holder to another person in such manner as to constitute the transferee the holder of the cheque: Cheques Act 1986 (Cth), s 40(1). A cheque payable to order is transferred by negotiation if it is indorsed by the holder, and the cheque is delivered so as to complete the contract arising out of the indorsement: s 40(2). A cheque payable to bearer is transferred by negotiation if it is delivered by the holder to another person (whether or not the cheque is indorsed by the holder): s 40(3). An indorsement of a cheque is not effective to transfer the cheque by negotiation unless the indorsement is written or placed on the cheque and signed by the indorser, and the indorsement is an indorsement of the entire cheque: a mere signature on a cheque is sufficient for an indorsement of the cheque: s 41. These principles can be illustrated by using the example of the simple form of cheque set out at [24.20]. Thus, where D Deakin draws a cheque, “Pay P Parkes or order, the sum of $5,000” and delivers the cheque to the payee P Parkes, the latter is the holder of the cheque. Should P Parkes wish to negotiate the cheque to I Ingham for moneys owed to, or goods to be supplied by, I Ingham, then since the cheque is an order cheque, P Parkes would indorse the cheque on the back, “Pay I Ingham, (signed) P Parkes” (or simply sign his name, P Parkes) and deliver the cheque to I Ingham: the latter would then become the holder of the cheque and entitled either personally or through his bank to present the cheque for payment, and sue on the cheque in the event of its dishonour. If the cheque had been a bearer cheque (as distinct from an order cheque as in the example at [24.20]), that is, had the cheque drawn by D Deakin provided “Pay P Parkes or bearer”, then the cheque could be transferred by negotiation from the payee/holder P Parkes to I Ingham by simple delivery of the cheque to I Ingham: such delivery would be sufficient to constitute I Ingham the holder of the cheque. Every cheque may be transferred by negotiation until it is discharged, notwithstanding anything written or placed on the cheque, and whether or not the cheque has been crossed: s 39.

Other provisions as to indorsements [24.330] In addition to the provisions as to indorsements on the transfer by negotiation of order cheques referred to at [24.320], the Cheques Act 1986 (Cth) contains certain other general provisions as to indorsements. Where an order cheque is drawn payable to, or is indorsed, to two or more persons jointly who are not partners, each and every person must indorse the cheque to transfer it by negotiation, unless the person indorsing has authority to sign for the person or persons not indorsing the cheque: s 43. In the case of an order cheque, should the payee or an indorsee be wrongly designated, or their name misspelt, the payee or indorsee, as the case may be, may indorse the cheque in accordance with the designation or spelling in the cheque and then add their proper signature: s 44.

Transfer of an order cheque without indorsement [24.340] We have seen at [24.320] that an order cheque is transferred by negotiation where it is indorsed by the holder followed by delivery. However, the Cheques Act 1986 (Cth) also contains provision where an order cheque is delivered without being indorsed. It provides that where the holder of a cheque payable to order delivers the cheque for value to another person in order to transfer the cheque by negotiation but without having indorsed the cheque, the transferee, by virtue of the delivery: (a)

receives the title that the holder (that is, the transferor) had in the cheque; and

(b)

acquires the right to have the holder indorse the cheque to the transferee: s 42.

chapter 24 Negotiable Instruments II: Cheques

Transfer of a stale or dishonoured cheque [24.350] A “stale cheque” is a cheque which appears on its face to have been drawn more than 15 months earlier: Cheques Act 1986 (Cth), s 3(5). The transferee of a stale cheque: (a)

takes the cheque subject to any defect of title affecting the cheque at the time when the cheque became a stale cheque; and

(b)

does not receive, and is not capable of giving, a better title to the cheque than the transferor.

Every transfer of a stale cheque is presumed to have been effected before the cheque became a stale cheque unless the contrary is proved: s 46(1), (3). Similarly, where a cheque that has been dishonoured is transferred by negotiation to a person who takes the cheque with notice of the dishonour, the transferee takes the cheque subject to any defect of title affecting the cheque at the time it was dishonoured: s 46(2).

Legal position of a holder and holder in due course [24.360] The holder of a cheque has the right to present the cheque for payment, to negotiate it and give a valid discharge. The holder also has the right to sue on the cheque in their own name: Cheques Act 1986 (Cth), s 49(1). The fact that a person is a “holder” does not mean that they take title to the cheque free from defects of title in people who have previously dealt with the cheque: to do so, the holder must also be a holder in due course, whose privileged position will be dealt with separately at [24.370]. A “holder” in relation to a cheque payable to order is the payee or an indorsee who is in possession of the cheque as payee or indorsee. In relation to a cheque payable to bearer, a “holder” is the bearer, that is, the person in possession of a cheque payable to bearer: s 3(1).

Holder in due course [24.370] In order to secure the full protection of the principle of negotiability, the holder must be a “holder in due course”. A holder in due course is capable of acquiring a better title to the cheque than the transferor of the cheque to them, since a holder in due course will generally take the cheque free from prior defects in title to the cheque, that is, free from defences available as between the prior parties to the cheque. Thus, the Cheques Act 1986 (Cth), s 49 provides: (2)

(3)

A holder of a cheque who is a holder in due course – (a)

holds the cheque free from any defect in the title of prior indorsers as well as from mere personal defences available to the drawer and prior indorsers against one another; and

(b)

may enforce payment of the cheque against any person liable on the cheque.

Where – (a)

the title of the holder of a cheque is defective; and

(b)

the holder transfers the cheque by negotiation to a holder in due course, the holder in due course receives a good and complete title to the cheque.

A person’s title to a cheque is defective where, inter alia, they obtained the cheque: (a)

by fraud, duress or other unlawful means; or

(b)

for an illegal consideration: s 3(3), (4).

Section 50(1) provides that the holder of a cheque is a holder in due course if:

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(a)

(b)

the cheque was transferred by negotiation to the holder and, at the time when the holder took the cheque, the cheque (i)

was complete and regular on the face of it;

(ii)

was not a stale cheque;

(iii)

had not been crossed “not negotiable”; and

the holder took the cheque – (i)

in good faith;

(ii)

for value; and

(iii)

without notice – (A)

of any dishonour of the cheque; or

(B)

of any defect in the title of the person who transferred the cheque to the holder or that the person who transferred the cheque to the holder had no title to the cheque.

If the holder took the cheque with notice that the person who transferred the cheque did so in breach of faith or under circumstances amounting to fraud, the holder is deemed to have taken the cheque with notice of a defect in the title of the transferor, and hence will not be a holder in due course: s 50(2). It should also be borne in mind from the definition of a holder in due course set out above, that a holder cannot be a holder in due course of a cheque crossed “not negotiable”: the transferee of a cheque so crossed, as discussed earlier (see [24.170]), takes subject to the defects in title of the transferor: s 55. The transferee of a “stale cheque” similarly cannot be a holder in due course and, as pointed out in the previous section, such a transferee takes subject to the defects in title of their transferor: s 46. The holder of a cheque is presumed to be a holder in due course unless the contrary is proved. However, where in an action or proceeding on a cheque, it is admitted or proved that the drawing or issue, or a transfer by negotiation, of the cheque is affected by fraud, duress or illegality, the holder is not presumed to be a holder in due course unless and until the holder proves that, after the alleged fraud, duress or illegality, value was given in good faith for the cheque: s 51. A holder of a cheque (whether or not the holder took the cheque for value) who: (a)

derives title to the cheque through a holder in due course; and

(b)

is not a party to any fraud, duress or illegality affecting the cheque,

has all the rights of the holder in due course as regards the drawer and indorsers prior to the holder in due course: s 52. The holder in due course is in a privileged position. A summary of their more important privileges under the Act follows: [24.380] 1. Defects of title and personal defences: A holder in due course holds the cheque free from defects of title and personal defences of prior parties and may enforce payment against all parties liable on the cheque: Cheques Act 1986 (Cth), s 49. [24.390] 2. Delivery: The drawer of a cheque, as regards a holder in due course, is conclusively presumed to have made an effective delivery of the cheque so as to complete the drawer’s contract on the cheque: Cheques Act 1986 (Cth), s 28(1): see [24.200].

chapter 24 Negotiable Instruments II: Cheques

An indorser, as regards a holder in due course who took the cheque from the indorser, is presumed to have made an effective delivery of the cheque unless the contrary is proved. In any other case involving a holder in due course, an indorser is conclusively presumed to have made an effective delivery of the cheque: s 28(2). [24.400] 3. Estoppel (drawer): A drawer is estopped from denying to a holder in due course that the cheque was valid at the time it was issued by the drawer: Cheques Act 1986 (Cth), s 71. [24.410] 4. Estoppel (indorser): An indorser is estopped from denying to a holder in due course the genuineness and regularity in all respects of the drawer’s signature and all previous indorsements: Cheques Act 1986 (Cth), s 74. [24.420] 5. Stranger signing a cheque: The “backer” or “stranger” to a cheque who signs the cheque other than as drawer or indorser is, as regards a holder in due course, conclusively presumed to have signed the cheque intending to become liable on it and accordingly, will be liable as if they had indorsed the cheque: Cheques Act 1986 (Cth), s 75: see [24.500]. [24.430] 6. Inchoate instruments: Where a cheque has been signed in blank by the drawer and is subsequently completed by another person, it is conclusively presumed, as regards a holder in due course: (a)

to have been delivered to another person in order that the instrument might be filled up as a complete cheque; and

(b)

to have been filled up within a reasonable time and strictly in accordance with the authority given: Cheques Act 1986 (Cth), s 18; see [24.290]–[24.310].

[24.440] 7. Material alteration: Where a cheque is materially altered but the alteration is not apparent, then although the effect of a material alteration is to discharge a cheque, a person who would be a holder in due course of the cheque but for its discharge may enforce payment of the cheque according to its original tenor against any other person as if the cheque had not been discharged: Cheques Act 1986 (Cth), s 82(3): see [24.580]. [24.450] 8. Renunciation: The general position where a holder renounces their rights against the drawer or all persons liable on a cheque is that the cheque is discharged. However, where the cheque is negotiated to a person without notice of the renunciation and who would have been a holder in due course but for the discharge, such person may enforce payment of the cheque as if it had not been discharged: Cheques Act 1986 (Cth), s 82(2): see [24.560].

Presentment and dishonour of cheques Presentment of cheques [24.460] The general position is that the drawer or indorser of a cheque is not liable on the cheque unless it is duly presented for payment: Cheques Act 1986 (Cth), s 58. A cheque is duly presented for payment where a demand for payment of the cheque is made on the drawee institution (that is, the bank or other financial institution on which the cheque was drawn by the drawer/customer) by or on behalf of the holder of the cheque: s 61. Presentment for payment may be made to the drawee institution either by another financial institution or by the holder personally. A bank or other financial institution will present the cheque for payment where a customer has deposited a cheque with it for collection: hence the bank or other financial institution is called the “collecting institution”. The Cheques Act 1986 contains detailed provisions regarding the presentment of cheques for payment to the drawee institution by the collecting institution. A collecting institution may

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present a cheque for payment by physically presenting or exhibiting the cheque to the drawee institution or by employing any other means to effect presentment, for example, by exhibiting a facsimile copy of the cheque, or by transmitting particulars of the cheque by electronic means: s 62. The collecting institution is required to present the cheque for payment as soon as is reasonably practicable and, if it fails to do so, is liable to the holder for any loss the holder suffers as a result: s 66. A person other than a financial institution may present a cheque for payment by exhibiting it, in person, to the drawee institution at a reasonable hour on a day on which the drawee institution is open for business, at the place of business of the drawee institution specified in the cheque, or at the branch of the drawee institution at which the account on which the cheque is drawn is maintained: ss 63, 64. Where a cheque is duly presented for payment, the drawee institution is either to pay or dishonour the cheque as soon as is reasonably practicable. If it fails to do so, the drawee institution may not dishonour the cheque and is liable to pay the cheque to the holder, unless it is aware of a defect in the holder’s title or that the holder has no title to the cheque: s 67.

Dishonour of customer's cheque [24.470] A cheque is dishonoured where it is duly presented for payment but the drawee institution refuses payment, and that refusal is communicated by the drawee institution to the holder, or the person presenting the cheque on the holder’s behalf (for example, the collecting institution): Cheques Act 1986 (Cth), s 69. The drawer or an indorser of a dishonoured cheque is liable on the cheque, whether or not they are given notice of dishonour: s 70. A cheque may be dishonoured by the bank or other financial institution refusing to pay it either because the authority of the bank or other financial institution has been revoked or for other reasons, for example where there are insufficient funds (NSF) in the account to meet the cheque. If a bank or other financial institution wrongly dishonours a customer’s cheque, it may be sued for breach of implied contract to pay the cheque. In the case of the customer losing their commercial reputation as a result of the cheque being wrongly dishonoured, substantial damages against the financial institution may be awarded.

Liability of drawer, indorsers, etc Drawer [24.480] The person primarily liable on a cheque is the drawer of the cheque. By drawing a cheque, the drawer undertakes: (a)

that on due presentment for payment, the cheque will be paid according to its tenor as drawn; and

(b)

that if the cheque is dishonoured when duly presented for payment, the drawer will compensate the holder or an indorser who is compelled to pay the cheque: Cheques Act 1986 (Cth), s 71.

Furthermore, by issuing a cheque, the drawer is estopped from denying to a holder in due course that the cheque was a valid cheque at the time it was issued: s 72. “Issue” means the first delivery of the cheque to a person who takes it as holder: s 3(1).

Indorsers [24.490] By indorsing a cheque, an indorser undertakes: (a)

that on due presentment for payment, the cheque will be paid according to its tenor as indorsed by the indorser; and

chapter 24 Negotiable Instruments II: Cheques

(b)

that if the cheque is dishonoured when duly presented for payment, the indorser will compensate the holder or a subsequent indorser who is compelled to pay the cheque: Cheques Act 1986 (Cth), s 73.

Furthermore, an indorser is estopped from denying to a holder in due course the genuineness and regularity in all respects of the drawer’s signature and all previous indorsements: s 74. A holder in due course in this context (in contrast with a holder in due course of a bill of exchange discussed in Chapter 23) includes a person who would be a holder in due course but for the forged or unauthorised signature. An indorser is also estopped from denying to the indorsee to whom the indorser indorsed the cheque, or a subsequent indorsee, or to a holder who is not an indorsee: (a)

that the cheque was, at the time when the indorser indorsed it, a valid and undischarged cheque; and

(b)

that the indorser had, at that time, a good title to the cheque: s 74.

“Backing” a cheque [24.500] The Cheques Act 1986 (Cth) provides that where a person signs a cheque, otherwise than as the drawer or an indorser, intending to become liable on the cheque, the provisions of the Act apply in the same way as if the person had indorsed the cheque: s 75(1). Such a person is commonly said to “back” the cheque. He or she is referred to as a “stranger” to the cheque since their signature is not necessary to negotiate the cheque. The purpose of “backing” a cheque in this way is to increase its value by reason of the additional credit which it derives from the signature of the person concerned. The practice is utilised particularly where there may be doubts as to the credit position of the drawer of the cheque. A person who “backs” a cheque in this way by signing the cheque is: (a)

as regards a holder in due course – conclusively presumed to have signed the cheque intending to become liable on it; or

(b)

as regards a holder who is not a holder in due course – presumed, unless the contrary is proved, to have signed the cheque intending to become liable on it;

unless it is apparent on the face of the cheque that the person did not sign the cheque intending to become liable on it: s 75(2).

case [24.510] In Valamios v Demarco (2005) 63 NSWLR 191 (CA), the appellant had signed a number of cheques drawn in favour of the respondent in return for the supply of produce. The cheques were pre-printed forms bearing the name “E & C Valamiou t/as V & P Produce”. The signature of the appellant appeared on the printed line provided for the signature of the authorised signatory of the firm’s account. The appellant was a partner in the firm and authorised to draw the cheques. Sixteen cheques signed by the appellant with a total value of over $200,000 were dishonoured. The New South Wales Court of Appeal held that it was apparent on the face of the cheques that the appellant had signed them as a representative of the firm and had not intended to be under a personal liability on the cheques: “Commercial common sense clearly requires a finding that, on the face of these cheques, it was apparent that the appellant, as the sole signatory thereon, did not intend to become personally liable thereon” (at [51]).

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Liability on dishonour [24.520] Where a cheque is dishonoured, the holder may recover as liquidated damages from any person liable on the cheque, and an indorser who has been compelled to pay the cheque may recover as damages from the drawer, or a prior indorser: (a)

(b)

if the cheque is dishonoured in Australia – (i)

the sum ordered to be paid by the cheque; and

(ii)

the amount of any interest that, in accordance with the regulations is payable in respect of that sum; and

if the cheque is dishonoured outside Australia – (i)

the amount of the re-exchange of the cheque; and

(ii)

the amount of any interest that, in accordance with the regulations, is payable in respect of that amount: Cheques Act 1986 (Cth), s 76(1).

There is a discretion in the court to withhold interest, in whole or in part, where in the court’s opinion justice so requires: s 76(2).

Transferor by delivery [24.530] A transferor by delivery is a holder of a cheque payable to bearer who transfers the cheque by negotiation without indorsing the cheque. A transferor by delivery is not liable on the cheque. However, where the person to whom the transferor by delivery negotiates the cheque takes the cheque for value, the transferor by delivery warrants to that person: (a)

that the cheque is what it purports to be;

(b)

that the transferor by delivery has the right to transfer the cheque by negotiation; and

(c)

that the transferor by delivery is not, at the time of the transfer, aware of any fact that renders the cheque valueless: Cheques Act 1986 (Cth), s 77.

Discharge of liabilities [24.540] A cheque is discharged by: (a)

payment in due course by the drawee institution;

(b)

renunciation of rights by the holder;

(c)

cancellation of the cheque; or

(d)

material alteration of the cheque: Cheques Act 1986 (Cth), s 78.

The general position where a cheque is discharged is that all rights on the cheque are extinguished: s 82(1). This is subject to certain exceptions in respect of discharge of a cheque by renunciation and material alteration noted in their appropriate context at [24.560] and [24.580] respectively.

Payment in due course by the drawee institution [24.550] The most common way in which a cheque is discharged is by payment in due course by the drawee institution: Cheques Act 1986 (Cth), s 78(1)(a). A cheque is paid in due course if it is paid to the holder in good faith, and without notice of any defect in the holder’s title or that the holder had no title to the cheque: s 79.

chapter 24 Negotiable Instruments II: Cheques

Since the definition of “holder” includes a person in possession of a cheque made payable to bearer (s 3(1)), where the bank or other financial institution on which the cheque is drawn pays an uncrossed bearer cheque over the counter to the person in possession of it, such payment would constitute a payment in due course even if such person had no right to possession of the cheque because, for example, they had stolen it. However, as discussed at [24.160], a crossed cheque must only be paid to another financial institution and not paid over the counter and hence crossed cheques, particularly those crossed “not negotiable”, afford greater protection to the drawer against wrongful dealings with the cheque. Where a cheque is paid by the drawer or an indorser (as distinct from the drawee institution) the cheque is not discharged: s 87. In such a case the cheque has not been paid in due course and there will still be rights and liabilities on it. For example, if an indorser paid the holder of the cheque, the indorser would have rights against a prior indorser or against the drawer.

Renunciation of rights by the holder [24.560] A cheque is discharged if the holder at any time absolutely and unconditionally renounces the holder’s rights against the drawer or all persons liable on the cheque: Cheques Act 1986 (Cth), s 78(1)(b). The renunciation by the holder of a cheque of the holder’s rights against the drawer or all persons liable on the cheque does not discharge the cheque unless the renunciation is completed by delivery of the cheque to the drawer by the holder in order to give effect to the renunciation: s 80. However, where the cheque is negotiated to a person without notice of the renunciation and who would have been a holder in due course but for the discharge, such person may enforce payment of the cheque as if it had not been discharged: s 82(2).

Cancellation of the cheque [24.570] Where the holder intentionally cancels the cheque, or the drawer’s signature, and the cancellation is apparent from the cheque, such cancellation has the effect of discharging the cheque: Cheques Act 1986 (Cth), s 78(1)(c). The cancellation of a cheque, or the drawer’s signature on a cheque, does not discharge the cheque if the cancellation is made under a mistake of fact. However, where a cheque, or the drawer’s signature on a cheque, has been cancelled, the cancellation is presumed: (a)

to have been made intentionally by a holder; and

(b)

not to have been made under a mistake of fact, unless the contrary is proved: s 81.

Material alteration of the cheque [24.580] A cheque is discharged if it is fraudulently and materially altered by the holder: Cheques Act 1986 (Cth), s 78(2). An alteration to a cheque is a material alteration if it alters in any respect a right, duty or liability of the drawer, an indorser, or the drawee institution: s 3(8). Where a cheque is discharged because of a material alteration of the cheque, a person who would be the holder of the cheque but for its discharge may enforce payment of the cheque according to its tenor as altered against: (a)

the person who made the alteration;

(b)

a person who authorised or agreed to the alteration; or

(c)

a person who indorsed the cheque after the alteration was made, as if the cheque had not been discharged.

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Furthermore, where an alteration to a cheque is not apparent, a person who would be a holder in due course of the cheque but for its discharge may enforce payment of the cheque according to its original tenor against any other person as if the cheque had not been discharged: s 82(3).

Discharge of indorsers [24.590] The Act contains separate provisions dealing with the discharge of particular indorsers on a cheque as distinct from discharge of the whole cheque and the liabilities of all parties to the cheque. An indorser of a cheque is discharged if the holder at any time absolutely and unconditionally renounces the holder’s rights against the indorser: Cheques Act 1986 (Cth), s 83(1)(a). The renunciation by the holder of a cheque or the holder’s rights against an indorser does not discharge the indorser unless the renunciation is in writing signed by the holder: s 84. An indorser of a cheque will also be discharged where the holder intentionally cancels the indorser’s signature and the cancellation is apparent from the cheque: s 83(1)(b). The cancellation of the signature of an indorser does not discharge the indorser if the cancellation is made under a mistake of fact. However, where the signature of an indorser has been cancelled, the cancellation is presumed: (a)

to have been made intentionally by a holder; and

(b)

not to have been made under a mistake of fact, unless the contrary is proved: s 85.

Any indorser who would have had a right of recourse against the indorser who is discharged by virtue of the renunciation and cancellation provisions is also discharged: s 83(2). Where an indorser is discharged under the renunciation and cancellation provisions outlined above, all rights on the cheque against the indorser are extinguished, subject to one exception. The exception is that a person who takes the cheque without notice of the renunciation may enforce payment of the cheque as if the indorser had not been discharged: s 86.

Duties, liabilities and statutory protection of financial institutions [24.600] The law concerning the duties, liabilities and statutory protection of financial institutions in the payment and collection of cheques is of considerable importance. Consideration will be given first to the legal position of the drawee or paying institution, followed by discussion of the statutory protection accorded to a financial institution (that is, the collecting institution) when collecting the proceeds of cheques deposited with it.

The drawee or paying institution [24.610] The drawee or paying institution is the bank or other financial institution at which the drawer of a cheque has their account on which the cheque is drawn. As we have seen, one of the duties following from the banker and customer relationship which will arise on the opening of the customer’s account is the duty of the bank to pay the customer’s cheques assuming, of course, that there are sufficient funds in the customer’s account or appropriate overdraft facilities have been arranged. In carrying out this duty, legal questions may arise as to the liability or otherwise of the bank where: (a)

the bank pays a cheque in disregard of the crossing;

(b)

an essential indorsement is forged or made without authority on a cheque payable to order;

(c)

the signature of the customer is forged; or

chapter 24 Negotiable Instruments II: Cheques

(d)

the amount of the cheque is fraudulently raised.

Since the Cheques Act 1986 (Cth) was extended in 1998 4 to enable building societies and credit unions to issue their own cheques, the same questions as those raised above in relation to banks now also arise in relation to these other types of financial institution. Furthermore, the Cheques Act 1986, s 4(3) provides that: “The rules of the common law (including the law merchant) that apply to cheques drawn on banks also apply (by force of this subsection) to cheques drawn on financial institutions other than banks, as if those institutions were banks.”

Duties of financial institutions as to crossed cheques [24.620] Crossings on cheques were discussed at [24.160], where it was explained that crossing a cheque has effect as a direction to the drawee or paying institution not to pay the cheque otherwise than to another financial institution (that is, the collecting institution). Where the drawee institution, in good faith and without negligence, pays a crossed cheque to a financial institution, the drawee institution is taken to have paid the cheque in due course: Cheques Act 1986 (Cth), s 92. However, where a bank or other financial institution on which a crossed cheque is drawn (that is, the drawee institution) pays the cheque other than to another financial institution, the drawee institution is liable to the true owner of the cheque for any loss that the true owner suffers as a result of the cheque not having been paid to a financial institution. For example, a bank or other financial institution would be liable to the true owner if it pays a crossed cheque across the counter, that is, if the financial institution cashes the cheque for someone not entitled to it.

Statutory protection of financial institutions paying cheques in respect of indorsements [24.630] Where an order cheque is misappropriated, the only way in which the thief or rogue can obtain payment is by forging an indorsement, for example that of the payee. The bank or other financial institution would have no mandate to pay such a cheque since the drawer has ordered that the financial institution pay the named payee or to their order. However, s 94(1) of the Cheques Act 1986 (Cth) protects a bank or other financial institution which pays an order cheque which bears a forged or unauthorised indorsement. Thus, s 94(1) provides that: [W]here (a)

the drawee institution, in good faith and without negligence, pays a cheque whether or not to a financial institution; and

(b)

an indorsement has been written or placed on the cheque without the authority of the person whose indorsement it purports to be, the financial institution –

(c)

does not, in paying the cheque, incur any liability by reason only of –

(d)

(i)

the indorsement having been written or placed on a cheque without the authority of the person whose indorsement it appears to be;

(ii)

its failure to concern itself with the genuineness of, or the existence of authority for, the indorsement, and

shall be deemed to have been paid the cheque in due course.

The section applies, inter alia, to forged indorsements, since a reference in the Act to an indorsement being written or placed on a cheque without the authority of the person whose indorsement it purports to be 4

By the Cheques and Payment Orders Amendment Act 1998 (Cth).

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includes the forging of an indorsement: s 3(6). It will also be observed that the section is not restricted to situations where the cheque is paid to another financial institution, since it applies where the drawee institution pays the cheque “whether or not to a financial institution”. (For the meaning of the phrase “without negligence”, see [24.720].) The drawee institution is also protected even where there is no indorsement on an order cheque, or the indorsement is irregular, but only if payment is made to another financial institution. Thus, s 94(2) provides that: [W]here – (a) the drawee institution in good faith and without negligence, pays a cheque to a financial institution; and (b)

the cheque is not indorsed or is irregularly indorsed, the drawee institution –

(c)

does not, in paying the cheque, incur any liability by reason only of the absence of, or the irregularity in, the indorsement, and

(d)

shall be deemed to have paid the cheque in due course.

Customer's signature forged [24.640] Where the drawer’s signature on a cheque is forged, the general position is that the bank or other financial institution cannot debit the customer’s account with the amount of the cheque. The financial institution in such a case has no real mandate or order from the customer to pay the cheque. No statutory protection is given to the financial institution where the customer’s signature has been forged similar to that conferred where an indorsement has been forged. In fact, the statutory protection for drawee institutions, discussed at [24.610] and [24.620], is specifically made subject to s 32(1) of the Cheques Act 1986 (Cth) which provides, in essence, that, where the drawer’s signature is forged, it is wholly inoperative as the signature of the drawer unless: (a)

the person against whom it is sought to assert a right on the cheque is estopped from denying the genuineness of the signature or the existence of authority for the signature, as the case requires, or

(b)

the signature is ratified or adopted by the relevant person.

Accordingly, a forged drawer’s signature is inoperative unless the drawer is estopped from denying the forgery or has adopted the signature. A customer will be estopped from denying the genuineness of their signature on a cheque where they know that it is being forged, for example by a husband or wife, but fails to warn the bank which pays cheques bearing the forged signature: Greenwood v Martins Bank Ltd [1933] AC 51. A further example is Tina Motors Pty Ltd v Australia and New Zealand Banking Group Ltd [1977] VR 205:

case [24.650] The plaintiff company was formed by a husband and wife to operate a used car business. Most of the company’s cheques were drawn and signed by the wife. A brother-in-law was brought into the business and between October 1972 and May 1973 he forged the wife’s signature on 54 cheques totalling over $70,000. The brother-in-law cashed the cheques at the defendant bank where the company had its account. In November and December 1972 the manager of the bank had tried to telephone the wife regarding doubts he had about the authenticity of her signature on cheques being

chapter 24 Negotiable Instruments II: Cheques

cashed by the brother-in-law. On both occasions the manager was only able to contact the husband who said the bank need have no worries about cheques presented by the brother-in-law and that any such transactions in the future would be “Okay”. Accordingly, the bank continued to cash cheques presented by the brother-in-law until the discovery of his fraud. It was held that the husband’s statements amounted to a representation that the signatures on cheques presented by the brother-in-law were genuine, which representation had been relied on by the bank. Furthermore, on the bank manager voicing his suspicions about the authenticity of the signatures on the cheques, the husband was put on inquiry and owed “a duty of due investigation and notification to the bank of any impropriety. With such a duty to speak imposed upon him his subsequent silence amounted to a continuing representation that the signatures about which suspicion might otherwise be entertained were in fact genuine. Clearly, the bank also relied upon this tacit representation”: Tina Motors Pty Ltd v Australia and New Zealand Banking Group Ltd [1977] VR 205 at 210 per Crockett J. Accordingly, the plaintiffs were estopped from denying the genuineness of the signatures on the cheques and the bank was therefore not liable to re-credit their account with the amount of the forged cheques. [24.660] Where a rogue forges the drawer’s signature on a cheque and deposits the cheque into their account at, for example, a bank which collects the proceeds of the cheque for the rogue from the drawer’s bank, the rogue’s bank (that is, the collecting bank) is not liable for either conversion or money had or received to the drawer whose signature was forged by the rogue: Koster’s Premier Pottery Pty Ltd v Bank of Adelaide (1981) 28 SASR 355. Normally in such a case, of course, the bank or other financial institution of the customer whose signature has been forged would be unable to debit the customer’s account unless the customer is estopped from denying the genuineness of the signature as discussed at [24.640]. It has been held by the New South Wales Court of Appeal that a customer is not under a duty to take reasonable precautions in the management of their business to prevent forged cheques being presented for payment, nor is the customer under a duty to check periodic bank statements so as to enable them to notify the bank of any unauthorised debit items. The duty of care owed by a customer to their bank in the operation of a current account is limited to a duty not to draw cheques in such a way as to facilitate fraud or forgery (discussed in the next section) and a duty to inform the bank of any unauthorised cheques purportedly drawn on the account as soon as the customer becomes aware of such a situation: National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377.

Joint accounts [24.670] Where a joint account requires the signature of both parties to operate the account, a bank will be in breach of its mandate if it pays a cheque with only one valid signature, for example, where one joint account holder has forged the signature of the other account holder. In such a case, it has been held that the bank will only be liable to the “innocent” holder for their proportional interest in the account, namely, one half of the amount of the cheque paid out by the bank in breach of its mandate: Vella v Permanent Mortgages Pty Ltd (2008) 13 BPR 25,343; [2008] NSWSC 505.

Customer's cheque altered [24.680] A customer owes a duty to their bank or other financial institution to draw cheques with reasonable care so as not to facilitate forgery and if, owing to neglect of this duty, forgery takes place, the customer will generally be liable for the loss. However, prior to the decision of the High Court of Australia

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in Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR 304, there was uncertainty whether leaving gaps or blank spaces on cheques constituted a breach of this duty. It was held in that case that, arising from the contractual relationship between banker and customer, there is a duty on the customer to take usual and reasonable precautions in drawing a cheque to prevent a fraudulent alteration. Breach of such duty will render the drawer liable for the resultant loss. The facts of the case were as follows:

case [24.690] In Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR 304, Sydney Wide Stores had a cheque account at the Commonwealth Trading Bank. One of the company’s employees stole a number of the company’s cheques which had been duly signed and drawn “Pay CAS or order”. “CAS” was an abbreviation of the name of the intended payee “Computer Accounting Services”. The employee fraudulently altered the cheques by adding the letter “H” to the name of the payee of the cheques which then read “Pay CASH or order”. The cheques were deposited by the fraudulent employee in his own bank account, and his bank collected the proceeds from the Commonwealth Trading Bank which duly debited the amount from Sydney Wide’s account. Sydney Wide claimed the amount of the cheques from the Commonwealth Trading Bank on the ground that the Bank had failed on the particular facts to exercise reasonable care and skill in paying the company’s cheques. The Bank contended that Sydney Wide owed it a duty of care in drawing the cheques and had breached that duty by acting negligently in that the cheques were drawn payable to “CAS”, rather than “C.A.S.” or “Computer Accounting Services”, in such a way as to facilitate their fraudulent alteration. As a result of such negligence and breach of duty, the Bank alleged that the company was estopped from bringing its claim. Sydney Wide contended that the allegation by the Bank did not constitute a good defence. The parties agreed that the Bank’s right to plead negligence on the part of Sydney Wide as a defence should be determined as a separate question. The High Court held, as stated above, that a customer owes a duty to their bank to take usual and reasonable precautions in drawing a cheque to prevent fraudulent alteration. The case was then remitted back to the New South Wales Supreme Court to determine whether on the particular facts there had been a breach of that duty. [24.700] Since the decision of the High Court in Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR 304, it would seem that the duty owed by the customer to their bank will require the customer to take reasonable care not to leave gaps or spaces on a cheque which facilitates the fraudulent increase in the amount for which the cheque was drawn. The Cheques Act 1986 (Cth), s 91 gives the financial institution certain limited rights where the amount of a cheque is fraudulently increased. It provides that where: (a)

a cheque is fraudulently altered so as to increase the sum ordered to be paid by the cheque;

(b)

the alteration is the only material alteration of the cheque made fraudulently; and

(c)

the drawee institution, in good faith and without negligence, pays the cheque to the holder,

(d)

then the drawee institution may debit the drawer’s account according to the tenor of the cheque as drawn.

In other words, if the criteria of the section are satisfied, the financial institution on which the cheque is drawn is entitled to recover from the drawer the amount of the cheque as originally drawn, which of course

chapter 24 Negotiable Instruments II: Cheques

is likely to be considerably less than the amount for which it was fraudulently increased. However, it is important to note that the section further provides that it is without prejudice to any other rights that the financial institution may have against the drawer, for example, for breach of the duty of care in drawing a cheque so as not to facilitate a fraudulent increase in the amount for which the cheque was originally drawn.

Statutory protection of the collecting institution [24.710] A bank or other financial institution when collecting cheques on behalf of customers runs the risk that some of the cheques may not have been lawfully deposited but paid in by someone whose title was defective, and whose action in depositing them was a wrongful interference with the rights of the true owner. At common law the collecting institution would be liable in such a case to an action in conversion by the true owner of the cheques. The Cheques Act 1986 (Cth), s 95 gives the collecting institution a measure of protection, the essential effect of which is to absolve the collecting bank or other financial institution from liability to the true owner where it collects a cheque in good faith and without negligence for a customer who either has no title, or a defective title to the cheque. Section 95 provides: (1)

Where – (a)

(b)

(2)

a financial institution (the collecting institution), in good faith and without negligence – (i)

receives payment of a cheque for a customer; or

(ii)

receives payment of a cheque and, before or after receiving payment, credits a customer’s account with the sum ordered to be paid by the cheque; and

the customer has no title, or has a defective title, to the cheque, the collecting institution does not incur any liability to the true owner by reason only of having received payment of the cheque.

Where – (a)

a financial institution (the collecting institution) – (i)

receives payment of a cheque for a customer; or

(ii)

receives payment of a cheque and, before or after receiving payment, credits a customer’s account with the sum ordered to be paid by the cheque;

(b)

the cheque is a cheque drawn payable to order that has not been transferred by negotiation; and

(c)

the name specified in the cheque as the name of the payee – (i)

is the same as the name of the customer;

(ii)

is the same as a business name or trade name of the customer; or

(iii)

is so similar to the name of the customer, or a business name or trade name of the customer, that it is reasonable in all the circumstances for the collecting institution to have assumed that the customer was the person intended by the drawer to be the payee, the collecting institution shall not be treated, for the purposes of sub-section (1), as having been negligent by reason only of its failure to concern itself with the absence of, or irregularity in, an indorsement of the cheque by the customer.

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In order to gain the protection of the section, the collecting institution must act in good faith and without negligence. To act in good faith means to act honestly, whether negligently or not: s 3(2). Good faith is rarely in issue in actions against a bank or other financial institution.

Meaning of “without negligence” [24.720] There have been a considerable number of cases on the meaning of the phrase without negligence in the precursors to s 95 of the Cheques Act 1986 (Cth), for example the Bills of Exchange Act 1909 (Cth), s 88D. The test of negligence is whether the paying in of any given cheque, coupled with the circumstances antecedent and present, was so out of the ordinary course that it ought to have aroused doubt in the banker’s mind and caused the banker to make inquiries: Commissioners of Taxation v English Scottish and Australian Bank Ltd [1920] AC 683 at 688 per Lord Dunedin; see also, Day v Bank of New South Wales (1978) 18 SASR 163 at 169. Further: “[W]here doubt is once aroused as to the nature and true ownership of the cheque, the nature and extent of the inquiry proper to allay it must be measured by what, in the circumstances, a fair-minded banker, paying due regard to the reasonable exigencies of banking business in relation to the person depositing the cheque, would consider it prudent to do in order to protect the interests of the true owner whoever he might be”: London Bank of Australia Ltd v Kendall (1920) 28 CLR 401 at 417 per Isaacs and Rich JJ. Should the financial institution fail to make appropriate inquiry where the circumstances surrounding the deposit of a cheque are suspicious, the financial institution would be held to have been negligent and therefore unable to rely on the statutory protection afforded by the section. Examples include an employee paying into their account cheques payable to their employer; a director paying company cheques into their private account; and cheques payable to a public official being paid into a private bank account: see, for example, AL Underwood Ltd v Bank of Liverpool Ltd [1924] 1 KB 775; Commissioners of State Savings Bank of Victoria v Permewan Wright & Co Ltd (1914) 19 CLR 457.

case [24.730] T, acting under the authority of a power of attorney given to him by R, drew cheques on R’s account signed “R by T, his attorney”, and fraudulently paid them into his own account to reduce his overdraft. It was held that the bank was negligent because it had not inquired into T’s authority to pay the cheques into his own account, and consequently was required to refund the amount of the cheques to R: Midland Bank Ltd v Reckitt [1933] AC 1.

case [24.740] A bank was found to have been negligent when it credited a cheque for $175,000 drawn in favour of “M Dumanovic – Trust Account” to the joint personal account of the named payee and his wife without any inquiry; the bank was held liable in conversion to the drawer of the cheque who had been induced to draw it because of Dumanovic’s fraudulent misrepresentation: Harrisons Group Holdings Ltd v Westpac Banking Corp (1989) 51 SASR 36. [24.750] The circumstances surrounding the opening of an account may be such as to put the bank on inquiry.

chapter 24 Negotiable Instruments II: Cheques

case [24.760] The plaintiff sent a cheque by mail to Ray Taylor Pty Ltd in payment of a debt. It was a crossed cheque for £349.2.0. and made payable to “Ray Taylor”. The cheque was never received by the company. It was presented by a fraudulent person to open an account at a branch of the defendant bank in the name of “Raymond George Taylor”. The address and telephone number given by the fraudulent person under that name appeared in the telephone directory. He said that he had sold a car to the drawer of the cheque and wanted to open an account and obtain a special clearance on the cheque so that he could withdraw the proceeds to buy another car. The account was opened and the fraudulent person paid the proceeds of the cheque. The plaintiff drawer of the cheque sued the bank for conversion of the cheque. It was held that the bank was not entitled to the statutory protection, and therefore was liable to the plaintiff, because it had been negligent in that: (a)

the proposed customer should have been referred to the manager of the bank before the account was opened;

(b)

the customer should have been asked why he chose the particular branch since it was apparent that he neither lived nor worked in the suburb where the branch was located;

(c)

the bank officer failed to obtain the address of the drawer of the cheque and inquire as to the circumstances in which the cheque was issued; and

(d)

no inquiries were made of the proposed customer’s alleged employer: Cary v Rural Bank of New South Wales (1967) 2 DCR (NSW) 49.

[24.770] A bank may act in the capacity of both collecting and paying bank in relation to the one transaction:

case [24.780] A fraudulent bank employee opened an account in a fictitious name and induced a customer of the bank to make out a cheque to the fictitious person, the proceeds of the cheque being withdrawn from the account opened by the fraudulent employee. It was held on the facts that the bank had acted in good faith and without negligence and accordingly was protected as collecting and paying bank from an action in conversion by its customer: Lawrie v Commonwealth Trading Bank of Australia [1970] Qd R 373. See also, Voss v Suncorp-Metway Ltd (No 2) [2004] 1 Qd R 214 discussed at [24.910]. [24.790] A bank which collects the proceeds of a cheque crossed “Not Negotiable-Account Payee Only” for a customer who is not the named payee of the cheque without making any inquiry as to how the customer came to be paying the cheque into their own account, has not acted without negligence and accordingly will not be protected by the section against an action in conversion by the true owner of the cheque: National Commercial Banking Co of Australia Ltd v Robert Bushby Ltd [1984] 1 NSWLR 559; see similarly, Universal Guarantee Pty Ltd v National Bank of Australasia Ltd [1965] 1 WLR 691 (PC). This applies even where there was an apparently proper indorsement of the cheque by the payee: Hunter BNZ Finance Ltd v CG Maloney Pty Ltd (1988) 18 NSWLR 420. By far the majority of cheques are paid into the payee’s account for collection without being further negotiated. Accordingly, to lessen the need for cheques to be indorsed by customers paying them into their accounts and thus reduce the time spent by banks and other financial institutions checking such

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indorsements, s 95(2) of the Cheques Act 1986 (Cth) (set out at [24.710]) provides that a collecting institution is not to be treated as having been negligent by reason only of the collecting institution’s failure to concern itself with the absence of, or irregularity in, the indorsement of an order cheque by the customer provided, in essence, the customer paying in the cheque is the designated payee. However, where the payee’s name appearing on an order cheque is not that of the customer paying in the cheque for collection, for example, where the cheque has been indorsed by the payee to the customer who then pays it into their account for collection, the collecting institution would have to check that the indorsements appeared to be in order if it is not to lose the protection of s 95. The section protects the collecting institution, where its requirements have been fulfilled, both in relation to crossed and uncrossed cheques. The onus of establishing the defence lies on the financial institution.

The financial institution as a holder for value or holder in due course [24.800] In the ordinary case of a customer paying a cheque into their account for collection, the bank or other financial institution prima facie collects it as agent for the customer. However, depending on the circumstances, the collecting institution may be a holder for value or holder in due course of the cheque and entitled to the rights of such discussed at [24.360]–[24.370]. To establish that it is a holder for value or holder in due course, the collecting institution would have to show, inter alia, that it had given value for the cheque. Merely crediting a customer’s account with the amount of a cheque before payment of it is received does not constitute giving value for this purpose. Value will have been given where, for example, there is an express or implied agreement with the customer to allow the customer to draw against the cheque before the proceeds of the cheque have been cleared, or where the collecting institution accepts the cheque in reduction of an overdraft. Where the collecting institution can establish that it is a holder in due course, it can sue, if necessary, on the cheque and take the cheque free from defects even where the collecting institution may have lost the protection of s 95 of the Cheques Act 1986 (Cth) because of its negligence in collecting the cheque.

Bank cheques [24.810] “Bank cheques” or “bank drafts” are commonly used in circumstances which involve the transfer of documents of title, for example in the settlement of real property transactions, and in other cases where a vendor or seller desires to avoid the risk of a personal cheque not being met. Bank cheques are drawn by a bank on itself at the request of a customer in favour of a named party. A named payee is usually content to accept a bank cheque in payment of, for example, goods supplied, since it is drawn by a bank. The bank is usually safeguarded by debiting its customer’s account at the time when the bank cheque is issued. Under the Cheques Act 1986 (Cth) a bank cheque is generally subject to the same provisions relating to cheques as any other cheque: s 5(1). The general community tends to regard bank cheques as the equivalent to cash. However, bank cheques are occasionally dishonoured since the same defences may be raised by the drawer of a bank cheque (that is, the bank) as the drawer of an ordinary cheque. For example, if the consideration for which the bank cheque was issued totally fails, and value has not been given for it by any holder, the bank will not be liable on its bank cheque: Sidney Raper Pty Ltd v Commonwealth Trading Bank of Australia [1975] 2 NSWLR 227.

chapter 24 Negotiable Instruments II: Cheques

Furthermore, should a bank cheque be stolen and the signature of bank officers forged by the thief in transferring the cheque for value to a bona fide transferee, the bank will not be liable on the cheque: Johns Period Furniture Pty Ltd v Commonwealth Savings Bank of Australia (1980) 24 SASR 224:

case [24.820] In Johns Period Furniture Pty Ltd v Commonwealth Savings Bank of Australia (1980) 24 SASR 224, thieves one night in February 1979 stole a safe from an Adelaide post office containing, inter alia, a book of blank Commonwealth Savings Bank cheque forms. Late one Friday afternoon in May 1979, in a well organised operation, 20 of the stolen bank cheques bearing the forged signatures of fictitious bank officers were used in payment of a wide variety of goods totalling over $60,000 at various Adelaide retail stores. The defendant bank refused to honour the forged bank cheques. The plaintiff store had supplied over $10,000 worth of furniture in exchange for one of the forged bank cheques and sought to recover this amount from the defendant bank. It was held that the bank owed no legal duty of care to warn the public in general, or the plaintiff as a retail trader in particular, of the theft of the bank cheque forms and accordingly, was not liable to the plaintiff. [24.830] Similarly, where a gold bullion dealer was given a bank cheque in payment for a quantity of gold, the bullion dealer failed in an action against the bank for an alleged breach of duty of care when the bank dishonoured the bank cheque. The original blank bank cheque had been stolen with others from one of the bank’s branches nearly 13 months earlier: Johnson Matthey Ltd v Australia and New Zealand Banking Group Ltd [1989] Aust Torts Reports 80-256. It would seem to follow from those decisions that, in accepting payment by a bank cheque, a person who does not have complete faith in the creditworthiness of the payer should make specific inquiry of the bank on which the cheque is drawn to ensure that it has not been stolen. Under the Cheques Act 1986 (Cth), building societies and credit unions can now draw cheques on themselves in the same way as banks have done in the past (s 5(1)), and such cheques may be used for the same purposes as “bank cheques”, for example, for settling conveyancing transactions.

Revocation of financial institution's authority to pay cheques [24.840] The duty and authority of a bank or other financial institution to pay a cheque drawn on it are terminated by: (a)

countermand of payment;

(b)

notice of the drawer’s mental incapacity to incur liability on a cheque; or

(c)

notice of the drawer’s death: Cheques Act 1986 (Cth), s 90.

Where a financial institution pays a cheque mistakenly as a result of overlooking a notice of countermand (that is, a direction to stop payment) by its customer, the financial institution cannot debit the customer’s account with the amount of the cheque. However, the financial institution is entitled to recover the money from the payee as money paid under a mistake of fact, unless the payee has in good faith changed their position: Bank of New South Wales v Murphett [1983] VR 489; Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] QB 677. The same would also seem to apply where a bank mistakenly pays a bank cheque previously countermanded by its customer: Justin Seward Pty Ltd v Commissioners of Rural and Industries Bank (1980) 1 SR (WA) 272.

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Stale cheques [24.850] A stale cheque is a cheque which appears on the face of it to have been in circulation for more than 15 months: Cheques Act 1986 (Cth), s 3(5). The drawee bank or other institution may refuse payment of a stale cheque. The drawee institution is not to refuse payment of a stale cheque if it is directed by the drawer to pay the cheque: conversely, if the drawer directs the drawee bank or other institution not to pay the cheque after it becomes stale, it must refuse payment of the cheque: s 89.

Payment via the post [24.860] The posting of a cheque which is lost before it reaches the creditor does not amount to payment unless the creditor requested the debtor to pay in that manner. Where the creditor does request payment via the mail then the creditor will run the risk of the cheque being lost or stolen, so that where, for example, the cheque is intercepted and fraudulently negotiated by a thief, the creditor cannot require the debtor to pay again: Australian Mutual Provident Society v Derham (1979) 25 ACTR 3.

Lost or destroyed cheques [24.870] Where a cheque is lost or destroyed and the cheque at the time of its loss or destruction had not been presented for payment or discharged, a person who was the holder or lawful possessor of the cheque at the time of its loss or destruction may request the drawer by notice in writing to give them a replacement cheque to the same tenor as the original cheque. The written notice given to the drawer must contain sufficient particulars to enable the drawer to identify the lost or destroyed cheque. The drawer may require indemnity from the holder. If indemnity is sought, the drawer must issue a replacement cheque within 14 days of receipt of the indemnity. If no indemnity is sought, then the replacement cheque must be issued within 14 days of receipt of the holder’s notice: Cheques Act 1986 (Cth), s 115. Where an action or proceeding is brought in a court on a cheque that has been lost or destroyed, the court may order that the loss or destruction of the cheque not be set up on such terms and conditions as the court considers just and equitable: s 116.

Special provisions relating to FCA institutions [24.880] The Cheques Act 1986 (Cth) contains special provisions for what are referred to as “FCA institutions” that present and collect cheques and have agency relations with banks. An “FCA institution” is defined as a body which is a registered entity under the Financial Sector (Collection of Data) Act 2001 (Cth) and is prescribed for the purposes of this definition: Cheques Act 1986 (Cth), s 3(1). A registered entity is defined under the Financial Sector (Collection of Data) Act 2001 (Cth), s 5(3) as a corporation whose name is entered in the Register of Entities kept by the Australian Prudential Regulatory Authority. Examples of registered entities include building societies, friendly societies and credit unions.

Cheques to be presented promptly [24.890] A duty is imposed on FCA institutions to ensure that cheques lodged for collection by holders are duly presented for payment as soon as is reasonably practicable. If an FCA institution fails to fulfil this duty, it is liable for any loss suffered in consequence by the holder: rules are set down to determine whether there has been a breach of the duty: Cheques Act 1986 (Cth), s 97.

chapter 24 Negotiable Instruments II: Cheques

Protection when collecting cheques [24.900] An FCA institution which accepts cheques for deposit to their members’ accounts could be liable to an action in conversion by the true owner should the person paying in a cheque have no right to it. Accordingly, FCA institutions have been given a statutory defence to conversion in similar terms to that given to collecting institutions under s 95 of the Cheques Act 1986 (Cth), discussed earlier at [24.710]: s 98. Section 98 provides: (1)

Where – (a)

(b)

a non-bank financial institution, in good faith and without negligence – (i)

receives payment of a cheque for a customer; or

(ii)

receives payment of a cheque and, before or after receiving payment, credits a customer’s account with the sum ordered to be paid by the cheque; and

the customer has no title, or has a defective title, to the cheque, the non-bank financial institution does not incur any liability to the true owner by reason only of having received payment of the cheque.

To be able to rely on the defence in s 98, the non-bank financial institution must be able to establish that it acted “without negligence”. A case where a building society was unable to establish that it had acted “without negligence” and therefore was unable to rely on the section in an action of conversion by the drawer of a cheque is Voss v Suncorp-Metway Ltd (No 2) [2004] 1 Qd R 214. The facts of the case were as follows:

case [24.910] On 22 May 1996 the appellant V, who was a farmer, went to the office of his accountant R for advice about investing the proceeds of the sale of his farm. R fraudulently obtained from V a cheque for $600,000 payable to “Southern Pacific Equities Unit Trust”. A unit trust of that name did not exist at the time. The following day, R caused a solicitor to execute a purported trust deed in the name of “Southern Pacific Equities Unit Trust”, under which R was both the trustee and sole beneficiary of the trust. On the same day, 23 May 1996, R successfully applied to the respondent S, which was then a building society, to open an account, of which he was the sole signatory, in the name of the trust; deposited the cheque into the account; and made from it withdrawals totalling $594,850 for the benefit of himself or his wife. In the course of the opening of the account S Ltd’s branch manager obtained a copy of the purported trust deed. The Queensland Court of Appeal held that in the circumstances S Ltd ought to have been put upon inquiry as to whether the cheque was intended by its true owner V to be paid into an account, opened after the cheque was drawn, in the name of the entity which came into existence only after the cheque was drawn, but of which R had sole control and in which he had sole beneficial interest and from which R almost immediately withdrew the amount of the cheque deposited. The court said that any such inquiry would have clearly indicated that R was not the intended beneficial owner of the cheque. Accordingly, S Ltd failed to prove that it was not negligent and thus had no defence under s 98(1) of the Cheques Act 1986 (Cth) and therefore was liable to V, the drawer of the cheque, for the amount for which the cheque was drawn: Voss v Suncorp-Metway Ltd (No 2) [2004] 1 Qd R 214. [24.915] On the other hand, where the drawer of a cheque, D, is induced by the fraud of a third party, T, to draw a cheque in favour of a payee, P, and D hands the cheque to T for delivery to P, then P will acquire a good title to the cheque provided that P took the cheque in good faith and for value without notice of the

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fraud of T. The payee, P, in such circumstances will not be liable in an action for conversion by the drawer, D: Perpetual Trustees Australia Ltd v Heperu Pty Ltd (2009) 76 NSWLR 195.

Agency cheques [24.920] An agency cheque is a cheque issued by an FCA institution drawn on the latter but showing the name of a bank on the cheque to indicate that there is an agency relationship between the bank and the FCA institution. The Cheques Act 1986 (Cth) contains provisions effecting a transfer of legal liability as regards holders or indorsers of the cheque away from the FCA institution (as drawer) to the customer where the customer is authorised to sign the cheque. Furthermore, the customer of the FCA institution is given the same rights on the cheque against the FCA institution analogous with those available to drawers against banks: s 100.

Financial Transaction Reports Act 1988 [24.930] The purpose of the Financial Transaction Reports Act 1988 (Cth) is to assist in the detection of tax evasion and other criminal activity such as corporate crime and the “laundering” of money obtained from drug trafficking and organised crime by: (a)

requiring the reporting of certain “cash transactions” by banks and other financial institutions, and

(b)

requiring adequate identification of persons opening bank accounts. 5

Reporting cash transactions [24.940] The Financial Transaction Reports Act 1988 (Cth) imposes an obligation on “cash dealers” and the general public to report certain “cash transactions” to the Australian Transaction Reports and Analysis Centre (AUSTRAC). “Cash dealers” are defined to include financial institutions (that is, banks, building societies and credit unions), certain other money dealers, for example securities and bullion dealers, and also gambling institutions such as TABs, casinos and bookmakers: s 3. “Cash dealers” are required to report all significant cash transactions (that is, a cash transaction of $10,000 and above) and suspect transactions. A “suspect transaction” is a transaction of any kind and amount where the cash dealer has reasonable grounds to suspect that the transaction involves tax evasion or some offence against a law of the Commonwealth or may assist in an investigation relating to the Proceeds of Crime Act 1987 (Cth): Financial Transaction Reports Act 1988 (Cth), s 16. It is an offence for a person to conduct transactions with a cash dealer so as to avoid the reporting requirements, for example, by breaking up a large transaction which would require reporting into a number of smaller transactions each of which is individually under the prescribed limit and therefore not liable to be reported: Financial Transaction Reports Act 1988 (Cth), s 31. The Act also places obligations for reporting on the general public and cash carriers where amounts of $10,000 or more in Australian currency or foreign currency are taken into or out of Australia: s 15. Furthermore, details of certain “international funds transfer instructions” (IFTIs) are required to be reported (s 17B): these are defined as “an instruction for a transfer of funds that is transmitted into or out of Australia electronically or by telegraph”: s 3. 5

Supplementary legislation has been enacted in a number of States: Financial Transaction Reports Act 1992 (NSW); Financial Transaction Reports Act 1992 (Qld); Financial Transactions Reports (State Provisions) Act 1992 (SA); Financial Transaction Reports Act 1995 (WA); Financial Transaction Reports Act 1993 (Tas); Financial Transaction Reports Act 1992 (NT).

chapter 24 Negotiable Instruments II: Cheques

Identification on opening accounts [24.950] The Financial Transaction Reports Act 1988 (Cth) makes it an offence to open or operate an account with a cash dealer in a false name: s 24. The Act contains requirements to be followed for the identification of a person opening a new account or for a change of signatory on an existing account with a cash dealer. A new customer is to provide sufficient identification to facilitate the proper opening of an account. Alternatively, the bank is required to carry out certain identification and verification procedures: ss 18 – 22. For a person to effectively identify themselves, such person has to provide a reference. The referee needs to have known the person for a period of at least 12 months and be one of a category of acceptable referees (for example, a medical practitioner, full time teacher with over five years’ service, a dentist or a veterinary surgeon, etc). The referee is to sign a statement that they have known the signatory for the period specified (which must be at least 12 months), that the signatory has been commonly known by the name and that the referee has examined certain identification documents (for example, has sighted a birth certificate, a citizenship certificate or a passport): s 21. Where a person is not identified in this way then an alternative procedure is provided whereby the bank may complete the identification and verification procedure: s 20A. This is done by a points system under which various modes of identification are accorded various points: an aggregate score of not less than 100 points must be achieved. A birth certificate, passport or citizenship certificate carries 70 points but only one document of this class may be used. Other items are rated at 40 points including, for example, a driver’s licence and certain identification cards provided they contain a signature and/or photograph. Other forms of identification such as a verified entry in the telephone directory, credit cards and passbooks are rated at 25 points. The Financial Transaction Reports Act 1988 protects a “cash dealer”, such as a bank, and its staff against legal action in relation to the reporting process by removing the possibility of a damages claim for breach of customer confidentiality in complying with the Act, or in respect of a mistaken belief that particular action was required by the Act. It is also provided that the bank should not inform the customer that a suspect transaction report relating to them is being filed: s 16. One of the effects of the statutory provisions will be to prevent the type of fraud illustrated by Cary v Rural Bank of New South Wales (1967) 2 DCR (NSW) 49 discussed at [24.760]. That is, where a fraudulent person managed to obtain possession of a cheque payable to a particular payee, opened an account by pretending that they were the named payee, and then obtained the proceeds of the cheque when it had been collected by the bank and credited to the account. Such ploys sometimes succeeded because the bank was negligent in not properly checking or verifying the true identity of the proposed customer on opening the account. The Financial Transaction Reports Act 1988 requires the retention of account-opening documentation for a period of seven years after the date on which the account is closed for the purpose of providing evidentiary material in relation to criminal investigations: s 23.

Financial sector reform legislation [24.960] Under the financial sector reform legislative scheme the Australian Prudential Regulation Authority (APRA) is the national prudential regulator of the Australian financial system. Authorised deposit taking institutions, insurers and superannuation funds are prudentially regulated by APRA. Responsibility for the prudential regulation of building societies, credit unions and friendly societies has

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been transferred to the Commonwealth, with APRA undertaking this regulatory function. To give effect to this scheme the Commonwealth and each State and Territory have enacted complementary legislation. 6

Financial Ombudsman Service [24.970] Where the customer of a bank is unable to resolve a complaint with her or his bank or via the bank’s internal dispute resolution procedures, the customer may seek the assistance of the Financial Ombudsman Service (FOS). The FOS came into effect from 1 January 2010. It is an independent organisation offering free dispute resolution services to the customers of financial services providers including banks. The FOS will endeavour to resolve the dispute by negotiation and/or conciliation.

Code of Banking Practice [24.980] The Australian Bankers’ Association issued the Code of Banking Practice in 1993. The original Code has been extensively revised in subsequent years and a new version, the 2013 Code of Banking Practice, was published in January 2013 and commenced on 1 February 2014. 7 The 2013 Code applies to both individuals and small business customers of those retail banks which have adopted the Code. Each retail bank subscribing to the Code is contractually bound and obliged to adhere to the minimum standards of good banking practice as set out in the Code. A breach of the Code will generally constitute a breach of contract between the bank and its customer. For example, a majority of the Court of Appeal of Victoria recently rejected the appellant bank’s claim for nearly $4million under five guarantees signed by the respondent businessman because of the bank’s breach of contractual warranties under the Code by failing to give the guarantor “a prominent notice that [he] should seek independent legal and financial advice on the effect of [each guarantee]”: National Australia Bank Ltd v Rose [2016] VSCA 169 at [104] per Warren CJ and McLeish JA. By contrast, a month earlier, similar defences based on breaches of the Code raised by the defendant guarantor were rejected by the Supreme Court of Victoria in the particular circumstances: Commonwealth Bank of Australia v Wood [2016] VSC 264. The obligations under the Code are additional to compliance with Australian consumer laws and any other rights a customer may have under other laws including the National Credit Code (see Chapter 19). The Code applies to all banking services including: disclosure of fees and charges and other terms and conditions; changes to terms and conditions and fees and charges; disclosure of general information about banking services; privacy and confidentiality; statements of account; copies of documents; direct debits; chargebacks on credit cards; guarantees; debt collection; financial hardship; provisions for dealing with customers in remote indigenous communities; complaints handling and dispute resolution. A Code Compliance Monitoring Committee (CCMC) investigates complaints of possible breaches of the Code.

6

7

Financial Sector Reform (Amendments and Transitional Provisions) Act 1998; Financial Sector Reform (Consequential Amendments) Act 1998 (Cth); NSW, Financial Sector Reform (New South Wales) Act 1999 (NSW); Financial Sector Reform (Victoria) Act 1999 (Vic); Financial Sector Reform (Queensland) Act 1999 (Qld); Financial Sector Reform (South Australia) Act 1999 (SA); Acts Amendment and Repeal (Financial Sector Reform) Act 1999 (WA); Financial Sector Reform (Tasmania) Act 1999 (Tas); Financial Sector Reform (ACT) Act 1999 (ACT); Financial Sector Reform (Northern Territory) Act 1999 (NT). See generally, NJ Howell, “Revisiting the Australian Code of Banking Practice: Is self-regulation still relevant for improving consumer protection standards?” (2015) 38 UNSW Law Journal 544.

chapter 24 Negotiable Instruments II: Cheques

Further reading S McCracken, J Bird, J Stumbles and GJ Tolhurst, Everett and McCracken's Banking and Financial Institutions Law (8th ed, Thomson Reuters, Sydney, 2013). AL Tyree, Banking Law in Australia (8th ed, LexisNexis Butterworths, Sydney, 2014). G Burton SC et al, The Law Relating to Banker and Customer in Australia (subscription service, Thomson Reuters).

Internet sites Australian Bankers' Association Inc http://www.bankers.asn.au Financial Ombudsman Service http://www.fos.org.au (information on complaints procedure) Australian Prudential Regulatory Authority http://www.apra.gov.au

Journal Journal of Banking and Finance Law and Practice

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Insurance [25.30] Formation of a contract of insurance .................................................................................................... 627 [25.70] Basic concepts of insurance law ............................................................................................................. 627 [25.440] The policy and its terms............................................................................................................................ 642 [25.920] Insurance agents and brokers............................................................................................................... 659 [25.1080] Particular classes of insurance ......................................................................................................... 665 [25.1230] Insurance complaints and codes of practice .............................................................................. 672

Introduction [25.10] The essential basis of insurance is that one person, known as the insurer, agrees with another (the insured) that in the event of certain specified risks occurring, the insurer will compensate the insured for the loss he or she sustains. In return, the insured agrees to pay a sum of money called the premium. The basic principle underlying most insurance contracts is that of indemnity, that is, the insurer agrees to pay the amount of the insured's actual loss up to the amount covered by the insurance policy. For example, property insurance is invariably a contract of indemnity since the basic principle is that the insured must not recover more than a full indemnity, that is, recover more than the full amount of the loss, since an anticipated profit might tempt the insured to bring about the event insured against. However, there are a number of important exceptions to the principle of indemnity. Thus, contracts of life insurance and most personal accident or sickness policies are not indemnity contracts. This is because the insurer's liability or obligation is to pay the sums specified in the policy on the death, accident or sickness of the insured, that is, the sum agreed upon is payable on the specified event occurring and is not necessarily related to the actual loss suffered by the insured. Many of the basic principles of insurance law, such as those relating to non-disclosure and misrepresentation discussed at [25.120]–[25.420], were developed by the courts over many years in deciding particular cases. However, in more recent times a considerable body of both Commonwealth and State legislation has been enacted regulating particular types of insurance contract and modifying to a greater or lesser extent the earlier common law principles. Of particular importance is the Insurance Contracts Act 1984 (Cth) which effected a number of significant changes to the basic principles of insurance law to those contracts to which it applies. 1 This Act followed major recommendations for the reform of insurance law made by the Australian Law Reform Commission. 2 1 2

M Kirby, “Australian Insurance Contract Law: Out of the Chaos: A Modern, Just and Proportionate Reforming Statute” (2011) 22 Insurance Law Journal 1. Insurance Contracts, ALRC Report No 20, 1982.

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The following discussion of the general principles of insurance law incorporates the principal changes made to the Insurance Contracts Act 1984 (Cth) by the Insurance Contracts Amendment Act 2013 (Cth). Significant amendments made by the latter Act, for example, to the disclosure provisions and the remedies for non-disclosure and misrepresentation only apply to contracts of insurance entered into or renewed after 28 December 2015. [25.20] Definition of insurance contract A contract of insurance is a contract by which one party, called the insurer, in consideration of a sum of money called the premium, undertakes to pay to another person called the insured, a sum of money, or its equivalent, on the happening of a specified event. Basically, every contract of insurance, whatever its nature, provides for the payment of money, or its equivalent by the doing of some act (for example, rebuilding a house which has been burnt down), by the insurer on the happening of a specified event. Such event must involve some element of uncertainty, that is, there must be some uncertainty as to whether the event will happen at all, or if the event is one which is bound to happen, as in the case of life insurance payable on death, there must be uncertainty as to the time it will happen.

chapter 25 Insurance

Formation of a contract of insurance [25.30] Generally speaking, the normal rules of the law of contract such as those relating to capacity, offer and acceptance apply to insurance contracts. In fact, offer and acceptance in insurance law tend to be more formalised than in the case of many other forms of contract.

The proposal form [25.40] It is usual for the person intending to take out insurance (referred to as the proposer or proponent) to fill out a form called a proposal form which contains a series of questions intended to provide sufficient information to enable the insurer to assess the nature of the risk. The completed proposal form constitutes the offer by the proposer to enter into a contract of insurance. The contract of insurance is normally made when the insurer accepts the offer, though the terms of the contract may provide that the contract is not to be regarded as complete until payment of the premium or the issue of the formal policy.

The policy [25.50] The policy is the document which embodies the terms of the contract as agreed upon by the insured and the insurer. Many of the standard conditions normally contained in a company’s policy are not in fact discussed between the parties and, in the absence of evidence to the contrary, it will be assumed that the conditions which have been agreed upon are those which appear in the company’s policies. The policy is the document which contains the formal agreement by the insurer to compensate the insured (as the proposer is now called) for losses arising from the risks insured against. It names the parties to the contract, identifies the subject matter, details the risks insured against and the circumstances in which compensation will be paid, and describes the things which the insured must do or refrain from doing in order to maintain the contract. The policy, in other words, is the formal statement of the terms and conditions of the insurance contract between the parties.

Cover notes [25.60] A cover note is an interim contract of insurance which generally provides immediate temporary protection to the person proposing to insure until completion and acceptance of the proposal. For example, where a person wishes to insure property immediately against fire, the insurance company may cover the proponent by means of a cover note while the procedures for completion of the formal contract of insurance are being carried out. It is usually issued for a short period up to a month and is binding on the company for the period stated, unless notice of cancellation is given prior to the expiry date. Since a cover note is a contract of insurance, the ordinary incidents which apply to the formation of such contracts, including the duty of the insured to disclose all material facts to the insurer, apply to the cover note: see “Duty of disclosure”, [25.120].

Basic concepts of insurance law [25.70] Many of the basic concepts of insurance law were developed by the courts over the centuries in deciding particular cases. However, as explained in the introduction at [25.10], a number of these common law principles have been modified in their application to certain categories of insurance by legislation.

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The most significant piece of legislation in recent years which has effected important changes to the basic principles of insurance law in respect of those contracts to which it applies is the Insurance Contracts Act 1984 (Cth), and it is necessary to be aware of the scope of application of that Act.

Application of the Insurance Contracts Act 1984 [25.80] The Insurance Contracts Act 1984 (Cth) is not intended to be a complete code of insurance law but rather deals with certain (albeit very important) aspects of it and is superimposed on the existing law. Accordingly, except to the extent that the Act either expressly or by implication limits their operation, the existing principles of common law and equity, as well as State and Commonwealth legislation, continue to apply to insurance contracts: s 7. The Act does not apply to contracts of reinsurance, private health insurance, marine insurance, workers’ compensation, or compulsory third party motor vehicle insurance: 3 s 9. An insurer cannot contract out of the Act to the prejudice of an insured and any provision purporting to exclude, restrict or modify the operation of the Act is void: s 52. The basic principles of insurance law which must now be considered are: (a)

insurable interest;

(b)

duty of good faith;

(c)

duty of disclosure; and

(d)

misrepresentation.

Insurable interest [25.90] Formerly, for a contract of insurance to be valid at common law the insured had to have what was called an insurable interest, that is, some legal or equitable interest, in the subject matter of the insurance. Without such interest the contract could not be enforced, that is, the insured could not recover under the contract on the occurrence of the risk or event insured against. However, in most cases of general insurance (that is, insurance other than life insurance), the Insurance Contracts Act 1984 (Cth) dispenses with the common law rule requiring an insured to hold an insurable interest before being entitled to benefit under an insurance policy. It provides that a contract of general insurance is not void by reason only that the insured did not have an interest in the subject matter of the contract at the time the contract was entered into: s 16. Furthermore, where an insured has suffered a pecuniary or economic loss as a result of the property insured being damaged or destroyed, the insurer is not relieved of liability because of the insured’s lack of a legal or equitable interest in the property at the time of the loss: s 17.

Life insurance [25.100] In the case of life insurance, the Insurance Contracts Act 1984 (Cth) provides that a contract of life insurance, or a contract that provides for the payment of money on the death of a person by sickness or accident, is not void by reason only that the insured did not have an interest in the subject matter of the contract at the time the contract was entered into: s 18(1).

3

These particular categories of insurance are dealt with separately by Commonwealth and State legislation.

chapter 25 Insurance

Duty of good faith [25.110] The Insurance Contracts Act 1984 (Cth) recognises the basic common law principle that an insurance contract is a contract of the utmost good faith. It provides that in every insurance contract there is an implied term requiring each party to act with the utmost good faith towards the other in respect of any matter arising under or in relation to the contract: s 13(1). A failure by a party to a contract of insurance to comply with the duty of utmost good faith is a breach of the requirements of the Act: s 13(2). The High Court has stated that the concept of “utmost good faith” is not limited to circumstances involving dishonesty: CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1 at [15], [257]. In the latter case, it was further stated that: “In particular, we accept that utmost good faith may require an insurer to act with due regard to the legitimate interests of an insured, as well as to its own interests. The classic example of an insured’s obligation of utmost good faith is a requirement of full disclosure to an insurer, that is to say, a requirement to pay regard to the legitimate interests of the insurer. Conversely, an insurer’s statutory obligation to act with utmost good faith may require an insurer to act, consistently with commercial standards of decency and fairness, with due regard to the interests of the insured. Such an obligation may well affect the conduct of an insurer in making a timely response to a claim for indemnity”: at [15] per Gleeson CJ and Crennan J. It has been held that prompt admission of liability to meet a sound claim for indemnity and prompt payment is required of an insurer by virtue of its obligation to act with the utmost good faith towards the insured. Breach of such obligation will entitle the insured to damages for the loss suffered: Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145. The duty of utmost good faith has been held to extend, in certain circumstances, to an obligation to bring to an insured’s notice the consequences of a breach of a term of the contract. For example, the failure to notify the insurer that it was intended to affix “mag” wheels to the car insured may entitle the insurer to avoid liability to pay a claim: Australian Associated Motor Insurers Ltd v Ellis (1990) 54 SASR 61. Where reliance on a provision of the contract would be to fail to act with the utmost good faith, such provision may not be relied on: s 14(1). The Australian Securities and Investments Commission (ASIC) may exercise its powers under the Corporations Act 2001 (Cth) if an insurer fails to comply with the duty of the utmost good faith in the handling or settlement of a claim under the insurance contract: s 14A. 4

Duty of disclosure [25.120] The Insurance Contracts Act 1984 (Cth) requires a person intending to take out insurance to disclose to the insurance company any matters known to the insured to be relevant to the insurance. More specifically, s 21 provides that: (1)

4

Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: (a)

the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b)

a reasonable person in the circumstances could be expected to know to be a matter so relevant having regard to factors including, but not limited to:

See FG Hawke, “Consequences for an insurer of failure to act with utmost good faith” (2016) 27 Insurance Law Journal 229; B McGivern, “Coming to the Party: The Evolution of Post-Contractual Duties of Utmost Good Faith Under the ICA” (2013) 24 Insurance Law Journal 159.

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(i)

the nature and extent of the insurance cover to be provided under the relevant contract of insurance; and

(ii)

the class of persons who would ordinarily be expected to apply for insurance cover of that kind.

Since the duty is to disclose certain matters before the contract of insurance is entered into, it is essentially concerned with matters which should have been disclosed by the insured to the insurer in the negotiations leading up to the contract of insurance. Section 21(1) requires the insured to disclose matters known to the insured which: (a) the insured knows to be relevant to the insurer; or (b) a reasonable person could be expected to know to be relevant. In the majority judgment of the High Court in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514, it was said that: “The word ‘knows’ is a strong word. It means considerably more than ‘believes’ or ‘suspects’ or even ‘strongly suspects’”: at [30]. The majority added that to satisfy s 21(1)(a) the matter to be disclosed must not only be a matter that is “relevant to the decision of the insurer whether to accept the risk and, if so, on what terms”, but also one that the insured knows to be relevant. The duty of the insured under s 21(1)(a) is to disclose what the insured knows is “a matter relevant to the decision of the insurer whether to accept the risk”. The majority of the High Court in Permanent Trustee (above) held that this phrase required disclosure only of a matter which has a bearing on the nature and extent of the risk involved, as opposed to disclosing matters relevant to the insurer’s decision whether or not to enter into or renew the contract of insurance which might include matters extraneous to a strict assessment of the risk and include matters of a purely commercial or emotional nature. The significance of this issue can be more clearly seen in the facts of the Permanent Trustee case:

case [25.130] In Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514, the appellant, Permanent, had entered into a multi-layered professional indemnity insurance cover with a number of insurers. The insurance was intended to provide indemnity in respect of possible claims for professional negligence against Permanent by its clients. FAI was one of a number of insurers that provided cover. In the 1991/92 year, Permanent decided to obtain quotations for professional indemnity insurance cover from insurers other than FAI. Permanent had in mind that if the quotations from other insurers were satisfactory, FAI would not be invited to participate in Permanent’s professional indemnity insurance arrangements for that year. Permanent retained S as its broker (intermediary) to obtain the cover. The leading insurer (Lloyds) wanted to obtain certain further information before deciding whether to renew the professional indemnity insurance with Permanent. This was likely to cause some delay so it was decided to seek a month’s extension of cover under the existing policy. In late September 1991, S asked FAI to extend its cover for a month. FAI agreed to the extension in the belief that it would be invited to quote for participation in the renewal of Permanent’s insurance. During the extension period, Permanent became aware of circumstances which subsequently gave rise to a claim against it. Permanent notified FAI of these circumstances and, when legal proceedings

chapter 25 Insurance

were commenced against Permanent, Permanent sought indemnity from their insurers, including FAI. The proceedings against Permanent were settled but FAI refused to meet its share of the money payable on the settlement. Permanent brought proceedings against FAI claiming that FAI was obliged to indemnify it. At first instance, the trial judge found that had FAI known that it would not be invited to participate in the renewal of the insurance, it would not have provided the one month extension. Accordingly, the trial judge held that the failure by S to inform FAI of the proposed renewal of the insurance elsewhere was a breach by the insured of its duty of disclosure under s 21(1) of the Insurance Contracts Act 1984 (Cth) and therefore FAI was not liable to indemnify Permanent. This decision was upheld by the NSW Court of Appeal. The High Court by a bare majority (3:2) allowed Permanent’s appeal. The majority held that the provisional decision of Permanent not to approach FAI for renewal of cover (if quotations from the other insurers proved satisfactory) was not a matter relevant to the decision of FAI in agreeing to an extension of the existing cover within the meaning of s 21(1) since it was not a matter relevant to the risk, that is, the particular insurance hazard involved. Therefore, Permanent was not bound to disclose the matter to FAI when negotiating the extension of insurance. Accordingly, there was no breach of the duty of disclosure by Permanent under s 21(1) and FAI was ordered to pay nearly $212,000 under the insurance contract. [25.140] Prior to the decision in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514, it was considered that matters required to be disclosed under the duty of disclosure in s 21(1) of the Insurance Contracts Act 1984 (Cth) were matters known either to the insured personally, or to a relevant agent of the insured: Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673. However, that position is currently in doubt in view of the comment by the majority of the High Court in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514 that the knowledge referred to in s 21(1): “… is the knowledge of the insured, and not of any insurance intermediary, a term defined by the Act and clearly embracing an agent … This is at least to suggest that the reference to the insured is intended to be a reference to the insured personally and not to its agent or broker. However, it is not essential to our reasons to determine this point”: at [30] [emphasis added]. It is clear that the duty of disclosure under s 21 does not extend to any matter unknown to the insured:

case [25.150] The respondent insured owned a building which comprised nine units used as business premises. The appellant insurer agreed to provide interim insurance (that is, a cover note) for the building. Unknown to the insured, the tenants in one of the units stored inflammable materials that were used to make up nail polish and similar substances. The day after the interim insurance was provided, a fire occurred in the unit which gutted that unit and damaged adjoining parts of the building. The insurer refused to pay the insured’s claim for the loss. In the subsequent legal proceedings the insurer argued that the fact that the unit contained inflammable materials should have been disclosed to it.

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However, the Queensland Court of Appeal dismissed the insurer’s appeal against the first instance decision that the insurer was liable to indemnify the insured for the loss. The court held that the duty of disclosure in s 21(1) of the Insurance Contracts Act 1984 (Cth) did not extend to any matter unknown to the insured. Further, the language of the section did not suggest an intention to extend to matters which should have been known by the insured but were not in fact known. Accordingly, there was no duty on the insured under s 21 to disclose the presence of the inflammable liquids of which it was unaware: Midaz Pty Ltd v Peters McCarthy Insurance Brokers Pty Ltd [1999] 1 Qd R 279.

Disclosure of prior criminal or dishonest conduct [25.160] It has been held that the duty of disclosure under s 21 of the Insurance Contracts Act 1984 (Cth) extends to the “moral hazard”, that is to matters concerning the honesty and integrity of the insured including disclosure of criminal or dishonest conduct known to the insured even though there has been no conviction or charge made in respect of such conduct: Naomi Marble and Granite Pty Ltd v FAI General Insurance Co Ltd [1999] 1 Qd R 507; see also Twenty-first Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1990] VR 919 discussed at [25.270]. However, while it is still probable that, for example prior criminal convictions will still be regarded as relevant to the insurer’s assessment of the risk in determining whether to enter into an insurance contract and therefore would need to be disclosed by the insured, an element of doubt has been introduced by the majority judgment in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514 at [36] where the point was expressly left undecided.

Matters not required to be disclosed [25.170] The insured is not required to disclose matter that: (a)

diminishes the risk;

(b)

is of common knowledge;

(c)

the insurer knows, or in the ordinary course of its business as an insurer ought to know; or

(d)

as to which compliance with the duty of disclosure is waived by the insurer.

An insurer will be deemed to have waived compliance if, in response to a question in the proposal form, the insured failed to answer the question, or gave an obviously incomplete or irrelevant answer to it: Insurance Contracts Act 1984 (Cth), s 21(2), (3).

Insurer to inform insured of duty of disclosure [25.180] The insurer must, before a contract of insurance is entered into, clearly inform the insured in writing of the general nature and effect of the duty of disclosure and that the duty applies until the proposed contract is entered into: Insurance Contracts Act 1984 (Cth), ss 22(1)(a), (d). An insurer who has not complied with this information requirement may not exercise a right in respect of a failure to comply with the duty of disclosure, unless the failure was fraudulent: Insurance Contracts Act 1984 (Cth), s 22(5). In some circumstances there may be a considerable time between the date of application for an insurance policy and the date the policy comes into effect. If the insurer proposes to enter into a contract of insurance more than two months after the insured person’s most recent disclosure, then the insurer must give to the insured a reminder notice stating that the duty of disclosure applies until the proposed contract is entered into. If the insurer does not do so, then the insurer may not exercise a right in respect of a failure to comply with any new matter relating to the contract, unless the failure was fraudulent: Insurance Contracts Act 1984 (Cth), ss 22(3), (6).

chapter 25 Insurance

Duty of disclosure extends to change in circumstances prior to renewal of contract [25.200] The insured is under a duty to disclose any change in circumstances that increases the risk insured against prior to each renewal of the insurance contract: Insurance Contracts Act 1984 (Cth), ss 21(1) and 11(9).

case [25.210] During the initial contract of insurance the use of business premises changed from the retail selling of water beds to include their manufacture, which increased the storage of flammable materials on the premises. This alteration in use was not disclosed to the insurer prior to renewal of the insurance contract by the insured. The premises were damaged by fire and a claim made under the insurance contract. The High Court held that there had been a non-disclosure by the insured to which the remedies provided to the insurer by s 28(3) of the Insurance Contracts Act 1984 (Cth) applied (see [25.240]): Alexander Stenhouse Ltd v Austcan Investments Pty Ltd (1993) 67 ALJR 421.

Statutory limitations on an insured's duty of disclosure in respect of an “eligible contract of insurance” [25.220] Section 21A of the Insurance Contracts Act 1984 (Cth) modifies the insured’s obligation of disclosure in respect of certain types of insurance contract, referred to as “eligible contracts of insurance”, that provide cover commonly sought by consumers. The Insurance Contracts Regulations 1985 (Cth), reg 2B specifies that the following insurance contracts are “eligible contracts of insurance”: motor vehicle insurance; home buildings insurance; home contents insurance; sickness and accident insurance; consumer credit insurance and travel insurance. Broadly, s 21A of the Insurance Contracts Act 1984 (Cth) is designed to improve the capacity of an insured to comply with the duty of disclosure by requiring an insurer to ask specific questions regarding the information which the insurer needs to assess the risk in respect of a proposed contract of insurance, in default of which the insurer is deemed to have waived the duty of disclosure. The section provides that before the contract is entered into, the insurer may request the insured to answer one or more specific questions that are relevant to the decision of the insurer whether to accept the risk and, if so, on what terms. If the insurer does not make such a request, the insurer is taken to have waived compliance with the duty of disclosure: s 21A(1) – (3). If the insurer makes a request in relation to any other matter outside the specific questions that would be covered by the duty of disclosure, the insured is taken to have waived compliance with the duty of disclosure in relation to that other matter: s 21A(4). If the insurer asks one or more specific questions and the insured in response to those questions discloses each matter that is known to the insured and a reasonable person in the circumstances should be expected to have disclosed in answer to that question, then the insured is taken to have complied with the duty of disclosure in relation to the contract: s 21A(5). A seperate provision, s 21B applies to the renewal of an eligible contract of insurance. The section requires an insurer wishing to rely on the insured’s duty of disclosure on renewal of an eligible contract to: (a) ask the insured specific questions, just as the insurer may on the original entering into of the contract; and/or (b) provide the insured, prior to renewing the contract with a copy of any matters previously disclosed by the insured in relation to the contract, and request the insured to disclose any changes to those

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matters or to indicate if there are no such changes: s 21B(3). If the insurer does neither of those things, then the insurer is taken to have waived compliance with the duty of disclosure in relation to the renewed contract: s 21B(4). Asking “open-ended” or “catch all” questions covering other matters in addition to asking specific questions and/or seeking updates to information previously disclosed will result in waiver of compliance with the duty of disclosure with respect to the other matters: s 21B(5) – (6). An insured is taken to have complied with the duty of disclosure if they disclose, in response to each specific question, matter that is known to the insured and a reasonable person could be expected to have disclosed and/or any changes to matters previously disclosed: s 21B(7) – (11).

Remedies for non-disclosure General insurance [25.240] Innocent non-disclosure: Where the insured’s failure to disclose was innocent, the insurer is not entitled (at least directly) to avoid the contract. However, the liability of the insurer for a claim in such a case is reduced to the amount that would place the insurer in the same position as it would have been had the non-disclosure not occurred: Insurance Contracts Act 1984 (Cth), s 28(1), (3). For example, if the insurer would have charged a higher premium had the non-disclosure not occurred, it would be entitled to reduce the claim by the amount of the additional premium. Where an insurer can show that it would not have entered into the contract at all had it known of the non-disclosure (or misrepresentation) then its liability under the contract will be reduced to nil under s 28(3), which in effect enables the insurer to indirectly avoid the contract. 5 Thus, an insurer’s liability under an interim contract of insurance (that is, a cover note) for loss occasioned by a fire on the insured premises was reduced to nil where there had been a failure to disclose that part of the premises was being used as a brothel and the insurer established that it would not have entered into the insurance contract had it been aware of the true situation: Lindsay v CIC Insurance Ltd (1989) 16 NSWLR 673. On the interpretation of s 28(3), it was said in the latter case: “The intention is to put the insurer in the position it would have been in if the relevant disclosure had, in truth, been made. If, in those circumstances, the insurer would not have accepted the policy, then the only way in which the insurer can be restored to the position that it would have been in is by reducing the payment required to be made under the policy to nil. That is because the damage suffered by the insurer is the total amount of the claim made against it”: at 687 per Rogers CJ.

case [25.250] The plaintiff company owned and operated a brothel in the ACT. The brothel’s premises were insured in 2010 for fire and business interruption under a policy with the defendant insurer which was renewed in September 2011. On 1 January 2012, a fire not only damaged the premises but resulted in the brothel ceasing to trade. The defendant insurer denied liability on the plaintiff company’s claim for $500,000 on the grounds of the plaintiff’s non-disclosure of firstly, that both the sole director and manager of the plaintiff company were members of the Comancheros bikie gang and secondly, that the brothel’s registration under the Prostitution Act 1992 (ACT) had lapsed by the time of the renewal of the policy in 2011. The New South Wales Supreme Court held that the plaintiff company was in breach of its duty of disclosure under s 21(1) of the Insurance Contracts Act 1984 (Cth) in respect of each of the 5

See generally, J Tarr, “Insurance contract disclosure – an uncertain balance” (2015) 26 Insurance Law Journal 109.

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non-disclosures which the plaintiff company knew, or a reasonable person in the circumstances would have known, were relevant to the defendant insurer’s decision whether to accept the risk of insuring the premises originally or in renewing the policy. Since the defendant insurer established that it would not have entered into or renewed the policy had it been aware of the true situation in respect of either non-disclosure, its liability was reduced to nil under s 28(3) Stealth Enterprises Pty Ltd v Calliden Insurance Ltd (2015) 300 FLR 81. [25.260] Fraudulent non-disclosure: The Insurance Contracts Act 1984 (Cth) provides that in the case of a fraudulent breach of the duty to disclose, the insurer may avoid the contract: s 28(2). Alternatively, the insurer may reduce its liability in respect of a claim to the amount that would place it in the position in which it would have been if the breach had not occurred: s 28(3). The deliberate withholding of information of the kind required to be disclosed under s 21(1) would constitute fraudulent non-disclosure (for example, the deliberate failure to disclose previous insurance claims and the unusually high number of burglaries on the premises which had not been claimed): Burns v MMI-CMI Insurance Ltd (1994) 8 ANZ Insurance Cases 61-228. The court has power to disregard avoidance of a contract by an insurer as a result of a fraudulent non-disclosure when it would be harsh and unfair not to do so, and allow the insured to recover the whole, or such part as the court thinks just and equitable, of the amount that would have been payable if the contract had not been avoided: s 31.

case [25.270] The directors of the plaintiff company were a husband and wife who ran a gift shop. Insurance was taken out in the name of the company, through an insurance broker, with the defendant insurer, M Ltd. A fire occurred on the premises but M Ltd rejected the plaintiff’s claim because of non-disclosure that the husband had a criminal record for being knowingly involved in importing and possessing a large quantity of cannabis. The proposal form did not contain any questions as to prior convictions but the husband had previously entered into insurance contracts where the proposals had contained questions about prior criminal convictions. It was held in the Supreme Court of Victoria that the husband’s criminal record was relevant to M Ltd and if it had been disclosed M Ltd would not have accepted the proposal. The husband knew that the criminal conviction was relevant to the insurer within s 21 of the Insurance Contracts Act 1984 (Cth) and such state of mind could be attributed to the plaintiff company in the circumstances. Furthermore the non-disclosure was “fraudulent” within the meaning of s 28(2) and therefore M Ltd was entitled to avoid the insurance contract: Twenty-first Maylux Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [1990] VR 919.

Liability of co-insureds [25.280] Where two or more persons enter into an insurance contract in respect of the same subject matter (that is, are co-insureds), the High Court has held that the duty of disclosure applies to each of the co-insureds and hence even if only one of the co-insureds has been responsible for a fraudulent non-disclosure (or misrepresentation) the insurer will be able to avoid the contract of insurance under the

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Insurance Contracts Act 1984 (Cth), s 28(2): Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606. The facts of that case were as follows:

case [25.290] In Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606, the respondent husband and wife completed a proposal form for household contents insurance. The proposal form asked: “[Q4.] Have you ever had any: … (e) claim rejected? [Q5.] Are there any other facts relating to the risks to be insured or the persons making this application which should be disclosed to enable a true assessment of the application to be made before acceptance?” The respondents answered these questions in the negative. The appellant insurer accepted the proposal and issued an insurance policy covering the contents of the house for $30,000. Shortly afterwards the respondent’s home was burgled and a fire started whereupon they made a claim in excess of $25,000. The appellant insurer rejected the claim for non-disclosure and misrepresentation in the proposal form. The reason was that the husband had been a partner in a business that had suffered a fire six years earlier, the claim rejected and subsequent litigation settled with the husband receiving one-half of the proceeds of the settlement. The High Court held that the appellant insurer was not liable. The court held that s 21 of the Insurance Contracts Act 1984 (Cth) imposes a duty on each person who becomes insured to disclose a material matter to the insurer. Therefore it was logical to read s 28(1) as referring to a failure of one co-insured to disclose, even though the other co-insured is not guilty of such failure. It followed that a reference in s 28(2) to a failure that “was fraudulent” referred to a fraudulent failure on the part of one co-insured, so that the insurer was entitled to avoid a contract of insurance where there had been a fraudulent non-disclosure or misrepresentation by only one of a number of co-insureds.

Life insurance [25.300] Where the non-disclosure does not relate to the age of the life insured, the position is as follows: 1.

Where the insurer would have entered into the policy even if the insured had made full disclosure, the insurer will have no remedy: Insurance Contracts Act 1984 (Cth), s 29(1).

2.

If the failure to disclose was fraudulent the insurer may avoid the policy: s 29(2).

case [25.310] Between the time of submitting a written proposal for life insurance and its acceptance by the insurer, an insured was informed by her doctor that she was suffering from a serious illness. She failed to pass on this information to the insurer. When she subsequently died from the illness, it was held that the insurer was entitled to avoid the contract when her executors claimed the sum payable under the policy: Summerton v SGIC Life Ltd (1999) 10 ANZ Insurance Cases 90-102. 3.

In a case of an innocent non-disclosure, if the insurer would not have entered into the contract on any basis if the duty of disclosure had been complied with, the insurer may avoid the policy within three years after the policy was entered into: Insurance Contracts Act 1984 (Cth), s 29(3).

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4.

If the insurer has not avoided the contract under s 29(2) or (3) (see 2. and 3. above), the insurer may, by notice in writing given to the insured before the expiration of three years after the contract was entered into, vary the sum insured in accordance with a formula prescribed in s 29(4) of the Act.

[25.320] The court’s power to disregard avoidance of a contract of insurance by the insurer as a result of a fraudulent non-disclosure, discussed in relation to general insurance at [25.260], also applies to contracts of life insurance: s 31. Where the date of birth of the life insured under a contract of life insurance was not correctly stated (whether innocently or fraudulently) at the time the contract was entered into, the insurer will adjust the sum insured or reduce the premium payable to the figure calculated according to the standard formula set out in the Act: s 30. Alternatively, an insurer may vary the contract by changing its expiration date to a date calculated on the basis of the correct date of birth: s 30(3A).

Misrepresentation [25.330] Prior to the Insurance Contracts Act 1984 (Cth) the misrepresentation of a material fact by the insured during the negotiations leading to the contract of insurance entitled the insurer at common law to avoid liability under the contract, whether such misrepresentation was made innocently or fraudulently. The Act makes important changes to the common law principles as to avoidance of a contract for misrepresentation. It provides that a statement is not to be treated as a misrepresentation unless the insured knew, or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the insurer’s decision whether to accept the risk and, if so, on what terms: s 26(2). Furthermore, the statement will not be treated as a misrepresentation, even though it is untrue, where it was made on the basis of a belief held by the insured, being a belief which would have been held by a reasonable person in the circumstances: s 26(1). The onus of proving the application of s 26(1) lies on the insured because it depends on establishing the insured’s belief, while the onus of proving s 26(2) lies on the insurer: Plasteel Windows Australia Pty Ltd v CE Heath Underwriting Agencies Pty Ltd (1990) 19 NSWLR 400. The question of whether there has been a misrepresentation most frequently arises in relation to the answers given by the applicant to questions asked in the proposal form. A person will not be held to have made a misrepresentation simply because they failed to answer a question or gave an obviously incomplete or irrelevant answer to a question in the proposal form: s 27. Where a question is ambiguous, then if a reasonable person in the circumstances would have understood it to mean what the person actually answering it apparently understood it to mean, the question is deemed to have that meaning: s 23.

Effect of the Act on “basis of the contract” clauses [25.340] Formerly, it was common practice for a person who wanted to arrange insurance to sign a declaration at the foot of the proposal form warranting that the answers given to the questions in the proposal were in every respect true and correct, and agreeing that the proposal and declaration would be the “basis of the contract” between the intending insured and the insurance company. Briefly, the practical effect of such a provision was that the insurer was entitled to avoid liability under the policy should any of the answers given be untrue, irrespective of the materiality of the misstatement: Yorkville Nominees Pty Ltd v Lissenden (1986) 160 CLR 476 at 480. However, the Insurance Contracts Act 1984 (Cth) has effectively negated the effect of such clauses by providing that a statement made in or in connection with a contract of insurance regarding the existence of

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a state of affairs does not take effect as a warranty but has effect as though it was a statement made by the insured during the negotiations for the contract but before it was entered into: s 24. That is, it will take effect as a misrepresentation and accordingly be subject to the Act’s provisions and remedies relating to such.

Remedies for misrepresentation General insurance [25.350] Innocent misrepresentation: The remedies for misrepresentation under the Insurance Contracts Act 1984 (Cth) are the same as those discussed earlier in the context of non-disclosure to which reference should be made: see [25.250]. In the case of general insurance, where the misrepresentation was made innocently, the insurer is not entitled (at least directly) to avoid the contract. However, the liability of the insurer for a claim in such a case is reduced to the amount that would place the insurer in the same position as it would have been had the misrepresentation not been made: s 28(1), (3). As in the case of non-disclosure, where an insurer can show that it would not have entered into the contract at all had it known the true situation, then its liability under the contract will be reduced to nil under s 28(3), which in effect enables the insurer to indirectly avoid the contract.

case [25.360] C, an agent of the respondent, completed a cover note on behalf of himself and the respondent, the main purpose of which was to insure with Z Ltd, the applicant insurer, furniture that C was to transport to Adelaide. Two days later the truck containing the furniture was taken from outside a motel. Subsequently, the truck was recovered but the furniture was missing. Z Ltd rejected the claim for the loss because C had answered “No” to the following questions: “[Q9.4] Is there any additional information or detail of which you are aware and which may assist the company to assess the nature of the risks better? [Q9.5] Have you or to the best of your knowledge has any other person with an insurable interest in the property or risk proposed to be insured, ever been convicted of an offence relating to the theft of property or money or fraud?” In fact C had been convicted of seven offences of larceny, unlawful possession and deception arising out of five separate court appearances. No fraud on the part of C was established on the evidence. It was held by the Supreme Court of Victoria that the insurer, Z Ltd, was not liable to pay the claim under s 28(3) of the Insurance Contracts Act 1984 (Cth) since it had satisfied the court that if the misrepresentation had not been made it would have declined the risk. The learned judge said that s 28(3): “can assist an insurer who can prove that it would not have entered into the contract at all. In my view, the correct construction of s 28(3) is that, although it presumes the existence of the policy and the insurer’s liability under it, it offers an indirect means in an appropriate case of avoiding the policy in the event of innocent misrepresentation or non-disclosure by reducing the liability to nil, being the position the insurer would have been in if there had not been a misrepresentation”: Zurich Australian Insurance Ltd v Contour Mobel Pty Ltd [1991] 2 VR 146 at 151 per Gobbo J.

case

[25.370] The respondent insurer issued a trade credit insurance policy in favour of the appellant insured. In broad terms, the policy insured the appellant against the insolvency of one of its major customers. The customer became insolvent during the currency of the policy. It was held that the

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respondent insurer was entitled to reduce its liability to nil under s 28(3) of the Insurance Contracts Act 1984 (Cth) for non-fraudulent misrepresentation/non-disclosure. The Court found, on the balance of probabilities, that if the appellant insured had given truthful and complete answers in the proposal form concerning certain credit arrangements between the appellant insured and the customer, the respondent insurer would not have issued the policy: Prepaid Services Pty Ltd v Atradius Credit Insurance NV (2014) 18 ANZ Insurance Cases 62-047; [2014] NSWCA 440.

case [25.375] Similarly, an insurer was held not liable under s 28(3) of the Insurance Contracts Act 1984 (Cth) to pay a claim in respect of the extensive damage caused by fire to a shopping arcade described in the proposal as being of a “brick/iron” construction, when in fact two of the walls were brick but the other two were made of wood with an iron roof. The evidence was that in the particular circumstances the insurer would have declined to insure the building had it been aware that two of the walls were of timber construction: Orb Holdings Pty Ltd v Lombard Insurance Co (Aust) Ltd [1995] 2 Qd R 51. [25.380] Fraudulent misrepresentation: The Insurance Contracts Act 1984 (Cth) provides that in the case of a fraudulent misrepresentation the insurer may avoid the contract: s 28(2). Alternatively, the insurer may reduce its liability in respect of a claim to the amount that would place it in the position in which it would have been if the misrepresentation had not been made: s 28(3). The court has power to disregard avoidance of a contract by an insurer as a result of a fraudulent misrepresentation when it would be harsh and unfair not to do so, and allow the insured to recover the whole, or such part as the court thinks just and equitable, of the amount that would have been payable if the contract had not been avoided: s 31. The latter section was applied by the court to prevent an insurer from avoiding liability under a comprehensive car insurance policy where the insured had fraudulently misrepresented the price he had paid for a second-hand motor vehicle which was subsequently stolen: Von Braun v Australian Associated Motor Insurers Ltd (1999) 10 ANZ Insurance Cases 61-419. The statutory remedies for misrepresentation were also considered in the following case:

case [25.390] An insurance broking firm in completing a proposal form for professional indemnity insurance with the respondent underwriters had answered “No” in reply to the question: “Is it the practice of your Firm to sign proposals on behalf of your clients?” The New South Wales Court of Appeal held that in the circumstances the answer constituted a fraudulent misrepresentation since the directors of the broking firm knew of the firm’s practice of signing proposals on behalf of clients and knew that such a practice was relevant to the risk being undertaken. There was also held to be a fraudulent non-disclosure of the firm’s practice in this respect. Accordingly, the respondent underwriters were held entitled to avoid the policy under s 28(2) of the Insurance Contracts Act 1984 (Cth). Furthermore, the court refused to “disregard the avoidance” under s 31 since, inter alia, the respondent underwriters had been prejudiced by the fraudulent misrepresentation and non-disclosure: Plasteel Windows Australia Pty Ltd v CE Heath Underwriting Agencies Pty Ltd (1990) 19 NSWLR 400.

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[25.400] Life insurance: The remedies for misrepresentation by an insured in respect of life insurance are the same as those discussed earlier in relation to non-disclosure and life insurance: see [25.300]–[25.320]. In particular, if the misrepresentation was fraudulent, the insurer may avoid the policy: Insurance Contracts Act 1984 (Cth), s 29(2). Further, if the misrepresentation was innocent but the insurer would not have been prepared to enter into the contract on any terms had the misrepresentation not been made (that is, had the insurer been aware of the true situation), the insurer may avoid the contract within three years: s 29(3). An example of the application of these provisions is Australian Mutual Provident Society v Lose (1997) 9 ANZ Insurance Cases 61-381:

case [25.410] The appellant insurer issued a term life insurance policy to the respondent, Mrs Lose, in April 1988 on the life of her husband for $51,838. Mr Lose died some eight months later from an accidental head injury and Mrs Lose claimed under the policy. One of the questions in the proposal form asked: “During the LAST FIVE YEARS have you – (a) had any medical examination or treatment … or been in hospital?” Mr Lose had ticked “No” in answer to this question. In fact, he had been admitted to hospital some months earlier following an epileptic fit and discharged the next day. A further question asked: “Have you EVER had any of the following … epilepsy, fainting attacks, or fits of any kind?” The insurance agent had ticked “No” against this question. The New South Wales Court of Appeal considered that the answers in the proposal form constituted misrepresentations which the insured or a reasonable person would know to be relevant to the insurer under s 26(2) of the Insurance Contracts Act 1984 (Cth). This was particularly so since some weeks earlier, another insurer had decided not to accept an application for life insurance when Mr Lose’s epileptic fit had been disclosed. The court held that the insurer was entitled to avoid the policy under s 29(3) on the basis that the insurer would not have been prepared to enter into the contract on any terms if the misrepresentations had not been made: Australian Mutual Provident Society v Lose (1997) 9 ANZ Insurance Cases 61-381. [25.420] Where an insurer pays a benefit under a policy and subsequently discovers that the insured was guilty of fraudulent non-disclosure and/or fraudulent misrepresentation at the time of applying for insurance, the insurer is entitled (subject to the court’s discretion to disregard the avoidance of the contract under s 31 of the Insurance Contracts Act 1984 (Cth)) to recover the benefit paid from the insured as a mistake of fact: Tyndall Life Insurance Co Ltd v Chisholm (2000) 11 ANZ Insurance Cases 90-104. However, as pointed out at [25.400], if the misrepresentation was not made fraudulently, the insurer must elect to avoid the contract within three years after the contract was entered into: s 29(3). If the insurer fails to do so, it will no longer be able to avoid the contract: Herbohn v NZI Life Ltd (1998) 10 ANZ Insurance Cases 61-410.

“Bundled” life insurance, sickness and accident policies [25.425] Contracts of life insurance often “bundle” different types of protection against more than one type of insurable event resulting from death, sickness or accident in the one contract. Any misrepresentation or non-disclosure that affects one aspect of the insurance cover may not be relevant to the other. Formerly, the remedies currently available to an insurer, such as avoidance or variation had to be applied to the contract as a whole. This limitation was not appropriate in relation to “non-traditional” life cover such as disability or income protection insurance (which provides for regular sums to be paid while an insured person is unable to work owing to sickness or injury).

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To deal with this situation s 27A of the Insurance Contracts Act 1984 (Cth) (as amended by the Insurance Contracts Amendment Act 2013(Cth)) allows a contract of life insurance that offers different types of protection against more than one type of insurable event resulting from death, sickness or accident to be “unbundled”, that is, each type of cover is to be treated as if they are separate contracts of life insurance. Therefore, if a contract contains cover in respect of death and cover in respect of total and permanent disability, the remedies for misrepresentation or non-disclosure would apply to each type of cover, separately, as required. All life insurance contracts continue to be subject to the remedies for non-disclosure and misrepresentation in s 29 of the Insurance Contracts Act 1984 (Cth). However, different remedies may be available under s 29 depending on the types of cover provided in respect of each separate contract of life insurance that is taken to exist. What may be termed “traditional” life insurance contracts, that is, a contract with a surrender value or which provides insurance cover in respect of the death of a life insured are not affected by the amendments to s 29. Therefore, an insurer will still be able to avoid a contract for fraudulent non-disclosure or misrepresentation under s 29(2); avoid the contract for non-fraudulent non-disclosure or misrepresentation within the first three years (s 29(3)); or alternatively, vary the contract by substituting for the sum insured an amount worked out under the formula in s 29(4), provided the insurer provides notice in writing to the insured before the expiration of three years after the contract was entered into (s 29(10)). If a contract does not have a surrender value or does not provide cover in respect of the death of the life insured (that is, the life policy is a “non-traditional” life policy), the further remedies available to the insurer for the non-disclosure or misrepresentation are that:  the insurer may vary the contract at any time in accordance with the statutory formula in s 29(4);  if the insurer does not avoid the contract, or has not varied the contract in accordance with the statutory formula in s 29(4), the insurer may vary the contract to place the insurer in a position that the insurer would have been in if the duty of disclosure had been complied with or the misrepresentation had not been made. The ability to vary the contract in this way is only available if the varied position of the insurer is not inconsistent with the position in which other reasonable and prudent insurers would have been in respect to similar contracts of insurance: s 29(6) – (8).

Cover notes [25.430] Since a cover note is a contract of insurance, the ordinary incidents which apply during the formation of such contract, including the duty of the insured to disclose all relevant facts to the insurer, apply to the cover note. Under the Insurance Contracts Act 1984 (Cth) an insurer cannot rely on a term in an interim contract of insurance (including a cover note) that the insurer’s liability is dependent upon the submission to, or the acceptance by, the insurer of a proposal for a contract of insurance intended to replace that interim contract; such term is void: s 38(1). Furthermore, where an insured has submitted a proposal to the insurer for a contract to replace the interim cover which has not yet expired, the insurer will remain liable under that interim contract until: (a)

the insured enters into another contract of insurance intended to replace the interim contract (either with that insurer or another insurer);

(b)

the cover note is cancelled; or

(c)

the insured withdraws the proposal, whichever is the earliest: s 38(2).

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A number of the Act’s provisions requiring the insurer to give the insured certain information before the contract is entered into do not apply in relation to interim contracts of insurance: s 38. 6 However, the insurer is still required to inform the insured in writing of their duty of disclosure (under s 22) as in the case of other contracts of insurance.

The policy and its terms [25.440] The policy contains the terms and conditions of the insurance contract between the insurer and the insured. More particularly, it details the risks insured against and sets out the circumstances in which compensation will be paid. It also describes the things which the insured must do or refrain from doing to maintain the contract. There have been numerous cases concerning the construction of particular clauses and phrases used in insurance policies since the interpretation of such will often determine the liability or otherwise of the insurer. The general position is that: “A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure”: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22] per Gleeson CJ.

Terms construed contra proferentum [25.450] In the case of ambiguity, the courts will generally construe terms in the policy contra proferentum, that is, against the insurer who is responsible for their drafting.

case [25.460] The plaintiff was a confectionery manufacturer. On the floor of its premises was a stock of Easter eggs stored in cartons stacked on pallets. The floor was a sloping wooden floor containing depressions in which water could collect. As a result of heavy rain, water banked up against the factory doors and percolated onto the floor. Most of the rainwater ran away but some remained in the depressions under the pallets. Damage was caused to the confectionery when the rainwater evaporated and the resultant water vapour permeated the cellophane in which the Easter eggs were wrapped. The plaintiff claimed an indemnity in respect of its loss from the defendant insurer under a stock in trade policy. The policy covered “destruction of or damage to the property insured caused by or as the direct consequence of – … (b) storm and/or tempest and/or rainwater but excluding destruction or damage caused directly or indirectly by: (i) flood” (emphasis added). The insurer denied liability contending that the phrase “caused by” should be read in its present context as meaning “directly caused by” and the damage to the stock was not caused directly by the rainwater but only indirectly owing to the intervention of evaporation. The New South Wales Court of Appeal rejected the insurer’s argument: Manufacturers’ Mutual Insurance Ltd v Stargift Pty Ltd (1984) 3 ANZ Insurance Cases 60-615. Kirby P said: “As this provision appears in a printed insurance policy proffered by the insurer to the insured, it must, in the case of ambiguity, be read in favour of the insured. There is ambiguity 6

The information provisions which do not apply to interim insurance are those concerning: non-provision of standard cover (Insurance Contracts Act 1984 (Cth), s 35); unusual terms (s 37); certain contracts of liability insurance (s 40); average provisions (s 44); and contracts affecting the insurer’s rights of subrogation: s 68.

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in the terms of the policy because the words ‘caused by’ have been used and it is conceded that, standing alone, they would cover the events that occurred. It is suggested that those words should be read as ‘directly caused by’. A suggestion by the insurer which had the full means at its disposal adequately to protect itself that the Court should add the word ‘directly’, where the insurer failed to do so, is a suggestion which runs headlong into the contra proferentum rule”: at 78,762-3. The court also rejected the insurer’s further contention that the damage fell within the exception which excluded damage by flood. Accordingly, the insurer was held liable to indemnify the plaintiff against its loss. [25.470] A further example of the approach of the courts to the construction of insurance policies is the decision of the New South Wales Court of Appeal in Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390:

case [25.480] The plaintiff had purchased certain jewellery as an investment. He decided to deposit the jewellery at his bank while he and his wife were overseas. After placing the jewellery in a calico bag he put it, together with a radio he was taking for repair, on the back seat of his car. He drove to a shopping centre where the bank was situated arriving a few minutes before it opened. The plaintiff parked his car in a side street, covered the bag and the radio with a beach towel and locked the car. After transacting certain business he returned, unlocked the car and drove to the radio repairer’s shop. When he arrived there, he felt for the radio but found that, although the towel appeared to be in place, both the radio and the calico bag containing the jewellery were missing. He immediately drove to the local police station to report the theft. On examining the car, the police found that the driver’s door had been opened by the use of a wire. The thief had apparently locked the car as he left. The plaintiff claimed under a multi-risks insurance policy issued by the defendant insurer under which the jewellery had been insured for $30,800. A condition of the policy provided: “You are to take all reasonable precautions to avoid or minimise injury, loss or damage.” The insurer denied liability, arguing that the plaintiff had not taken all reasonable precautions to avoid the loss. It was held that the insurer was liable to indemnify the plaintiff against his loss. The court said it was well settled that in policies indemnifying an insured against liability to third persons the words “all reasonable precautions” had to be read down to give effect to the commercial purpose of the contract, namely, to indemnify the insured against liability for his personal negligence. The words in the present policy should be construed in the same manner. This required the insured to avoid acting recklessly: that is, he had to take such steps to protect the jewellery as were reasonable having regard to dangers which he recognised. On the evidence, the insured had taken all reasonable steps to avoid loss: Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390. [25.490] The decision of the High Court in Johnson v American Home Assurance Company (1998) 192 CLR 266 provides a useful contrast:

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case [25.500] The appellant insured had taken out an injury and sickness insurance policy with the respondent insurer. The policy insured the appellant against certain events, including injury resulting in “permanent total loss of use of one limb”. The sum payable on that event was $500,000. Subsequently, the appellant suffered a severe injury to his right foot in an accident while camping. The injury was so severe that consideration was given to amputating the foot. Some months after the accident, the appellant gradually became able to stand and walk on both legs without crutches but both standing and walking were usually accompanied by considerable pain. However, with the aid of an insert in his shoe to support his foot he was able, for limited periods, to walk and stand. When the insured made a claim on the policy the respondent insurer denied liability, contending that there had not been a permanent total loss of use of one limb. The appellant insured’s action against the insurance company failed in the Western Australia Supreme Court and Full Supreme Court. On appeal to the High Court, the appellant argued that the question of whether he had suffered a permanent total loss of the use of his foot should be considered without regard to the use of the insert in his shoe, that is, he was entitled to have the liability of the insurer assessed by regard only to the condition of his foot as such. However, a majority of the High Court dismissed the insured’s appeal and held that the insured had not suffered a “permanent total loss of use” of his foot within the meaning of the policy and therefore the insurer was not liable under the policy: Johnson v American Home Assurance Company (1998) 192 CLR 266.

Exclusion clauses [25.510] The policy may contain exception or exclusion clauses which qualify the general risk covered by the policy, for example exclude the liability of the insurer for damage caused by certain specified causes, or where the subject of the insurance is in a certain physical state. The High Court has said that: “It is well accepted that the insurer must prove that a loss falls within an exception”: Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444 at [25].

case [25.520] An exclusion clause in a comprehensive motor vehicle insurance policy excluded liability where the vehicle “is being used whilst in an unsafe condition”. The insurer rejected liability to indemnify the insured in respect of an accident under this exclusion because it was alleged that the tyres were so worn down or smooth as to be unsafe for use. However, it was held that although the tyres would have been unsafe in wet conditions, they were safe in the particular circumstances of the accident which occurred on a dry road and hence the insurer could not avoid liability: Bashtannyk v New India Assurance Co Ltd [1968] VR 573. [25.530] Other common exclusions in the case of comprehensive car insurance are that the policy is invalid if the vehicle is being driven by an unlicensed driver, or if the driver has more than a specified percentage of alcohol in their blood, or is driving while intoxicated, or where the vehicle is being used for particular business purposes or for hire or reward without prior disclosure to the insurer. House insurance policies usually contain a number of significant exclusions such as where the house is left unoccupied for more than a certain number of days or let to tenants without the insurer having previously consented in writing. An insured cannot recover where he or she has intentionally caused the loss or the event insured

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against; it is presumed as a matter of construction of the policy that the insurer has not agreed to cover an intended loss: Beresford v Royal Insurance Co Ltd [1938] AC 586 at 595; Fire and All Risks Insurance Co Ltd v Powell [1966] VR 513 at 518-519. Insurance policies often contain an exclusion in respect of “deliberate or intentional acts” or “wilful or deliberate acts” by the insured.

case [25.540] The appellant and her husband had jointly owned a car and a house which were insured against fire. The husband committed suicide by igniting petrol fumes in the car while it was parked in the carport of the house. The fire destroyed the car, damaged the carport and spread to the house through the air-conditioning system. The appellant’s claim was rejected by the insurer which relied on an exclusion clause in the policy excluding “loss or damage caused by the deliberate or intentional acts committed by you”. It was held by the South Australian Full Supreme Court that the exclusion clause did not apply since the deceased’s action could not be regarded as the deliberate or intentional causing of damage to the insured premises. However, it was further held that the insurer could rely on a further exclusion in respect of “loss, damage or liability arising from any unlawful act or omission by you”. The damage to the car by igniting the petrol fumes was a breach of the Criminal Law Consolidation Act 1935 (SA), s 85 and therefore an unlawful act. The damage to the premises arose directly out of the unlawful act of damaging the car. Consequently, the insurer was not liable to indemnify the appellant: Clayton v Mutual Community General Insurance Pty Ltd (1995) 64 SASR 353.

case [25.550] The appellant driver was liable for the damage occasioned to another vehicle as a result of his reckless driving and excessive speed. The vehicle driven by the appellant was the subject of a comprehensive motor vehicle policy of insurance. The insurer refused to indemnify the appellant relying on an exclusion in the policy which provided: “This policy does not cover loss, damage or liability caused by or arising from; (a) Your wilful or deliberate act.” It was held that to come within the exclusion clause there must have been a willed or deliberate act which caused or gave rise to the damage. It must have been something intended and meant. That is, there must have been an intention to drive into or against another vehicle. However, it had not been shown that the appellant had directed his will or deliberation to causing damage to another vehicle. Accordingly, the insured’s claim for indemnity against the insurer was upheld: Daniel v Accident Insurance Mutual Holdings (1996) 65 SASR 387.

case

[25.553] In a further example, a house and contents policy provided that if the home or contents suffered loss or damage caused by fire, the insurer would repair or replace the contents and repair or rebuild the part of the home that was damaged but would “NOT cover loss or damage as a result of fire started with the intention of causing damage by you or someone who lives in your home, or who has entered your home or site with your consent, or the consent of a person who lives in your home.” On the insured’s home and contents being severely damaged by fire, the insurer denied liability on the basis that the insured had not proven that the fire was not deliberately started. The New South Wales

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Court of Appeal held that it was the insurer that had the onus of establishing that the fire had been deliberately started and ordered the insurer to indemnify the insured for the loss suffered: McLennan v Insurance Australia Ltd (2014) 286 FLR 453. [25.554] The High Court has stressed the importance of construing an exclusion clause with the insurance policy as a whole, particularly in conjunction with the insuring clause:

case [25.555] The appellant seed merchant purchased seed represented to be Jarra grass seed. However, the seed was substantially contaminated with Summer grass seed, an inferior variety. The seed was onsold but crops grown from it yielded only the inferior Summer grass which graziers regarded as a weed. The Summer grass seed took hold on a particular property whose owners sued for the cost of eradicating the infestation and the loss of use of the land during that period. The landowners’ claim was settled. However, the respondents, the appellant’s insurers, refused to indemnify the appellant for the loss. The loss fell within the insuring clause in the product liability policy which provided the appellant with indemnity in respect of an event resulting in “property damage”. However, the respondent insurers relied on an exclusion clause which provided that the policy did not cover any liability arising from the “failure of any Product to correctly fulfil its intended use or function”. The High Court held that the exclusion clause did not apply since the appellant’s loss was not damage caused by the seed sown failing to fulfil its intended use or function (ie, to produce Jarra grass and seed) but for damage to the landowners’ property by the introduction of the weed, Summer grass. The appellant’s liability to the landowners was for what the seed did not what it failed to achieve: Selected Seeds Pty Ltd v QBEMM Pty Ltd (2010) 242 CLR 336.

Proximate cause of loss [25.560] On the occurrence of the event insured against, a claim will be made on the insurer in respect of the loss suffered by the insured. The onus is on the insured to establish that the loss is covered by the terms of the policy. It is only where the risk insured against was the “proximate” (that is, the direct, dominant or effective) cause of the loss that the insurer will be liable to indemnify the insured. Where the insurer relies on an exception or exclusion clause in the policy, the onus is on the insurer to establish that the loss in question fell within one of the exceptions in the policy. If there are two or more proximate causes of the loss, one of which arises from an insured peril and the other arises from an excepted peril, the insured is not entitled to recover: Petersen v Union des Assurances de Paris Aird (1995) 8 ANZ Insurance Cases 61-244.

Provisions of the Insurance Contracts Act 1984 [25.570] The Insurance Contracts Act 1984 (Cth) contains a number of important limitations on the right of an insurer to avoid liability for a claim on the ground of breach by the insured of a warranty or condition in the insurance policy.

Insurer may not refuse to pay claims in certain circumstances [25.580] Section 54 of the Insurance Contracts Act 1984 (Cth) deals with provisions in an insurance contract which entitle an insurer to refuse to pay a claim, either in whole or in part, because of some act or

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omission on the part of the insured after the contract was entered into. The effect of s 54(1) is that, provided the act or omission could not reasonably be regarded as being capable of causing or contributing to a loss in respect of which cover is provided, the insurer may not refuse to pay all or part of the claim by reason only of that act or omission. However, the insurer may reduce its liability by an amount that fairly represents the extent to which its interests were prejudiced as a result of the act or omission. 7 For example, if the insurer can show that it would have charged a higher premium in the circumstances had it been aware of the act or omission of the insured constituting a breach of the conditions of the policy, its liability will be reduced by the amount of the additional premium. Furthermore, the High Court has held that the prima facie liability of the insurer may be “reduced” to nil under s 54:

case [25.590] The appellant insured a mobile crane against loss or damage with the respondent insurer. At the time the policy was issued the crane was unregistered. Later the crane was registered so that it could be driven on public roads to another construction site. The insurer’s liability under the policy was conditional on it being notified of any material variation of the circumstances existing at the commencement of the policy. The appellant’s insurance broker failed to notify the insurer that the crane was to be registered. Some months later, the crane overturned and was damaged while working on a construction site. The appellant made a claim under the insurance policy but the respondent insurer denied liability. The High Court held that since there was cogent evidence that the respondent insurer would have cancelled the policy and “gone off the risk” of the crane overturning had it been notified that the crane had been registered, the insurer’s prima facie liability under s 54(1) of the Insurance Contracts Act 1984 (Cth) was reduced to nil: Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Pty Ltd (1993) 176 CLR 332; see similarly, Gibbs Holdings Pty Ltd v Mercantile Mutual Insurance (Australia) Ltd [2002] 1 Qd R 17. [25.600] The High Court has held that, if the insurer would not have gone “off risk” altogether, the prejudice suffered by the insurer is measured by reference to what would have happened (not what could or might have happened) if the act or omission had not occurred: Moltoni Corporation Pty Ltd v QBE Insurance Ltd (2001) 205 CLR 149 at [18]. The insurer may only reduce its liability under s 54(1) of the Insurance Contracts Act 1984 (Cth) if it had a right that it would have exercised but did not, causing prejudice measurable in monetary terms. If the insurer would not have exercised the right, the insurer has suffered no prejudice. A further example of the operation of s 54(1) is Australian Associated Motor Insurers Ltd v Ellis (1990) 54 SASR 61:

case [25.610] A car insurance policy provided under its “Conditions” that: “You must not make or cause to be made any conversion, alteration or modification of your car from its maker’s specifications without our written consent”. In breach of this condition, the insured fitted “mag” wheels to the vehicle. The insured’s daughter, aged 23, was involved in an accident while driving the vehicle. The accident was not attributable to the fitting of the “mag” wheels. 7

See N Wilson, “Section 54 of the Insurance Contracts Act 1984 (Cth) – A 30 year long haul” (2016) 41 Australian Bar Review 161; DJ Hickey, “The ‘first limb’ of s 54(1) of the Insurance Contracts Act 1984 (Cth)” (2015) 26 Insurance law Journal 132.

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It was held that the insurer’s liability would have been reduced to nil under s 54(1) of the Insurance Contracts Act 1984 (Cth) since the insurer established that, had it been notified of the insured’s intention to fit “mag” wheels, it would have imposed a condition excluding its liability while the car was being driven by a person under the age of 25. However, it was further held that the insurer had been in breach of the duty of utmost good faith in s 13 in not giving the insured sufficient notice of the consequences of modifying the vehicle and therefore the insurer could not avoid liability for the cost of repairing the vehicle: Australian Associated Motor Insurers Ltd v Ellis (1990) 54 SASR 61.

case [25.615] A recent application of s 54(1) of the Insurance Contracts Act 1984 (Cth) is Maxwell v Highway Hauliers Pty Ltd (2014) 252 CLR 590. The respondent haulier had entered into an insurance contract with the appellant insurer covering accidental damage to the respondent’s fleet of trucks and trailers transporting freight between Western Australia and the eastern States. The contract stated that the insurer would not provide an indemnity unless the drivers had achieved a minimum score on a “PAQS” test, a psychological testing of drivers’ attitudes towards safety. The haulier had submitted claims under the insurance contract for damage to two of its vehicles which the insurer refused to pay on the ground that the vehicles were driven by drivers who had not undertaken the required test. It was conceded by the insurer at trial that the fact that each vehicle had been operated by an untested driver could not reasonably be regarded as being capable of causing or contributing to any loss incurred by the respondent insured as a result of each accident, and that the insurer’s interests were not prejudiced as a result of the vehicles being operated at the time of the accidents by untested drivers. The Western Australia Court of Appeal held that the failure to satisfactorily complete the driver testing was an act or omission to which s 54(1) applied, with the consequence that the appellant insurer was obliged to indemnify the respondent insured. The High Court dismissed the insurer’s appeal. The appellant insurer contended that no indemnity was provided under the policy in respect of an accident which occurred when a vehicle was being operated by an untested driver and that the “claim” to which s 54(1) refers is limited to a claim for an insured risk. In rejecting the insurer’s argument, the High Court held that, the respondent insured having made claims in relation to accidents which occurred during the period of insurance, “it is sufficient to engage s 54(1) that the effect of the Policy is that the Insurers may refuse to pay those claims by reason only of acts which occurred after the contract was entered into”: at [27]. [25.620] The cases discussed at [25.590]–[25.615] concerned situations where the act or omission could not reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover was provided. Where the act or omission could reasonably be regarded as capable of causing or contributing to a loss, the insurer may refuse to pay the claim. However, in such a case the insurer may not refuse to pay the claim, or that part of the claim, which the insured proves was not caused by the act or omission: Insurance Contracts Act 1984 (Cth), s 54(2) – (4). An example of the operation of this provision given by the Australian Law Reform Commission in its report on Insurance Contracts on which the Insurance Contracts Act 1984 is based, is as follows:

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A motor vehicle policy contains a term by which the insured warrants that the vehicle will be maintained in a roadworthy condition. As a result of a brake failure, the vehicle, while being driven by the insured, collides with another vehicle. The driver of the other vehicle was 50 per cent to blame for the accident. The insured’s conduct in allowing the vehicle to become unroadworthy could reasonably be regarded as causing or contributing to the loss. The insured is able to prove that he was, at most, 50 per cent to blame for the accident. Hence the insurer is entitled to deduct only 50 per cent of the claim. If the vehicle was damaged while parked, the insured could recover the full amount of his loss: Insurance Contracts, ALRC Report No 20, 1982, p 290.

Application of s 54 to “claims made and notified” professional indemnity policies [25.630] Section 54 of the Insurance Contracts Act 1984 (Cth) has been applied to what are referred to as “claims made and notified” professional indemnity liability policies. These expressions require some explanation. A professional indemnity insurance policy indemnifies, as its name suggests, professional people such as accountants, lawyers, architects, engineers, directors of companies and real estate agents against liability arising from their negligent acts or omissions. Where the professional indemnity policy is expressed to provide indemnity in respect of claims made against the professional during the period of insurance, which is usually an annual policy (that is, subject to annual renewal), it is called a “claims made” policy. Other professional indemnity policies require, in addition, that the claim against the professional person be notified or reported to the insurer during the period of insurance. Such a policy is called a “claims made and notified” policy. An issue which arises in relation to such a policy is whether s 54(1) applies where the insured, that is, the professional person, has had a claim made against them during the term of the policy but failed to notify the insurer of the claim until after the expiry of the policy. In other words, does such failure to notify the insurer constitute an “omission” for the purposes of s 54(1)? If so, the effect is that the insurer could not simply refuse payment of a claim but would be limited to a remedy in damages for the prejudice it had suffered as a result of the insured’s failure to notify it of the claim during the period of the policy, which in many cases is likely to be minimal. The issue arose for determination in East End Real Estate Pty Ltd t/as City Living v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400:

case

[25.640] The appellant real estate agent had a “claims made and notified” policy of professional indemnity insurance. The cover provided by the policy was expressed to indemnify the insured against a claim for breach of professional duty which was made against the insured within the 12-month period of the policy and which was also notified to the insurer during this period. During the period of cover a claim for breach of professional duty was made against the appellant insured by a client. About six weeks after the insurance cover had expired a judgment was given in favour of the client against the insured who only then notified the respondent insurer of the claim and sought indemnity under the policy. The insured commenced proceedings against the insurer when the latter denied liability. The insured acknowledged that since the claim had not been notified to the insurer during the period of cover, the insurer would not be liable unless s 54(1) of the Insurance Contracts Act 1984 (Cth) applied. The NSW Court of Appeal held that s 54(1) of the Insurance Contracts Act 1984 applied to the omission of the appellant insured to notify the insurer during the period of cover of the claim which had been made against him during that period. The court rejected the insurer’s contention that s 54(1) did not apply in respect of acts or omissions which formed part of the risk insured as distinct from

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warranties, conditions and exclusions in the policy. In the court’s view, this was too narrow a construction of s 54(1) which should be given a liberal interpretation so that it applied, in accordance with the terms of the section, whenever “the effect” of the insurance contract was that, but for the section, the insurer could “refuse to pay a claim … by reason of some act [or omission] of the insured”: East End Real Estate Pty Ltd t/as City Living v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400. [25.650] It is not uncommon for a “claims made and notified” policy to further provide, in effect, that if the insured becomes aware during the period of insurance of any circumstances which may give rise to a claim against the insured (for example, because of the insured’s professional negligence), and the insured gives notice of such circumstances to the insurer during the period of the policy, the insurer will indemnify the insured in respect of a claim made against the insured after the expiry of the policy. The High Court has held that the failure of the insured to give notice to the insurer constitutes an “omission” under s 54 of the Insurance Contracts Act 1984 (Cth), the operation of which prevents the insurer from refusing to pay the claim: FAI General Insurance Company Limited v Australian Hospital Care Pty Ltd (2001) 204 CLR 641.

Pre-existing defects or disabilities [25.660] The Insurance Contracts Act 1984 (Cth) also deals with provisions in contracts of insurance that exclude or limit liability for loss that occurred as a result of defects or imperfections that existed in a thing before the contract was entered into. An insurer cannot rely on such a provision to the extent that the insured was not aware of, and a reasonable person in the circumstances could not be expected to have been aware of, the defect or imperfection: Insurance Contracts Act 1984 (Cth), s 46. The section is in line with the changes to the law relating to non-disclosure and misrepresentation that the insured should only be responsible for disclosing defects of which the insured knows or could reasonably be expected to know. Similarly, where a provision in the policy excludes or limits liability in respect of a loss that occurred as a result of a sickness or disability suffered by a person prior to entering into the contract, an insurer cannot rely on such a provision if the insured was not aware of, and a reasonable person in the circumstances could not be expected to have been aware of, the sickness or disability: s 47.

Standard cover [25.670] The Insurance Contracts Act 1984 (Cth) makes provision for standard cover to be given by certain categories of insurance contract: ss 34 – 36. The categories of insurance contract, the prescribed events and minimum cover are specified in the Insurance Contracts Regulations 1985 (Cth). The basic scheme of operation is that where an insured makes a claim under a “prescribed contract” (that is, a contract to which the standard cover provisions apply) and that claim is in respect of loss arising from the event prescribed in the Regulations, the insurer must pay the claimant the minimum amount specified in the Regulations. This is so even where the amount of the insurance cover provided by the contract is less than the minimum amount, or insurance cover is not provided by the contract at all. The categories of insurance subject to the standard cover provisions are motor vehicle (property damage), home buildings, home contents, sickness and accident, consumer credit and travel insurance. The insurer may still market non-standard policies but where it seeks to provide less than the minimum cover provided by the standard cover (for example, by excluding liability for loss caused by an earthquake) it will be required to prove that before the contract was entered into it clearly informed the insured in writing, or that the insured knew, or a reasonable person in the circumstances could be expected to have

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known, that the insured would be entitled to a lesser cover or no cover in respect of a particular event: s 35. For discussion of the standard cover for home buildings and home contents insurance, see [25.1100].

Notification of unusual terms [25.680] An insurer cannot rely on provisions of the policy which are of a kind not usually included in policies providing similar cover unless, before entering the contract, the insurer had clearly informed the insured in writing of the effect of the particular provisions: Insurance Contracts Act 1984 (Cth), s 37. The section only applies to insurance contracts to which the standard cover provisions discussed at [25.670] do not apply.

Fraudulent claims [25.690] Since an insurance contract is a contract of the utmost good faith, at common law an insurer was able to avoid the whole contract in the event of a fraudulent claim being made. The Insurance Contracts Act 1984 (Cth) provides that where a fraudulent claim is made, the insurer cannot avoid the contract but may refuse to pay the claim. However, the court has power to order an insurer to pay in respect of a fraudulent claim an amount that it assesses is “just and equitable in the circumstances” provided that only a “minimal or insignificant” part of the claim is made fraudulently and non-payment of the remainder of the claim would be “harsh and unfair”: s 56.

case [25.700] For example, where the insured had deliberately answered falsely questions in a claim form concerning the consumption of alcohol by the driver of an insured vehicle that was involved in an accident, it was held that the claim had been made fraudulently and the insurer was entitled to refuse payment. It was further held that it was not a case where only a minimal or insignificant part of the claim had been made fraudulently but in the circumstances “the fraud tainted the whole claim”: Gugliotti v Commercial Union Assurance Co of Australia (1992) 7 ANZ Insurance Cases 61-104 at 77,450 per Fullagar J. [25.710] If a person knowingly makes false statements believing that they have an invalid claim in order to mislead the insurer into believing that they have a valid claim, it makes no difference whether in fact the claim is valid or invalid. The claim is made dishonestly and therefore fraudulently within the meaning of s 56 of the Insurance Contracts Act 1984 (Cth) and the insurer may refuse payment of the claim: Tiep Thi To v Australian Associated Motor Insurers Ltd (2001) 3 VR 279; Sgro v Australian Associated Motor Insurers Ltd (2015) 299 FLR 92.

Arbitration provisions [25.720] Provisions requiring disputes to be referred to arbitration or limiting the insured’s rights to proceed under the contract by first requiring the insured to submit a dispute to arbitration are void. An agreement to submit a dispute to arbitration is valid if made after the dispute has arisen: Insurance Contracts Act 1984 (Cth), s 43.

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Third party beneficiaries General insurance [25.730] The Insurance Contracts Act 1984 (Cth) contains important provisions clarifying the rights of a third party who is intended to benefit under a contract of insurance between an insured and the insurer. The third party is referred to as a “third party beneficiary”, a term defined by the Act as meaning a person who is not a party to the contract but is specified or referred to in the contract, whether by name or otherwise, as a person to whom the benefit of the insurance cover provided by the contract extends: s 11(1). A third party beneficiary under a contract of general insurance has a right to recover from the insurer, in accordance with the contract, the amount of any loss they have suffered even though they are not a party to the contract: s 48(1). A third party beneficiary has, in relation to their claim, the same obligations to the insurer as they would have if they were the insured: s 48(2). The insurer has the same defences to an action by a third party beneficiary as the insurer would have in an action by the insured, including, but not limited to, defences relating to the conduct of the insured (whether the conduct occurred before or after the contract was entered into): s 48(3). For example, if there has been non-disclosure or misrepresentation by the insured, the insurer can rely on this as a defence to avoid liability under a claim by a third party beneficiary.

case [25.740] A policy of insurance for certain property noted the plaintiff bank as mortgagee of the property. The property was substantially damaged by fire. The insurer declined indemnity to the insured because of the latter’s non-disclosure. The insurer also declined indemnity to the bank in respect of its interest in the property as mortgagee. It was held that the insurer could rely on non-disclosure by the insured as a defence to the bank’s claim pursuant to s 48(3) of the Insurance Contracts Act 1984 (Cth): Commonwealth Bank of Australia v Baltica General Insurance Co Ltd (1992) 29 NSWLR 579. [25.750] Similarly, the New South Wales Court of Appeal in CE Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 approved obiter this approach to the interpretation of s 48(3) of the Insurance Contracts Act 1984 (Cth), namely, that a claim against an insurer under s 48(1) by a person not a party to the insurance contract could be resisted by the insurer under s 48(3) on the ground of the insured’s pre-contractual non-disclosure or misrepresentation. A further example of an insurer utilising s 48(3) to successfully resist a claim by a third party under s 48(1) by relying on a defence available to the insurer against the insured is General Motors Acceptance Corporation Australia v RACQ Insurance Ltd (2003) 12 ANZ Insurance Cases 61-574; [2003] QSC 80:

case [25.755] The plaintiff, GMAC, financed the insured’s purchase of a four-wheel drive that was insured with the defendant insurer, RACQ. GMAC’s interest in the vehicle was noted on the policy of insurance. Either the insured or someone at her direction deliberately destroyed the vehicle. The

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insured made a fraudulent claim in respect of the loss and consequently the insurer was not obliged to indemnify her. GMAC sought recovery of its loss under the policy, pursuant to s 48(1) of the Insurance Contracts Act 1984 (Cth). The Queensland Supreme Court rejected GMAC’s claim. In essence, the Court said that the policy provided cover only where the vehicle was being used in a prescribed manner. In particular, insurance cover was limited to “damage to your vehicle … caused by an accident”. Neither the insured nor any person whose interest was noted on the contract had a right to recover under it for non-accidental loss and damage or for damage caused when the vehicle was being used other than in a prescribed manner. It followed from the fact that the vehicle was destroyed deliberately by the insured, or by another at her behest, that the damage to the vehicle could not have occurred when it was being used in a prescribed manner and therefore the defendant insurer was not liable to indemnify either the insured or the third party financier: General Motors Acceptance Corporation Australia v RACQ Insurance Ltd (2003) 12 ANZ Insurance Cases 61-574; [2003] QSC 80. [25.760] The duty of the utmost good faith implied in a contract of insurance discussed earlier (see [25.110]) applies to a third party beneficiary under the contract (but only after the contract was entered into): Insurance Contracts Act 1984 (Cth), s 13(3), (4). The duty of disclosure in s 21 of the Insurance Contracts Act 1984 (Cth) does not apply to a person who is not a party to the insurance contract but who is entitled to recover the amount of their loss as a person to whom the insurance cover extends under s 48 (now referred to as a “third party beneficiary”): ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1 at [1643]. The Insurance Contracts Act 1984 (Cth), s 51 deals with the rights of third parties to recover directly against an insurer in circumstances where the insured under a contract of liability insurance is liable in damages to a third party. The section provides that, where an insured has died or cannot be found, the third party may bring an action against the insurer directly. For example, A died when the car he was driving collided with B’s truck. A was responsible for the collision. It was held that B was entitled to recover directly from A’s motor vehicle insurer for the damage to his truck: Murray’s Transport NSW Pty Ltd v CGU Insurance Ltd (2013) 118 SASR 11. Similarly, where the driver of a motor vehicle was killed when her vehicle was hit by a train on a level crossing, the respondent Rail Corporation recovered from the driver’s insurance company the loss caused by the extensive damage to its rolling stock as a result of the collision caused the deceased driver: Vero Insurance Ltd v Rail Corporation (NSW) (2013) 65 MVR 391; [2013] NSWCA 372. Section 51 was extended by the Insurance Contracts Amendment Act 2013 (Cth) so that it not only covers the liability of an insured but also the liability of a third party beneficiary.

Life insurance [25.765] The Insurance Contracts Act 1984 (Cth), s 48A applies to contracts of life insurance that are effected on the life of one person but expressed to be for the benefit of another person (a third party beneficiary). Broadly, the section ensures that a third party beneficiary who has a claim over money payable under the contract of life insurance may bring an action against the insurer in respect of the claim without the intervention of the policyholder. It further ensures that the third party beneficiary is capable of giving a valid discharge to the insurer in relation to the insurer’s obligations in respect of the claim.

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Effect on an innocent co-insured of the fraudulent conduct of another co-insured [25.770] Where two or more parties are insured under the same contract of insurance (that is, are co-insureds) in respect of the same subject matter (for example, where a house or business premises are insured), the question arises as to the effect on an innocent co-insured of the fraudulent conduct of another co-insured. That is, can an innocent co-insured still recover under the insurance policy when the event insured against occurs in circumstances where a co-insured has been involved in fraudulent conduct in relation to the insurance? The answer to this question depends on whether the contract entered into by the co-insureds is a joint policy of insurance or whether it is a composite policy of insurance. Under a joint policy of insurance the interests of the co-insureds in, for example, the property insured, is joint (that is, in effect treated as one). On the other hand, where the insurance policy is construed as a composite policy, the interests of the insured are several, that is, separate.

Position under a joint policy of insurance [25.780] Where the co-insureds are insured under a joint policy of insurance, fraudulent conduct on the part of one of the co-insureds will generally prevent the innocent co-insured from recovering under the insurance policy. This can be illustrated by the decision of the New South Wales Court of Appeal in MMI General insurance Ltd v Baktoo (2000) 48 NSWLR 605:

case [25.790] Mr and Mrs Baktoo conducted, in partnership, an Indian restaurant and retail shop. Separate from the business was a small residence occupied as a home. The couple had insured the restaurant and home under an insurance policy with the appellant insurer. The business premises were badly damaged by fire which, it was subsequently found, had been deliberately lit by Mr Baktoo. However, Mrs Baktoo had played no part in her husband’s arson. When a claim was made under the insurance policy, the insurer refused the claim relying on a condition in the policy that any claim that was “in any respect fraudulent” would be rejected. The insurer also relied on s 56 of the Insurance Contracts Act 1984 (Cth) under which the insurer may refuse payment of a fraudulent claim. Clearly Mr Baktoo could not recover because of his arson – in other words, it was a fraudulent claim on his part. However, it was further held that Mrs Baktoo also could not recover since the interests of the co-insured were joint, that is, it was a joint policy of insurance. As the court pointed out, a characteristic feature of joint insurance is that interests of the joint insured are treated as one. Accordingly, the inability of one joint insured to recover under the policy because of their fraud defeated a claim by another innocent joint insured: MMI General insurance Ltd v Baktoo (2000) 48 NSWLR 605. [25.800] To be contrasted with that case is the position of an innocent co-insured where the insurance contract is construed as a composite contract of insurance.

Position under a composite policy of insurance [25.810] Under a composite contract of insurance, the interests of the co-insured are regarded as several or separate, that is, the insurer is treated in effect as having undertaken separate and distinct obligations to

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each of the co-insureds. Accordingly, the fraudulent conduct of one co-insured will not prevent the other innocent co-insured from recovering under the policy. This can by illustrated by the decision of the South Australian Full Supreme Court in Gilmore v AMP General Insurance Co Ltd (1996) 67 SASR 387:

case [25.820] Briefly, Gilmore v AMP General Insurance Co Ltd (1996) 67 SASR 387 concerned a professional indemnity insurance policy for a firm of solicitors. Two former clients of the firm brought an action against the firm in respect of the dishonest conduct of one of the partners. The other partners sought indemnity under their professional indemnity policy. The policies in question clearly stated that the partners were severally insured, that is, it was clearly a composite policy of insurance. The South Australian Full Supreme Court examined in some detail the effect of composite policies of insurance at general law and, in essence, concluded that the dishonest conduct of the particular partner did not prevent the other innocent partners from recovering indemnity from the insurer in respect of their potential liability to the two clients as partners in the firm.

Expiry, renewal and cancellation of insurance contracts Notification of expiry of a contract of general insurance [25.830] The Insurance Contracts Act 1984 (Cth) provides that, in the case of renewable insurance cover under a contract of general insurance (for example, house and car insurance) the insurer is to notify the insured in writing of the date and time of expiry of their insurance cover: s 58. The notice is to be given at least 14 days before the cover expires, and should inform the insured whether the insurer is prepared to renew the contract. Failure to serve such notice will result in cover being automatically extended. In such a case no premium will be payable in respect of the extension unless the insured makes a claim under it. An insurer is entitled to cancel such extended contract subject to the notice requirements of the Act in respect of cancellation of insurance contracts.

Cancellation of a contract of general insurance [25.840] The Insurance Contracts Act 1984 (Cth) sets out the grounds on which an insurer may cancel a contract of general insurance. These include circumstances where, on the part of the insured, there has been: (a)

a breach of the duty of utmost good faith;

(b)

a breach of the duty of disclosure;

(c)

misrepresentation before the contract was entered into;

(d)

failure to comply with a provision of the contract;

(e)

a fraudulent claim made under the contract or under some other contract of insurance in operation at the time: s 60(1).

An interim contract of insurance (for example, a cover note) or a contract in force because the insurer has failed to send a renewal notice in accordance with s 58 (see [25.830]) may be cancelled at any time by the insurer: s 60(4).

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Cancellation of a contract of life insurance [25.845] Formerly, the Insurance Contracts Act 1984 (Cth) did not contain provision for the cancellation of a life insurance contract. However, the Insurance Contracts Amendment Act 2013 (Cth) introduced a new provision (s 59A) to allow an insurer to cancel a contract of life insurance if the insured has made a fraudulent claim under that contract or under another contract of insurance with the insurer that provides insurance cover during any part of the period in which the life insurance contract provides cover. The court is empowered to make orders to ameliorate the effect of the section in certain circumstances. For example, if an insurer has cancelled a contract of life insurance because of a fraudulent claim, the court may, if it would be harsh or unfair not to do so: (a) disregard the cancellation; (b) order the insurer to pay an amount (if any) in relation to the claim that the court considers just and equitable in the circumstances; and (c) order the insurer to reinstate the contract: s 59A(2). The court when exercising these powers must have regard to the need to deter fraudulent conduct in relation to insurance and may also have regard to any other relevant matter: s 59A(5).

Notice of cancellation [25.850] Certain procedures must be followed by an insurer where it wishes to cancel a contract of insurance: Insurance Contracts Act 1984 (Cth), s 59. The insurer is required to give the insured written notice of the proposed cancellation. The notice will not operate to cancel the contract immediately but will take effect at the earlier of the following times: (a)

at the time the insured enters into another contract of general insurance intended to replace the contract;

(b)

whichever is the latest of the following times: (i)

4 pm on the third business day after the notice was given to the insured;

(ii)

the time, if any, specified in the contract; or

(iii)

the time, if any, specified in the notice.

An insurer cannot cancel a contract of general insurance except in accordance with the provisions of the Insurance Contracts Act 1984 (Cth): s 63(1). Similarly, an insurer must not cancel a contract of life insurance except as provided by the latter Act or the Life Insurance Act 1995 (Cth), s 210 which deals with the cancellation of a contract of life insurance because of non-payment of a premium: s 69(2).

Reasons to be given for refusal to accept insurance, for cancellation, or failure to renew [25.860] On receiving a written request from the insured, an insurer is to provide written reasons why it refused cover, cancelled a contract, or failed to renew it, or offered insurance on less advantageous terms. A penalty of $5,000 is imposed for failure to give reasons as required by the Insurance Contracts Act 1984 (Cth): s 75.

Indemnity principle [25.870] Most insurance contracts (with the exception of life insurance) are indemnity contracts, that is, the insurance company agrees to indemnify the insured for the loss the insured has suffered up to the amount stated in the policy. This is the case, for example, in fire, burglary, and loss of profits insurance. In respect of such insurance policies, although the insured is entitled to recover the amount of their actual loss up to the ceiling stated in the policy, the insured is not entitled to make a profit out of the insurance. Where

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an insurer is in breach of its contractual obligations (for example, by delaying or refusing payment of a valid claim) the insured may recover damages for the emotional stress caused by the substantial inconvenience resulting from the insurer’s conduct: Motor Accident Mutual Insurance Pty Ltd v Kelly (1999) 10 ANZ Insurance Cases 61-420. Life insurance and most personal accident policies are not indemnity contracts since they are contracts to pay the insured or their representative a certain sum of money on the happening of some specified event, regardless of the amount of the actual loss suffered.

Double insurance and contribution [25.880] Where a contract of insurance is a contract of indemnity (for example, fire insurance) and the insured takes out policies in two or more companies which have the effect of over-insuring their property, this is known as double insurance. This practice is not advantageous as the insured is only entitled to recover their loss once and cannot recover it from each of the companies. If the insured was allowed to claim in full from each company the insured would be making a profit on the loss. Where double insurance has been effected, the insured may elect from which insurer or insurers to recover, but such insurer is (or insurers are) entitled to an adjustment with the other insurers under the doctrine of contribution. 8 The element essential for contribution is that, whatever else may be covered by the policies, each must cover the risk which has given rise to the claim. There is no double insurance unless each insurer is liable under its policy to indemnify the insured in whole or in part against the happening which has given rise to the insured’s loss or liability: Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342. The principles regarding double insurance and contribution are not applicable to life and personal accident insurance but only to indemnity policies. It was not uncommon for insurance policies to contain a condition that unless the insured notified the insurer of any insurance already effected, or which may subsequently be effected, over the property insured before the occurrence of any loss or damage, all benefit under the policy would be forfeited. The Insurance Contracts Act 1984 (Cth) now makes void “other insurance” conditions of this kind. It provides (with certain exceptions) that a term in a contract of general insurance limiting or excluding the insurer’s liability because the insured entered into some other contract of insurance is void: s 45. However, the section only applies where the insured is a party to the other contract of insurance; it does not apply to avoid provisions purporting to exclude or limit liability under a second policy where the insured is not a party to the other contract but named in it as an insured person: Zurich Australian Insurance Ltd v Metals & Minerals Pte Ltd (2009) 240 CLR 391. The Act also provides that where two or more insurers are liable under separate contracts of general insurance to the same insured in respect of the same loss, the insured will be entitled to recover the loss from any one or more of the insurers as is necessary to indemnify the insured in respect of their actual loss. The insured cannot recover from an insurer an amount that exceeds the sum insured under the contract between the insured and that insurer, nor recover more in total than the amount of their actual loss. The insurer or insurers from whom the insured recovers may seek contribution from any other insurer liable in respect of the loss: s 76. 8

See P Garnon and Y Bell, “Speno Spinoff: Can I get Contribution from Other Insurers?” (2011) 22 Insurance Law Journal 96.

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Subrogation [25.890] Where the contract of insurance is one of indemnity, for example fire insurance, the insurer on payment of the claim is entitled to any rights the insured may have against the person who caused the loss through their negligence. This is known as the doctrine of subrogation. The insurer is sometimes said to “stand in the shoes” of the insured as regards the latter’s rights against the party who caused the loss. 9 There is no subrogation in the case of life, sickness or personal accident insurance since these are not indemnity contracts. The Insurance Contracts Act 1984 (Cth) limits the insurer’s right of subrogation in certain situations. It provides that where the insured has not exercised her or his legal rights against a third party who caused the loss, and might reasonably be expected not to exercise those rights because of a family or other personal relationship between the insured and the third party, or because where a motor vehicle is the subject of the insurance the insured consented to the third party’s use of it, the insurer is not subrogated to the insured’s rights if the third party is not insured in respect of the loss. Where the third party is insured, the insurer cannot recover more than the third party may recover under their insurance. This limitation on the insurer’s right to subrogation does not apply where the third party’s conduct which caused the loss constituted serious or wilful misconduct: s 65. The Act limits the common law right of an insurer to bring an action by way of subrogation against a negligent employee of the insured. It provides that an insurer is not subrogated to the rights an insured employer may have against an employee in respect of loss arising out of their employment, unless the loss occurred because of the employee’s serious or wilful misconduct: s 66. The section arose for consideration in Boral Resources (Qld) Pty Ltd v Pyke [1992] 2 Qd R 25:

case [25.900] The appellant, B Ltd, was the employer of the respondent, P. One evening P ceased work at 6 pm having worked, at B Ltd’s request, a 17-hour day without a break. P then went to a hotel and consumed two pies and about 12 beers. He then used his employer’s truck and trailer to drive to a motel some 15 minutes away where he was staying. On the way he fell asleep at the wheel and the vehicle left the road causing over $17,000 damage to the trailer. B Ltd’s insurer indemnified the employer against its loss. The insurer then brought an action in the employer’s name against P pursuant to its right of subrogation. In defence P relied on s 66 of the Insurance Contracts Act 1984 (Cth). It was held by a majority of the Queensland Full Supreme Court that the insurer was entitled to recover in its action against the employee, P. Thus, P was in breach of duty to his employer in either tort (that is, for negligence) or in contract, and was unable to rely on the defence in s 66 since his conduct amounted to at least “serious misconduct” (and probably also “wilful misconduct”) within the meaning of the section: Boral Resources (Qld) Pty Ltd v Pyke [1992] 2 Qd R 25. [25.910] The Insurance Contracts Act 1984 (Cth) provides rules for how moneys recovered from a third party by an insurer under a right of subrogation should be divided between the insurer and the insured: s 67. Where a term in a contract of general insurance excludes or limits an insurer’s liability in the event of the insured entering into some other agreement that excludes or limits their rights to recover damages against a 9

See N Pengelley, “When Can an Insurer Exercise its Right of Subrogation?” (2013) 24 Insurance Law Journal 89.

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third party (and hence effectively precludes a right of subrogation), the insurer cannot rely on such term unless it clearly informed the insured in writing of its effect before the contract was entered into: Insurance Contracts Act 1984 (Cth), s 68.

Insurance agents and brokers Distinction between employees, agents and brokers [25.920] Insurance contracts are generally arranged through intermediaries, that is, employees of insurance companies, agents or brokers. An employee of an insurance company is exclusively bound to a single insurer. An insurance agent is also usually bound to a single insurer, that is, acts on behalf of a particular insurer. However, some agents (multi-agents) are not bound to a single insurer. They have overlapping arrangements with different insurers. An insurance broker is not tied to an individual insurer but runs an independent business. One of the basic functions of a broker is to obtain the best cover at the best rate from the most desirable insurer for the broker’s client. Thus, a broker is an intermediary who deals on behalf of various clients with various insurers and, ideally, should seek the best insurance terms available from a range of insurers. Furthermore, brokers differ from agents in that they usually act for insureds rather than insurers, that is, a broker is generally an agent for the insured not the insurance company. In contrast, it has been held by the New South Wales Court of Appeal that an agent of an insurance company does not generally owe a duty of care to an intending insured in arranging a contract of insurance between the insured and the insurance company: Caldwell v JA Neilson Investments Pty Ltd (2007) 69 NSWLR 120.

case [25.930] The appellant insured carried on business as a grazier involving the leasing of property and the agistment of stock. He had previously held an insurance policy with CGU Insurance Ltd (“CGU”) which included public liability cover. The respondent, an insurance agent of AMP Insurance Co Ltd (“AMP”) was requested to provide insurance cover to replace the cover previously provided to the appellant by CGU. However, the new policy with AMP contained an exclusion clause limiting public liability cover to a particular property. The insured’s previous insurance with CGU had not been so limited. The insured only became aware of the exclusion clause after an accident on another property occupied by him. A heifer had escaped from the property into the path of an oncoming motorist who was injured. The appellant was liable for the motorist’s injuries and sought indemnity from the AMP which denied liability relying on the exclusion clause in the policy. The insured sought to recover the loss from the respondent agent on the ground, inter alia, that the agent had negligently failed to warn him of the exclusion clause in the AMP policy. A majority of the NSW Court of Appeal held that in the circumstances the respondent agent was not liable to the insured. The Court of Appeal contrasted the duty of care owed by an insurance broker to a client with the much more limited scope of duty of an insurance agent to an intending insured. It was stated that: “[T]he the mere act of completing the proposal form on behalf of the prospective insured does not require the agent to take reasonable steps to give advice about the quality, extent and conditions of the cover being sought” at [114] per Ipp JA (with whom the rest of the court agreed on this point): Caldwell v JA Neilson Investments Pty Ltd (2007) 69 NSWLR 120.

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Pt 3 Commercial Transactions

[25.940] It is proposed to deal first with: (a) the legal position of insurance employees and agents or, more specifically, with the responsibility of an insurer for its employees and agents; and then (b) the legal position of an insurance broker.

(a) Insurance employees and agents [25.950] An insurer is generally responsible for the conduct of its intermediaries, that is, for the conduct of its employees or agents. Thus, an employer is responsible for the conduct of its employee if that conduct is within the course of the employee’s employment. Under general agency principles, the position at common law in respect of insurance agents is that the insurer is responsible for the acts of its agent which fall within the scope of the agent’s actual or apparent authority: see [13.200]-[13.240]. The effect is that the insurer will generally be responsible for the negligent and fraudulent acts of its agent, where for example, the agent: (a)

fails to pass on to the insurer a disclosure made to the agent by the insured or makes a misrepresentation to the insurer, knowing the true facts; or

(b)

misrepresents the terms of insurance cover to an intending insured.

However, the position at common law was capable of operating inequitably against an intending insured. For example, where an insurance agent completed the answers in the proposal form from information supplied by the intending insured, the general position at common law was that in doing so the agent was the agent of the intending insured, not the insurer. Accordingly, if an incorrect answer was filled in by the agent, then notwithstanding that the correct information may have been given to the agent by the proponent, since the misrepresentation was regarded as the misrepresentation of the intending insured, the insurance company could avoid the contract and refuse payment on a claim. To mitigate the often inequitable position reached at common law regarding the liability of an insurance company for the acts and defaults of its employees and agents, the Corporations Act 2001 (Cth) contains provisions regarding insurance agents and brokers. The provisions are complex and it is only intended in the present context to deal with those which affect the liability of an insurer for the conduct of its agents and employees.

Liability of an insurer for its employees and agents under the Corporations Act 2001 [25.960] The Corporations Act 2001 (Cth) (Ch 7) generally requires a person who carries on a financial services business to hold a financial services licence: s 911A. Insurers who provide services to retail clients and brokers must be registered as financial services licensees. 10 In essence, the Act makes an insurer (as a financial services licensee) responsible for the conduct of its employees and authorised representatives (for example, agents) whether or not they acted within the scope of their authority. This is the effect of ss 917A and 917B. Section 917A(1) provides: This Division applies to any conduct of a representative of a financial services licensee: (a) that relates to the provision of a financial service; and

10

(b)

on which a third person (the “client”) could reasonably be expected to rely; and

(c)

on which the client in fact relied in good faith.

J Tarr, “The Regulation of Insurance Intermediaries in the Australian Financial Services Market” (2010) 38 Australian Business Law Review 332.

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The important section imposing the liability is s 917B which provides that: If the representative is the representative of only one financial services licensee, the licensee [that is, the insurer] is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative’s conduct is within authority. This, in essence applies to the insurer’s employees and authorised agents as a result of the definition of “representative” in s 910A. That section provides, inter alia that “representative” means: (a)

if the person is a financial services licensee: (i)

an authorized representative of the licensee; or

(ii)

an employee or director of the licensee; or

(iii)

an employee or director of a related body corporate of the licensee; or

(iv)

any other person acting on behalf of the licensee.

The general effect of these provisions is to impose liability on an insurer for the conduct of its employees and agents in negotiating insurance contracts with those intending to take out insurance with insurers.

(b) Insurance brokers [25.970] As pointed out at [25.920], an insurance broker is generally not tied to an individual insurer but runs an independent business. That is, a broker is an intermediary who deals on behalf of his or her clients with a number of insurers. The general position is that a broker usually acts on behalf of the insured in relation to arranging insurance or settling a claim, that is, the broker is usually regarded as the agent of the insured rather than the insurer (an exception is where the broker is acting under a “binder” discussed at [25.1050]).

Duty of a broker to exercise reasonable care and skill [25.980] At common law an insurance broker owes a duty to their client, the intending insured, to exercise reasonable care and skill in, for example, arranging appropriate and effective insurance cover for the client: Claude R Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd [1973] 2 NSWLR 7. An insurance broker’s duty “includes an obligation to ensure the client’s policy is suitable for the purpose for which it is sought”: Horsell International Pty Ltd v Divetwo Pty Ltd (2013) 18 ANZ Ins Cas 61-991; [2013] NSWCA 368 at [236] per McColl JA. A broker must also take reasonable care to warn the insured about their obligations under the insurance contract and take reasonable steps to make sure that the cover remains effective, for example, by sending the insured a reminder notice from the insurer to renew the cover and to pay outstanding premiums. An insurance broker owes a duty to their client to exercise reasonable care and skill in completing proposal forms on the insured’s behalf. Thus, if the insurance company is able to avoid liability for non-disclosure or misrepresentation because of the broker’s failure to exercise such reasonable care and skill with the result that the broker’s client suffers loss, the broker will be liable for the loss. A case where the failure to exercise reasonable care and skill proved very expensive for the broker was the decision of the Privy Council on appeal from Western Australia in Eagle Star Insurance Co Ltd v National Westminster Finance Australia Ltd (1985) 58 ALR 165 (PC):

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case [25.990] Insurance was arranged through a broker to insure a valuable stallion for $1,000,000. The horse subsequently died. However, when a claim was made the insurer was able to avoid liability under the insurance policy on the grounds of non-disclosure and misrepresentation as a result of the broker’s failure to exercise reasonable care and skill in completing the proposal form. It was held that the broker was liable to the insured for the whole amount for which the stallion had been insured: Eagle Star Insurance Co Ltd v National Westminster Finance Australia Ltd (1985) 58 ALR 165 (PC). [25.1000] On the other hand it has been held that to maintain a claim for damages against the broker, the insured must establish that they have suffered damage as a result of the broker’s breach of duty. This requires that the insured must be able to establish that but for the conduct of the broker, the insured would have been entitled to receive payment from the insurer, or if that insurer would have declined the risk had it been aware of all the material facts, the insured could have obtained appropriate insurance from some other insurer. This can be illustrated by the decision in Hemms Cassell & Associates Pty Ltd v Nasr (1994) 8 ANZ Insurance Cases 61-212:

case [25.1010] The plaintiff, through the defendant insurance broker, obtained a comprehensive motor vehicle policy from an insurance company. On the advice of the broker, the plaintiff had failed to disclose his poor driving record in the proposal form. The vehicle was subsequently stolen and damaged beyond repair. The insurer rejected the plaintiff’s claim and cancelled the policy because of the non-disclosure. In an action against the broker, it was held that the plaintiff was only entitled to nominal damages (of $1) for the broker’s breach of duty. The reason was that there was no evidence that had the proposal been completed properly the insurer would have accepted the risk. Furthermore, there was no evidence that the plaintiff could have obtained appropriate insurance from some other insurer. Consequently, the plaintiff failed to prove that the broker’s advice caused him to be without the benefit of effective insurance and accordingly, failed to prove that the broker’s advice had caused him loss: Hemms Cassell & Associates Pty Ltd v Nasr (1994) 8 ANZ Insurance Cases 61-212. [25.1020] Representations to an intending insured by an agent or broker may constitute misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law 11 (formerly s 52 of the Trade Practices Act 1974 (Cth)). For example, a representation by an employee of a broking company that insurance cover had been arranged for its client when such proved not to be the case was held to constitute a contravention of s 52 entitling the client to recover from the broker for the loss it had suffered: Gokora Pty Ltd v Montgomery Jordan and Stevenson Pty Ltd [1986] ATPR 40-722; compare Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.

Effect on broker of settlement of claim between insured and insurer [25.1030] The High Court has held that where an insured and an insurer reach a reasonable compromise or settlement following a breach by a broker of his duty to exercise reasonable care and skill in effecting an insurance contract, the broker will be liable to the insured for the difference between the amount of the

11

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth): see Chapter 17.

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settlement and the sum the insured would have recovered under the insurance contract had there been no breach of duty by the broker: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603. The facts of the case were as follows:

case [25.1040] The appellant broker obtained a special risks insurance policy from an insurer for the business premises of the respondent insured. The policy covered damage by fire to the insured’s premises and also plant, machinery and stock on the premises. During the currency of the policy, a fire extensively damaged many of those items, the total amount of the loss exceeding $1.7 million. However, the insurer refused to indemnify the insured because the broker had only disclosed one of 12 insurance claims the insured had made during the previous 13 years. The insured, on legal advice, settled its claim against the insurer for $900,000. The insured then sued the broker for the shortfall of $800,000 on the ground that it had been put in the position of having to settle the claim with the insurer because of the broker’s breach of its duty to exercise reasonable care and skill in effecting the insurance. There was evidence that the insured would have been able to obtain insurance of the same kind even if the insured’s history of prior claims had been disclosed. The majority of the High Court (3:2) held that the broker was liable to the insured for the $800,000, that is, the difference between the amount of $1.7 million, the total amount of the loss which would have been recoverable from the insurer had there been no breach of contract by the broker, and the amount of the settlement of $900,000 between the insured and the insurance company. In reaching this decision, the majority emphasised that there was sufficient evidence to support the conclusion that the settlement reached between the insured and the insurer was reasonable. Once it was determined that the settlement was reasonable, then in the majority’s view the difference between the settlement and the amount recoverable under the insurance contract, had there been a full disclosure, was the result of the broker’s failure to exercise reasonable care and skill in effecting the insurance and therefore was recoverable by the insured from the broker: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603.

Broker acting under a binder [25.1050] We have seen that the Corporations Act 2001 (Cth), ss 917A and 917B impose liability on an insurer for the conduct of its employees and agents in negotiating insurance contracts with those intending to take out insurance with the insurer: see [25.960]. The Act contains a similar provision regarding the liability of an insurer for the conduct of a broker where the broker is acting under a “binder”. A “binder” is defined in the general definition section (s 761A) as an authorisation given to a person by an insurer to enter into risk insurance contracts on behalf of the insurer as insurer or to deal with and settle claims against the insurer under risk insurance products. A “risk insurance product” is defined to include most contracts of insurance: see ss 761A, 764A. The principal section in this context is s 916E(2) which provides: (2)

For all purposes connected with contracts that are risk insurance products, or with claims against the insurer, in respect of which the authorised licensee acts under the binder: (a)

the authorised licensee is taken to act on behalf of the insurer and not the insured; and

(b)

if the insured in fact relied in good faith on the conduct of the authorised licensee, the authorised licensee is taken to act on behalf of the insurer regardless of the fact that the authorised licensee did not act within the scope of the binder.

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Pt 3 Commercial Transactions

The general effect of this provision is to impose liability on the insurer for the conduct of a broker with an insured where the broker was acting under a binder with the insurer.

Effect of payment of premiums to an insurance agent or broker [25.1060] An issue which has arisen is the position of an insured who pays the insurance premium to a broker but the broker fails to pass on the premium to the insurer. The question is whether in this situation the insured has to pay the premium again? Furthermore, is there an insurance contract with the insurer? At common law a broker, in negotiating a contract of insurance for their client, is normally regarded as the agent of the client, not the insurance company. Accordingly, it was held by the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 that if the broker fails to account to the insurance company for premiums paid by the insured, the insured was liable to pay the premiums again to the insurer, since in receiving the premiums the broker was the agent of the client, not the insurance company. However, the Corporations Act 2001 (Cth), s 985B(1) provides that if a contract of insurance is arranged by a financial services licensee (for example, an agent or broker), payment to the licensee of money payable by the insured under the contract (for example, an insurance premium) is a discharge, as between the insured and the insurer, of the liability of the insured to pay that money. 12 The effect of this provision is that the payment of insurance premiums or other moneys by an insured to an insurance broker or agent who arranged a contract of insurance, discharges the insured’s liability to the insurer for such moneys. Accordingly, if the moneys are not passed on to the insurer, the insurer’s recourse is against the broker or agent not the insured. This provision operates satisfactorily provided that the broker has arranged a contract of insurance. The problem, however, which arises is whether the payment of the insurance money to the broker also effects, that is makes or concludes, a contract of insurance with the insurance company. What is the position where the client, for example, pays a premium to the broker to renew the insurance contract for another year but the broker fails to pass on the insurance premium to the insurance company? Assuming that the risk insured against (for example, fire on the premises) later occurs – what is the position of the client? Section 985B(2) appears to deal with that situation. The section provides that payment to a financial services licensee (for example, a broker or agent) of money (for example, a premium) in respect of a contract of insurance to be arranged or effected by the licensee with an insurer is a discharge, as between the insured and the insurer, of the liability of the insured to pay that money. 13 This provision appears to be in essentially the same terms as s 14(2) of the now repealed Insurance (Agents and Brokers) Act 1984 (Cth). However, in Manufacturers’ Mutual Insurance Ltd v John H Boardman Insurance Brokers Pty Ltd (1994) 179 CLR 65, the High Court held that s 14(2) of the Insurance (Agents and Brokers) Act 1984 only operated where a contract of insurance had in fact been effected and did not go further and make the payment of the premium to the broker the acceptance of the insurer’s offer to renew the contract of insurance. Hence, on the particular facts of the case the High Court held that the payment of a renewal 12

13

The Corporations Act 2001 (Cth), s 985B(1) provides: “If: (a) a contract of insurance is arranged or effected by a financial services licensee; and (b) the licensee is not the insurer; payment to the licensee of money payable (whether in respect of a premium or otherwise) by the insured under or in relation to the contract is a discharge, as between the insured and the insurer, of the liability of the insured to the insurer in respect of that money.” The Corporations Act 2001 (Cth), s 985B(2) provides: “Payment to a financial services licensee by or on behalf of an intending insured of money (whether in respect of a premium or otherwise) in respect of a contract of insurance to be arranged or effected by the licensee with an insurer (not being the licensee) is a discharge, as between the insured and the insurer, of any liability of the insured under or in respect of the contract, to the extent of the amount of the payment.”

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premium to the broker did not effect a renewal of the previous insurance contract. Accordingly, the insurance company was not liable for the loss incurred by the insured after the end of the earlier insurance contract since at the time of the risk insured against occurring, there was no insurance contract between the insured and the insurer. It is likely that the High Court would come to the same conclusion in respect of the present s 985B(2) of the Corporations Act 2001 (Cth), that is that no contract of insurance would have been made with the insurer, and therefore the insured would be without insurance despite having paid the premium to the broker. Accordingly, a client who pays an insurance premium to a broker bears the risk of loss of the moneys until an insurance contract is concluded. Even more significantly, if the broker fails to pass on the moneys to the insurer, the general position is likely to be that the client will have no insurance cover. To avoid such difficulties it would seem that the broker’s client should ensure that the premium moneys are paid directly to the insurer, or at least notify the insurer of its acceptance of, for example, the insurer’s offer of renewal of the insurance cover. The Corporations Act 2001 further provides that payment by an insurer to a financial services licensee (an agent or broker) of money payable to an insured (for example, in respect of a claim) does not discharge any liability of the insurer to the insured in respect of that money: s 985B(3). An agreement so far as it purports to alter the operation of these provisions is void: s 985B(4). However, an agreement between a financial services licensee and an insured will not be void in so far as the agreement allows the licensee to set off against money payable to the insured, money payable by the insured to the licensee as premiums: s 985B(5).

Other provisions of the Corporations Act 2001 affecting insurance intermediaries [25.1070] Under the Corporations Act 2001 (Cth), insurance intermediaries need to be licensed: Pt 7.6. A person may not use a restricted word or expression in relation to a financial services business unless they are authorised to use that word or expression by the conditions of an Australian financial services licence: s 923B. The restricted words include: insurance broker, insurance broking, general insurance broker and life insurance broker: s 923(3), (4). Contravention of this restriction is an offence: s 1311(1). An Australian financial services licence authorises a person to provide financial services: s 761A. The Corporations Act 2001 contains consumer protection provisions relating to financial products. Most insurance contracts are financial products: s 764A(1). For example, a client has the right to return a financial product (such as insurance) and to have repaid any money they have paid to acquire the product: s 1019B(1). This right can only be exercised during the period of 14 days starting on the earlier of: (a)

the time when the confirmation requirement is complied with; or

(b)

the end of the fifth day after the day on which the product was issued to the client: s 1019B(3).

This right cannot be exercised after the client has exercised a right under the product or after the time when the client’s rights under the product end: s 1019B(5). For example, in the case of an insurance contract, the right to return the product cannot be exercised after a claim has been made under the contract of insurance.

Particular classes of insurance [25.1080] So far we have considered the general principles of insurance law as modified by the Insurance Contracts Act 1984 (Cth). At this point it is necessary to consider the nature of some of the more important types of insurance contract and indicate the further provisions applicable to them.

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Fire insurance [25.1090] The general principles of insurance law discussed at [25.70]–[25.420] apply to fire insurance and reference should be made, in particular, to the previous discussion of non-disclosure and misrepresentation under the Insurance Contracts Act 1984 (Cth). A contract of fire insurance is a contract of indemnity only, and the insured is entitled to recover provided the insured has suffered a pecuniary or economic loss as a result of the damage to or destruction of the property insured. The insurer, instead of paying the amount of the loss to the insured, may apply the moneys due and payable under the policy in the event of a fire, towards reinstating the damaged building or replacing the goods or other property lost. In the case of a contract of indemnity the insured is not entitled to recover more than the amount that will indemnify the insured against the actual loss or damage sustained. The object of this principle is to minimise the possibility of a person committing arson.

Standard cover for home buildings and home contents insurance [25.1100] Insurance cover for residential buildings and their contents are two of the types of insurance contract for which the Insurance Contracts Regulations 1985 (Cth) provide standard cover pursuant to the Insurance Contracts Act 1984 (Cth), ss 34 – 36. 14 The effect of standard cover is that an insurer under one of the “prescribed contracts” referred to is liable to provide cover against at least the “prescribed events” (that is, the risks) specified in the Insurance Contracts Regulations 1985 (Cth), for the minimum amount specified in the regulations unless, before the contract was entered into, the insurer clearly informed the insured in writing, or the insured knew, or a reasonable person in the circumstances could be expected to have known, that the contract did not cover the particular risk for the amount prescribed: Insurance Contracts Act 1984 (Cth), s 35. The standard cover provisions in the Insurance Contracts Regulations 1985 (Cth), reg 10 in respect of home buildings insurance provide that the “prescribed events” (that is, the risks) insured in respect of home buildings insurance are as follows: [10.] (a) the destruction of, or damage occurring to, the home building on the site, being destruction or damage that is caused by or results from –

14

(i)

fire or explosion;

(ii)

lightning or thunderbolt;

(iii)

earthquake;

(iv)

theft, burglary or housebreaking or an attempt to commit theft, burglary or housebreaking;

(v)

a deliberate or intentional act;

(vi)

bursting, leaking, discharging or overflowing of fixed apparatus, fixed tanks or fixed pipes used to hold or carry liquid of any kind;

(vii)

riot or civil commotion;

(viii)

an action of a person acting maliciously;

(ix)

impact by or arising out of the use of a vehicle (including an aircraft or a water borne craft);

Other “consumer” insurance for which standard cover is provided are sickness and accident insurance; comprehensive motor vehicle and third party property damage insurance; consumer credit insurance; and travel insurance.

chapter 25 Insurance

(x)

(xi)

impact by – (A)

space debris or debris from an aircraft, rocket or satellite;

(B)

an animal (other than an animal kept on the site or a domestic animal);

(C)

a falling tree or part of a tree; or

(D)

a television or radio aerial that has broken or collapsed; or

storm, tempest, flood (within the meaning given by regulation 29D 15), the action of the sea, high water, tsunami, erosion or land slide or subsidence;

(b)

accidental damage that is breakage of any fixed glass, fixed shower base, fixed basin, fixed sink, fixed bath, fixed lavatory pan or fixed cistern;

(c)

loss by theft, burglary or housebreaking;

(d)

the insured or a member of the insured’s family ordinarily residing with the insured incurring a liability as owner or occupier of the home building to pay compensation or damages to some other person.

Meaning of “flood” [25.1104] Considerable confusion arose in respect of claims for indemnity by householders under their home insurance policies following the Queensland floods in January 2011 because of the widely varying definitions of “flood” used by different insurance companies. To deal with this problem, the Insurance Contracts Act 1984 (Cth) was amended to provide for the making of regulations for a standard definition of “flood” in respect of a “prescribed contract”: Insurance Contracts Act 1984 (Cth), ss 37A – 37E. 16 Home building and home contents insurance contracts are included in the definition of “prescribed contracts”: reg 29C. 17 The meaning of “flood” in “prescribed contracts” is defined as the covering of normally dry land by water that has escaped or been released from the normal confines of: (a) a lake; (b) a river; (c) a creek; (d) another natural watercourse; (e) a reservoir; (f) a canal; or (g) a dam: Insurance Contracts Regulations 1985 (Cth), reg 29D. The effect of the provisions is that where an insurer offers cover for “flood” under a “prescribed contract”, the word “flood” must comply with the above definition in the regulations. Importantly, the provisions do not make it mandatory for an insurer to provide cover for “flood”. However, before entering into a “prescribed contract”, the insurer must clearly inform the insured in writing whether the contract provides insurance cover in respect of loss or damage caused by, or resulting from, “flood” as defined by the regulations: Insurance Contracts Act 1984 (Cth) (s 37C). An insurer is required to provide a Key Facts Sheet with home building and home contents policies outlining key information about the policy in a concise form in accordance with the regulations: Insurance Contracts Act 1984 (Cth), ss 33A – 33D.

Exclusions [25.1107] The Insurance Contracts Regulations 1985 (Cth), reg 11 lists certain exclusions from liability under the standard cover provisions in respect of home buildings insurance. These include: (a) 15 16

17

depreciation;

See [25.1104] below. See J Bell, “When Will a Flood be Classified as a ‘Flood’: A Review of the Insurance Contracts Act Reform” (2012) 23 Insurance Law Journal 312; C Turner, “Insurance Law – The Meaning of ‘Flood’ in Policy Exclusion: LMT Surgical Pty Ltd v Allianz Australia Insurance Ltd [2013] QSC 181” (2013) 33 Qld Lawyer 171. Regulation 29C also includes as “prescribed contracts” for the purpose of the standard definition of “flood”, insurance cover for strata title holders and small businesses.

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(b)

wear and tear, rust or corrosion;

(c)

the action of insects or vermin;

(d)

destruction or damage, or the incurring of a liability as mentioned in paragraph 10(d) [see [25.1100]], as a result of –

(e)

(f)

(i)

the expropriation of the home building;

(ii)

war or warlike activities;

(iii)

the use, existence or escape of nuclear weapons material, or ionizing radiation from, or contamination by radioactivity from, any nuclear fuel or nuclear waste from the combustion of nuclear fuel;

(iv)

the use of the home building for the purposes of a business, trade or profession; or

(v)

tree lopping or felling by the insured or a person acting with the express or implied consent of the insured; or

destruction or damage intentionally caused, or a liability as mentioned in paragraph 10(d) [see [25.1100]] intentionally incurred, by – (i)

the insured; or

(ii)

a member of the insured’s family ordinarily residing with the insured, or a person acting with the express or implied consent of any of them;

where the home building is unoccupied and has been unoccupied for a continuous period of more than 60 days – destruction or damage occurring otherwise than as mentioned in sub-paragraph 10(a)(ii) or (iii) or (vii) to (xi) (inclusive), or the incurring of liability as mentioned in paragraph 10(d) [see [25.1100]] …

The minimum amount payable in respect of a claim is expressed to be the amount sufficient to indemnify the person who made the claim (reduced by the first $200 in the case of earthquake damage), with a ceiling of $2,000,000 in respect of public liability, that is, liability to third parties (under para 10(d) (see [25.1100])). The standard cover provisions in respect of home contents insurance are to similar effect: Insurance Contracts Regulations 1985 (Cth), regs 13 – 16.

“Average” clause [25.1110] Contracts of fire insurance may have inserted in them a clause which renders the policy “subject to average”. Basically, such a clause provides that where the property insured is of a higher value than the sum for which it is insured “then the insured shall be considered as being her or his own insurer for the difference, and shall bear a rateable proportion of the loss accordingly”. However, a fire policy is not subject to average unless it so provides. In a policy of fire insurance if goods valued at $20,000 are insured for $10,000, and a loss to the extent of $10,000 occurs, the insurer is liable for that amount in the absence of an express provision that the policy is subject to average. Where a policy is “subject to average” and the subject matter is under-insured, partial losses must be apportioned between both insurer and insured. For example, if the subject matter is valued at $50,000 and insured for $40,000, then in the event of a partial loss of, say, $20,000 the claim would be:

chapter 25 Insurance

Figure 25.1: Calculation of “Average” Amount 40,000 of $20,000 50,000 = $16,000

That is, one-fifth of the loss must be borne by the insured. The Insurance Contracts Act 1984 (Cth) modifies the operation of “subject to average” clauses in insurance contracts: s 44. An insurer will not be able to rely on an average clause unless the insurer clearly informed the insured in writing of its nature and effect before the contract was entered into. Where the sum insured represents 80 per cent or more of the value of residential property and/or the contents of that property, an average clause will be ineffective. However, where the sum insured in such a contract is less than 80 per cent of the value, an average clause will operate by allowing the insurer to reduce the claim. The amount of the reduction will be calculated by reference to a formula based on the difference between 80 per cent of the value of the property at the time the contract was entered into and the sum insured, and not between the full amount of the value and the sum insured. The value of the property for this purpose is assessed as at the time the contract was entered into.

Life insurance [25.1120] Life insurance is regulated primarily by the Life Insurance Act 1995 (Cth) 18 but the Insurance Contracts Act 1984 (Cth) also contains a number of important provisions affecting life insurance. The insurer in a contract of life insurance undertakes to pay to the person in whose favour the policy is made out a specified amount, with or without bonuses, upon the happening of an event, for example, death of a named person or the attainment of a certain age by a specified person. Life insurance is not a contract of indemnity, as is the case with fire and marine insurance. In life insurance the insurer undertakes to pay the amount agreed on the happening of an event which must ultimately occur. The general principles of insurance law discussed at [25.70]–[25.420] apply to life insurance and, in particular, reference should be made to the previous discussion regarding the application of the principles of insurable interest, non-disclosure and misrepresentation to life insurance as modified by the provisions of the Insurance Contracts Act 1984 (Cth).

Suicide [25.1130] The Life Insurance Act 1995 (Cth), s 228 basically preserves the validity of the policy in the event of the death of the insured being caused by suicide unless there is provision in the policy to the contrary. Section 228 reads: A life company may only avoid a life policy on the ground that the person whose life is insured by the policy committed suicide if the policy expressly excludes liability in case of suicide. Most life policies contain a term to the effect that payment will be made even in the event of suicide provided the suicide does not take place within a specified period from the commencement of the policy, normally 13 months. 18

The Life Insurance Act 1995 (Cth) governs life insurance (other than State government insurance) and life insurance companies in Australia. Special provision is made with respect to friendly societies: Pt 2A. Insurance companies carrying on insurance business other than life insurance must comply with the Insurance Act 1973 (Cth) and the Insurance (Deposits) Act 1932 (Cth) which do not apply to State insurance.

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Personal accident and sickness insurance [25.1140] This type of insurance is a form of insurance generally based upon death by accident or the contingency of loss of income caused by accidental injury. By means of a personal accident insurance policy, the insured secures an income during the period in which they are prevented by injury from earning it. This period is generally limited to either 26 or 52 weeks. It may also be lump sum compensation for injuries received, for example for the loss of a limb or an eye. Policies may also be effected insuring against certain specific diseases as well as accidents. A personal accident policy providing compensation in the case of physical suffering or death is not a contract of indemnity. The meaning of an indemnity is that it is against pecuniary liability, and is commensurate with that liability. A policy which provides compensation in respect of an accident occasioning death or damage is not an indemnity against either the event or the loss but, like a policy of life insurance, is a contract to pay an agreed amount on the happening of an event. The liability of the insurer will depend upon the construction of the terms, conditions and exceptions in the policy.

case [25.1145] The appellant insured was a carpenter who entered into a disability income protection policy. Some 13 years earlier he had fractured both ankles in the one accident. Prior to taking out the policy he disclosed to the respondent insurer his earlier injury and its consequences. The appellant later suffered a physical injury (he sprained his left ankle) as a result of an accident whilst the policy was in force and was disabled from continuing his work as a carpenter. His claim for benefits under the policy was initially paid by the insurer for two months. Later the insurer denied the appellant’s claim because his disability was not an “Accidental Injury” within the meaning of the policy. The definition of “Accidental Injury” in the policy required, inter alia, a physical injury which resulted “solely, directly and independently of any pre-existing condition” in total disablement. The New South Wales Court of Appeal held that the appellant was not entitled to claim a Total Disability Benefit under the policy because the appellant’s later disability had been caused in part by the aggravation of the appellant’s pre-existing injury from which the appellant had thought he had fully recovered: Preston v AIA Australia Ltd (2014) 18 ANZ Insurance Cases 62-018; [2014] NSWCA 165. [25.1147] Standard cover has been prescribed for personal accident and sickness insurance by the Insurance Contracts Regulations 1985 (Cth), regs 17 – 20 pursuant to the provisions of the Insurance Contracts Act 1984 (Cth), ss 34 – 36.

Workers' compensation insurance [25.1150] In each State or Territory, an Act requires that employers pay to employees compensation for injuries sustained by them in the course of their employment and further requires that employers insure against their liability to pay such compensation. 19 The employer must take out an insurance policy with an approved insurer and each policy must provide that the insurer as well as the employer will be liable to any worker insured under the policy, and in the event of their death to their dependants, to pay compensation for which an employer is liable. The insurer is bound by any award made against the employer. 19

Workers Compensation Act 1987 (NSW) and the Workplace Injury Management and Workers Compensation Act 1998 (NSW); Accident Compensation Act 1985 (Vic) and the Accident Compensation (WorkCover Insurance) Act 1993 (Vic);

chapter 25 Insurance

Premiums are fixed according to the nature and class of employment and based on the estimated annual earnings of the employees concerned. A declaration of their actual earnings must be furnished by the employer at the close of each period of insurance when an adjustment of the premium is made. The Insurance Contracts Act 1984 (Cth) does not apply to workers’ compensation.

Public liability insurance [25.1160] This type of insurance may be effected to indemnify the insured against legal liability in respect of accidental death and/or bodily injury to any person, and/or accidental damage to property where such damage is caused in the course of carrying on the insured’s business or trade by the negligence of the insured or any person for whose negligence the insured is liable. This type of policy also covers liability in respect of any defect in the ways, works, machinery or plant used in connection with the business or trade on the premises.

Third party motor vehicle insurance [25.1170] Each State and Territory provides for compulsory third party insurance for motor vehicles. 20 Compulsory third party insurance covers the legal liability of the motorist in respect of personal injuries to members of the public, including passengers in the vehicle. However, compulsory third party insurance does not indemnify the owner for damage, fire or theft in relation to their own vehicle, nor for damage to the third party’s vehicle or other property. To obtain full cover, the owner would need to enter into a comprehensive motor vehicle policy. Renewal of registration of a motor vehicle is usually dependent on third party insurance cover having been effected over the vehicle. The Insurance Contracts Act 1984 (Cth) does not apply to compulsory third party insurance: s 9(1).

Comprehensive car insurance [25.1180] A comprehensive car insurance policy not only indemnifies an insured against damage to, or loss of, their own vehicle but also in respect of negligent damage to a third party’s vehicle or other property. The Insurance Contracts Regulations 1985 (Cth), regs 5 – 8 prescribe standard cover for comprehensive and third party property damage motor vehicle insurance pursuant to the Insurance Contracts Act 1984 (Cth), ss 34 – 36.

Professional indemnity insurance [25.1190] Professional indemnity insurance is effected by, for example, doctors, lawyers, accountants, insurance brokers and other professional people to cover potential legal liability resulting from their own negligence, or that of their partners or employees, in the performance of their professional duties (see, for example, CGU Insurance Ltd v Porthouse (2008) 235 CLR 103).

20

Workers’ Compensation and Rehabilitation Act 2003 (Qld); Workers Rehabilitation and Compensation Act 1986 (SA) and the WorkCover Corporation Act 1994 (SA); Workers’ Compensation and Injury Management Act 1981 (WA); Workers Rehabilitation and Compensation Act 1988 (Tas); Workers Compensation Act 1951 (ACT); Workers Rehabilitation and Compensation Act 1988 (NT). Motor Accidents Act 1988 (NSW), Pt 3; Transport Accident Act 1986 (Vic), Pt 3; Motor Accident Insurance Act 1994 (Qld), Pt 3; Motor Vehicles Act 1959 (SA), Pt 4; Motor Vehicle (Third Party Insurance) Act 1943 (WA); Motor Accidents (Liabilities and Compensation) Act 1973 (Tas), Pt IV; Road Transport (General) Act 1999 (ACT), s 162; Motor Accidents (Compensation) Act 1979 (NT), Pts IV and V.

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Consumer credit insurance [25.1200] Consumer credit insurance is designed to provide security to the insured against the risk of becoming unable to pay credit instalments as a result of accident, illness, and, in some policies, unemployment. Benefits are geared to the instalments payable under the credit contract or, in the case of the death of the insured, the amount then owing under the credit contract up to the amount of cover taken out. The Insurance Contracts Regulations 1985 (Cth), regs 21 – 24 prescribe standard cover for consumer credit insurance pursuant to the Insurance Contracts Act 1984 (Cth), ss 34 – 36.

Travel insurance [25.1210] Travel insurance policies usually provide cover in respect of losses (such as loss of deposit, additional travel and accommodation costs) resulting from the cancellation of travel arrangements for medical and other reasons. Personal accident cover and medical insurance is also often provided in such policies, in addition to cover for loss of money, baggage and travel documents. The Insurance Contracts Regulations 1985 (Cth), regs 25 – 28 prescribe standard cover for travel insurance pursuant to the Insurance Contracts Act 1984 (Cth), ss 34 – 36.

Marine insurance [25.1220] The main legislative enactment governing marine insurance in Australia is the Marine Insurance Act 1909 (Cth). The Act was based on the Marine Insurance Act 1906 (UK), which in turn was a codification of the common law principles on the subject. The Marine Insurance Act 1909 (Cth) applies to all marine insurance, other than State marine insurance not extending beyond the limits of a particular State (that is, intrastate insurance): s 6. Intrastate marine insurance is governed by the common law principles and various State Acts, the general effect of which is similar to the provisions of the Commonwealth Act. The Insurance Contracts Act 1984 (Cth), s 9(1)(d) provides that the Act does not apply to marine insurance to which the Marine Insurance Act 1909 (Cth) applies. Marine insurance is not solely concerned with risks associated with the loss of, or damage to, ships but extends, for example, to cargo, freight, and other maritime interests.

Insurance complaints and codes of practice Insurance complaints [25.1230] Where an insured is unable to resolve a complaint with an insurer or via the insurer’s internal dispute resolution procedures, the consumer may seek the assistance of the Financial Ombudsman Service (FOS). The FOS came into effect from 1 January 2010. It is an independent organisation offering free dispute resolution services to the customers of financial services providers including insurers. The FOS will endeavour to resolve the dispute by negotiation and/or conciliation. Where appropriate, the FOS will make an assessment of the merits of the dispute. If the dispute cannot be resolved by negotiation or conciliation then the FOS will consider making a Recommendation, that is, a decision based

chapter 25 Insurance

on the merits of the dispute and how it should be resolved. A Recommendation is not binding and may be rejected by either the consumer or the insurer. However, once a Recommendation is accepted by both parties to the dispute it becomes binding. Should either the consumer or the insurer reject the Recommendation, then it is referred to an Ombudsman or a Panel (comprising an industry and consumer representative and an Ombudsman) for a Determination. A Determination is binding on the insurer if it is accepted by the consumer. If the consumer rejects the Determination then he or she is free to pursue the dispute through the normal legal processes, for example, through the courts.

General Insurance Code of Practice [25.1240] The first General Insurance Code of Practice was introduced in 1994. A new General Insurance Code of Practice came into effect from 18 July 2006 and a revised Code was introduced as from 1 July 2012. The purpose of the Code is to describe standards of good insurance practice and to raise the standards of practice and service in the insurance industry. It is a voluntary, self-regulatory Code issued by the Insurance Council of Australia. The Code covers all types of general insurance for individuals and business but does not apply to workers’ compensation, compulsory third party motor vehicle insurance, medical indemnity and marine insurance, each of which is governed by its own separate legislation. The Code requires insurers to: (a)

meet agreed timeframes for handling claims or responding to complaints;

(b)

provide better and clearer information to customers regarding what is covered in their policies;

(c)

fast-track claims or make advance payments when customers show they are in financial hardship as a result of the damage or loss leading to their claim;

(d)

enable claims arising from natural disaster to be reviewed after they have been settled; and

(e)

give reasons if insurers are unable to provide cover and refer customers to another insurer, the FOS or the National Insurance Brokers Association (NIBA) for further information about insurance options.

Compliance with the Code is monitored by the FOS (see [25.1230]) to which body alleged breaches of the Code may be reported. There is also in force a General Insurance Brokers’ Code of Practice which is part of a national self-regulatory scheme. The Code outlines professional standards of practice, legal compliance and dispute resolution procedures with respect to insurance brokers.

Further reading Australian and New Zealand Insurance Reporter (subscription service, CCH Australia Ltd). D Derrington and R Ashton, The Law of Liability Insurance (3rd ed, LexisNexis Butterworths, Sydney, 2013), 2 vols. D Kelly and M Ball, Principles of Insurance Law (subscription service, LexisNexis Butterworths, Sydney). I Enright and R Merkin, Sutton on Insurance Law (4th ed, Thomson Reuters, Sydney 2014), 2 vols. P Mann, Mann’s Annotated Insurance Contracts Act (7th ed, Thomson Reuters, Sydney 2016).

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Mann's Annotated Insurance Law Online (subscription service, Thomson Reuters).

Internet sites Financial Ombudsman Service http://www.fos.org.au (information on complaints procedure) General Insurance Code of Practice http://www.codeofpractice.com.au Insurance Council of Australia http://www.insurancecouncil.com.au

Journal Insurance Law Journal

PART PT 4 BUSINESS ORGANISATION

Chapter 26 Partnership Chapter 27 Company Law

chapter 26

Partnership [26.30] Nature of partnership.................................................................................................................................... 679 [26.200] Relationship of partners among themselves ................................................................................ 685 [26.350] Relationship of partners to third parties.......................................................................................... 691 [26.380] Liability of partners...................................................................................................................................... 692 [26.490] Dissolution of partnership ....................................................................................................................... 697 [26.620] Limited partnerships .................................................................................................................................. 702

Introduction [26.10] Partnership has a long history. Partnerships were a significant way of carrying on a business enterprise before the development of the limited liability company. A partnership is an association of persons who have agreed to pursue a business objective for their mutual benefit. The legal relationship arising out of a partnership is similar to the relationship between principal and agent, except that a partner is both a principal to and agent for the other partners. It is a fiduciary relationship which has been described as follows: “Ordinary partnerships are by the law assumed and presumed to be based on the mutual trust and confidence of each partner in the skill, knowledge and integrity of every other partner. As between the partners and the outside world (whatever may be their private arrangements between themselves), each partner is the unlimited agent of every other in every manner connected with the partnership business, and not being in its nature beyond the scope of the partnership”: Re Agriculturist Cattle Insurance Co (1870) LR 5 Ch App 725 at 733 per James LJ. Modern partnership legislation was introduced by the United Kingdom Partnership Act 1890 (UK). The law was soon adopted by all the Australian States. The legislation in each State is basically uniform and will be referred to in this chapter as the “Partnership Act”. 1 However, in New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania provision is also made for limited partnerships. 2 The Australian Capital Territory, Northern Territory, New South Wales, Queensland, South Australia, Tasmania and Victoria have also introduced incorporated limited partnerships. 3 These specialised partnership forms are discussed separately at [26.620]–[26.650].

1

2 3

The various Partnership Acts are: Partnership Act 1892 (NSW); Partnership Act 1958 (Vic); Partnership Act 1891 (Qld); Partnership Act 1891 (SA); Partnership Act 1895 (WA); Partnership Act 1891 (Tas); Partnership Act 1963 (ACT); Partnership Act 1997 (NT). Partnership Act 1892 (NSW), Pt 3; Partnership Act 1958 (Vic), Pt 3; Partnership Act 1891 (Qld), Ch 3; Partnership Act 1891 (SA), Pt 3; Limited Partnerships Act 1909 (WA); Partnership Act 1891 (Tas), Pt 3. Partnership Act 1963 (ACT), Pt 6; Partnership Act 1997 (NT), Pt 3; Partnership Act 1892 (NSW), Pt 3; Partnership Act 1958 (Vic), Pt 5; Partnership Act 1891 (Qld), Ch 4; Partnership Act 1891 (SA), Pt 6; Partnership Act 1891 (Tas), Pt 3.

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The principles of partnership law contained in the Partnership Act are essentially declaratory of the pre-existing law and are not to be taken as an exhaustive exposition of the law on the topic. Most provisions of the Partnership Act may be supplemented, amended or excluded by agreement, and it is provided that the rules of the common law and equity are to continue in force except insofar as they are inconsistent with the Act. 4 [26.20] Importance of partnership Although partnership has been eclipsed by the rise of the limited liability company, it is still a common form of business association. It provides a cheap means of income splitting for family businesses; it is the chosen or only permitted form of joint activity allowed in many professions, for example many firms of public accountants are partnerships; and it is a way of raising funds for major projects and complex investments. Some knowledge of the law relating to partnership is therefore essential to all in business.

4

Partnership Act 1892 (NSW), s 46; Partnership Act 1958 (Vic), s 4; Partnership Act 1891 (Qld), s 48; Partnership Act 1891 (SA), s 46; Partnership Act 1895 (WA), s 6; Partnership Act 1891 (Tas), s 5; Partnership Act 1963 (ACT), s 5; Partnership Act 1997 (NT), s 4. Considered in Cameron v Murdoch (1986) 60 ALJR 280 at 286.

chapter 26 Partnership

Nature of partnership Meaning of partnership [26.30] The Partnership Act defines a partnership as “the relation which subsists between persons carrying on a business in common with a view of profit”. 5 Business includes every trade, occupation or profession. 6 A partnership implies two things: (a)

a business being carried on in common; and

(b)

such business being carried on with a view to profit.

Typical examples of partnerships are two or more persons pursuing their trade or profession from their shop or office over a number of years and sharing the profits of their enterprise. These satisfy the traditional requirement, expounded by the Court of Appeal in Smith v Anderson (1880) 15 Ch D 247, before the passage of the Partnership Acts, that carrying on a business “implies a repetition of acts, and excludes the case of an association formed for doing one particular act which is never to be repeated”: at 277-278 per Brett LJ. However courts in the 20th century accepted that under the Act repetition of acts was not the hallmark of business. Partnership can arise where people enter into a joint venture in respect of a single undertaking or endeavour. The High Court relied on this development in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321.

case [26.40] F Ltd had made contracts for an Australian tour by two overseas pop singers. Subsequently, F Ltd agreed to assign to V Ltd “a one-half interest in the … contracts and to perform the said contracts as a joint venture” in consideration of a loan of $70,000 by V Ltd to the joint venture repayable before distribution of profits. It was further agreed that profits would be divided equally between the parties, that matters of policy relating to the joint venture were to be agreed upon by them and that differences were to be settled by arbitration. The High Court held that the agreement between F Ltd and V Ltd constituted them “joint venturers in a commercial enterprise with a view to profit” or partners in the joint venture: Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321. [26.50] A partnership commences when the proposed partners take the first step to implement their business plan. This is likely to precede the opening of their business for dealings with the public. The situation is well illustrated by Khan v Miah [2000] 1 WLR 2123 (HL), which concerned the establishment of an Indian restaurant. Lord Millett, delivering the judgment of the House of Lords, said: “There is no rule of law that the parties to a joint venture do not become partners until actual trading commences. The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is 5

Partnership Act 1892 (NSW), s 1; Partnership Act 1958 (Vic), s 5; Partnership Act 1891 (Qld), s 5; Partnership Act 1891 (SA), s 1; Partnership Act 1895 (WA), s 7; Partnership Act 1891 (Tas), s 6; Partnership Act 1963 (ACT), s 6; Partnership Act 1997 (NT), s 5.

6

Partnership Act 1892 (NSW), s 45; Partnership Act 1958 (Vic), s 3; Partnership Act 1891 (Qld), s 3; Partnership Act 1891 (SA), s 45; Partnership Act 1895 (WA), s 3; Partnership Act 1891 (Tas), s 4; Partnership Act 1963 (ACT), s 4; Partnership Act 1997 (NT), s 3.

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necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it … The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is taken with a view to profit, and may be undertaken as well by partners as by a sole trader”: at 2127. Partnerships do not have to make profits but they must be created with a view to profit. However, it is possible for a person to be a partner, even though they do not have a direct claim to a share of the profits. This was recognised in the English Court of Appeal decision, M Young Legal Associates Ltd v Zahid [2006] 1 WLR 2562.

case [26.60] In M Young Legal Associates Ltd v Zahid [2006] 1 WLR 2562, Young, a legal funding firm, was suing the now dissolved firm of Zahid for unpaid commissions. Two former partners acknowledged their association. However, Lees, a retired solicitor, who had agreed to become a principal in the business on the understanding that he would contribute no capital and take no share of profits but would accept an annual retainer for his supervisory role in the firm, denied that he was a partner. His name appeared on the letterhead of Zahid until the firm failed but this had not been noticed by Young. Wilson LJ, delivering the leading judgment, recognised that at common law a partner had to participate in the profits and losses of the business but, following passage of the Partnership Act 1890 (UK), the recipients of a fixed sum payment could be partners in the firm. [26.70] On the other hand, associations for the purpose of sport (such as cricket clubs) or charity (benevolent associations) or those not organised for the purpose of making pecuniary profits (religious associations) are not partnerships. These associations may make profits from ancillary business activities but they reinvest those profits in their primary activities and, critically, do not distribute them as dividends to their members. Members of a corporation incorporated under the provisions of the Corporations Act 2001 (Cth), a special Act of Parliament, or Royal Charter are not partners and are not governed by the Partnership Acts.

Determination of existence of partnership [26.80] It is often difficult to determine whether a partnership does or does not exist. Whether the partners call themselves partners or not is not necessarily a vital factor. A partnership may exist even where the parties have expressly stated that their relationship is not to be considered a partnership. The receipt by a person of a share in the net profits of a business is prima facie evidence of the existence of a partnership, especially if each member bears a share of losses, but it does not of itself make that person a partner. The existence of a partnership “implies also the existence of such a relation between those persons as that each of them is a principal and each an agent for the others”: Shaw v Galt (1864) 16 Ir CL Rep 357 at 375. The most important factors to be taken into account in determining whether or not a partnership exists are: (a)

the intention of the parties, as ascertained by the court after viewing the whole of the facts of each case; and

(b)

participation in the net profits of a business accompanied by an agency relationship between the parties.

chapter 26 Partnership 7

The Partnership Act provides that in determining whether or not a partnership exists, regard shall be had to the following rules: 1.

Joint or part ownership or joint tenancy, or tenancy in common whether or not the owners or tenants share the profits, does not of itself create a partnership as to anything so held or owned.

2.

The sharing of gross returns whether the persons sharing such returns have or have not a joint or common right or interest in any property from which the returns are derived, does not of itself create a partnership.

3.

The receipt by a person of a share of the profits of a business is prima facie evidence that they are a partner in the business, but the receipt of such a share, or of an amount of money varying with the profits of the business, does not itself make that person a partner in the business, and in particular the following circumstances do not of themselves make such person a partner: (a)

the receipt of a debt by instalments or otherwise from the profits;

(b)

the receipt of remuneration by a servant or agent of a person engaged in business, by a share of the profits of that business;

(c)

the receipt by a spouse or child of a deceased partner of an annuity out of the profits;

(d)

the receipt of interest varying with the profits, or of a share of the profits in consideration of an advance. However, a contract providing for such interest or profit must be in writing and signed by all the parties, otherwise a partnership may exist;

(d)

the receipt of a portion of the profits of a business in consideration of the sale of the goodwill of such business.

Examples: A partnership was held not to exist in the following instances: 1.

Where co-owners of a rented house divided the proceeds after charging only certain specified expenses. The common ownership of property does not of itself create any partnership between the owners.

2.

Where a sharebroker agreed to pay a person part of the commission earned in consideration of introductions. The arrangement provided for the agent to bear half the loss caused through his introductions: Sutton & Co v Grey [1894] 1 QB 285.

3.

Where two persons, who had agreed to go into business worked together to form the company. One party, prior to incorporation of the company and without the other’s authority, ordered goods intended to be used by the company. It was held that they were not partners since they had merely worked together to form a company and had not been “carrying on a business with a view of profit”. Accordingly, when the party who had ordered the goods became insolvent, the other was not liable to the seller for the price in an action based on the existence of an alleged partnership: Keith Spicer Ltd v Mansell [1970] 1 WLR 333.

Joint venture and partnership [26.90] A “joint venture” is created whenever two or more people enter into an agreement to exploit a business opportunity with respect to a particular project or undertaking (for example, for the development of land, or the exploitation of some asset such as minerals or patent rights). 7

Partnership Act 1892 (NSW), s 2; Partnership Act 1958 (Vic), s 6; Partnership Act 1891 (Qld), s 6; Partnership Act 1891 (SA), s 2; Partnership Act 1895 (WA), s 8; Partnership Act 1891 (Tas), s 7; Partnership Act 1963 (ACT), s 7; Partnership Act 1997 (NT), s 6.

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Joint ventures are a popular way of gathering together resources, experience and funds to undertake a commercial venture. Some venturers do not mind whether their joint venture is a partnership or not but many seek to enter non-partnership joint ventures. They want the benefits of joint involvement without the unlimited liability that is a characteristic of partnership. They can achieve this if they structure their venture so that it avoids taking on the features of a partnership.

case [26.100] Two persons agreed to hire a theatre, put on a show and divide the proceeds between them 60/40. One party had to pay the expenses of the hall, the other paid the actors. The judge explained that this arrangement did not constitute a partnership: “Although the gross takings were divided between them, there was not any partnership; each had to discharge his own separate liabilities in respect of the venture. The travelling expenses, the remuneration of the actors, the cost of the appliances had to be borne entirely by one party. The theatre rent and outgoings, the cost of lighting, and the cost of the playbills were wholly to be borne by the other party. One of them might have made a profit out of the venture, and the other might have made a loss. Neither of them had authority to bind the other in any way; there was no agency between them. The sharing of gross returns does not of itself create a partnership”: Cox v Coulson [1916] 2 KB 177 at 181 per Swinfen Eady LJ. [26.110] However, where there is profit sharing and a more integrated business structure, there is a greater likelihood that the joint venture will be a partnership, as the High Court held when it analysed the facts in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321.

Differences between a partnership and a limited liability company [26.120] A limited liability company is an association of persons usually incorporated under the Corporations Act 2001 (Cth). A partnership differs from a limited liability company in the following respects: 1.

The maximum number of members of a partnership is ordinarily limited to 20 persons. There is no statutory limit to the maximum number of members who may comprise a public company.

2.

The members of a company have limited liability for the company’s debts but members of an ordinary partnership have unlimited liability for the debts of the partnership.

3.

A partnership has no legal existence separate from its members but, except in New South Wales, although it is unusual, a partnership can sue or be sued in its firm name. A company is a distinct legal entity and may sue or be sued by any of its members.

4.

A company is invested with perpetual succession. The death or bankruptcy of a member is not a ground for having the company liquidated, whereas in a partnership, in the absence of an agreement to the contrary, these circumstances would cause a dissolution.

5.

The management of a partnership is in the hands of all the partners and they are entitled to take an active part in such management unless it is otherwise agreed. In companies, the management is delegated to a board of directors who in turn may appoint further executive officers to act in the management of the company’s affairs.

6.

The capital of a company will generally be divided into shares. Each share, in the absence of pre-emption clauses, may be individually transferred without the necessity of obtaining the

chapter 26 Partnership

permission of all members. In partnerships, interests are assignable but the assignee will not ordinarily be recognised as a partner, in substitution for the assignor, unless all other partners agree.

Difference between partnership and co-ownership [26.130] The Partnership Act 8 provides that co-ownership “does not of itself create a partnership”, and thus it is sometimes important to know whether persons are partners or co-owners. The main differences between the two concepts are: 1.

Partnership involves the carrying on of business in common and the sharing of profits and losses; co-ownership does not necessarily involve this.

2.

Partnership is the result of agreement; this is not necessarily so with co-ownership, which may arise through actions of a third party, such as in the case of beneficiaries under a will.

3.

A partner cannot transfer their interest and make the assignee a partner without the consent of the other parties to the partnership; a co-owner may do so.

4.

A partner is an agent of the partnership; a co-owner is not necessarily an agent of other co-owners.

5.

A partnership involves carrying on a business for gain but co-ownership need not be for such purpose.

The distinction between partnership and co-ownership where the co-owners share profits is a very fine one and determination of the nature of the association will depend upon the arrangements between the parties.

Formation of partnership [26.140] A partnership is created by agreement. The agreement may be oral, written, under seal or inferred from a course of dealing adopted or agreed upon by all the partners. 9 Capacity to enter into a contract of partnership is governed by the general law of contract but minors are in a special position: see [26.180].

Number in partnership [26.150] Under the Corporations Act 2001 (Cth), s 115 the maximum number of persons who may form a partnership for the acquisition of gain is 20, except where partnerships are formed to carry on certain professions or callings 10 or are incorporated or formed under another Australian law. A person who takes part in the formation of a business association with more than the allowed number of members, known as an “outsize partnership”, becomes liable to a criminal penalty ($900) but the agreement is not invalid and does not affect the enforceability of contracts or other arrangements made. 11 Both partners and outsiders should be able to implement the transactions of outsize partnerships to the same extent as those of ordinary partnerships. 8

Partnership Act 1892 (NSW), s 2; Partnership Act 1958 (Vic), s 6; Partnership Act 1891 (Qld), s 6; Partnership Act 1891 (SA), s 2; Partnership Act 1895 (WA), s 8; Partnership Act 1891 (Tas), s 7; Partnership Act 1963 (ACT), s 7; Partnership Act 1997 (NT), s 6.

9

Formerly, if the partnership was to continue for more than one year, the agreement had to be evidenced in writing to be enforceable under the Statute of Frauds 1677 (IMP). However, this particular requirement of the Statute of Frauds 1677 has been repealed in all States and Territories with the exception of Tasmania: see Mercantile Law Act 1935 (Tas), s 6. The Corporations Regulations 2001 (Cth), reg 2A.1.01 sets maxima of 50 for actuaries, medical practitioners, patent attorneys, sharebrokers and stockbrokers, and trade mark attorneys; 100 for architects, pharmaceutical chemists and veterinary surgeons; 400 for legal practitioners and 1,000 for accountants.

10

11

Corporations Act 2001 (Cth), s 103.

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Capacity to be a partner [26.160] Certain types of persons have restricted capacity to enter into partnership. The most important of these are persons of unsound mind and minors.

Persons of unsound mind as partners [26.170] A person of unsound mind is capable of entering into partnership during a period of sanity. To escape liability as a partner it must be proved that they were of unsound mind when they entered the partnership, and the party with whom they entered the partnership knew this. Otherwise the partner who is of unsound mind is both capable of binding the firm as a partner and of being bound by their co-partners.

Minors as partners [26.180] A minor (that is, a person under 18 years of age) may be a partner although generally it is not a satisfactory arrangement for the other partners. If a partner who is a minor enters into contracts with third parties on behalf of the firm, such contracts bind the adult partners but the minor is not liable for partnership debts so far as their private assets are concerned. The adult partners, however, have the right to apply the whole of the partnership assets (including the capital contributed by the minor) to pay all partnership debts. A creditor who has obtained judgment against the firm may seize all partnership property but not the minor’s separate property. On or before attaining majority the minor may repudiate the partnership agreement but unless the minor repudiates it within a reasonable time after attaining majority, he or she will become liable as an ordinary partner. 12

Firm name [26.190] Those who have entered into partnership with one another are called collectively a firm, and the name under which their business is carried on is called the firm name. 13 The firm name may be the name of one or more members of the partnership or may be an assumed name, for example Excelsior Estate Agency. A partnership may include the word “company” in its name, for example Weir & Co but must not use the word “limited” as the last word in its name. There is separate legislation which controls the actual registration of the firm name. 14 Registration of the firm name is required, unless the firm name consists only of the full names or surnames and initials of all partners. For instance, it would be necessary to register the firm name of the following partnerships: Brown & Co

12

13

14

Wilson & Smith

Apex Motor Garage

However, in New South Wales the legal position of minors differs markedly from that in the other States as a result of the Minors (Property and Contracts) Act 1970 (NSW) while, in South Australia, the Minors Contracts (Miscellaneous Provisions) Act 1979 (SA) provides both a way of validating minors’ contracts and the possibility of minors avoiding some common law liabilities, see the discussion of that legislation at [6.150]–[6.160]. Partnership Act 1892 (NSW), s 4; Partnership Act 1958 (Vic), s 8; Partnership Act 1891 (Qld), s 3; Partnership Act 1891 (SA), s 4; Partnership Act 1895 (WA), s 10; Partnership Act 1891 (Tas), s 9; Partnership Act 1963 (ACT), s 8; Partnership Act 1997 (NT), s 8. Business Names Registration Act 2011 (Cth) replaced State and Territorial Acts on 28 May 2012.

chapter 26 Partnership

The particulars requiring registration include the business name, the general nature and principal place of the business, and in respect of every individual partner there must be disclosed: (a)

their given names and surnames;

(b)

their usual residence; and

(c)

any other business occupation that they follow.

A change or alteration in the constitution of the firm must also be registered. The legislation also prohibits the inclusion of certain words in a trade or business name, for example, Royal, Crown, etc.

Relationship of partners among themselves [26.200] Partnerships arise by agreement and partnership law affords partners great latitude to establish the terms of their relationship. In most partnerships, an agreement, usually written, details the major terms of the partnership relation. However, to the extent that the agreement does not cover aspects of the relationship and does not exclude the statutory terms, the relationship will be governed by the implied terms detailed in the partnership legislation. Superimposed upon the contractual arrangement are the fiduciary obligations of equity which require partners to deal openly and in good faith with each other in all matters concerning the partnership. The agreement establishes the nature and extent of the partnership business; fiduciary obligations should be the prime regulator of partners’ conduct one to another within that range.

The agreement [26.210] Although an agreement can be reached orally or by a course of conduct, it is good practice for the rights, duties and liabilities of the partners among themselves to be set out in a written partnership agreement. While oral arrangements may be subsequently denied and it is difficult to prove a course of conduct, a written agreement places on record the intention of the partners to create a partnership. It is desirable that, at least, the following matters should be covered in a partnership agreement: (a)

the names of the partners and the firm name;

(b)

the nature of the business;

(c)

the term of the partnership;

(d)

the capital to be introduced by each partner;

(e)

provisions for proper accounts and their audit;

(f)

the authority of partners;

(g)

provision as to the division of the profits;

(h)

arrangements as to partners’ drawings;

(i)

arrangements as to partners’ salaries;

(j)

provision regarding interest on capital;

(k)

arrangements as to interest on advances;

(l)

arrangements as to interest on drawings;

(m)

provisions regarding the death or bankruptcy of a partner;

(n)

details regarding the retirement of a partner;

(o)

the amount to be paid to an outgoing partner;

(p)

method of valuing goodwill upon death or retirement of a partner; and

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(q)

any special restraints to be observed by partners.

The rights and duties of partners may be varied during the partnership with the consent of all partners (such consent being either express or implied), or in any manner specially provided by the partnership agreement. For instance, it may be provided in the agreement that the senior partner is solely responsible for hiring and firing the practice manager.

Implied terms [26.220] Subject to any contrary agreement express or implied by the partners, the following rules, set out in the Partnership Act, 15 determine the rights, duties and interests of partners: 1.

All the partners are entitled to share equally in the capital 16 and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm. The Act provides for equality of profits notwithstanding that capital has been contributed unequally. This recognises the fact that partners may contribute a personal value to the firm apart from the monetary value of any capital paid in.

2.

The firm must indemnify every partner in respect of payments made and personal liabilities incurred by those partners: (a)

in the ordinary and proper conduct of the business of the firm; or

(b)

in or about anything necessarily done for the preservation of the business or property of the firm.

3.

A partner making for the purpose of the partnership any actual payment or advance beyond the amount of capital which they have agreed to subscribe is entitled to interest at the rate of 7 per cent per annum in New South Wales, Victoria and South Australia, Australian Capital Territory and Northern Territory and to 6 per cent in Queensland, Western Australia and Tasmania, from the date of the payment or advance.

4.

A partner is not entitled before the ascertainment of profits to interest on the capital subscribed by them.

5.

Every partner may take part in the management of the partnership business. Unless specially provided by agreement between the parties, one partner has no more authority than another.

6.

No partner is entitled to remuneration for acting in the partnership business. This provision is often varied by the partnership agreement but unless so provided the partners must give their services to the partnership affairs gratuitously. Where one of the partners has neglected to meet commitments to the partnership business and has thus thrown extra burdens on their co-partner, then the partner not in default may be entitled to claim damages to compensate for the consequences of the breach of the partnership agreement: Wang v Rong [2015] NSWSC 1419 at [49].

7.

No person may be introduced as a partner without the consent of all existing partners. This is recognised as one of the fundamental principles of partnership. If two or more persons have sufficient faith in one another to enter into an agreement of partnership, they are entitled to have the

15

Partnership Act 1892 (NSW), s 24; Partnership Act 1958 (Vic), s 28; Partnership Act 1891 (Qld), s 27; Partnership Act 1891 (SA), s 24; Partnership Act 1895 (WA), s 34; Partnership Act 1891 (Tas), s 29; Partnership Act 1963 (ACT), s 29; Partnership Act 1997 (NT), s 28. It is argued that, for consistency with the express reference to capital losses later in this provision, the first “capital” should be interpreted as a reference to realised capital gains, not partners’ capital contributions.

16

chapter 26 Partnership

right of determining if others are to be admitted. However, it is not uncommon to find a partnership agreement providing for a majority of the partners to have the right to introduce another person into the partnership. 8.

Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of partners. However, no change may be made in the nature of partnership business without the consent of all existing partners.

9.

The partnership books are to be kept at the place of business of the partnership (or the principal place if there is more than one) and every partner may have access to inspect and copy any of them when he or she thinks fit.

Expulsion of partner [26.230] A majority of the partners cannot expel a partner unless power to do so has been conferred by express agreement between the partners. 17 If such a power of expulsion is conferred by the partnership agreement it must be exercised in the utmost good faith by all the partners whose concurrence is necessary. In general, a partner that the others propose to expel is entitled to natural justice: they must be given notice of the charge and a reasonable opportunity of meeting the case against them before receiving notice of expulsion but, except in Western Australia, partnership agreements may dispense with the need for notice or a hearing. Provided the partners exercise the power of expulsion in good faith with a view to the benefit of the firm and strictly in accordance with the terms of the partnership agreement, the court will not interfere.

Fiduciary obligation [26.240] The partnership agreement is not only a contract but is a class of contract founded on mutual trust. A fiduciary relationship of trust and confidence exists between partners, giving rise to a fiduciary duty of full disclosure towards each other for all matters concerning the firm. The partners are bound to exercise the utmost good faith in their dealings with one another. This obligation continues throughout the term of the partnership. It does not conclude with dissolution but continues until the final settlement of accounts on winding up. An example of this rule in operation is found in Chan v Zacharia (1984) 154 CLR 178.

case [26.250] On the dissolution of a medical partnership, one of its more valuable assets was the lease of surgery premises, with rights of renewal. One of the partners suggested to the other that the option to renew should be exercised but the other negotiated a new lease of the premises in his own name. The High Court held that there was nothing to rebut the equitable presumption that the new lease had been obtained because of the previous business connection and that the doctor who had renewed the lease in his own name was bound to account to the partnership in respect of the renewal: Chan v Zacharia (1984) 154 CLR 178.

17

Partnership Act 1892 (NSW), s 25; Partnership Act 1958 (Vic), s 29; Partnership Act 1891 (Qld), s 28; Partnership Act 1891 (SA), s 25; Partnership Act 1895 (WA), ss 35, 36; Partnership Act 1891 (Tas), s 30; Partnership Act 1963 (ACT), s 30; Partnership Act 1997 (NT), s 29.

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[26.260] Furthermore, the fiduciary relationship will arise when prospective partners enter into negotiations that involve the disclosure of sensitive information. “[A] fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled”: United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 12 per Mason, Brennan and Deane JJ. Fiduciary obligations can be curtailed by agreement but few partners see any benefit in that and the rules that find expression in the Partnership Act as obligations to account for breaches of duty are rarely excluded by partners. Partners must render true accounts and full information of all things affecting the partnership to any partner or to their legal representative. 18 Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership, or for any use by them of the partnership property, name or business connection. 19 The renewal by one or more of the partners without the knowledge of the others of a lease of property leased in connection with the partnership business must be accounted for to the firm so that all the partners may benefit. The liability to account applies also to transactions undertaken after a partnership has been dissolved by the death of a partner and before the affairs of the partnership have been completely wound up, either by any surviving partner or by the representatives of the deceased partner. If a partner without the consent of the other partners carries on any business of the same nature as, and competing with, that of the firm, they must account for and pay over to the firm all profits they made in that business. 20 However, a partner may derive private profit in matters entirely outside the scope of, and not in competition with, the business by the use of information acquired in the business, for example by dealing in the buying and selling of shares on information acquired as an accountant.

Retirement of partner [26.270] Where no fixed term has been agreed upon for the duration of the partnership, that is, in the case of a partnership at will, any partner may determine the partnership at any time by giving notice of their intention to do so to all the other partners. 21 The dissolution takes place from the date mentioned in the notice or if none is specified then from the date when the notice is communicated. If a partnership has been constituted by deed, written notice signed by the partner giving it is sufficient notice. 18

19

20

21

Partnership Act 1892 (NSW), s 28; Partnership Act 1958 (Vic), s 32; Partnership Act 1891 (Qld), s 31; Partnership Act 1891 (SA), s 28; Partnership Act 1895 (WA), s 39; Partnership Act 1891 (Tas), s 33; Partnership Act 1963 (ACT), s 33; Partnership Act 1997 (NT), s 32. Partnership Act 1892 (NSW), s 29; Partnership Act 1958 (Vic), s 33; Partnership Act 1891 (Qld), s 32; Partnership Act 1891 (SA), s 29; Partnership Act 1895 (WA), s 40; Partnership Act 1891 (Tas), s 34; Partnership Act 1963 (ACT), s 34; Partnership Act 1997 (NT), s 33. Partnership Act 1892 (NSW), s 30; Partnership Act 1958 (Vic), s 34; Partnership Act 1891 (Qld), s 33; Partnership Act 1891 (SA), s 30; Partnership Act 1895 (WA), s 41; Partnership Act 1891 (Tas), s 35; Partnership Act 1963 (ACT), s 35; Partnership Act 1997 (NT), s 34. Partnership Act 1892 (NSW), s 26; Partnership Act 1958 (Vic), s 30; Partnership Act 1891 (Qld), s 29; Partnership Act 1891 (SA), s 26; Partnership Act 1895 (WA), s 37; Partnership Act 1891 (Tas), s 31; Partnership Act 1963 (ACT), s 31; Partnership Act 1997 (NT), s 30.

chapter 26 Partnership

Revocation of guarantee by change in firm [26.280] A continuing guarantee given by or to a partnership, subject to any agreement to the contrary, is revoked as to future transactions by any change in the constitution of the partnership. 22 Should one partnership give such a guarantee for another partnership the guarantee would be revoked by a change in the construction of either partnership.

Continuance of business after expiration of term [26.290] Where a partnership which has been entered into for a fixed term is continued after the term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term but the partnership becomes a partnership at will. 23

Partnership property [26.300] Partnership property must be used exclusively for the purposes of the partnership and in the manner set out in the partnership agreement. 24 Partnership property consists of: (a)

property originally brought into the partnership;

(b)

property acquired whether by purchase or otherwise on account of the firm or for the purposes and in the course of the partnership business;

(c)

property acquired with the firm’s money unless the contrary intention of the parties appears from the transactions; and

(d)

the goodwill of the business.

The right of a partner in a trading partnership to sell the property of the partnership cannot be limited by stipulation between the partners unless the purchaser has express notice of the limitation: Montefiore v Smith (1876) 14 SCR (NSW) 245. The Partnership Act also provides that, in the absence of any agreement to the contrary, where co-owners of land are partners as to the profits resulting from the land and they purchase other lands out of those profits to be used in like manner, they own the lands so purchased not as partners but as co-owners in the same shares as they owned the original land. 25 Whether the separate property of one partner used in a partnership becomes part of the assets of the partnership or remains the separate property of the partner ultimately depends upon the agreement between the partners. Where no express agreement has been reached between the partners, agreement may be inferred from the manner in which the affairs of the partnership have been conducted. However, to conclude as a matter of inference that the parties intended that the separate property of one partner was to become part of the assets of the partnership their conduct must plainly lead to that result: Kelly v Kelly (1990) 64 ALJR 234 (HC). 22

23

24

25

Partnership Act 1892 (NSW), s 18; Partnership Act 1958 (Vic), s 22; Partnership Act 1891 (Qld), s 21; Partnership Act 1891 (SA), s 18; Partnership Act 1895 (WA), s 25; Partnership Act 1891 (Tas), s 23; Partnership Act 1963 (ACT), s 22; Partnership Act 1997 (NT), s 22. Partnership Act 1892 (NSW), s 27; Partnership Act 1958 (Vic), s 31; Partnership Act 1891 (Qld), s 30; Partnership Act 1891 (SA), s 27; Partnership Act 1895 (WA), s 38; Partnership Act 1891 (Tas), s 32; Partnership Act 1963 (ACT), s 32; Partnership Act 1997 (NT), s 31. Partnership Act 1892 (NSW), s 20; Partnership Act 1958 (Vic), s 24; Partnership Act 1891 (Qld), s 23; Partnership Act 1891 (SA), s 20; Partnership Act 1895 (WA), s 30; Partnership Act 1891 (Tas), s 25; Partnership Act 1963 (ACT), s 24; Partnership Act 1997 (NT), s 24. Partnership Act 1892 (NSW), s 20; Partnership Act 1958 (Vic), s 24; Partnership Act 1891 (Qld), s 23; Partnership Act 1891 (SA), s 20; Partnership Act 1895 (WA), s 30; Partnership Act 1891 (Tas), s 25; Partnership Act 1963 (ACT), s 24; Partnership Act 1997 (NT), s 24.

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Property used for the purposes of the partnership business may still remain the separate property of one of the partners notwithstanding improvements to the property carried out by the partnership: Harvey v Harvey (1970) 120 CLR 529.

Partnership land treated as personalty [26.310] Where part of the partnership property is land, it is treated as between the partners and also as between the heirs and representatives of a deceased partner as personal property and not real property unless the contrary intention appears. 26 Thus, where a testator leaves all his personalty to A and all his realty to B, A would be entitled to the testator’s interest in the real estate of any partnership of which the testator was a member.

Goodwill [26.320] Associated with professions, trade and commerce is an intangible asset commonly known as “goodwill”. Goodwill has been defined as “the probability that the old customers will resort to the old place”: Cruttwell v Lye (1810) 17 Ves Jr 335; 34 ER 129. It consists of the advantages a business has in connection with its customers. “Often it happens that the goodwill is the very sap and life of the business, without which the business would yield little or no fruit. It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money”: Trego v Hunt [1896] AC 7 at 23 per Lord Macnaghten. The goodwill of a partnership business like any other partnership asset is, in the absence of any agreement to the contrary, to be sold upon the dissolution of a partnership for the benefit of all the partners.

Provisions in partnership agreement [26.330] A deceased partner’s representative or a retiring partner is entitled to a share of the goodwill at the date of death or retirement. To avoid disputes or the necessity of selling the business to determine the value of goodwill, provision should be contained in the agreement as to the basis upon which the value of the goodwill is to be estimated. The agreement, for instance, may provide that the goodwill upon the death or retirement of a partner is to be calculated as worth, say, two years’ purchase of the average profits over the last five preceding years, and that the retiring or deceased partner is to be entitled to their share of the total value of the goodwill according to the proportion in which they shared profits. In some agreements it is provided that the goodwill is to be valued as at the date of death or retirement by a public accountant.

Charging a partner's share [26.340] Partnership property is not liable to be seized for the private debt of a partner and may only be made liable on a judgment against the partnership. A creditor who has obtained judgment in respect of the separate debt of a partner, however, may obtain an order charging that partner’s interest in the partnership property and profits with the amount of the debt and interest. In addition, the creditor may obtain by the same or a subsequent order the appointment of a receiver of that partner’s share of profits and of any other money which may be coming to the partner 26

Partnership Act 1892 (NSW), s 22; Partnership Act 1958 (Vic), s 26; Partnership Act 1891 (Qld), s 25; Partnership Act 1891 (SA), s 22; Partnership Act 1895 (WA), ss 32, 33; Partnership Act 1891 (Tas), s 27; Partnership Act 1963 (ACT), s 27; Partnership Act 1997 (NT), s 26.

chapter 26 Partnership

in respect of the partnership. The other partner or partners may at any time redeem the interest charged, or, in the case of a sale being directed, purchase the same. 27 If a partner allows their share of a partnership to be so charged for their separate debt the other partners may dissolve the partnership.

Relationship of partners to third parties [26.350] Each partner is an agent of the firm and their other partners for the purpose of the business of the partnership. Furthermore, the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which they are a member, bind the firm and the partners unless: (a)

the partner exceeds their authority in the particular matter and the person with whom the partner is dealing knows that the partner has exceeded their authority; or

(b)

the person with whom the partner is dealing does not know or believe them to be a partner. 28

Where a partner has no actual authority to bind a co-partner in respect of a particular matter, and the third party is not aware of the existence of a partnership, a contract entered into by a partner with the third party in their own name as principal is not binding on a co-partner: Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541.

Apparent or Ostensible authority [26.360] While a partner may have the authority of the other partners to engage in particular activities, third parties will not be aware of the partner’s actual authority but will deal on the basis of apparent or ostensible authority. The authority of a partner may be implied. Such authority extends to all matters necessary for carrying on the business of the firm in the usual way in which businesses of a like kind are carried on. This authority only extends to transactions in the usual course of the partnership business, and carried out in the usual way, otherwise the firm will not be liable even though the partnership derives a benefit from the act: Lederberger v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509 (VSCA) at [45]–[56]. There are certain acts which partners are entitled to perform. These are as follows: (a)

to sell any goods or personal chattels of the firm;

(b)

to purchase on account of the firm any goods of a kind necessary for or usually employed in the business carried on by it. For example, a member of a partnership conducting the business of farming was deemed to have implied authority to purchase farming machinery on time payment (Molinas v Smith [1932] QSR 77);

(c)

to receive payment of debts due to the firm, and give receipts or releases for them;

(d)

to engage employees for the partnership business.

27

28

Partnership Act 1892 (NSW), s 23; Partnership Act 1958 (Vic), s 27; Partnership Act 1891 (Qld), s 26; Partnership Act 1891 (SA), s 23; Civil Judgments Enforcement Act 2004 (WA), s 14(4); Partnership Act 1891 (Tas), s 28; Civil Procedure Rules 2006 (ACT); Partnership Act 1997 (NT), s 27. Partnership Act 1892 (NSW), s 5; Partnership Act 1958 (Vic), s 9; Partnership Act 1891 (Qld), s 8; Partnership Act 1891 (SA), s 5; Partnership Act 1895 (WA), s 26; Partnership Act 1891 (Tas), s 10; Partnership Act 1963 (ACT), s 9; Partnership Act 1997 (NT), s 9.

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If the partnership is a trading one (for example, is engaged in the buying and selling of goods), every partner may also bind the firm by any of the following acts: (e)

accept, make, and issue bills of exchange and other negotiable instruments in the name of the firm;

(f)

borrow money on the credit of the firm;

(g)

for that purpose pledge any goods or personal chattels belonging to the firm; and

(h)

for the like purpose give an equitable mortgage, by deposit of deeds or otherwise, of real estate or chattels real belonging to the firm but he or she cannot give a legal mortgage of land.

Authority not implied [26.370] A partner has no implied authority to bind the firm by deed for such authority must be given to that partner by deed. Furthermore, a partner has no implied authority to give a guarantee in the name of the firm or to bind the firm by a submission to arbitration. A partner cannot pledge the firm’s credit for a purpose not apparently connected with its ordinary course of business without express authority, 29 nor can he or she pledge the firm’s assets for private debts where the other party knows they are not that partner’s own assets. However, where the party is unaware that the assets are not the partner’s private property the charge is effective. If it has been agreed between the partners that any restrictions be placed upon the power of any one or more of them to bind the firm, an act done in contravention of the agreement is not binding on the firm with respect to persons having notice of the agreement. 30

Liability of partners Liability in contract to third parties [26.380] Except in New South Wales, 31 each partner is liable jointly with the other partners for all debts and obligations of the firm incurred while he or she is a partner. Partners may, among themselves, make any arrangements they choose as to the sharing of the liabilities for partnership obligations but, as regards third parties, all members of the partnership are liable for the obligations of the firm. In the absence of special statutory provision, although each partner is liable with the others for the whole of the debts of the firm, their liability is only joint, that is a creditor can bring only one action against the members of a partnership and any partner can insist that the action be stayed until all other partners are joined as parties. This is because where a debt is joint, as opposed to joint and several, there is only one cause of action. Accordingly, if judgment is signed in the action, the single cause of action is merged in the judgment. If judgment is obtained against one member of a firm no action may be taken against the others even if satisfaction cannot be obtained from the partner sued. 29

30

31

Partnership Act 1892 (NSW), s 7; Partnership Act 1958 (Vic), s 11; Partnership Act 1891 (Qld), s 10; Partnership Act 1891 (SA), s 7; Partnership Act 1895 (WA), s 14; Partnership Act 1891 (Tas), s 12; Partnership Act 1963 (ACT), s 11; Partnership Act 1997 (NT), s 11. Partnership Act 1892 (NSW), s 8; Partnership Act 1958 (Vic), s 12; Partnership Act 1891 (Qld), s 11; Partnership Act 1891 (SA), s 8; Partnership Act 1895 (WA), s 15; Partnership Act 1891 (Tas), s 13; Partnership Act 1963 (ACT), s 12; Partnership Act 1997 (NT), s 12. The Supreme Court Act 1970 (NSW), s 97 provides for joint and several liability in contract. This means that, as with the case of tortious liability, a plaintiff whose judgment on a partnership claim against one partner is not satisfied may pursue other partners, collectively or progressively, until the full amount of the judgment is paid.

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The estate of a deceased partner is severally liable for debts of the partnership contracted before their death but subject first to the prior payment of the deceased partner’s separate debts. 32 After a partner’s death the continued use of the deceased partner’s name does not of itself make their estate liable for debts of the partnership contracted after the partner’s death even as regards old customers or creditors having no notice of their death. 33 A representation made by any partner concerning the partnership affairs, and in the ordinary course of its business, is evidence against the firm. 34 Notice given to any partner who usually acts in the partnership operates as notice to the firm except in the case of a fraud committed by or with the consent of that partner. 35

Liability of incoming partner [26.390] A person admitted into an existing firm does not become liable for debts or obligations contracted before he or she became a partner. 36 However, liability may be incurred where it is specially agreed upon, for example, where it is agreed to release a retiring partner from the firm’s debts and substitute an incoming partner. Such a contract, however, cannot be enforced by a third party (that is, a creditor) against the incoming partner unless the third party was a party to the contract.

Liability of retiring partner [26.400] A partner who retires from a firm does not thereby cease to be liable for partnership debts incurred before their retirement. However, a retiring partner may be discharged from any existing liabilities by an agreement to that effect between themselves and the members of the firm as newly constituted and the creditors. The agreement may be either express or inferred from the course of dealing between the creditors and the firm as newly constituted. 37 Such an agreement is called a tripartite agreement. The creditors (first party) will agree to release the retired partner (second party) and the continuing (and new) partners (third party) will accept liability.

32

Partnership Act 1892 (NSW), s 9; Partnership Act 1958 (Vic), s 13; Partnership Act 1891 (Qld), s 12; Partnership Act 1891 (SA), s 9; Partnership Act 1895 (WA), s 16; Partnership Act 1891 (Tas), s 14; Partnership Act 1963 (ACT), s 13; Partnership Act 1997 (NT), s 13.

33

Partnership Act 1892 (NSW), s 14; Partnership Act 1958 (Vic), s 18; Partnership Act 1891 (Qld), s 17; Partnership Act 1891 (SA), s 14; Partnership Act 1895 (WA), s 21; Partnership Act 1891 (Tas), s 19; Partnership Act 1963 (ACT), s 18; Partnership Act 1997 (NT), s 18. Partnership Act 1892 (NSW), s 15; Partnership Act 1958 (Vic), s 19; Partnership Act 1891 (Qld), s 18; Partnership Act 1891 (SA), s 15; Partnership Act 1895 (WA), s 22; Partnership Act 1891 (Tas), s 20; Partnership Act 1963 (ACT), s 19; Partnership Act 1997 (NT), s 19. Partnership Act 1892 (NSW), s 16; Partnership Act 1958 (Vic), s 20; Partnership Act 1891 (Qld), s 19; Partnership Act 1891 (SA), s 16; Partnership Act 1895 (WA), s 23; Partnership Act 1891 (Tas), s 21; Partnership Act 1963 (ACT), s 20; Partnership Act 1997 (NT), s 20. Partnership Act 1892 (NSW), s 17; Partnership Act 1958 (Vic), s 21; Partnership Act 1891 (Qld), s 20; Partnership Act 1891 (SA), s 17; Partnership Act 1895 (WA), s 24; Partnership Act 1891 (Tas), s 22; Partnership Act 1963 (ACT), s 21; Partnership Act 1997 (NT), s 21.

34

35

36

37

Partnership Act 1892 (NSW), s 17; Partnership Act 1958 (Vic), s 21; Partnership Act 1891 (Qld), s 20; Partnership Act 1891 (SA), s 17; Partnership Act 1895 (WA), s 24; Partnership Act 1891 (Tas), s 22; Partnership Act 1963 (ACT), s 21; Partnership Act 1997 (NT), s 21.

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The position in relation to debts subsequently incurred is different. When a person deals with a firm after a change in its constitution they are entitled to treat all apparent members of the old firm as still being members of the firm until they have notice of the change. 38 In such a case, the person dealing with the firm has two potential but alternative courses of action. She may either sue the members of the firm as they were prior to the change, or she may sue the members of the firm after the change; but she cannot in the one action sue both the partners prior to the change and the partners after the change. In order to avoid being made liable for debts incurred after their retirement a retiring partner should give specific notice of their retirement to those persons with whom the firm has had dealings. The mere alteration of the names on the letterhead of a firm and receipt of communications on the changed letterhead is insufficient notice, unless the letterhead or the body of a letter spells out in clear terms what alteration there has been to the partnership: Hamerhaven Pty Ltd v Ogge [1996] 2 VR 488. A general advertisement is also insufficient for this purpose. Notice of dissolution published in a certain manner is however deemed sufficient notice to persons who have not had prior dealings with the firm. In Queensland, South Australia and Tasmania advertisement of notice of retirement or dissolution in the Government Gazette is enough. The Australian Capital Territory permits publication in the Gazette as an alternative to publication in a newspaper circulating in the Territory. In the three other States and the Northern Territory there are further requirements in addition to the Government Gazette advertisement, viz: (a)

in Victoria, advertisement in a local newspaper in each district in which the business is carried on;

(b)

in New South Wales, advertisement in a Sydney newspaper and a local newspaper in the district where the firm carries on business;

(c)

in Western Australia, and in a Perth or local newspaper (if any); and

(d)

in the Northern Territory, where the firm has its principal place of business in the Territory, an advertisement in a newspaper circulating in the area where the firm carries on business.

[26.410] On the dissolution of a partnership or retirement of a partner any partner may publicly notify the fact of the dissolution or retirement, and may require the other partner or partners to concur in any necessary acts which cannot be done without their concurrence. 39 The estate of a partner who dies, or who becomes bankrupt, or of a partner who, not having been known to the person dealing with the firm to be a partner (that is, a dormant partner), retires from the firm, is not liable for partnership debts contracted after the date of the death, bankruptcy or retirement, respectively.

38

39

Partnership Act 1892 (NSW), s 36; Partnership Act 1958 (Vic), s 40; Partnership Act 1891 (Qld), s 39; Partnership Act 1891 (SA), s 36; Partnership Act 1895 (WA), s 47; Partnership Act 1891 (Tas), s 41; Partnership Act 1963 (ACT), s 41; Partnership Act 1997 (NT), s 40. Partnership Act 1892 (NSW), s 37; Partnership Act 1958 (Vic), s 41; Partnership Act 1891 (Qld), s 40; Partnership Act 1891 (SA), s 37; Partnership Act 1895 (WA), s 48; Partnership Act 1891 (Tas), s 42; Partnership Act 1963 (ACT), s 42; Partnership Act 1997 (NT), s 41.

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case [26.420] C and I dissolved their partnership but no notice was given or advertisement published. After the dissolution C ordered goods from T using the firm’s old notepaper which showed I as a partner. T did not know I was a partner before the date of the dissolution. It was held that I was not liable to T: Tower Cabinet Co Ltd v Ingram [1949] 2 KB 397.

Liability for “holding out” as a partner [26.430] A person who represents themselves, or who knowingly allows themselves to be represented, as a partner is liable as a partner to anyone who has on the faith of any such representation given credit to the firm, that is the “partner” is estopped from denying to third parties that he or she is a partner and liable as such. 40 This operates in cases where: (a)

a person has by words or by conduct represented themselves or knowingly allowed themselves to be represented as a partner in a firm; and

(b)

another person has given credit to the firm; and

(c)

the person has so given credit on the faith of the representation: Lynch v Stiff (1944) 68 CLR 428.

It is not necessary for the person who has given credit to the firm on the faith of the representation to show that, apart from the holding out, they would not have given credit. A representation may be made indirectly but must identify a particular person(s) as partners; liability of other members of the partnership is not incurred by a representation that a local firm is part of a national partnership: Duke Group Ltd v Pilmer (1999) 73 SASR 64 at 287. That case, also, suggested that the giving of credit involves a commercial arrangement and requires more than continuing to deal with the firm after a change in its membership.

Liability for wrongs [26.440] Partners are liable jointly and severally for the wrongful act or omission of any partner acting in the ordinary course of business of the firm, or with the authority of their co-partners. 41 This means that the plaintiff can sue one, some or all of the partners. In deciding whether the wrongful act or omission was committed while the partner was acting in the ordinary course of business of the firm, it is necessary to identify the nature and scope of the firm’s business. This will be determined by reference to the agreement between the partners. “If partners have agreed to carry on a certain kind of business and that business includes acting in a particular manner or capacity then conduct by one of them in pursuance of that agreement will attract the operation of s 10 [of the Partnership Act 1892 (NSW)]. It is their agreement to go into that kind of business which is the foundation of their joint and several liability”: Walker v European Electronics Pty Ltd (1990) 23 NSWLR 1 at 11 per Gleeson CJ. 40

41

Partnership Act 1892 (NSW), s 14; Partnership Act 1958 (Vic), s 18; Partnership Act 1891 (Qld), s 17; Partnership Act 1891 (SA), s 14; Partnership Act 1895 (WA), s 21; Partnership Act 1891 (Tas), s 19; Partnership Act 1963 (ACT), s 18; Partnership Act 1997 (NT), s 18. Partnership Act 1892 (NSW), ss 10, 12; Partnership Act 1958 (Vic), ss 14, 16; Partnership Act 1891 (Qld), ss 13, 15; Partnership Act 1891 (SA), ss 10, 12; Partnership Act 1895 (WA), ss 17, 19; Partnership Act 1891 (Tas), ss 15, 17; Partnership Act 1963 (ACT), ss 14, 16; Partnership Act 1997 (NT), ss 14, 16.

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In that case, the New South Wales Court of Appeal held that two partners of a firm of chartered accountants were liable for the fraudulent misappropriation of $221,064 by a third partner who was acting as the receiver and manager of a company. On the other hand, a partner will not be liable for the fraud of a co-partner who was not acting in the ordinary course of the firm’s business.

case [26.450] A partner in a firm of accountants fraudulently deposited cheques of a company, of which he was a director, into the firm’s trust account and misappropriated the proceeds. It was held by the High Court that in depositing the cheques to the firm’s trust account, the partner had not been acting in the course of the firm’s business and accordingly his co-partner was not liable for his fraudulent conduct: National Commercial Banking Corp of Australia Ltd v Batty (1986) 160 CLR 251. [26.460] The Partnership Act 42 specially provides for the liability of the firm where the money or property of a third person has been received and misapplied by a member of a partnership. A partnership must make good any loss occasioned: (a)

where one partner acting within the scope of their apparent authority receives the money or property of a third person and misapplies it; and

(b)

where a firm in the course of its business receives the money or property of a third person and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm.

Under (a) above, the liability of the firm depends on whether the partner who misapplies the money had express or apparent authority to receive it; whereas under (b) the liability of the firm depends on the money being in the custody of the firm whether its receipt was in the ordinary course of the business of the firm or not. For example, if a member of a firm of solicitors acting for a vendor in a sale receives a deposit and then absconds with it, their partners are also liable to refund the money. Innocent partners are also liable for the misrepresentation by one of their partners or employees in matters connected with the ordinary business of the firm. They are also liable for damages caused by the negligence of a partner in the ordinary conduct of the partnership business. This follows the rule applicable to the liability of a principal for the wrongs of their agent. A principal is liable for the fraud or other illegal act committed by their agent within the general scope of the authority given to the agent.

case [26.470] Where a managing clerk of a firm of solicitors acting within the scope of his authority interviewed a client concerning an alteration in her investments and induced her to sign papers that enabled him to misappropriate property, it was held that the firm was responsible for the fraud committed by their representative in the course of his employment: Lloyd v Grace, Smith & Co [1912] AC 716.

42

Partnership Act 1892 (NSW), s 11; Partnership Act 1958 (Vic), s 15; Partnership Act 1891 (Qld), s 14; Partnership Act 1891 (SA), s 11; Partnership Act 1895 (WA), s 18; Partnership Act 1891 (Tas), s 16; Partnership Act 1963 (ACT), s 15; Partnership Act 1997 (NT), s 15.

chapter 26 Partnership

Liability for misapplication of trust moneys [26.480] If a partner, being a trustee, improperly employs trust property in the business or on account of the partnership, the other partners are not liable to the persons beneficially interested therein unless they were aware of the breach of trust. This relates only to the private affairs of the partner, that is where the partner is a trustee in a personal capacity and not as a member of the partnership. The trust money may be followed and recovered from the firm if still in its possession or under its control. 43

Dissolution of partnership [26.490] Partnership is a fragile concept. Any change in membership effects a dissolution of the existing partnership since it destroys the identity of the firm. “It is a fundamental principle of the law of partnership that any change in the membership of the partnership, whether occurring as a result of the retirement, expulsion, death or otherwise of a partner, effects a dissolution of the partnership”: Atwell v Roberts (2013) 43 WAR 507 at [122] per Buss JA and similarly at [11] per Pullen JA. The addition of a new partner also effects the dissolution of the former partnership and the creation of a new partnership. “[T]he transfer of a share to a non-partner inevitably breaks the continuity of the firm, thus constituting a new firm or partnership of those members of the former partnership who remain, together with the newcomer”: SJ Mackie Pty Ltd v Dalziell Medical Practice Pty Ltd [1989] 2 Qd R 87 at 90 per McPherson J. In the absence of other arrangements, the dissolution of a partnership should be followed by a winding up and final settlement of accounts. However, many partnership agreements contain provisions to enable the transition from one firm to another to be effected without the disruption of a formal winding up. A term is frequently included in the agreement to the effect that the other partners have the right to purchase the retiring or deceased partner’s interest at a valuation, calculated according to an agreed formula. These are essential in large firms, such as many accounting and legal practices, where there are regular changes in membership. A partnership may be dissolved by operation of law, by agreement of the partners, in accordance with the provisions of the partnership agreement or by the court upon application. If the partnership agreement contains any provisions for the dissolution these must be followed. The Partnership Act, however, sets out certain specific circumstances which are grounds for dissolution.

Operation of law [26.500] Apart from any agreement between the partners or any decision of the court, a partnership is dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on, or for the members of the firm to carry on in partnership, for example where one member becomes by outbreak of war resident in alien territory. 44

43

44

Partnership Act 1892 (NSW), s 13; Partnership Act 1958 (Vic), s 17; Partnership Act 1891 (Qld), s 16; Partnership Act 1891 (SA), s 13; Partnership Act 1895 (WA), s 20; Partnership Act 1891 (Tas), s 18; Partnership Act 1963 (ACT), s 17; Partnership Act 1997 (NT), s 17. Partnership Act 1892 (NSW), s 34; Partnership Act 1958 (Vic), s 38; Partnership Act 1891 (Qld), s 37; Partnership Act 1891 (SA), s 34; Partnership Act 1895 (WA), s 45; Partnership Act 1891 (Tas), s 39; Partnership Act 1963 (ACT), s 39; Partnership Act 1997 (NT), s 38.

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Pt 4 Business Organisation

By partners [26.510] Subject to any agreement between the partners, a partnership is dissolved: (a)

if entered into for a fixed term, by the expiration of that term;

(b)

if entered into for a single adventure or undertaking by the termination of that adventure or undertaking, for example a partnership entered into for the purpose of salvaging a wreck would be terminated by the recovery and disposal of the wreck;

(c)

if entered into for an undefined time (that is, a partnership at will), by any partner giving notice to the other or others of their intention to dissolve the partnership. The partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is mentioned, as from the date of the communication of the notice. A valid notice of dissolution once given cannot be withdrawn except by consent of all parties. However, in a partnership where the agreement provided that the partnership could be terminated by “mutual agreement only” the court held that one of the partners could not determine the partnership by notice against the will of the other: Moss v Elphick [1910] 1 KB 846;

(d)

by the death, bankruptcy or insolvency of any partner. If a partner gives a valid notice of dissolution but dies before the expiration of the notice, the partnership is dissolved by death and not by the notice; or

(e)

at the option of the other partners, if any partner allows their share of the partnership property to be charged for their separate debt.

In Hurst v Bryk [2002] 1 AC 185, the House of Lords was asked to consider whether a partnership could be terminated by one partner accepting a repudiatory breach of contract by the others, a doctrine not known to the law when the Partnership Act was enacted. Lord Millett declared that, by subjecting themselves to the principles of equity, partners renounced the right to take unilateral action to terminate their relationship and submitted themselves to the discretion of the court.

By the court [26.520] On application by a partner the court may order a dissolution of the partnership in any of the following cases: 1.

When a partner has been declared to be of unsound mind and incapable of managing their affairs, or is shown to the satisfaction of the court to be of permanently unsound mind.

2.

When a partner, other than the partner suing, 45 becomes in any other way permanently incapable of performing their part of the partnership contract.

3.

When a partner, other than the partner suing, has been guilty of such conduct as in the opinion of the court, regard being had to the nature of the business, is calculated to prejudicially affect the carrying on of the business.

4.

When a partner, other than the party suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts themselves in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with them. For example, the following have been held to be grounds for dissolution: continuous quarrelling or consistently keeping the accounts incorrectly, or such mutual

45

In 2, 3 and 4 it will be noticed the partner who has committed the breach upon which the court may order the dissolution is not entitled to bring an application to the court on these grounds for such dissolution.

chapter 26 Partnership

incompatibility of temper of the partners as to make it impossible to carry on the business successfully or beneficially: Knight v Bell (1887) 13 VLR 878. 5.

When the business of the partnership can only be carried on at a loss. Every partnership is entered into with a view to profit and if it can only be carried on at a loss the whole purpose of the partnership fails, and it may be dissolved.

6.

Whenever in any case circumstances have arisen which, in the opinion of the court, render it just and equitable that the partnership be dissolved. 46

Continuing authority of partners for purposes of winding up [26.530] After the dissolution of a partnership the authority of each partner to bind the firm and the other rights and obligations of the partners continue, notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution. The firm, however, is in no case bound by the acts of a partner who has become bankrupt but this does not affect the liability of any person who has, after the bankruptcy, allowed themselves to be represented as a partner of the bankrupt. 47

case [26.535] The partnership at will between B and N was involved in hotel development. At dissolution the firm was constructing two multi-million pound hotels. B argued that the “hotels” should be sold “as is”, while N claimed that accounts should not be settled until the construction contracts were completed. Chancellor Morritt recognised that, as the contracts were assignable and there was a market for such contracts, the “hotels” should be sold: Boghani v Nathoo [2012] Bus LR 429; [2011] EWHC 2101 (Ch).

Apportionment of premiums on dissolution [26.540] When a new partner is admitted into an old established firm, it is sometimes provided that he or she is to pay a “premium” for this privilege entirely distinct from any obligation to contribute capital. This premium may be treated in a number of ways in the accounts of the firm but the final result is the same, namely, a benefit to the existing partners of the premium in the proportion profits were shared prior to the admission of the new partner. Where one partner has paid a premium to enter a partnership for a fixed term, and the partnership is dissolved before the expiration of that term otherwise than by the death of a partner, the court may order the repayment of the whole or part of the premium having regard to the terms of the partnership contract and to the length of time the partnership has continued. However, the court will not order a refund of premium if: (a)

46

47

the dissolution is wholly or chiefly due to the misconduct of the partner who paid the premium; or

Partnership Act 1892 (NSW), s 35; Partnership Act 1958 (Vic), s 39; Partnership Act 1891 (Qld), s 38; Partnership Act 1891 (SA), s 35; Partnership Act 1895 (WA), s 46; Partnership Act 1891 (Tas), s 40; Partnership Act 1963 (ACT), s 40; Partnership Act 1997 (NT), s 39. Partnership Act 1892 (NSW), s 38; Partnership Act 1958 (Vic), s 42; Partnership Act 1891 (Qld), s 41; Partnership Act 1891 (SA), s 38; Partnership Act 1895 (WA), s 49; Partnership Act 1891 (Tas), s 43; Partnership Act 1963 (ACT), s 44; Partnership Act 1997 (NT), s 42.

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(b)

the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium. 48

Rights on dissolution through fraud or misrepresentation [26.550] Where a person is induced to become a member of a partnership through the fraud or misrepresentations of another party, the partner so induced is entitled to rescind the contract of partnership and also has the right: (a)

to a lien on, or right of retention of, the surplus of the partnership assets, after satisfying the partnership liabilities, for any sum of money paid by them for the purchase of a share in the partnership and for any capital contributed by them; and

(b)

to stand in the place of the creditors of the firm for any payments made by them in respect of the partnership liabilities; and

(c)

to be indemnified by the person guilty of the fraud or misrepresentation, against all the debts and liabilities of the firm. 49

Application of partnership property on dissolution [26.560] On dissolution every partner is entitled to have the partnership property applied towards the payment of the partnership liabilities and thus free themselves from these liabilities. A partner also has the right to have any surplus assets, after the payment of the firm’s liabilities, applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm. For the purpose of having the assets applied towards the payment of the partnership debts and for the distribution of the surplus assets, any partner or their representatives may, on the termination of the partnership, apply to the court for a decree dissolving the partnership and for the appointment of a receiver to wind up the business and affairs of the firm. 50

Rights of outgoing partner to share profits made after dissolution [26.570] Where a partnership is dissolved (for example, by the death or retirement of one of its members) and there is no final settlement of accounts but the remaining partners continue the business without finalising matters with the outgoing partner or their estate, then the outgoing partner or their personal representative is entitled at their option to such share of the profits made since dissolution as the court may find to be attributable to the use of their share of the partnership assets or he or she may elect to have interest on their share of the partnership assets at 6 per cent per annum in New South Wales, Western

48

49

50

Partnership Act 1892 (NSW), s 40; Partnership Act 1958 (Vic), s 44; Partnership Act 1891 (Qld), s 43; Partnership Act 1891 (SA), s 40; Partnership Act 1895 (WA), s 53; Partnership Act 1891 (Tas), s 45; Partnership Act 1963 (ACT), s 46; Partnership Act 1997 (NT), s 44. Partnership Act 1892 (NSW), s 41; Partnership Act 1958 (Vic), s 45; Partnership Act 1891 (Qld), s 44; Partnership Act 1891 (SA), s 41; Partnership Act 1895 (WA), s 54; Partnership Act 1891 (Tas), s 46; Partnership Act 1963 (ACT), s 47; Partnership Act 1997 (NT), s 45. Partnership Act 1892 (NSW), s 39; Partnership Act 1958 (Vic), s 43; Partnership Act 1891 (Qld), s 42; Partnership Act 1891 (SA), s 39; Partnership Act 1895 (WA), s 50; Partnership Act 1891 (Tas), s 44; Partnership Act 1963 (ACT), s 45; Partnership Act 1997 (NT), s 43.

chapter 26 Partnership

Australia and Tasmania, at 7 per cent in Victoria, South Australia, Australian Capital Territory and Northern Territory and at 5 per cent in Queensland. 51 In the past when courts took a strict approach to ascertaining the profits attributable to the use of a deceased partner’s share and often attributed profits to the personal skills of the continuing partners, it was usual to claim interest on the deceased partner’s share but more recently courts have assumed that profits were earned from the application of partnership assets, unless the continuing partners were able to demonstrate that it arose from some other source.

case [26.580] O, until he retired in 1994, had been an equal partner in a nine-partner firm. When the firm made no attempt to pay out his interest in the firm, he sued. The court found that the firm had been dissolved by O’s retirement and that O was entitled to the value of his share in the firm on dissolution plus one-ninth of the profits of the firm in subsequent years, after an allowance of $130,000 per year had been made for the profit contributions of each continuing partner: Fry v Oddy [1999] 1 VR 557.

Final settlement of accounts on dissolution [26.590] The Partnership Act provides a number of rules on the final settlement of accounts between partners in the event of dissolution. Subject to any agreement between the partners as to their rights and liabilities inter se, the following rules must be observed: 1.

Losses, including losses and deficiencies of capital, must be met first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits.

2.

The assets of the firm, including the sums, if any, contributed by the partners to make up any losses or deficiencies of capital, must be applied in the following manner and order: (a)

in paying the debts and liabilities of the firm to persons who are not partners in the firm;

(b)

in paying to each partner rateably what is due by the firm to her or him for advances as distinguished from capital;

(c)

in paying to each partner rateably what is due from the firm to them in respect of capital; and

(d)

the ultimate residue, if any, is to be divided among the partners in the proportion in which profits are divisible. 52

Bankruptcy of partners [26.600] In bankruptcy the joint estate of the partners is, in the first instance, applied to the payment of their joint debts, and the separate estate of each partner is, in the first instance, applied to payment of their separate debts. If there is a surplus in the separate account it is dealt with as part of the joint estate so far as is necessary to meet the joint debts; if there is a surplus in the joint account it is dealt with as part of the 51

52

Partnership Act 1892 (NSW), s 42; Partnership Act 1958 (Vic), s 46; Partnership Act 1891 (Qld), s 45; Partnership Act 1891 (SA), s 42; Partnership Act 1895 (WA), s 55; Partnership Act 1891 (Tas), s 47; Partnership Act 1963 (ACT), s 48; Partnership Act 1997 (NT), s 46. Partnership Act 1892 (NSW), s 44; Partnership Act 1958 (Vic), s 48; Partnership Act 1891 (Qld), s 47; Partnership Act 1891 (SA), s 44; Partnership Act 1895 (WA), s 57; Partnership Act 1891 (Tas), s 49; Partnership Act 1963 (ACT), s 50; Partnership Act 1997 (NT), s 48.

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respective separate estates in proportion to the interest of each partner in the partnership. Where a sequestration order 53 is made against one partner, a creditor of the firm if, or to the extent, that he or she is not paid by the solvent partners cannot receive a dividend out of the bankrupt’s separate property until all separate creditors of the bankrupt partner have been paid in full. The Bankruptcy Act 1966 (Cth) 54 also provides that any creditor, whose debt is sufficient to entitle them to present a bankruptcy petition against all the partners of a firm, may present a petition against any one or more partners of the firm without including the others. A creditor of a partnership may present a bankruptcy petition against it if the creditor would be entitled to present such a petition against any one of the members of such partnership in respect of a partnership debt. 55

Rights of assignee of share of partnership [26.610] An assignment, either absolute or by way of mortgage or redeemable charge, by any partner of their share in the partnership does not, as against the other partners, entitle the assignee during the continuance of the partnership to interfere in the management or administration of the partnership business or affairs, nor to require any account of the partnership transactions, nor to inspect the partnership books. 56 The assignee is entitled only to receive the share of profits to which the assigning partner would otherwise be entitled and he or she must accept the account of profits agreed to by the partners. In the case of a dissolution of the partnership, the assignee is entitled to receive the share of the partnership assets to which the assigning partner is entitled as between themselves and the other partners, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution: Luton Investments Pty Ltd v Davreal Pty Ltd [1969] 1 NSWR 289.

Limited partnerships [26.620] In the States but not the Territories provision is made for limited partnerships. 57 The basic scheme of the legislation is to enable the formation of a partnership in which there is at least one general partner with unlimited liability and one or more limited partners whose liability for the debts and obligations of the partnership is limited. A limited partner must not take part in the management of the business of the firm and to the extent that a limited partner does so they will be liable as if the partner was a general partner. The advantages, in certain circumstances, of a limited partnership for commercial purposes over an ordinary partnership, corporation or trust are seen to include: (a)

the comparative simplicity of the formal requirements for the formation of a limited partnership;

(b)

the advantage of conferring limited liability on a limited partner without having to achieve this via a limited liability company under the Corporations Act 2001 (Cth);

53 54 55 56

57

A sequestration order is the order by which a debtor becomes a bankrupt and which vests the property of a bankrupt in the trustee of their estate for division among the creditors of the bankrupt. Bankruptcy Act 1966 (Cth), s 45(2). Bankruptcy Act 1966 (Cth), s 45(1). Partnership Act 1892 (NSW), s 31; Partnership Act 1958 (Vic), s 35; Partnership Act 1891 (Qld), s 34; Partnership Act 1891 (SA), s 31; Partnership Act 1895 (WA), s 42; Partnership Act 1891 (Tas), s 36; Partnership Act 1963 (ACT), s 36; Partnership Act 1997 (NT), s 35. Partnership Act 1892 (NSW), Pt 3; Partnership Act 1958 (Vic), Pt 3; Partnership Act 1891 (Qld), Ch 3; Partnership Act 1891 (SA), Pt 3; Limited Partnerships Act 1909 (WA); Partnership Act 1891 (Tas), Pt 3.

chapter 26 Partnership

(c)

in New South Wales, Victoria, Queensland, South Australia and Tasmania the absence of a limit on the maximum number of limited partners; and

(d)

the ability of the partners to utilise income tax losses incurred by the partnership.

In practice, the limited partners in many limited partnerships will contribute the agreed amount of their liability at the time they join the partnership. In Western Australia the legislation governing limited partnerships provides for the formation of limited partnerships containing partners whose liability is limited to the amount of capital they have brought in but in New South Wales, Victoria, Queensland, South Australia and Tasmania there is no legislative requirement that limited partners contribute money or property at the time of formation of the partnership. All that is required is that the limited partnership be registered. From that register members of the public are able to determine the extent to which a particular limited partner will meet any liability of the firm. Where the assets of the firm are not sufficient to cover its total liability, then the limited partner or partners will be required to make a contribution to bring their capital up to the amount recorded in the Register of Limited Partnerships.

Registration [26.630] In New South Wales, Victoria, Queensland, South Australia, and Tasmania a limited partnership must be registered. An application for registration must include a statement signed by all the partners setting out particulars as to the firm name; the registered office of the firm; the name and address of each partner; whether each partner is a limited or general partner; and a statement in relation to each limited partner that their liability to contribute is limited to the extent of the amount specified in the statement. At the time a limited partnership is registered, a certificate will be issued to the general partners as to the formation and composition of the limited partnership. A limited partnership must also be registered in Western Australia and a similar statement provided of particulars of the partnership signed by all the partners, except that, in place of a statement of the extent of liability of a limited partner to contribute, there must be a statement of the sum contributed by each limited partner and whether paid in cash or otherwise. In Western Australia the number of members must not be more than 20 in the case of a trading partnership, or 10 members in the case of a banking partnership. There are no such limitations on the number of members elsewhere. New South Wales, Victoria, South Australia and Tasmania provide that a limited partnership may have any number of limited partners, although the number of general partners must not (if the partnership consisted only of those general partners) result in the partnership being an outsize partnership for the purposes of s 115 of the Corporations Act 2001 (Cth), while Queensland sets no limit on the number of general or limited partners. 58 In New South Wales, Victoria, Queensland, South Australia and Tasmania it is further provided that a corporation may be a general partner or a limited partner. Western Australia merely provides that a limited partner may be a corporation.

Incidents of limited partnerships [26.640] The limited partnership legislation in all States provides that a limited partner must not take part in the management of the business and does not have power to bind the firm. If a limited partner does take part in the management of the business, he or she will be liable as a general partner. A limited partner has the right to inspect the books of the firm at any time. 58

As to the provisions of the Corporations Act 2001 (Cth) limiting the maximum size of partnerships, see [26.150].

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Subject to the terms of any agreement to the contrary between the partners in a limited partnership: (a)

any differences arising as to ordinary matters connected with the firm’s business are to be decided by a majority of the general partners;

(b)

a limited partner may assign their share in the partnership with the consent of the general partners;

(c)

a person may be admitted as a partner without the consent of any limited partner;

(d)

the other partners are not entitled to dissolve the partnership by reason that a limited partner has suffered their share of the partnership property to be charged for their separate debt; and

(e)

a limited partner is not entitled to dissolve the partnership by notice.

In New South Wales, Victoria, Queensland, South Australia and Tasmania any document (for example letters, notices, contracts and cheques etc) issued on behalf of a limited partnership in connection with the conduct of the partnership’s business must contain in legible letters the words “A Limited Partnership” immediately adjacent to its firm name. A partnership ceases to be a limited partnership if none of the partners is a limited partner or the partners agree that they will carry on the business of the partnership otherwise than as a limited partnership. Subject to the provisions of the limited partnership legislation, the ordinary rules of partnership as set out in the Partnership Act apply.

Incorporated limited partnerships [26.650] The incorporated limited partnership is a further variant of the limited partnership found in New South Wales, Victoria, Queensland, South Australia, Tasmania, Australian Capital Territory and Northern Territory. 59 This category of limited partnership wraps a corporation around the basic limited partnership structure. In consequence, the general partner(s) manages the business on behalf of the company and there is no risk that the limited partners will be vicariously liable for tortious or other breaches of duty by the general partner. Registration is limited to associations registered or registering under the Venture Capital Act 2002 (Cth).

Further reading K Fletcher, The Law of Partnership in Australia (9th ed, Lawbook Co., Sydney, 2007). S Graw, An Outline of the Law of Partnership (4th ed, Thomson Reuters, Sydney, 2011).

59

Partnership Act 1892 (NSW), Pt 3; Partnership Act 1958 (Vic), Pt 5; Partnership Act 1891 (Qld), Ch 4; Partnership Act 1891 (SA), Pt 6; Partnership Act 1891 (Tas), Pt 3; Partnership Act 1963 (ACT), Pt 6; Partnership Act 1997 (NT), Pt 3.

chapter 27

Company Law [27.50] Nature and formation of companies ..................................................................................................... 707 [27.230] Constitution and powers of a company............................................................................................ 714 [27.350] Membership .................................................................................................................................................... 718 [27.420] Corporate finance ......................................................................................................................................... 721 [27.651] Corporate financing..................................................................................................................................... 728 [27.660] Management and control......................................................................................................................... 730 [27.950] Arrangements and reconstructions................................................................................................... 741 [27.980] Company receivers...................................................................................................................................... 743 [27.1180] Voluntary administration...................................................................................................................... 749 [27.1190] Winding up of companies..................................................................................................................... 752 [27.1440] Company investigations........................................................................................................................ 764

Introduction [27.10] Company law is essentially concerned with the legal principles applying to corporations registered under the Corporations Act 2001 (Cth), that is to say, with the law relating to companies. Once a company is incorporated a new legal entity is created which is capable of entering into contracts, acquiring, holding and disposing of property, and of suing and being sued in its own name. Company law is the body of rules and principles applying to such an incorporated body. The word “company” is used here to mean an incorporated company, as opposed to partnerships and sole traders. The typical incorporated company is a company limited by shares. [27.20] This chapter considers the operation of the Corporations Act 2001 (Cth). As this Act comprises more than 1,500 sections, it is only possible to deal with the more significant of those provisions as they affect the formation, management and operation of companies. This chapter therefore does not discuss takeovers, financial services and financial markets. Section references in the discussion which follows are to sections of the Corporations Act 2001 (Cth) unless otherwise indicated. [27.30] Scope of the Corporations Act The Corporations Act 2001 (Cth) contains not only provisions concerning company matters, including takeovers, but also regulates financial services and markets and managed investment schemes. [27.40] Administration of the Corporations Act The Australian Securities and Investments Commission (ASIC), which was continued under the Australian Securities and Investments Commission Act 2001 (Cth), has sole responsibility for

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the administration and enforcement of the Corporations Act 2001 (Cth) nationally: see, for example, ASIC v Adler (2002) 168 FLR 253, discussed at [27.650]. ASIC consists of not less than three nor more than eight members, at least three of whom must be appointed as full-time members: Australian Securities and Investments Commission Act 2001 (Cth), s 9. One of the full-time members is appointed as Chairperson: s 10. ASIC has such functions and may exercise such powers as are conferred on it by the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). It is an independent statutory commission. In exercising its functions and powers ASIC is subject only to a written direction by the responsible Commonwealth Minister about the policies it should pursue or priorities to be followed under the national scheme. ASIC reports to the responsible Commonwealth Minister. As part of its administrative role, ASIC has established business centres in each State and Territory capital city and in certain regional centres to deal with company registrations, document lodgment, registration of security interests, and to provide facilities for the public to search for information in the company registers. ASIC has also established regional offices in the capital city of each State and Territory. ASIC formulates policy for the more effective implementation of the Corporations Act 2001 (Cth). It issues media releases, practice notes and policy statements outlining its policy on the operation of provisions of the Corporations Act 2001.

chapter 27 Company Law

Nature and formation of companies Corporate personality [27.50] The principle behind company law is that a company is a distinct legal entity. It has an existence separate from the holders of its shares who are its members. The acts of a company are its acts not the acts of its members. Its assets and property belong to it, not to its members. Thus, in Salomon v Salomon & Co Ltd [1897] AC 22, it was held that where S caused a company to be formed in which he held 20,001 shares and the remaining six shares issued were held by members of his family, the company so formed was nonetheless a separate legal person from S. When the company was wound up insolvent, S, as a secured creditor of the company, was entitled to repayment of his loan in priority to non-shareholder unsecured creditors. With the increase in the number of small, even “one person” companies, this distinction between the company and its shareholders and officers is of increasing importance. In Macleod v The Queen (2003) 214 CLR 230, the High Court held that a director of such a company was capable of stealing from the company. At law a company is regarded as a “person” just as the author of a book is a person. The Corporations Act 2001 (Cth) recognises that every company has the legal capacity and powers of an individual, as well as a range of special corporate powers, such as to issue and cancel shares in the company. A company, once formed, remains in existence until its name is removed from the register of companies (deregistration). Deregistration can occur at the request of the company (s 601AA), as a consequence of action initiated by ASIC for the removal of defunct companies (s 601AB) or, following the lodgment of the final report of the liquidator, at the conclusion of a winding up process.

Features of a company [27.60] Some of the main features resulting from the incorporation of a company limited by shares are: 1.

The liability of members is limited. A person taking up shares in a company knows from the beginning the extent of their individual liability; and at any time during their membership of that company the amount they may be called upon to pay is restricted to the unpaid portion, if any, of the issue price of their shares. For example, a shareholder with 100 shares issued at $1 each cannot be made to pay more than the $100 represented by their shares. Once the full $100 is paid for the shares the member has no further liability to the company or its creditors.

2.

A member may transfer their interest in the company by the comparatively simple procedure of executing a formal transfer of shares. The transferee (the person to whom the shares are transferred) takes them subject to the same rights and liabilities as the transferor (the person by whom the shares are transferred).

3.

Permanent existence. The company continues in existence irrespective of the death or bankruptcy of a member.

4.

Contracts. The company may contract in any legal manner, and its capacity to contract does not depend upon the legal capacity of any individual member. It is liable only to the extent of its separate property. It may sue and be sued in its own name.

5.

Constitution. For a company in existence prior to the commencement of the Company Law Review Act 1998 (Cth) on 1 July 1998, the constitution and objects of the company are set out in the

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memorandum of association and the provisions for its internal management are given in the articles of association, unless the company has replaced them by adopting the replaceable rules or some other constitutional provisions. Companies registered after 1 July 1998 are not required to have a constitution. A company’s internal management may now be governed by provisions of the Corporations Act 2001 (Cth) that apply to the company as replaceable rules, by a constitution or by a combination of both: s 134.

Types of companies [27.70] The most important method of company incorporation is formation under the Corporations Act 2001 (Cth). The types of company that may be registered under the Corporations Act 2001 are: (a)

proprietary companies  limited by shares; or  unlimited with share capital.

(b)

public companies  limited by shares;  limited by guarantee;  unlimited with share capital; or  a no liability company: s 112.

Companies limited by shares [27.80] This means a company formed on the principle of having the liability of its members limited by the constitution or replaceable rules (discussed at [27.240]) to the amount unpaid on their shares. It may be either one of the following: (a)

a public company; or

(b)

a proprietary company: see [27.130].

Public companies are those which may offer their shares and other securities to the general public for purchase, whilst proprietary companies are formed on the principle of limiting their numbers to fewer than 50 non-employee members and keeping their business affairs private.

Companies limited by guarantee [27.90] This means a company formed on the principle of having the liability of the members limited by the constitution to such an amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up: Corporations Act 2001 (Cth), s 9. Most companies of this nature operate in the non-profit sector of the economy. They may not pay dividends to their members: Corporations Act 2001 (Cth), s 254SA.

Unlimited companies [27.100] This means a company formed on the principle of having no limit placed on the liability of its members. The holders of shares have no limit on their liability to contribute to the assets of the company in the event of it being wound up and consequently they can be called upon to pay any amount necessary to discharge the liabilities of the company. Few companies of this type exist.

No liability companies [27.110] This class of company may be formed only for the purpose of mining and on the principle of their members incurring no liability to pay calls, that is to say, the acceptance of a share does not constitute

chapter 27 Company Law

a contract to pay calls in respect of money unpaid on such shares. There are special provisions in the Corporations Act 2001 (Cth) relating to the liability of members, payment of calls and dividends.

Differences between a partnership and company [27.120] The following is a summary of the main difference between a partnership and a limited liability company.

Figure 27.1: Main Differences between a Limited Liability Company and a Partnership

Company

Partnership

Number of Members: Minimum of one but no maximum except in Minimum two; maximum number restricted certain cases such as a proprietary company. by provisions of the Corporations Act 2001 (Cth): see [26.150]. Liability of Members: Limited to the amount unpaid on the shares Unlimited and extends to private property. held. Formation: Mainly under the Corporations Act 2001 By private partnership agreement or may be (Cth). implied. Property and Assets: Belong to the company as such and not the Vests in the partners. members. Capital: Small parcels of shares may be held by an Partners may be required to contribute individual member. substantial amounts. Each individual partner is entitled to share Management: Vested in the directors and exercised under the provisions of the articles of association, in the management subject to the terms of the partnership agreement. constitution or replaceable rules. Legal Action: Company must sue and be sued in its own Partners may sue and be sued personally name. but, except in New South Wales, actions may be commenced or defended in the firm name. Agency: A member as such is not an agent of the Each partner is, unless restricted, an agent of company and has no authority to bind the the partnership. company. Alteration of Must be carried out under the provisions of A matter of mutual consent between Constitution: the Corporations Act 2001 (Cth). partners. Continuity of Death or bankruptcy of a member or Dissolution occurs upon any change in the Existence: members does not affect the company. composition of the partnership. Transfer of Interest: Transfer is made under the provisions of the Partner may assign all or part of her or his articles of association, constitution or interest in the partnership but the consent of replaceable rules. the remaining partners must be obtained if assignee is to be accepted as a partner in substitution for the vendor. Status: A separate legal entity apart from members Does not have a separate legal existence apart from its members. forming it.

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Proprietary company [27.130] The most popular type of company incorporated in Australia is the proprietary company, which is otherwise referred to as a private company, as opposed to other companies which are known as public companies. The legislature, recognising the fact that many companies are of a private nature and require a simple form of incorporation, has enacted special provisions giving proprietary companies rights, privileges and exemptions not enjoyed by other companies. A proprietary company must be a company limited by shares, or unlimited with a share capital, and have no more than 50 non-employee shareholders. A company limited by guarantee and a “no liability” company cannot be a “proprietary” company. Further, a proprietary company must not engage in any activity that would require disclosure to investors under Ch 6D, except for an offer of its shares to existing shareholders or its employees: Corporations Act 2001 (Cth), s 113. If any of the requirements are no longer met at any time, ASIC may order a proprietary company to convert to a public company. If the company does not comply with such an order, ASIC may change the company to a public company by altering the details of the company’s registration: s 165. When the company is registered it receives a certificate of incorporation stating that it is a proprietary company. Proprietary companies are subject to special provisions regarding the inclusion of indicative words in their names. Thus, a limited proprietary company must have the word “Proprietary” or the abbreviation “Pty” as part of its name inserted immediately before the word “Limited” or “Ltd”: s 148(2). An unlimited proprietary company must have the word “Proprietary” or “Pty” at the end of its name: s 148(3).

Small and large proprietary companies [27.140] There are two types of “proprietary companies”, namely: (a)

small proprietary companies, and

(b)

large proprietary companies: Corporations Act 2001 (Cth), s 45A.

A proprietary company is a small proprietary company for a financial year if the company and any entities it controls have at least two of the following characteristics: (a)

a consolidated gross operating revenue for the financial year of less than $25 million;

(b)

consolidated gross assets at the end of the financial year of less than $12.5 million;

(c)

fewer than 50 employees at the end of the financial year: s 45A(2).

A proprietary company that does not satisfy at least two of these requirements is a large proprietary company: s 45A(3). While all companies must keep sufficient accounting records to enable true and fair accounts to be prepared and audited, a small proprietary company is not generally required to prepare formal accounts (profit and loss account and balance sheet) or have them audited unless the company is requested to do so by: (a)

shareholders holding at least 5 per cent of the voting shares in the company; or

(b)

ASIC: Corporations Act 2001 (Cth), ss 292 – 294.

Subject to certain exceptions, the financial reporting requirements of large proprietary companies parallel those of public companies, for example they must appoint an auditor; lodge financial accounts and a directors’ statement with ASIC on an annual basis; and send copies of these documents to persons entitled to receive notice of general meetings.

chapter 27 Company Law

Proprietary companies with one director/one shareholder [27.150] A company need only have one member: Corporations Act 2001 (Cth), s 114. A number of Corporations Act 2001 requirements relating to corporate management (for example, shareholders’ and directors’ meetings) cannot be applied in the case of one-member proprietary companies. Accordingly, the Corporations Act 2001 makes special provision for the management of these companies. A number of these special provisions are: 1.

A member may pass a resolution by recording it in the company’s minute books and signing it: ss 249B, 251A.

2.

A quorum at a shareholders’ meeting is constituted by one member: s 249B.

3.

If a person who is the only director and the only shareholder of a proprietary company dies, cannot manage the company due to mental incapacity, or becomes bankrupt thereby vacating the office of director, and a personal representative, trustee or trustee in bankruptcy is appointed to administer the person’s estate or property, that representative or trustee may appoint a person as the director of the company: s 201F.

4.

Where the only director of a proprietary company is also its only shareholder, the director may appoint another director by recording the appointment and signing the record: s 201F.

Privileges of proprietary companies [27.160] The main privileges or concessions granted to proprietary companies compared with public companies are as follows: 1.

A proprietary company need have only one director whereas a public company must have at least three (Corporations Act 2001 (Cth), s 201A) and a company secretary: s 204A.

2.

There is no need for each director to be appointed by a separate resolution: compare s 201E.

3.

There is a replaceable rule (s 203C) but no entrenched statutory right of members to remove a director in the case of a proprietary company, and directors may be made removable by other directors if power to do so is given in the constitution: compare s 203E.

4.

If all members of a proprietary company sign a document stating that they are in favour of the resolution set out in the document, a resolution in those terms will be deemed to have been passed at a general meeting without an actual shareholders’ meeting having been held. Passing of the resolution in this manner must be recorded in the company’s minute books: ss 249A, 251A.

5.

A proprietary company is not required to hold an annual general meeting: compare ss 250N, 250P.

An introductory guide to the Corporations Act 2001, “The Small Business Guide”, found in Pt 1.5, summarises the main rules in the Act that apply to proprietary companies. The Guide is intended to give a general overview of the Act as it applies to those companies and directs readers to the operative provisions in the law.

Registration of companies [27.170] To register a company, a person must lodge an application with ASIC: Corporations Act 2001 (Cth), s 117(1). The contents of the application are set out in s 117(2) which provides the application must state the following: (a)

the type of company that is proposed to be registered;

(b)

the company’s proposed name (unless the ACN is to be used as its name);

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Pt 4 Business Organisation

(c)

the name and address of each person who consents to become a member;

(d)

the present given and family name, all former given and family names and the date and place of birth of each person who consents in writing to become a director;

(e)

the present given and family name, all former given and family names and the date and place of birth of each person who consents in writing to become a company secretary;

(f)

the address of each person who consents in writing to become a director or company secretary;

(g)

the address of the company’s proposed registered office;

(h)

for a public company – the proposed opening hours of its registered office (if they are not standard opening hours);

(i)

the address of the company’s proposed principal place of business (if it is not the address of the proposed registered office);

(j)

for a company limited by shares or an unlimited company – the following: (i)

the number and class of shares each member agrees in writing to take up;

(ii)

the amount (if any) each member agrees in writing to pay for each share;

(iia)

whether the shares that each member agrees in writing to take up will be fully paid on registration;

(iii)

if that amount is not to be paid in full on registration – the amount (if any) each member agrees in writing to be unpaid on each share;

(iv)

whether or not the shares each member agrees in writing to take up will be beneficially owned by the member on registration;

(k)

for a public company that is limited by shares or is an unlimited company, if shares will be issued for non-cash consideration – the prescribed particulars about the issue of the shares, unless the shares will be issued under a written contract and a copy of the contract is lodged with the application;

(l)

for a company limited by guarantee – the proposed amount of the guarantee that each member agrees to in writing;

(m)

whether or not on registration the company will have an ultimate holding company;

(n)

if, on registration, the company will have an ultimate holding company – the following:

(o)

(i)

the name of the ultimate holding company;

(ii)

if the ultimate holding company is registered in Australia – its ABN, ACN, or ARBN;

(iii)

if the ultimate holding company is not registered in Australia – the place at which it was incorporated or formed;

the State or Territory in this jurisdiction in which the company is to be taken to be registered.

If the company is to be a public company and is to have a constitution on registration, a copy of the constitution is to be lodged with the application: s 117(3). An applicant for the registration of a company must have the consents and agreements referred to in the above provisions at the time the application is lodged: s 117(5). Upon lodgment of an application, registration is technically at the discretion of ASIC which may give the company an Australian Company Number (ACN), register the company and issue a certificate of registration: s 118(1). A company comes into existence as a body corporate at the beginning of the day on which it is registered: s 119.

chapter 27 Company Law

The Corporations Act 2001 (Cth) contains extensive provisions dealing with the reservation and registration of company names, the details of which lie outside the scope of this chapter: see Pt 2B.6.

Australian Company Number [27.180] On registration of a company, ASIC allots to the company a registration number that is distinctive to that company, known as its Australian Company Number or “ACN”: Corporations Act 2001 (Cth), s 118(1). Furthermore, an application for registration may state that the company’s name on registration is to be its registration number. In the latter case, the company’s name will be registered as, for example, “Australian Company Number 678 532 420 Ltd”: s 148(1).

Company seal [27.190] A company need not have a common seal. Even if it does, it need not use it in the execution of documents. If a company adopts a common seal, it is required to set out in legible characters on its common seal its name followed by the expression “Australian Company Number” (or “ACN”) and its registration number, unless its name is also its registration number: Corporations Act 2001 (Cth), s 123.

One place of registration [27.200] Although companies registered under the Corporations Act 2001 (Cth) are Australian companies, each must nominate a State or Territory as its place of registration. However all companies, even those carrying on business in more than one State, make only one lodgment of documents at an ASIC office. The Corporations Act 2001 contains provisions enabling a company incorporated in one jurisdiction, for example New South Wales, to transfer its place of incorporation from that State to one of the other jurisdictions, for example Queensland: s 119A; Corporations Regulations 2001 (Cth), reg 2A.2.04.

Foreign companies [27.210] A “foreign company” (that is, one formed outside Australia: Corporations Act 2001 (Cth), s 9) is prohibited from carrying on business in Australia unless it is registered by ASIC, or has applied to be so registered and the application has not been dealt with: s 601CD. A foreign company need only lodge one application for registration to enable it to carry on business throughout Australia. On granting the registration, ASIC is to enter the foreign company’s name in a register of foreign companies and allot to the foreign company a registration number, called the “Australian Registered Body Number” or “ARBN”, which operates in a similar way to the “ACN” for Australian companies discussed at [27.180]: s 601CE. After registration, a foreign company is required to maintain a local agent and to comply with various reporting requirements: ss 601CDA and 601CF – 601CP.

Managed investment schemes [27.220] In addition to providing for the registration and regulation of companies, the Corporations Act 2001 (Cth) also undertakes the same functions for a number of other commercial arrangements which may or may not be companies. Managed investment schemes, dealt with in Ch 5C, are a notable and commercially significant example of these anomalous arrangements. The regulation of these schemes is outside the scope of this chapter.

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Constitution and powers of a company Memorandum and articles of association [27.230] Prior to the Company Law Review Act 1998 (Cth) the memorandum and articles of association were the two fundamental documents upon which the registration of any company was based. The Company Law Review Act 1998 abolished the memorandum of association, and companies are no longer required to have articles of association. Companies in existence prior to commencement of Pt 2B.4 of the Corporations Act 2001 (Cth) on 1 July 1998 continue to have a memorandum and articles of association as their constitution unless and until they resolve to repeal them. If an existing company repeals its constitution and does not adopt a new one in its place, the “replaceable rules” (see [27.250]–[27.270]) will apply to that company: Corporations Act 2001 (Cth), s 135(1).

Replaceable rules and a company's constitution [27.240] A company’s internal management is governed by the “replaceable rules” stated to apply to the company, a constitution if one is adopted, or a combination of both: Corporations Act 2001 (Cth), s 134. A company’s constitution (if any) and any replaceable rules that apply to the company, have effect as a contract between the company and its members, the company and each director and secretary, and the members themselves: s 140(1).

Replaceable rules [27.250] The “replaceable rules” are basic rules relating to the internal management of a company. They are “replaceable” in that a provision stated to apply to a company as a replaceable rule can be displaced or modified by the company’s constitution: Corporations Act 2001 (Cth), s 135(2). The relevant provisions are stated to be replaceable rules in the headings to the provisions. A table of provisions that apply as replaceable rules appears in s 141 of the Corporations Act 2001. Some of the replaceable rules apply only to proprietary companies (for example, ss 254D, 254W(2), 1072G), whilst others are stated to be replaceable rules for proprietary companies but mandatory for public companies: see s 249X. Replaceable rules do not apply to proprietary companies while the same person is both the sole shareholder and the sole director of the company. Those companies are governed by particular sections of the Corporations Act 2001: see, for example, s 198E.

Amendment of replaceable rules [27.260] The replaceable rules which apply to a company may be amended from time to time by legislation. Any amendment will apply to companies which have not adopted a constitution without the necessity of a special resolution.

Constitution [27.270] If a company does not want one or all of the replaceable rules, it may modify or replace them by adopting a constitution. This can occur on registration by the written agreement of all persons consenting to become members of the company before lodgment of an application, or after registration by special resolution: Corporations Act 2001 (Cth), s 136(1).

Modification or repeal of constitution [27.280] A company with a constitution may modify or repeal its constitution, or a provision of its constitution, by special resolution (Corporations Act 2001 (Cth), s 136(2)) unless the company has

chapter 27 Company Law

previously entrenched the constitution or the provision in question by some further requirement for modification or repeal specified in the constitution: s 136(3). In the case of a public company, ASIC requires notification of any such special resolution within 14 days of its passing, and notification must be accompanied by a copy of the new constitution or modifications adopted. In the case of a proprietary company neither is required unless the company is applying for conversion to a public company: s 136(5). A member is entitled to request a copy of the constitution of the company. Upon the receipt of the written request accompanied by the prescribed fee, the company must provide a copy of the company’s constitution to the member within seven days.

Companies that must have a constitution [27.290] No liability companies are required to have a constitution that provides that the sole objects of the company are mining purposes. The constitution must not give the company a contractual right to recover calls on its shares from a shareholder who fails to pay them: Corporations Act 2001 (Cth), s 112(2).

Ultra vires [27.300] The original principle was that acts purporting to be done by the company falling beyond its constitutional powers were void. That doctrine has been repealed. Every company has the full capacity of a human being and some special corporate powers: Corporations Act 2001 (Cth), s 124. The exercise of these powers will not be invalid notwithstanding that the company’s constitution contains an express or implied restriction on, or prohibition of, the exercise of any of its powers: s 125(1). Nor will an act of the company be invalid merely because it is contrary to or beyond the objects stated in the company’s constitution: s 125(2). Furthermore, the fact that some act by a company (such as entering into a particular contract, or the transfer of property to or by the company) is not in the best interests of the company does not affect its legal capacity to do the act: s 124(2). Transactions contrary to or beyond limitations on powers or objects set out in the company’s constitution are not a contravention of the Corporations Act 2001. However, such a breach may still be relied upon or asserted in other actions under the Corporations Act 2001, for example: (a)

proceedings in respect of a director’s dishonesty: s 184;

(b)

an application in respect of oppressive conduct: ss 232 – 235; and

(c)

an application for the winding up of the company: s 461(1).

Notice of contents of constitution [27.310] People are not taken to have information about a company (for example, its constitution) merely because the information is available to the public through ASIC: Corporations Act 2001 (Cth), s 130.

Liability of a company for the acts of its agents [27.320] A company being an artificial body must of necessity act through its directors, officers and other agents. Accordingly, difficult questions not infrequently arise as to whether acts purported to have been done on behalf of the company by its agents are binding on the company. The common law was protective

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of companies. A company could avoid liability on a contract where the director or other agent who had purported to enter into the contract on the company’s behalf had acted outside the scope of their actual or ostensible authority: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146. This aspect of the law has been considerably modified by legislation aimed at putting a company in the same position, as far as it is possible, as other principals, who are responsible for the acts of their real and apparent agents. Subject to certain important exceptions, directors, officers and other agents of the company have power to bind the company. Persons dealing with a company are entitled to make certain assumptions as to the powers of the company and the authority of the officers with whom they deal. The assumptions are cumulative and may be made unless the person knows or suspects that an assumption is incorrect: Corporations Act 2001 (Cth), s 128. The assumptions that may be made are as follows: (a)

that at all relevant times the constitution and replaceable rules of the company have been complied with (s 129(1));

(b)

that a person who appears, from information provided by the company and available to the public from ASIC, to be a director or a secretary of the company:

(c)

(i)

has been duly appointed; and

(ii)

has authority to exercise the powers and perform the duties customarily exercised or performed by a director or secretary of a “similar” company (s 129(2));

that a person who is held out by the company to be an officer or agent of the company: (i)

has been duly appointed; and

(ii)

has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company (s 129(3));

(d)

that the officers and agents of the company properly perform their duties to the company (s 129(4));

(e)

that the relevant documentation has been duly signed or sealed (if executed under seal) in accordance with the proper procedures (s 129(5), (6)); and

(f)

that an officer or agent of the company who has authority to issue (sign or certify) a document on its behalf, has authority to certify that the document is genuine or a true copy: s 129(7).

Section 128(3) provides that these assumptions may be made even if the officer or agent of the company had acted fraudulently or had forged a document in connection with the dealing. However, it is probable that knowledge of the fraud or forgery by persons dealing with the company would disentitle them from claiming the benefit of the relevant assumption.

case [27.330] Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 provides a good example of how the requirements operate. Soon after being taken over by the Goldberg group, the new controllers of Brick & Pipe (B) required it to charge its assets for $57,000,000 in favour of Occidental as a third party guarantor of existing Goldberg group borrowings. The deed, made without prior board approval, was executed by Mr Goldberg (G) and Mr Furst (F). Both were directors of B but F signed as secretary. When a solicitor, who had read the public documents, challenged F’s capacity, another officer, in the presence of G, asserted incorrectly that F had been appointed to that position. Three days later the Goldberg group collapsed and B resisted honouring the guarantee.

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The Court of Appeal held that it was bound by the deed. It recognised that G, who, although appointed as a director of B, was controller of all companies in the group, had authority to represent that F was the secretary of the company. Alternatively, as it was not necessary to designate the office held by persons executing a deed, the deed had been duly executed by two directors of the company.

Pre-registration contracts [27.340] On occasion the promoters or proposed directors of a company which has not yet been registered enter into a contract in the name of and intended for the benefit of the company. The common law position was that, since the company was not in existence when such a contract was purportedly made on its behalf, the contract could not confer rights or impose liabilities on the company. Nor could the company ratify the contract after its registration. The person who made the contract on behalf of the company could be personally liable on it, depending on the intentions of the parties: Kelner v Baxter (1866) LR 2 CP 174; Black v Smallwood (1966) 117 CLR 52. However, the common law position has been radically altered by the Corporations Act 2001 (Cth), which establishes: 1.

2.

Where a contract is entered into on behalf of or for the benefit of a non-existent company, the company becomes bound by the contract if the company or a company reasonably identifiable with the company contemplated in the agreement: (a)

is registered; and

(b)

ratifies the contract: (i)

within the time agreed by the parties to the contract; or

(ii)

if there is no time agreed, within a reasonable time after the contract is entered into: s 131(1).

The person who entered the contract (for example, the promoter) will be liable in damages to each other party to the contract if: (a)

the company is not registered; or

(b)

is registered, but fails to ratify the contract as set out in 1. above: s 131(2).

3.

The amount of the damages recoverable are equal to that which would have been payable by the company had it been established, ratified the contract and not performed the contract: s 131(2).

4.

It is important to note that the personal liability of, for example, a promoter under 2. and 3. above may be avoided where the other party to the contract has in writing signed by them consented to the promoter being exempted from any liability in relation to the contract.

5.

Where a person (for example, a promoter) has contracted on behalf of a non-existent company, and the company after it has been formed together with the other parties to the contract substitutes another contract for it, the person who executed the first contract on behalf of the company is discharged from all liabilities in relation to it. (The purpose of this provision is to ensure that a novation by the company and the other contracting party discharges the promoter’s statutory liability.)

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Membership Where membership exists [27.350] A person is a member of a company if they are identified as a member of the company on its application for registration: Corporations Act 2001 (Cth), s 120. Membership also extends to every other person who agrees to become a member of the company and whose name is entered in its register of members. The usual ways by which persons become members are by the allotment of shares to them or the transfer to them of shares by a person who already is a member. However, a person may become a member of a company: (a)

by being entered on the register of members in place of a bankrupt or member who is of unsound mind;

(b)

by being entered on the register in succession to a deceased member; or

(c)

by becoming a member under s 167 (conversion of a company from one limited by guarantee to one limited by shares).

The constitution and replaceable rules of a company effect a contract between: (a)

the company and each member;

(b)

the company and each director and secretary of the company; and

(c)

a member and each other member, under which each of such persons agrees to observe and perform the constitution and rules so far as they apply to that person: s 140(1).

A member of a company is not bound by a modification of the constitution made after the date on which they became a member so far as the modification: (a)

requires them to take up additional shares;

(b)

in any way increases their liability as at the date of the alteration to contribute to the share capital of, or otherwise to pay money to, the company; or

(c)

increases, or imposes, restrictions on the right to transfer the shares held by them at the date of the alteration, unless the modification is made in connection with the company’s change from a public company to a proprietary company or to insert proportional takeover approval provisions into the company’s constitution: s 140(2). – unless they agree in writing to be so bound.

Register of members [27.360] A company must set up and maintain a register of its members (that is, its shareholders) containing the following information about each member: (a)

the member’s name and address; and

(b)

the date on which the entry of the member’s name in the register is made: Corporations Act 2001 (Cth), ss 168(1)(a), 169(1).

If the company has a share capital, the register must also show: (a)

the date on which every allotment of shares takes place;

(b)

the number of shares in each allotment;

(c)

the shares held by each member;

(d)

the class of shares;

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(e)

the share numbers (if any), or share certificate numbers (if any), of the shares;

(f)

the amount unpaid on the shares (if any); and

(g)

in the case of a non-listed company (that is, a company not on the official list of a stock exchange) not covered by an order under s 707 (in respect of substantial shareholdings), any shares that a member does not hold beneficially: s 169(5A).

The register must also show the name and details of each person who stopped being a member within the last seven years and the date on which the person stopped being a member: s 169(7). The register (along with all other registers kept under Ch 2C must be kept at the company’s registered office, an office at the company’s principal place of business, or the office where the register is maintained, unless another office has been approved by ASIC. The office must be in Australia: s 172. In the absence of evidence to the contrary, a register is proof of the matters shown in it: s 176. Registers must be open for inspection by members, registered option holders and registered debenture holders without charge, and to any other person on payment of a fee (if any) not exceeding the prescribed amount. A person may obtain a copy of a register, or any part, on payment of a fee (if any) not exceeding the prescribed amount: s 173. The court has power to rectify a register on application by the company or a person aggrieved: s 175.

Cessation of membership [27.370] A member ceases to be a member in the following circumstances: (a)

by death – in this case the estate will still be liable for any amount uncalled or unpaid on the shares;

(b)

by validly transferring the shares;

(c)

by shares being forfeited for the non-payment of calls;

(d)

by shares being disposed of by the company in the enforcement of its lien when calls are unpaid;

(e)

by the trustee in bankruptcy disclaiming shares that are not fully paid up; or

(f)

by surrender of shares to the company.

Remedies of members [27.380] Members may take action against the company if it breaches its duties to them, such as failing to pay a declared dividend. However, where a wrong is done to a company, it is the company which is the proper person to take legal action to enforce its rights. There may be problems where the wrong is the result of a breach of duty owed by the company’s directors or the action of a majority of the company’s members. In those circumstances minority members are unlikely to be able to persuade the company to take action to protect its interests but may be able to take advantage of statutory remedies.

Statutory derivative action [27.390] The common law entitlement of a member to take action on behalf of a company, known as the exceptions to the Rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189, has been abolished: Corporations Act 2001 (Cth), s 236(3). In lieu, a member, former member, officer or former officer may bring proceedings on behalf of a company by way of statutory derivative action. These proceedings may only be brought by leave of the court: s 236. The court must grant leave if it is satisfied: (a)

that it is probable that the company will not itself bring the proceedings; and

(b)

that the applicant is acting in good faith; and

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(c)

that it is in the best interests of the company that the applicant be granted leave; and

(d)

that there is a serious question to be tried; and

(e)

that at least 14 days before making the application, the applicant gave written notice to the company of their intention to apply for leave and of the reasons for applying, or that it is appropriate to grant leave in the absence of such notice: s 237(2).

A court hearing an application may appoint an independent person to investigate the financial affairs of the company or the circumstances which gave rise to the cause of action (s 241(1)(d)) and may make a costs order in favour of the applicant or any other person involved in the application or hearing: s 242.

Statutory remedy for oppressive or unfair conduct [27.400] In recognition of the inadequate remedies available to minority shareholders at common law, the Corporations Act 2001 (Cth) provides a statutory remedy to members of a company who believe that the affairs of the company are being conducted in a manner that is oppressive, or unfairly prejudicial to, or unfairly discriminatory against one or more members of the company. The court may make an order if the conduct of a company’s affairs, an act or omission, or a resolution is either: (a)

contrary to the interests of the members as a whole; or

(b)

oppressive, unfairly prejudicial, or unfairly discriminatory against a member: s 232.

Where the court is of the opinion that the affairs of the company are being conducted in such a manner, it may make such order as it thinks fit to rectify the situation: s 233(1). Such an application may be made by a member, by a person who has been removed from the register of members due to a selective reduction, by a person who has ceased to be a member if the application relates to the circumstances of that cessation or by a person approved by ASIC having regard to its investigation of the company’s affairs: s 234.

case [27.410] In Wayde v NSW Rugby League Ltd (1985) 180 CLR 459, the High Court was asked to intervene in a dispute between Wests and the controller of the Sydney rugby league competition. NSW Rugby League had decided that the premier Winfield Cup competition would be improved by reducing the number of competing teams to 12. Wests, a member of the controlling company, was the club selected to be dropped from the competition. Wests conceded that the directors made the decision in good faith and did not argue that the Board had taken into account irrelevant considerations or failed to consider relevant matters but argued that the decision was unfairly prejudicial to them. The High Court recognised that the decision was harsh but refused to intervene because the Board had acted in what it conceived to be the best interests of the game as a whole, it was not a decision that no Board acting reasonably could have made and it was not oppressive, unfairly prejudicial or discriminatory.

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Corporate finance [27.420] Companies need finance to establish themselves and to develop their businesses. In this section ([27.420]–[27.650]), attention is paid to shares. However, it should not be thought that companies are limited to shares as a source of finance. Companies, like any other business, will pursue any financing medium that they consider will enhance their position. Assets may be bought, leased or acquired on hire purchase terms; the business, or parts of it, may be mortgaged to release funds; or loans or credit will be sought from members, suppliers, banks and other financiers. Most companies are forced to raise capital privately but public companies may raise money from the public by issuing shares or other securities. The discussion of corporate finance in this chapter is limited to the general rules relating to share capital, particularly the rules on the maintenance of capital, which apply to all companies.

Share capital Share capital and holders of capital [27.430] No company is required to state a limit on its share capital. Unless restrained by its constitution, a company is able to issue any number of shares. Shares have no par (that is, fixed monetary) value: Corporations Act 2001 (Cth), s 254C. A company may determine the terms on which its shares are issued and the rights and restrictions attaching to those shares: s 254B. Each time that directors decide to make a share issue, they must determine the appropriate price for these shares, having regard to the market value of the company’s shares, the value of the business, fairness between existing and new members and the marketability of the issue.

Alteration of share capital [27.440] The position in relation to alteration is as follows: 1.

The Corporations Act 2001 (Cth) does not require a company to place limits on the size of its capital. If the company’s constitution limits the number of shares it can issue, that limit is alterable by special resolution and compliance with any specific requirement of the company’s constitution.

2.

Share subdivision and consolidation remains possible. A company may convert all or any of its shares into a larger or smaller number of shares by resolution passed at a general meeting. Any amount unpaid on shares being converted is divided equally among the “replacement” shares: s 254H.

3.

Where the company seeks to effect a reduction of share capital, the requirements of the law are more onerous to reflect the risk of such transactions leading to insolvency, and to protect the interests of shareholders and creditors: s 256A.

Shares [27.450] Shares are the parts into which the capital of a company is divided. The ownership of a share entitles the holder to receive a proportionate part of the profits distributed by a company as dividends, and to take part in the management to the extent provided by the constitution. Shares may be of different kinds: for example, ordinary, preference, deferred, or founders’. The holders of shares (except those in listed public companies) are issued with a share certificate which sets out the name of the company, name and address of the member, number of shares evidenced by the certificate, the distinctive numbers of such shares and the amount paid up on each of such shares.

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Ordinary shares [27.460] An ordinary share is the name given to those which have no special rights or privileges over other shares and which normally comprise the bulk of a company’s capital. A holder of ordinary shares will ordinarily have one vote on a poll for every share held and an entitlement to a proportionate part of any residue remaining on the winding up of the company, after the company’s assets have been applied to pay in full the company’s creditors and the holders of preference shares.

Preference shares [27.470] A company can issue preference shares only if the rights attached to the shares with respect to the following matters are set out in its constitution or have been approved by special resolution: repayment of capital, participation in surplus assets and profits, cumulative or non-cumulative dividends, voting, priority of payment of capital and dividends in relation to other shares: Corporations Act 2001 (Cth), s 254A(2). Holders of this type of share are ordinarily given a preference as to dividends and the return of capital over the holders of ordinary shares. [27.480] Redeemable preference shares: These are specially allowed by the Corporations Act 2001 (Cth) (s 254A(3)), and are issued on the terms that they are to be redeemed by the company at a later date. These shares may be redeemed only out of profits or out of the proceeds of a fresh issue of shares, and may only be redeemed if fully paid up. The shares may only be redeemed on the terms on which they are on issue (s 254J), and may be redeemable: (a)

at a fixed time or on the happening of a particular event;

(b)

at the company’s option; or

(c)

at the shareholder’s option: s 254A(3).

Founders' or deferred shares [27.490] These are shares in which the holder’s rights are deferred until the claims of other classes of shares are satisfied, usually in the matter of dividends or return of capital.

Issue of shares [27.500] People who gave their consent to becoming members of the company on registration become members on registration and the shares that they agreed to acquire are taken to have been issued: Corporations Act 2001 (Cth), s 120. This is the initial capital of the company. Thereafter, the directors have a discretion to issue further shares. This can be done by resolution of the directors to enter the name of the investor in the register of members and issue of the relevant share certificate: s 1070C. Unless replaceable rule s 254D is altered, directors of proprietary companies are bound to offer new shares first to existing members of the class. They may not make public offers of their shares. Public companies must, also, keep within the s 708 exceptions, unless they are prepared to issue the appropriate disclosure documents to potential investors in a public issue.

Transfer of shares [27.510] The interest of a member in a company is represented by their shares. One of the advantages of membership of a company as compared with a partnership is the ease with which shares can be transferred. The Corporations Act 2001 (Cth) provides that the shares or other interest of any member of the company is personal property transferable in the manner provided by the constitution: s 1070A. The constitution may regulate the manner of transfer and may (particularly in the case of proprietary

chapter 27 Company Law

companies) restrict freedom of transfer. Section 1072F (a replaceable rule) provides that the transferor of shares remains the holder of those shares until the transfer is registered. The Corporations Act 2001 provides that notwithstanding anything in its constitution a company shall not register a transfer unless a proper instrument of transfer has been delivered to the company (so that an oral transfer could not be accepted). However, this provision does not prevent transmission by operation of law: s 1071B.

Transmission of shares [27.520] Transmission is the term used when shares vest in some person by operation of law, such as on the bankruptcy, mental incapacity or death of a member. This permits a person, other than the registered owner, to deal with the shares when the power of such member to act ceases. Sections 1072A, 1072B and 1072C of the Corporations Act 2001 (Cth) (which are replaceable rules) deal with the transmission of shares in these circumstances. The legal representative of a deceased member does not become a member of the company unless they apply to have the shares transferred to their name. If the legal representative does this, they are personally liable to pay all calls but can claim an indemnity against the estate of the deceased member. A transfer of shares of a deceased member made by their personal representative is, although the personal representative is not herself or himself a member of the company, as valid as if they had been such a member at the time of the execution of the instrument of transfer: s 1071B(8).

Dividends [27.530] Dividends represent the division of the company’s surplus amongst its shareholders. Before 2010 no dividend could be paid except out of profits. Any other arrangement would have amounted to an unauthorised reduction of capital. Section 254T of the Corporations Act 2001 (Cth) has moved from a capital maintenance test to a solvency requirement. A company may make a distribution to shareholders where it has a surplus of assets over liabilities sufficient to meet the payment and the directors are satisfied that the payment is fair and reasonable to the shareholders as a whole and will not materially prejudice its ability to pay creditors. The constitution governs the declaration of dividends. For companies governed by the replaceable rules, s 254U invests the directors with power to determine the amount, time and method of payment.

Reduction of share capital [27.540] Under the Corporations Act 2001 (Cth), the position in relation to reduction of capital is: 1.

2.

A company may reduce its capital in a way not otherwise authorised by law if the reduction: (a)

is fair and reasonable to all the company’s shareholders as a whole;

(b)

does not materially prejudice the company’s ability to pay its creditors; and

(c)

is approved by resolution of shareholders (by a majority which varies according to whether the reduction is an “equal” or a “selective” reduction): s 256B(1).

A reduction is an equal reduction where: (a)

it relates only to ordinary shares;

(b)

it applies to each ordinary shareholder in proportion to the number of ordinary shares they hold; and

(c)

the terms of the reduction are the same for each holder of ordinary shares: s 256B(2).

An equal reduction only requires approval by ordinary resolution at a general meeting of the company: s 256C(1).

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3.

If a reduction is not an equal reduction, then it is a selective reduction. A selective reduction must be approved by either special resolution with no votes being cast in favour of the resolution by persons who are to benefit from the reduction and their associates, or a resolution agreed to by all ordinary shareholders in general meeting: s 256C(2). If shares are to be cancelled, the reduction must also be approved by special resolution at a meeting of the shareholders whose shares are to be cancelled.

4.

At meetings called for the purpose of both selective and equal reductions, the company must issue an information statement detailing all information known to the company that is material to the decision on how to vote: s 256C(4).

5.

Pursuant to s 256D, a company must not make a reduction unless it complies with s 256B(1). Where a contravention occurs, it does not affect the validity of the reduction or any associated contract, and the company itself is not guilty of an offence: s 256D(2). However, any person involved in the contravention is in breach of s 256D(3), a civil penalty provision, and is liable to Pt 9.4B proceedings by ASIC.

6.

Other reductions of share capital include:

7.

(a)

unlimited companies (s 258A);

(b)

cancellation of forfeited shares (s 258D);

(c)

reductions involved in the redemption of redeemable preference shares (ss 254K, 258E);

(d)

reductions involved in share buy-backs (ss 257A – 257J, 258E);

cancellation of paid-up share capital that is lost or is not represented by available assets, except where the company also cancels shares: s 258F.

Furthermore, directors risk liability pursuant to s 588G if the reduction is in breach of the director’s duty to prevent insolvent trading. Section 256E provides a table of other provisions relevant to reductions in share capital.

Self-acquisition of shares [27.550] The Corporations Act 2001 (Cth) imposes a general prohibition on a company acquiring its own shares or interests in them, regardless of whether it proposes to cancel them or merely to hold and resell them: s 259A. There are four limited exceptions to this prohibition: (a)

a buy-back permitted under s 257A;

(b)

acquisition of an interest (other than a legal interest) in fully paid shares in the company if no consideration is given for the acquisition by the company or an entity it controls;

(c)

acquisition under a court order; or

(d)

either: (i)

under an employee share scheme approved in accordance with s 259B(2); or

(ii)

the company takes security in the ordinary course of its business of providing finance and on ordinary commercial terms: see s 259B(3).

Subject to its constitution, a company may buy back its own shares if the buy-back does not materially prejudice the company’s ability to pay its creditors, and the company follows the procedures laid down in Pt 2J.1 Div 2. The central provision is s 257B which sets out the procedural steps required for each type of buy-back in tabular form. With respect to all types of buy-back, a company must not deal in shares it buys back, and any agreement in contravention of this principle is void: s 257H(1). All shares are cancelled immediately after

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the registration of the transfer to the company of the shares bought back (s 257H(2)) and ASIC must be notified of the cancellation: s 254Y. A company must give ASIC 14 days’ notice of its intention to buy back its shares: s 257E. The permissible types of buy-backs are as follows: [27.560] Equal access schemes (applicable only to ordinary shares): An equal access scheme involves the company making offers on the same terms to all shareholders to buy back the same percentage of their ordinary shares in the company: Corporations Act 2001 (Cth), s 257B(2). The scheme needs shareholder approval by ordinary resolution only if the “10/12 limit” would be exceeded. The 10/12 limit is exceeded if the buy-back would result in shares carrying more than 10 per cent of the smallest number of votes attached to voting shares at any time in the last 12 months were bought back during that 12 months: s 257B(4), (5). The resolution must approve the terms of the buy-back agreement before the agreement is entered into, unless the agreement made is conditional on such an approval: s 257C(1). In addition, the company must lodge copies of the offer documents with ASIC before entering into the buy-back agreement, and the offer must include a statement setting out all information known to the company that is material to a shareholder’s decision whether to accept the offer: ss 257C(3), 257E. [27.570] On-market buy-backs: These are buy-backs by a listed company in the ordinary course of trading on a stock exchange and are governed largely by the Listing Rules of the relevant securities exchange but include buy-backs conducted on an overseas securities market where ASIC has declared that market to be a market for the purposes of this provision: Corporations Act 2001 (Cth), s 257B(7). On-market buy-backs require advance notice to be given to the securities exchange. Approval by ordinary resolution is also required if the 10/12 limit would be exceeded by the proposed buy-back. [27.580] Employee share scheme buy-backs: These are buy-backs of shares under a scheme that has as its purpose the acquisition of shares in a company by or on behalf of its employees and executive directors and has been approved by the company in general meeting. The approval of the shareholders of the company by ordinary resolution must be obtained if the proposed buy-back would exceed the 10/12 limit. [27.590] Minimum holding buy-backs: A minimum holding buy-back is a buy-back of all of a shareholder’s shares in a listed corporation if the shares are less than a marketable parcel. These buy-backs escape most of the procedural steps relevant to other forms of buy-back. The company need only comply with the cancellation and notice requirements noted at [27.550]. [27.600] Selective buy-backs: A selective buy-back is a buy-back that does not fall within any of the other categories. This may occur where a company enters into an agreement to buy back shares owned by a particular shareholder or shareholders, that is, the offer is made selectively. Due to the potential for the interests of other shareholders to be prejudiced, a selective buy-back must be approved by either a special resolution, with no votes cast in favour of the resolution by the members whose shares are proposed to be purchased and their associates, or a resolution agreed to by all ordinary shareholders in general meeting: Corporations Act 2001 (Cth), ss 257B, 257D. The company must also comply with the notice and disclosure requirements prescribed for equal access schemes: see [27.560]. ASIC has power to exempt a company from these requirements before the buy-back agreement is entered into: s 257D(4). A company that buys back shares is deemed to incur a debt, thereby attracting the operation of s 588G, which imposes personal liability on directors who allow the company to incur a debt while it is insolvent: see [27.740]. Thus, directors may be liable to compensate the company if the company is, or becomes, insolvent when the company enters into the buy-back agreement. Section 257J refers to this and other provisions of the Corporations Act 2001 that are relevant to buy-backs, for example the consequences of contravention of the buy-back provisions.

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[27.610] Shareholding by controlled entities: Subject to certain exceptions, the issue of shares of a company to an entity it controls is void: Corporations Act 2001 (Cth), s 259C. A company will be considered to “control” an entity if it has the capacity to determine the outcome of decisions about the entity’s financial and operating policies: s 259E. The issue to be addressed relates to the practical influence the company can exert, rather than its legal rights. Company business practices or patterns of behaviour are taken into account: s 259E(2), see also s 259E(3) and (4). The exceptions include certain cases where the controlled entity is a personal representative or trustee. If a company obtains control of an entity that already holds shares in the company, then the entity: (a)

continues to be a member of the company but cannot exercise voting rights attaching to the shares; and

(b)

must within 12 months (unless ASIC allows a longer period) cease to hold the shares, or the company must cease to control the entity: s 259D.

Limitations on companies financing dealings in their own shares Financial assistance [27.620] Section 260A(1) of the Corporations Act 2001 (Cth) provides that a company may financially assist a person to acquire shares (or units of shares) in the company, or a holding company of the company only if: (a)

giving the assistance does not materially prejudice the company, its shareholders or the company’s ability to pay its creditors;

(b)

the assistance is approved by shareholders under s 260B; or

(c)

the assistance is exempted under s 260C.

Procedure for obtaining shareholder approval [27.630] Where directors are satisfied that giving financial assistance will not materially prejudice the company, its shareholders or its ability to pay creditors, they may grant that assistance in the exercise of their own discretion. However, where they have any doubts about the effect of giving financial assistance they must seek shareholder approval for their proposal unless the assistance is exempt under s 260C of the Corporations Act 2001 (Cth). Shareholder approval for financial assistance may be given by special resolution at a general meeting, at which persons acquiring the shares or their associates are prevented from voting in favour of the resolution or by a resolution agreed to by all ordinary shareholders: s 260B(1). Subsections 260B(2) and (3) address situations in which a company giving financial assistance will have a holding company immediately after the relevant acquisition. They require approval by special resolution of the shareholders of the holding company, in addition to any approval that may be given by the shareholders of the company giving the financial assistance. The procedure for obtaining shareholder approval is: (a)

lodgment of the notice(s) of meeting and the accompanying information statement with ASIC (s 260B(5));

(b)

notice of meeting and an information statement containing all information known to the company that is relevant to the decision on how to vote on the resolution to be sent to the members and, if required, to the members of the holding company (s 260B(4));

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(c)

approval by (i) members in the form of either a special resolution passed with no votes being cast in favour of the resolution by the persons acquiring the shares and their associates, or a resolution agreed to by all ordinary shareholders in general meeting (s 260B(1)) and (ii) if required, members of the holding company (s 260B(2) and (3));

(d)

lodgment of notice of the special resolution(s) with ASIC within 14 days of it being passed (s 260B(7)); and

(e)

lodgment of notice that the financial assistance has been approved with ASIC at least 14 days before the financial assistance is given: s 260B(6).

Exempted financial assistance [27.640] Section 260C of the Corporations Act 2001 (Cth) exempts financial assistance from the operation of s 260A where: (a)

it is given in the ordinary course of commercial dealing and consists of creating or acquiring a lien on the amount payable on partly paid shares, or where it consists of entering an agreement with a person under which they make payments to the company on shares by instalments (s 260C(1));

(b)

it is provided by a company whose ordinary business is the provision of finance and it is provided in the ordinary course of that business on ordinary commercial terms (s 260C(2));

(c)

where the company is a subsidiary of a company that is borrowing money under debentures, and the assistance is in the form of a guarantee or other security given in the ordinary course of commercial dealing for the repayment of moneys by the borrowing company (s 260C(3));

(d)

it is given under certain shareholder approved employee share schemes (s 260C(4));

(e)

it is a reduction of share capital under Div 1 Pt 2J.1;

(f)

it is a share buy-back under Div 2 Pt 2J.1;

(g)

it is given under a court order; or

(h)

it is a discharge on commercial terms of a liability that the company incurred as a consequence of a transaction entered into on ordinary commercial terms: s 260C(5).

Where a contravention occurs, it does not affect the validity of the financial assistance or any associated contract, and the company itself is not guilty of an offence: s 260D(1). However, any person involved in the contravention is in breach of s 260D(2), a civil penalty provision, and is liable to Pt 9.4B proceedings by ASIC.

case [27.650] One of the issues raised in ASIC v Adler (2002) 168 FLR 253 was whether HIH Casualty (HIHC), a wholly-owned subsidiary of HIH Insurance (HIH), had illegally provided financial assistance to a company controlled by one of HIH’s directors, Adler. HIHC, at Adler’s instigation, paid $10 million to Pacific Eagle Equities, a wholly-owned subsidiary of Adler Corporation, itself controlled by Adler, and the trustee of the Australian Equities Unit Trust. Pacific Eagle used part of those moneys to purchase shares in HIH. Santow J held that the giving of this financial assistance contravened s 260A and that both HIH and HIHC had suffered material prejudice as a result of the giving of that financial assistance. Adler (and two other directors) were found to have been involved in that contravention.

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Corporate financing Overview [27.651] After a public company has been incorporated it may wish to secure the necessary money for it to engage in or expand its business activities by offering its securities, that is, shares, debentures or managed investments (Corporations Act 2001 (Cth), s 92(3)), to investors who are frequently members of the general public. Shares give members participation in the risks and rewards of the business. Debentures are moneys loaned on the security of the company’s assets and entitle their holders to interest whether or not the company makes a profit. Managed investments are the sale of interests in a business activity, such as an olive plantation, which will be managed by the company. As there is a temptation for the company to enhance its appeal by making misleading statements about itself and its prospects, the law has recognised a need to protect investors. Consequently, the Corporations Act 2001 introduces a considerable amount of regulation regarding the offering of securities in a company, particularly as regards the issue of prospectuses or other disclosure documents by the company.

Offering of securities [27.652] A person must not offer securities of a corporation for purchase unless an appropriate disclosure document has been lodged with ASIC: Corporations Act 2001 (Cth), s 727. A disclosure document is defined as a prospectus, profile statement or offer information statement: s 9. There are certain exceptions to the general position outlined above. Thus, a disclosure document is not required in relation to an “excluded issue” of securities: Corporations Act 2001(Cth), s 708. An issue is an “excluded issue” where, for example: (a)

the company, by personal solicitations from people with whom it has previous contacts or a professional connection, raises no more than $2 million in any 12-month period from no more than 20 persons;

(b)

a minimum subscription of at least $500,000 is raised from each investor;

(c)

within the previous six months, a qualified accountant has certified that the investor has net assets of at least $2.5 million or a gross income for each of the last two years of at least $250,000;

(d)

an offer is made through a licensed dealer to a person that the dealer is satisfied has previous experience in investing that allows them to assess: the merits of the offer; the value of the securities; the risk involved in accepting the offer; and the dealer provides the investor with a written statement of the dealer’s reason for satisfaction and the investor acknowledges that the dealer has not provided a disclosure statement in relation to the offer;

(e)

the offer is made to professional investors, defined by Corporations Act 2001 (Cth), s 708(11) to include, inter alia, persons who control $10 million for investment in securities, a financial services licensee or a trustee of a superannuation fund;

(f)

issues of securities to an executive officer (for example, a director) or a close relative of the officer of the corporation or to a body corporate in which the officer has a controlling interest;

(g)

issues of shares to existing shareholders under a dividend reinvestment scheme; and

(h)

further issues of debentures to existing debenture holders.

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Disclosure documents [27.653] A prospectus is a written notice inviting applications to buy securities in a company. It is an important document since it contains information regarding the financial affairs of the company and the nature of the security being offered to investors. The Corporations Act 2001 (Cth) closely regulates the use of prospectuses in connection with the offering of shares, debentures and managed investment schemes. A person must not issue an application form for securities (for example, for shares or debentures) in a company unless a disclosure document for the offer has been lodged with ASIC: s 727. A copy of all prospectuses must be lodged with ASIC. By s 715, ASIC has power to issue a stop order if the information in the disclosure document is not presented in a clear, concise and effective manner. A profile statement may be prepared in addition to the prospectus if ASIC has approved the making of offers of securities with such a statement: s 709(2). An offer information statement may be used in place of a prospectus if the amount of money to be raised by the issue of securities, when added to all amounts previously raised by the corporation or related entities, is $10 million or less: s 709(4).

Contents of prospectuses [27.654] A prospectus must set out the terms and conditions of the offer: Corporations Act 2001 (Cth), s 711(1). It must also disclose the interests of directors, proposed directors and promoters in the promotion of the corporation: s 711(2). The prospectus must also disclose the fees of these persons: s 711(3). The prospectus must state that no securities will be issued after the expiry date, which must not be later than 13 months after the date of the prospectus: s 711(6). A short form prospectus may simply refer to material lodged with ASIC: s 711(6). The prospectus must also contain all the information that investors and their professional advisers would reasonably require to make an informed assessment of the rights and liabilities attaching to the securities and the assets and liabilities, financial position and performance, profits and losses and prospects of the corporation: s 710(1). A company which has issued a prospectus may with the approval of ASIC prepare a profile statement for circulation to prospective investors. A profile statement must, inter alia, identify the corporation and the nature of the securities, state the nature of the risks involved in investing in the securities, and give details of all amounts payable in respect of the securities: s 714.

Offer information statement [27.655] As an alternative to a prospectus, where the amount to be raised is less than $10 million, a company may elect to issue an offer information statement. These statements should be cheaper to prepare than prospectuses since, apart from the required inclusion of a recent auditor’s report (Corporations Act 2001 (Cth), s 715(2)), the company can prepare the document on the basis of material known to it and its officers: s 732. An offer information statement for the issue of a body’s securities must, inter alia: identify the corporation; identify the nature of the securities; describe the corporation’s business; describe what the funds raised are to be used for; state the nature of the risks involved in investing in the securities; give details of all amounts payable in respect of the securities; contain the warning that the statement has a lower level of disclosure requirements than a prospectus; state that investors should obtain professional investment advice before accepting the offer; and include a copy of a financial report for the body: s 715(1). A disclosure document must include the date on which it is lodged with ASIC: s 716.

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Liability for misleading or deceptive statements or omissions in a disclosure document [27.656] The Corporations Act 2001 (Cth) provides that a person must not offer securities under a disclosure document if there is a misleading or deceptive statement in the disclosure document or any accompanying application form, an omission of required material or a change in circumstances that affects the quality of the disclosure: s 728. Contravention of s 728 of the Corporations Act 2001 (Cth), gives rise to civil not criminal liability, unless the conduct is materially adverse to the investor. The person making the offer, each director of the corporation, and an underwriter to the issue named in the disclosure document with their consent are all liable for loss or damage caused by the contravention. A person who suffers loss or damage by the conduct of another that contravened a provision of the Corporations Act 2001 (Cth) dealing with prospectuses may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention. Such action may be begun at any time within six years after the day on which the cause of action arose: s 729(3). A number of defences are available. For example, a person is not liable for a misleading or deceptive statement in a prospectus if they prove that they made all inquiries that were reasonable in the circumstances and, after doing so, believed on reasonable grounds that the statement was not misleading or deceptive: s 731(1).

Management and control Registered office [27.660] Every company must have a registered office to which all communications and notices may be addressed. A company would be liable to a penalty if it carried on business without such an office. Notice of the full address of the registered office and any change in address must be lodged with ASIC. A company must paint or affix its name in a conspicuous manner on the outside of every office or place in which its business is carried on, and in the case of the registered office of a public company must add the words “registered office”. The registered office of a public company must be open to the public for at least three hours in each business day: Corporations Act 2001 (Cth), ss 121, 142 – 145.

Directors [27.670] The directors of a company are those persons elected or appointed to the board of directors. In smaller companies the directors will often also be the managers of the company but in larger companies the directors will supervise the management of the company’s activities by the senior managers appointed by them. The directors owe certain legal duties to the company. These duties arise at general law and have been restated (and, in some cases, modified) by the Corporations Act 2001 (Cth). The directors must act with reasonable care; act in good faith in the best interests of the company; exercise their powers for the purposes for which they have been conferred; not place themselves in a position in which there is a conflict between their duties to the company and their personal interests; and must not make a secret profit or misappropriate the company’s property, information or business opportunities. Improper actions may entail liability through a breach of the Corporations Act 2001, the company’s constitution, or the general law. Personal details and particulars of the appointment and resignation of all directors must be filed with ASIC. A director must also give notice of contracts to which they are party: ss 191 – 192. A director of a

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listed public company must notify the relevant securities exchange of their interests in the company’s securities (as well as in the securities of any related company). Notice must be given within 14 days of appointment as a director or listing of the company: s 205G.

Number of directors [27.680] A public company must have at least three directors and a proprietary company must have at least one. Only a natural person is capable of being appointed a director. In the case of a public company at least two directors, and in the case of a proprietary company at least one director, must ordinarily reside within Australia: Corporations Act 2001 (Cth), s 201A.

Age limit [27.690] Only persons who are at least 18 years of age can be appointed as directors: Corporations Act 2001 (Cth), s 201B.

Validity of acts of a director [27.700] The acts of a director or secretary are valid notwithstanding any defect that may afterwards be discovered in their appointment: Corporations Act 2001 (Cth), s 201M. The term “director” includes a person who is appointed to the position of a director. The term “director” is further defined as a person who is not validly appointed as a director but who acts in the position of a director (de facto), or a person in accordance with whose instructions or wishes the directors of the company are accustomed to act (shadow): s 9.

Duties and liabilities of directors and other officers [27.710] Certain statutory duties are imposed on the directors and “officers” of a corporation: Corporations Act 2001 (Cth), ss 180 – 183. These duties are civil penalty provisions enforceable by ASIC. “Officers” is a term that includes directors and also any persons who make or participate in the making of decisions that affect the whole or a substantial part of the company’s business, such as senior executive officers.

case [27.720] In Daniels v Anderson (1995) 37 NSWLR 438, AWA, which had lost $49 million through unauthorised foreign exchange dealings by its employee, Koval, sought to recover that amount from its auditors, DHS, which, in two audit reports, had failed to note the deficiency or report to the Board on weaknesses in the company’s internal controls and records of foreign exchange dealings. DHS counter-claimed that AWA was contributorily negligent. In the course of reducing the award because of the chief executive’s contributory negligence, the Court of Appeal found that, to exercise the common law duties of care and skill, directors need to: (a)

be familiar with the fundamentals of the company’s business;

(b)

keep informed about its activities on a continuing basis;

(c)

monitor corporate affairs and policies; and

(d)

keep informed about its financial status by regularly reviewing its financial statements.

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Duty to act honestly [27.730] Directors must exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose: Corporations Act 2001 (Cth), s 181. They must not improperly use their position or information obtained as a result to gain an advantage for themselves or someone else, or to cause detriment to the corporation: ss 182 – 183. They commit an offence if they are reckless or intentionally dishonest and fail to exercise their powers and discharge their duties in good faith in the best interests of the corporation or for a proper purpose: s 184(1). A director commits an offence if they use their position dishonestly with the intention of gaining an advantage for themselves or someone else, or causing detriment to the corporation. A director also commits an offence if they use their position dishonestly and are reckless as to whether the use may result in themselves or someone else gaining an advantage, or may cause detriment to the corporation: s 184(2). Equivalent offences lie for the misuse of company information: s 184(3).

Duty to exercise care and diligence [27.740] A director must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director in these circumstances: Corporations Act 2001 (Cth), s 180(1). For example, the High Court of Australia held that the non-executive directors of James Hardie Ltd breached their obligations under s 180(1) by approving a misleading announcement to the Australian Stock Exchange concerning the adequacy of a fund established to meet asbestos claims: Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345. By contrast, in Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486, the High Court ruled that the chief executive of Fortescue Metals had not breached his duty in making company announcements, which described framework agreements for the construction and financing of a major Pilbara project as “binding contracts”, although these agreements would not be enforceable in Australian courts. The announcements were not misleading or deceptive because the business audience, to whom the announcements were directed, would be aware that these commercial arrangements with foreign state-owned corporations were, nevertheless, intended by both parties to be implemented. A director who makes a business judgment is not liable for the consequences if it is made in good faith for a proper purpose; if they do not have a material personal interest in the subject matter; if they inform themselves about the subject matter to the extent they reasonably believe to be appropriate; and if they rationally believe that the judgment is in the best interests of the corporation: s 180(2). This belief is a rational one unless it is one that no reasonable person in this position would hold: s 180(2).

Civil penalty provisions [27.750] The provisions of the Corporations Act 2001 (Cth) concerning the duties of directors and other officers of a company outlined at [27.710]–[27.740] are “civil penalty provisions”. The effect is that a person involved in a contravention of the provisions is liable to civil or criminal sanctions. The civil penalties for contravention are that a court may make an order prohibiting a person from managing a corporation for a specified period, or order the payment to the Commonwealth of a pecuniary penalty up to $200,000 (for an individual; the maximum pecuniary penalty for a corporation is $1,000,000), or both. A director who commits an offence (s 184) may be liable to criminal penalties. For ss 181 – 183, the prescribed penalties are a fine of up to $360,000 or imprisonment for up to five years, or both. In addition, a court may order a person to compensate a corporation if the person has contravened a civil penalty provision and the corporation has suffered damage as a result of the contravention. In this context “damage” includes profits made by any person: s 1317H.

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ASIC may apply for any of these remedies. The corporation may apply for a compensation order: s 1317J. Proceedings for these remedies must be started no later than six years after the contravention: s 1317K. A court must not make a declaration of contravention or a pecuniary penalty order against a person if they have been convicted of an offence constituted by conduct that is substantially the same as the contravention: s 1317M. If a person has contravened a civil penalty provision, but it appears to the court that they acted honestly and ought fairly to be excused, the court may relieve them from liability: s 1317S.

Disclosure of interests by directors [27.760] Subject to certain exceptions, a director who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of that interest: Corporations Act 2001 (Cth), s 191(1). Notice must be given at a directors’ meeting as soon as practicable after the director becomes aware of the interest: s 191(3). Contravention of this provision by a director does not affect the validity of any act, transaction, agreement, instrument or resolution: s 191(4). A director of a public company who has a material personal interest in a matter that is being considered at a director’s meeting must not vote on the matter and must not be present while the matter is being considered: s 195(1). An exception is made where the board has passed a resolution stating that the directors are satisfied that the interested director should not be disqualified: s 195(2). ASIC may also exempt a director from the disqualification in certain circumstances: s 196. In contrast, the director of a proprietary company may participate in discussions, vote on a matter and keep any benefits that arise, provided they have declared their interest beforehand: s 194.

Financial benefits to directors and other related parties [27.770] The Corporations Act 2001 (Cth) controls loans by public companies to directors and other related parties. A public company is prohibited from giving a financial benefit directly or indirectly to a “related party”, subject to a number of exceptions: s 208. A “related party” of a public company includes: (a)

an entity that controls a public company;

(b)

directors of the public company, directors of an entity that controls the public company, and spouses of these persons;

(c)

parents and children of directors and their spouses; and

(d)

entities controlled by those parties: s 228.

The expression “giving a financial benefit” is defined broadly, and includes giving or providing finance or property; buying, selling or leasing an asset; supplying or receiving services, issuing securities, and granting an option: s 229(3). The exceptions to the general prohibition fall into two categories: specific types of benefit and benefits approved by shareholders. The specific benefits that are permitted are: (i)

indemnities, exemptions, insurance premiums and payment of legal costs for officers (s 212);

(j)

reasonable remuneration for officers and employees (s 211);

(k)

amounts not exceeding $5,000 (s 213);

(l)

financial benefits given to or by closely-held subsidiaries (s 214);

(m)

financial benefits given to related parties on commercial (“arm’s length”) terms (s 210);

(n)

financial benefits given to members of the company in their capacities as members on a basis that does not discriminate unfairly in favour of one or more related parties (s 215);

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(o)

financial benefits pursuant to a court order: s 216.

A procedure is set out for obtaining shareholder approval for a benefit that would otherwise be prohibited. The procedure requires the approval to be given by a resolution passed at a general meeting no more than 15 months before the giving of the benefit: ss 208(2), 217 – 227. The provisions are “civil penalty provisions”, that is, where a financial benefit is given to a related party in a situation not permitted by the Corporations Act 2001, the related party and anyone else involved in the contravention, is liable to the civil and criminal consequences discussed earlier (see [27.750]): s 209.

case [27.780] In ASIC v Adler (2002) 168 FLR 253 (facts outlined at [27.650]), Santow J ruled that the payment by HIHC of $10 million to Pacific Eagle constituted the giving of a financial benefit to Pacific Eagle, Adler Corporation and Adler. As it was not an arm’s length transaction (s 210) HIH and HIHC contravened s 208 by making the payment without obtaining shareholder approval, and Adler (and two other HIH directors) were found to be persons involved in this contravention.

Director's duty to prevent insolvent trading [27.790] Directors are under a duty to prevent the company from incurring debts while it is insolvent. The relevant provision is Corporations Act 2001 (Cth), s 588G, which applies where: (a)

a person is a director of a company at the time when the company incurs a debt;

(b)

the company is insolvent at that time, or becomes insolvent by incurring that debt (or debts including that debt); and

(c)

at that time, there are reasonable grounds for suspecting that the company is insolvent, or would become insolvent: s 588G(1).

By failing to prevent the company from incurring the debt, the director contravenes the section if they were aware at that time that there were reasonable grounds for suspecting that the company was insolvent, or if a reasonable person in a like position in a company in the company’s circumstances would be so aware: s 588G(2). There are several defences available to a director in proceedings for contravention of the section. These are that, at the time the debt was incurred, the director: (a)

had reasonable grounds to expect, and did expect, that the company was solvent and would remain solvent even if it incurred the debt;

(b)

believed on reasonable grounds that a competent and reliable person was responsible for providing adequate information to the director about whether the company was solvent, and on the basis of that information the director expected that the company was solvent and would remain solvent even if it incurred the debt;

(c)

did not take part in the management of the company because of illness or some other good reason; or

(d)

took all reasonable steps to prevent the company from incurring the debt. In this context, regard may be had to any action which the director took with a view to appointing an administrator of the company: s 588H.

Section 588G is a “civil penalty provision” and therefore contravention of the section gives rise to the civil and criminal consequences discussed earlier: see [27.750]. Where, on an application for a civil penalty

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order, the court is satisfied that the director has contravened s 588G, that the debt incurred is wholly or partly unsecured and that the person to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency, the court may order the director to pay to the company compensation equal to the amount of that loss or damage: s 588J. Furthermore, where the company is being wound up, the company’s liquidator may bring proceedings to recover from the director such loss or damage as a debt due to the company. Such action may be brought by the liquidator whether or not the director has been convicted of an offence in relation to the contravention, or a civil penalty order has been made against the director in relation to the contravention: s 588M.

Prohibition of insider trading [27.795] The Corporations Act 2001 (Cth) contains extensive provisions prohibiting trading with informational advantage, or as it is more commonly known, “insider trading”. Those provisions prohibit anyone in possession of non-public, price-sensitive information from dealing in, or engaging others to deal in, the shares of a company. While anyone can be an “insider”, directors and senior executives of a company are still the persons most likely to possess valuable information of that nature. Sections 1042A – 1042H collectively give the prohibition in s 1043A an expansive meaning but ss 1043B – 1043K provide specific exceptions for vendors and purchasers, their agents, underwriters and companies or partnerships where adequate barriers separate the person with the information from the person engaging in the transaction. Severe penalties, both civil and criminal, may be imposed for contravention and, in addition, the “insider” is liable to compensate the other party to a dealing and to account for any profit to the company whose shares are traded: ss 1043A, 1043L. However, in addition to the statutory defences (s 1043M) to a prosecution, courts have power to relieve a party to a civil proceeding from liability where satisfied that the information was used innocently.

case [27.796] For many years, this prohibition seemed to be a “paper tiger” but since the successful prosecution in 2002 of Simon Hannes, the provisions have been used more frequently and with success. Hannes was an executive director of Macquarie Corporate Finance, an adviser to TNT. He bought TNT options in the name of “M Booth” making use of information held by Macquarie Corporate Finance. The purchase of the options realised a profit of $2 million when a takeover of TNT was announced during their currency. Hannes did not collect the moneys and was sentenced to imprisonment for two years and two months and fined $100,000: R v Hannes (2002) 173 FLR 1.

case [27.797] Subsequently, the New South Wales Court of Appeal upheld the conviction and sentence to nine months’ periodic detention and a fine of $30,000 imposed on a share-trader who purchased Qantas shares after being given “inside information”” on negotiations concerning a proposed commercial arrangement between the airline and a competitor: R v Rivkin (2004) 59 NSWLR 284.

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case [27.798] The defendants H and K met while studying economics and commerce at university. On graduation, H became a Commonwealth public servant in the Australian Bureau of Statistics (ABS) and K was employed by a major bank on its wholesale foreign exchange desk. Between August 2013 and May 2014, H provided K with sensitive, embargoed ABS main economic indicators information which was used by K to conduct trades of margin contracts on the foreign exchange derivatives market. Both defendants pleaded guilty, inter alia, to insider trading under s 1043A of the Corporations Act 2001(Cth). H was sentenced to imprisonment for 3 years and 3 months and K to 7 years and 3 months: CDPP v Hill and Kamay [2015] VSC 86.

Removal of directors [27.800] Directors may be removed from office by an ordinary resolution. This is a replaceable rule for proprietary companies (Corporations Act 2001 (Cth), s 203C) but not for public companies: s 203D.

Payments for retirement from office [27.810] Payments to directors as compensation for retirement from office, or in connection with the transfer of the whole or any part of the undertaking or property of a company are prohibited unless particulars have been disclosed to the members of the company and the proposal has been approved by the company in general meeting: Corporations Act 2001 (Cth), ss 200A – 200J.

Secretary [27.820] The secretary of a company is an important officer and the appointment of such an executive to handle the administrative affairs of the company has long been usual company practice. The Corporations Act 2001 (Cth) requires that every public company must have at least one secretary: s 204A. A person is not capable of being a secretary of a company unless the person is a natural person who has attained the age of 18 years: s 204B. The secretary, or one of the secretaries, must be a person who ordinarily resides in Australia: s 204A. A secretary of a company is appointed by the directors: s 204D. A company of any magnitude requires a secretary. Quite apart from legal compulsion, it is essential that some officer of the company should be made responsible for attending to the requirements of the Corporations Act 2001 concerning the lodging of returns, keeping a record of proceedings at meetings, processing share transactions and other allied duties. A secretary has implied authority to make contracts of an administrative nature for the company: Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711. The company is required to lodge with ASIC a notice of the personal details of each director and secretary. The notice must be lodged within 14 days after appointment: s 205B.

Certain persons not to manage corporations [27.830] A person is disqualified from managing corporations if: 1.

They are convicted of an indictable offence that concerns the making of decisions that affect the business of the corporation, or that concerns an act with the capacity to significantly affect the corporation’s financial standing: Corporations Act 2001 (Cth), s 206B(1).

2.

They are convicted under the Corporations Act 2001 of an offence punishable by imprisonment for more than 12 months: s 206B(1).

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3.

They are convicted of an offence involving dishonesty which is punishable by imprisonment for at least three months: s 206B(1).

4.

They have committed an offence against the law of a foreign country that is punishable by imprisonment for more than 12 months: s 206B(1).

5.

They are an undischarged bankrupt: s 206B(3).

6.

They have executed a personal insolvency agreement under Pt X of the Bankruptcy Act 1966 (Cth) or a similar law of an external territory or a foreign country that has not been fully complied with: Corporations Act 2001 (Cth), s 206B(4).

The Court has the power to disqualify a person who has contravened a civil penalty provision: s 206C. A disqualified person may apply to the court for leave to manage corporations, a particular class of corporation or a particular corporation. When granting leave, the court may impose such conditions or limitations as it thinks fit. A person intending to apply for leave of the court must give ASIC not less than 21 days’ notice of their intention to apply. On the application of ASIC, the court may at any time revoke leave which it had granted under these provisions: s 206G. In recent years the court has been given wider powers to prohibit a person from taking part in the management of a company. Thus, a person may be prohibited from managing a corporation where they have at least twice been an officer of a corporation that has contravened the Corporations Act 2001 while they were an officer, and each time they failed to take reasonable steps to prevent the contravention. A person may also be disqualified where they have at least twice contravened the Corporations Act 2001 while an officer (s 206E) or have been banned from managing companies under Competition and Consumer Act 2010 (Cth): Corporations Act 2001 (Cth) s 206EA. On application by ASIC, the Court may disqualify a person from managing corporations for up to 20 years if within the last seven years that person has been an officer of two or more corporations when they have failed, and the management of the corporations was wholly or partly responsible for their failure: s 206D. ASIC may disqualify a person from managing corporations for up to five years if within the last seven years they have been an officer of two or more corporations which were wound up while they were an officer, or within 12 months after they ceased to be an officer. ASIC must give the person a notice requiring them to demonstrate why they should not be disqualified and must give them an opportunity to be heard: s 206F.

Meetings of shareholders [27.840] The constitution of a company usually contains comprehensive provisions as to notices of meetings, procedure at meetings, when meetings are to be held, and similar matters. The main classes of general meetings held by the shareholders are as follows: (a)

annual general meetings; and

(b)

general meetings on requisition.

Annual general meeting [27.850] Any public company with more than one member must hold an annual general meeting at least once in each calendar year and within five months after the end of each financial year. A public company may hold its first annual general meeting at any time within 18 months of registration: Corporations Act 2001 (Cth), s 250N. This period may be extended: s 250P.

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In practice the object of the annual meeting is to afford the directors the opportunity of presenting the financial accounts and directors’ report for the year and to outline their policy for the coming financial period. Auditors are usually appointed and their remuneration fixed by the shareholders at this meeting. Subject to the constitution, directors are also elected or re-elected at the annual meeting of shareholders: s 250R.

Convening of general meeting on requisition [27.860] A general meeting must be convened by the directors of a company on the requisition in writing of members with at least 5 per cent of the votes that may be cast at a general meeting: s 249D. On such requisition, the directors must call the meeting within 21 days of the request, and the meeting must be held not later than two months after the receipt by the company of the requisition. Provision is made for the requisitioning member or members to convene a meeting if the directors fail to proceed to do so within 21 days after the date of the deposit of the requisition: Corporations Act 2001 (Cth), s 249E. The reasonable costs of convening this meeting may be charged to the company which is empowered to recover that amount from the directors. Members holding at least 5 per cent of the votes that may be cast at a general meeting may, at their own cost, call a meeting: s 249F. Furthermore, a court, on application by a director or a member entitled to vote, may order that a meeting be called if it is impracticable to call the meeting in any other way: s 249G. Members may give notice to the company of a resolution that they propose to put to a general meeting of the company where either the members have at least 5 per cent of the votes that may be cast on the resolution or they comprise at least 100 members entitled to vote at a general meeting: s 249N.

Agenda [27.870] An important requisite of a meeting is an agenda, which is a list in tabulated form of the business to be transacted at such meeting. The secretary, usually with the concurrence of the chairman of the board, arranges the order of the different items of business but it is at the discretion of the chairman of a meeting, unless the meeting instructs them in the matter by resolution, whether the matters on the agenda are dealt with in the order indicated, or otherwise. The meeting may agree to take the items in whatever order it pleases.

Ordinary resolution [27.880] An ordinary resolution is one passed by a majority in number of such members as vote in person, or by proxy where proxies are allowed. This type of resolution is sufficient for all general matters such as appointment of directors and auditors, receiving and adopting the balance sheet and auditor’s report. Special matters requiring special resolutions are stated in the company’s constitution and the Corporations Act 2001 (Cth).

Special resolution [27.890] A special resolution is one which has been passed by at least 75 per cent of the votes cast by members entitled to vote on the resolution and of which 21 days’ notice has been given (Corporations Act 2001 (Cth), ss 9, 249H) or 28 days’ notice in the case of a listed company: s 249HA. Matters which require the passing of a special resolution include: (a)

alteration of the constitution;

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(b)

a change of the company’s name; and

(c)

voluntary winding up.

It is necessary that printed copies of all special resolutions be lodged with ASIC within 14 days of the passing of the resolution, for example: ss 246F, 461(2), 506(1B), 507(11), 510(1A).

Minutes [27.900] Minutes record the decisions of the meeting. It is the duty of the secretary to have them prepared. Minutes of all proceedings of general meetings and meetings of directors, and resolutions passed by members or directors without a meeting, must be entered into books kept for that purpose, within a month after the relevant meeting is held: Corporations Act 2001 (Cth), s 251A. It is the practice to keep two minute books: one for directors’ meetings and the other for meetings of shareholders. The minute books must be kept by the company at its registered office, or its principal place of business, or at such other place in Australia as is approved by ASIC. The minute books of general meetings must be open for inspection by any member without charge. A member may also request in writing a copy of any minutes of a general meeting and the company must send such copy within 14 days of receipt of a fee not exceeding the prescribed amount, or if no fee is charged, within 14 days after the request is made: s 251B.

Financial records [27.910] A company, a registered scheme, or a “disclosing entity” is required by the Corporations Act 2001 (Cth) to keep written financial records that correctly record and explain its transactions, financial position and performance. The financial records must also enable the preparation and audit of financial statements: s 286. Financial records must be readily translatable into English (s 287), readily convertible into paper form (s 288) and must be retained for a period of seven years: s 286(2). “Financial records” are defined in s 9 to include: (a)

invoices, receipts, money orders, bills of exchange, cheques, promissory notes and vouchers;

(b)

documents of prime entry; and

(c)

documents needed to explain methods by which financial statements are made up, and adjustments to be made in preparing financial statements.

Access to financial records must be given to directors, auditors, controllers and ASIC. Members may gain access by agreement or by court order: ss 247A, 247D.

Annual reports [27.920] A financial report and directors’ report must be prepared for each financial year by all disclosing entities, public companies, large proprietary companies and registered schemes: Corporations Act 2001 (Cth), s 292(1). A small proprietary company need only prepare such reports where it is directed to do so by its shareholders under s 293 or by ASIC under s 294, or where it was controlled by a foreign company for all or part of the year: s 292(2). The annual financial report must be audited in accordance with Div 3 of Pt 2M, and an auditor’s report must be obtained: s 301. A “financial report” consists of (s 295(1)): 1.

The financial statements for the year. This is defined in s 295(2) as the financial statements required by the accounting standards.

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2.

Notes to the financial statements. These are defined in s 295(3) as the disclosures required by regulations, accounting standards or information necessary to give a “true and fair view”: s 297.

3.

Directors’ declaration that the financial statements comply with accounting standards, give a true and fair view, and that there are reasonable grounds to believe that the company is solvent and, if the company is listed, that they have received the declarations required under s 295A: s 295(4) and (5).

A “directors’ report” must include the general information relating to operations and activities specified in s 299, the specific information required by s 300 which, inter alia, contains special rules for public companies and listed companies and, in the case of listed companies, a remuneration report. The Chief Executive Officer and Chief Financial Officer of listed companies are required to make declarations that the accounts have been properly kept, comply with auditing requirements and provide a true and fair view of the affairs of the company: s 295A.

Half-year reports [27.930] A “disclosing entity” must also prepare half-yearly financial and directors’ reports: Corporations Act 2001 (Cth), ss 111AO, 302. These must also be audited or reviewed, and lodged with ASIC: s 302. The contents of the financial reports are the same as for annual financial reports (see ss 303 – 305), although the directors’ reports need not be as detailed: s 306. “Disclosing entities” are entities any securities of which are “ED (enhanced disclosure) securities”: s 111AC. Securities are ED securities if, for example, they are quoted on a stock market of a securities exchange or if a prospectus has been lodged in relation to the securities with ASIC: ss 111AE, 111AF.

Auditors [27.940] The appointment and removal of auditors is governed by Corporations Act 2001 (Cth), Pt 2M.4. Within one month after the date on which a public company is incorporated, the directors must appoint auditors of the company, unless the company has already done so at a general meeting: s 327A. This does not apply to certain companies limited by guarantee: s 327(1A). Auditors appointed by the directors after incorporation under this provision hold office until the first annual general meeting of the company. At its first annual general meeting the company is required to appoint auditors. At each subsequent annual general meeting, if there is a vacancy in the office of auditor, the company must appoint a person or persons or a firm to fill the vacancy. The Corporations Act 2001 also provides that an auditor ceases to hold office upon: (a)

the passing of a special resolution for the voluntary winding up of a company; and

(b)

the making of a court order for the winding up of a company: s 330.

The critical role that auditors play in ensuring that corporate financial statements are reliable has been recognised in the CLERP (Audit Reform and Corporate Disclosure) Act 2004 (Cth), which dedicates considerable attention to the enhancement of auditor independence, for example: (a)

individuals who have been involved in a significant role in the audit of a listed company for five successive financial years are not eligible to play a significant role in the audit of that company for a later financial year unless they have not played such a role in at least two successive intervening financial years (s 324DA);

(b)

individuals are not eligible to play a significant role in the audit of a listed company for more than five out of seven successive financial years (s 324DA);

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(c)

auditors must disclose the amounts paid to them for non-audit services by a listed company s 300(11B); and

(d)

prohibitions on conflicts of interest situations in relation to audited companies: s 324CD.

Restrictions are placed upon the transfer of professional staff between audit firms and their clients. A member or director of an audit firm may not become an officer of an audited company (other than a small proprietary company) within two years of their retirement from the firm. Similarly a professional employee who was lead auditor or review auditor for a company may not become an officer of the audited company (other than a small proprietary company) within two years of the audit being completed. Compliance with these requirements will be certified by an auditor’s independence statement attached to each set of audited financial statements (s 307C) and in the annual statement lodged by auditors with ASIC: s 1287A. For the general provisions relating to the qualifications, powers, duties, appointment, removal, resignation and remuneration of auditors, reference should be made to the Corporations Act 2001 (Cth), ss 325 – 331.

Arrangements and reconstructions [27.950] The provisions of the Corporations Act 2001 (Cth) concerning arrangements and reconstructions enable a company, subject to the requisite majority vote and court approval, to: (a)

enter into a compromise with its creditors as an alternative to liquidation;

(b)

vary the share structure of the company, including variations to the rights of members, to an extent that could not be achieved through an alteration to the constitution;

(c)

be reconstructed through the transfer of its assets to a new company in consideration of the issue of the new company’s shares to the first company’s members; or

(d)

amalgamate with one or more companies through the transfer of their assets to one of them or to a new company formed for the purpose: ss 411 – 415.

These extensive powers, which were largely developed by the courts, can be used to effect mergers of companies, their internal restructuring or compromises with creditors by insolvent companies.

Compromises and arrangements [27.960] Where a compromise or arrangement is proposed between a company and its creditors, the court, on application by the company or any creditor or (if the company is being wound up) the liquidator of the company, may order a meeting of the creditors to be convened. Such order must not be made unless 14 days’ notice of the hearing resulting from the application has been given to ASIC, and the court is satisfied that ASIC has had a reasonable opportunity to examine and make submissions to the court as to the terms of the proposed compromise or arrangement and a draft explanatory statement explaining its effect. The proposed compromise or arrangement will be binding on the creditors only if: (a)

it is approved at the meeting ordered by the court by a majority in number of creditors present and voting either in person or by proxy, being a majority whose debts or claims against the company amount in aggregate to not less than 75 per cent of the total amount of the debts and claims of the creditors present and voting in person or by proxy; and

(b)

it is approved by order of the court.

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There are parallel provisions in the case of a proposed compromise or arrangement between a company and its members although the majority requirements are slightly different: see Corporations Act 2001 (Cth), s 411(4)(a)(ii). The court can order more than one meeting of creditors or members or a class of creditors or members. The votes cast at each meeting will then be aggregated in order to determine whether the requisite approval has been given. Special rules have been developed to overcome the complexity and cost of proceedings where a large corporate group is involved: ss 411 – 412. Compromises or arrangements between a company and its creditors (or class of creditors) often take one of the following forms: 1.

A “moratorium” type scheme – in which the company is given a moratorium against the payment of its then accrued debts in the hope that, by being freed from pressing creditors, it might be able to “trade itself out” of its difficulties. Such a scheme is frequently accompanied by provisions which require the business of the company to be carried on during the course of the moratorium under the supervision of a “scheme manager” who acts as a watchdog for the creditors.

2.

A compromise scheme whereby the debts of the creditors are discharged by payment of a lesser sum than they are owed. Such schemes are often accompanied by provisions that permit the shares in the company to be sold to a person or company wishing to obtain the benefit of the “carry forward tax losses” of the company, the purchase price for the shares being added to the fund that is to be distributed amongst the creditors.

So long as the requisite majorities in number and value of the creditors (or class of creditors) are obtained, the courts have not normally refused to approve schemes of arrangement. In such cases, the court has generally taken the view that, if the creditors are acting on sufficient information and with time to consider what they are about and are acting honestly, they are much better judges of what is to their commercial advantage than the court can be. However, if it can be shown that the creditors representing the majority are not acting bona fide or are coercing the minority to promote interests adverse to those of the general body of creditors, then the court may well refuse to approve such a scheme.

Reconstructions and amalgamations [27.970] Where a compromise or arrangement has been proposed for the purposes of a scheme for the reconstruction of a company, or the amalgamation of any two or more companies, and under the scheme the whole or any part of the undertaking of any company concerned in the scheme is to be transferred to another company, application may be made to the court for approval of the compromise or arrangement. The court, if approving the scheme, may also provide for the transfer of the undertaking and the property of the transferor company, the deregistration without winding up of the transferor company and the allotting or appropriation of any shares involved in the scheme, and other incidental matters. There are also provisions whereby, if a scheme or contract involving the transfer of shares in one company to another company is approved by members holding shares in the class affected carrying at least 90 per cent of the votes attached to shares in that class, the transferee company may compulsorily acquire the shares of a dissenting shareholder. Where the shares transferred, together with any other shares in the transferor company held by a nominee for the transferee company or its subsidiary, comprise nine-tenths of the shares in the transferor company, the transferee company must give notice accordingly to the holders of the remaining shares who have not assented. Thereupon any of such holders may require the transferee company to acquire the shares in question: Corporations Act 2001 (Cth), ss 413 – 414.

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Company receivers [27.980] The appointment of a receiver over the undertaking and assets of a company is usually made on the application of mortgagees or the holders of circulating security interests. When the mortgagees or other secured parties wish and are in a position (usually because interest is in arrears, principal is overdue or the security is in danger) to enforce their security they appoint a receiver whose duty it is to take possession of the property secured, to collect income from such property or sell it and to apply the money in accordance with the provisions of the instrument conferring the power to make the appointment or of the order of the court effecting the appointment. In the case of companies, a receiver and manager is often appointed as the assets generally retain their value better when the company is kept a going concern. This is particularly the case when one of the valuable assets is goodwill. However, a receiver and manager is not bound to continue the business of the company. In fact, the receiver and manager often finds that the finances of the company have degenerated to such a parlous state that there is no alternative but to realise the assets of the company by sale and salvage as much as possible from this phasing-out operation. The powers, duties, and liabilities of company receivers are largely codified in Pt 5.2 of the Corporations Act 2001 (Cth). The traditional distinction between a receiver and receiver/manager has been overcome by s 420, which confers managerial powers on receivers.

Appointment of company receivers [27.990] A person appointed as a receiver must be a registered liquidator (Corporations Act 2001 (Cth), s 418) but a corporation which is authorised by any State Act to act as receiver of property of a company, for example certain public trustee companies, may be appointed. None of the following persons is qualified to be appointed as receiver of property of a company: (a)

a mortgagee of any property of the company;

(b)

an auditor or an officer of the company; or

(c)

an officer of any corporation that is a mortgagee of any property of the company.

Where there is doubt about whether a purported appointment of a person as receiver is valid, the company or any creditors of the company may apply to the court for an order declaring whether or not the purported appointment was valid: s 418A.

Notice of appointment [27.1000] Where a receiver of a company is appointed, either under court order or under the powers contained in any instrument, the person obtaining such order or making such appointment must give notice of the fact within seven days to ASIC, and within 21 days publish a notice of the order or appointment in the Commonwealth Gazette. A person who ceases to be a receiver of property of a company must give notice to that effect within seven days to ASIC, and within 21 days publish a notice that they have ceased to act in the Commonwealth Gazette: Corporations Act 2001 (Cth), s 427.

Effect of appointment [27.1010] Upon appointment the receiver or receiver and manager takes control of all property subject to the security. In many cases the security will be a circulating security interest over the whole business and undertaking of the company. In these cases the receiver is vested with full management powers over the company’s business and undertaking. They take complete charge of the company as a going concern until

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the loan, interest and costs are satisfied. Only in exceptional cases (such as dishonesty) would a court interfere with the exercise by the secured parties or receivers acting on their behalf and with their authority of such powers as are given to them by the company: Re Neon Signs (A/asia) Ltd [1965] VR 125. The appointment of a receiver and manager “supersedes the company in the conduct of its business, deprives it of all power to enter into contracts in relation to that business or to sell, pledge, or otherwise dispose of the property put into the possession, or under the control of the receiver and manager. Its powers in these respects are entirely in abeyance”: Moss SS Co v Whinney [1912] AC 254 at 263 per Lord Atkinson. The directors’ powers are suspended as regards the management of the business but their statutory obligations to convene meetings of shareholders and deal with the transfer of shares continue. The assets do not vest in the receiver, that is to say there is no change in legal ownership or title, but the receiver takes possession of the assets covered by the security interest and deals with them according to their powers and responsibilities. Because the assets are in the hands of the receiver, a company cannot discharge any of its past trade debts and could be forced into liquidation. However, when a receiver and manager is appointed they generally carry on the business of the company and in such event, from an unsecured creditor’s point of view, there is often little to be gained from liquidation. In fact, in order to protect the value of the goodwill it is advisable to avoid liquidation, and in any case the liquidator would not, in normal circumstances, obtain possession of the assets until the claims of the secured parties were satisfied.

Powers and duties of a receiver of a company [27.1020] The powers and duties of a receiver appointed under a security agreement depend upon the provisions of such agreement, and a careful study of these provisions is of prime importance to the receiver. Immediately a receiver is appointed they should notify the company and proceed personally to its registered office and other places of business in order to take possession formally of the property. In the early stages of their appointment a receiver should adopt a rather formal program of taking over the assets, and in particular advising all senior executives of the company of their policy and the manner in which they require their co-operation.

Powers of a receiver [27.1030] The security agreement will usually identify the powers that are vested in the receiver, or, in the case of a receiver appointed by the court, the order itself will normally list the powers that may be exercised by them but that is hardly necessary as the Corporations Act 2001 (Cth) confers on the receiver of property of a corporation an extensive list of particular powers as well as power to do “all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed”: s 420. Where a receiver and manager is appointed for the purpose of enforcing a security interest, they may discover that some of the company’s property is subject to a prior security interest. The receiver and manager may apply to the court for an order authorising them to sell or otherwise dispose of such property irrespective of the prior security interest: s 420B. The court has power to impose conditions on its order to ensure that the holder of the prior security interest is not unduly disadvantaged. To determine the powers of a particular receiver, reference should be made to both the court order or document providing for their appointment as well as to the receiver’s statutory powers.

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A receiver or manager of the property of a company appointed under the powers contained in any instrument may apply to the court for directions (which is much the same as obtaining the advice of the court) in relation to any matter arising in connection with the performance of their functions: s 424.

Duties of a receiver [27.1040] The duty of a receiver of a company is to obtain control of the company’s assets and to convert them into cash in order to pay the secured party. These funds may be raised in the normal course of trade but will often come from the sale of particular assets or the whole undertaking. The Corporations Act 2001 (Cth) imposes a number of important requirements on a receiver in carrying out their functions, the more important of which are outlined at [27.1050]–[27.1100].

Report on company's affairs [27.1050] Where a receiver of a company is appointed, they are required to notify the company as soon as practicable of their appointment. Within 14 days of the receiver’s notice, the directors and secretary of the company are required to submit to the receiver a report as to the affairs of the company in the prescribed form. Within one month of receiving the report, the receiver must lodge a copy of it with ASIC, together with a notice setting out their comments on the report. The receiver must also send the company a copy of the notice lodged with ASIC, and where the receiver was appointed by or on behalf of the debenture holders of the company, send a copy of both the report by the directors and secretary as well as their notice to the trustees for the debenture holders: Corporations Act 2001 (Cth), s 429. The receiver may also require certain other persons, formerly associated with the company, to submit a report containing such information as to the affairs of the company as is required by the receiver: s 430. Within two months after their appointment, a receiver and manager of property of a company must prepare and lodge a report about the company’s affairs in the prescribed form. Such report must be no more than 30 days out of date at the time when it is prepared. Within 14 days after lodging the report, the receiver and manager must cause to be published in a national newspaper (or in a generally circulating daily newspaper in each State) a notice stating that the report has been prepared and that a person can inspect the report at specified offices of ASIC. The receiver and manager has a discretion to exclude certain information from the report where in their opinion it would seriously prejudice the company’s interests or the achievement of the objectives for which the receiver was appointed: s 421A.

Report on prior management of the company [27.1060] The receiver must lodge as soon as practicable a report with ASIC where it appears that: (a)

a past or present officer or member of the company may have been guilty of an offence in relation to the company; or

(b)

a person who has taken part in the formation, promotion, administration, management or winding up of the company may have misapplied, retained, or become liable for any money or property of the company, or may have been guilty of any negligence, default, breach of duty or breach of trust in relation to the company.

The receiver may also lodge with ASIC further reports specifying any other matter which in their opinion it is desirable to bring to the notice of ASIC. The court may also require the receiver to make such a report either on the application of any person interested in the receiver’s appointment, or on its own motion, where it appears to the court that offences or misconduct of the kind just referred to have occurred: Corporations Act 2001 (Cth), s 422.

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Where a report is made by the receiver in the circumstances outlined above, ASIC is empowered to investigate the matter and institute proceedings against any person referred to in it under the Australian Securities and Investments Commission Act 2001 (Cth), s 15.

Statement that receiver appointed on correspondence, etc [27.1070] Where a receiver has been appointed, every business letter, statement of account, invoice, order for goods or services, official notice, publication, bill of exchange, promissory note, cheque or other negotiable instrument, receipt and letter of credit, issued or signed by or on behalf of the company must contain a statement after the name of the company where it first appears that a receiver, or receiver and manager, has been appointed: Corporations Act 2001 (Cth), s 428.

Accounts [27.1080] A receiver is required to open and maintain a bank account bearing their own name, the title “receiver” and the name of the company. All moneys received by the receiver on behalf of the company must be paid into that account within three days of receipt: Corporations Act 2001 (Cth), s 421. The receiver is required to keep proper accounting records which may be inspected by any director, creditor or member of the company. The receiver in turn is entitled to inspect any books of the company which relate to the property: s 431. A receiver is required to lodge accounts in the prescribed form with ASIC at six-monthly intervals during the term of their appointment. The accounts must be lodged within one month after each six-month period, and within one month of the receiver ceasing to act. ASIC may require the accounts to be audited either on its own motion or on a request by the company or a creditor of the company: s 432.

Duty of care in exercising power of sale [27.1090] In exercising a power of sale in respect of property of a company, a controller must take all reasonable care to sell the property for no less than its market value, or, if it does not have a market value, the best price reasonably obtainable in the circumstances: Corporations Act 2001 (Cth), s 420A.

Distribution of moneys received [27.1100] Generally speaking, a receiver has no duty to pay any liabilities incurred prior to their appointment, except preferential debts. The old practice of paying suppliers of essential services to ensure continuation of supply has been overcome under the Corporations Act 2001 (Cth) which limits the right of suppliers of essential services to insist upon payment as a condition of supply: s 600F. It will often be found that arrangements can be made with the unsecured creditors whereby they will open a new account for the receiver and carry the “old” balance forward. It must be understood that all liabilities properly incurred by the receiver in realising the assets and carrying on the business are treated as costs of the receivership and are paid in priority to the rights of the secured parties. So far as there are available assets of the company the receiver should apply them in discharging the liabilities of the company (Re Glyncorrwg Colliery Co; Re Railway Debenture and General Trust Co v Glyncorrwg Colliery Co [1926] 1 Ch 951), in the following order: (a)

costs of realisation;

(b)

the remuneration and costs of the receiver;

(c)

costs, charges and expenses of the security agreement, including the trustees’ remuneration (if appointment out of court); or plaintiff’s costs of the action (if appointment by court);

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(d)

preferential creditors; then

(e)

secured parties.

Certain classes of debts have priority over the claims of secured parties who have appointed a receiver pursuant to a circulating security interest. The debts which must be paid out of property coming into the receiver’s hands in priority to the principal or interest secured by the circulating security interest are: (a)

insurance moneys paid by an insurer in respect of a claim by a third party against the company;

(b)

the reasonable fees and expenses of an auditor who had been refused permission by ASIC to resign – the amount having priority is the fees and expenses incurred by the auditor after the date of refusal by ASIC but before the receiver was appointed; and

(c)

the wages of employees, leave entitlements (for example, annual, long service and sick leave) retrenchment payments, or advances by a third person for their payment, which would be payable in priority to unsecured debts of the company if the company was being wound up: s 433.

If, having notice of such claim, the receiver does not pay the debt or make proper provision for its payment but exhausts the assets in the process of carrying on the business and paying ordinary creditors, the receiver will be liable in damages to the preferential creditor: IRC v Goldblatt [1972] Ch 498.

The effect of a winding up order [27.1110] The commencement of a winding up, whether voluntary or compulsory, determines the power of the receiver and manager to carry on the business as agent for the company. A receiver of a company that is being wound up may carry on the company’s business if they obtain the approval of the court or the written approval of the company’s liquidator. Where such approval is obtained, the receiver carries on the company’s business as an agent for the company and in their capacity as receiver. This means that any debts incurred in carrying on the business of the company are incurred in the course of the receivership: Corporations Act 2001 (Cth), s 420C. Although ordinarily a receiver ceases, on winding up, to act as agent for the company, nevertheless an express power of sale conferred on them by the security agreement remains unaffected. If a receiver has not obtained possession before winding up then they must obtain the leave of the court before proceeding to do so. The winding up of a company does not generally displace the receiver. However, the receiver must lodge a statement of affairs with the liquidator and account to the latter on the realisation of the assets secured by the security agreement. Should there be a surplus after the costs of the receivership and the interests of the secured parties have been paid, it must be handed over to the liquidator for the benefit of the creditors generally.

Supervision of receivers [27.1120] The court or Commission is empowered to inquire into the conduct of a receiver where it appears: (a)

the receiver is not faithfully performing their functions;

(b)

that the receiver has not observed a requirement of the order or instrument of appointment, an order of the court, or of the Corporations Act 2001 (Cth); or

(c)

a complaint is made to the court or Commission by any person regarding the conduct of a receiver in connection with the performance or exercise of any of their functions and powers. On such inquiry the court may take such action as it thinks fit.

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Furthermore, ASIC may report to the court any matter that in its opinion constitutes a misfeasance, neglect or omission on the part of the receiver. In such a case the court may order the receiver to make good any loss thereby sustained to the estate of the company and make such other orders as it thinks fit. The court may at any time require a receiver to answer questions about the performance or exercise of any of their functions and powers, examine a person about the performance or exercise of such functions and powers, and direct an investigation to be made of the receiver’s books: s 423.

Liability of receivers [27.1130] The liability of a receiver varies according to whether the receiver is appointed by the court or by the parties.

Appointed by the court [27.1140] A receiver appointed by the court is its officer. The receiver acts as a principal and is personally liable on all contracts and for all debts incurred in the discharge of their duties, for example in purchasing goods, but has a right to be indemnified out of the property covered by the security interest or mortgage.

Appointed by the parties [27.1150] A receiver is appointed by the creditors to recover their moneys and, in the normal course of events, should be an agent of those parties. However, almost invariably, the deed providing for the appointment of a receiver will specify that the receiver is to be the agent of the company: Re Just Juice Corp Pty Ltd (recs and mgrs apptd) (1992) 37 FCR 445. However, this is a peculiar form of agency. The nominal principal is not able to direct the agent nor terminate the agency: Re Leslie Homes (Aust) Pty Ltd (1984) 8 ACLR 1020. The receiver becomes personally responsible for contracts made by the mortgagor company during the receivership but is entitled to be indemnified for those expenses out of company assets: Corporations Act 2001 (Cth), s 419(1). Whether the receiver is liable to either the secured parties or the company, it is important that the receiver realise their responsibility as agent. If a receiver exceeds their authority, they will be personally liable for damages. The receiver may become personally liable to third parties in the following cases: 1.

When as agent of the company, the receiver makes contracts on behalf of the company after the commencement of winding up without appropriate approval: Thomas v Todd [1926] 2 KB 511.

2.

Where the receiver expressly or impliedly pledges their own credit: Cully v Parsons [1923] 2 Ch 123.

3.

If the receiver interferes, even innocently, with the rights of third parties the receiver is liable for trespass, as are their principals: Re Goldberg [1921] 1 KB 606.

Following the ordinary rules of agency, the receiver’s principal, that is, the company or the secured party, is liable to third parties in respect of fraud, deceit, concealment, misrepresentation, torts, negligence, etc, in the course of the receiver’s duty but not for acts outside their authority unless such acts are ratified: Lloyd v Grace, Smith & Co [1912] AC 716. If a receiver becomes liable to third parties in respect of authorised acts, the receiver is entitled to an indemnity. A receiver may apply to the court for relief where the receiver has incurred civil liability that they would not have incurred if they had been properly appointed: s 419(3). A receiver is not personally liable in respect of company contracts made before their appointment as receiver unless they accept responsibility for them. This principle means that owners and lessors of property would be disadvantaged in a situation where a receiver allowed a company to continue to use hired goods or to remain in occupation of leased premises without being liable to pay rent. However, a receiver is liable

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for any rent or other amounts payable by the company under a pre-existing leasing agreement for the period commencing seven days after the receiver’s appointment and throughout the period that the company continues to use or occupy the leased property or premises. The receiver can avoid liability by giving notice to the owner or lessor of the leased property within seven days of the receiver’s appointment to the effect that the receiver does not propose to use or occupy the property: s 419A.

Remuneration of receiver [27.1160] Where a receiver is appointed by the court their remuneration is generally determined by the court, and where appointed out of court, the parties fix the receiver’s remuneration. Usually there is some basis stated in the mortgage deed for determining the remuneration of receivers. It may be a percentage on gross receipts, for example 5 per cent of the gross amount of all moneys received, or it may be a lump sum or a salary. A receiver may be granted an extra allowance in cases where the administration has proved difficult or onerous. Where the order appointing a receiver is silent on the subject, the receiver will be entitled to a reasonable salary, unless the receiver agrees to act without remuneration. The court, on application by the liquidator, administrator of the company, administrator of a deed of company arrangement, or ASIC, may fix the remuneration of any person who has under the powers contained in any instrument been appointed as receiver or manager of the property of a company: Corporations Act 2001 (Cth), s 425.

Removal of receiver [27.1170] Where, on the application of a company, the court is satisfied that a receiver of the company has been guilty of misconduct in connection with the performance or exercise of any of their functions and powers, the court may order that the receiver cease to act as such: Corporations Act 2001 (Cth), s 434A. Where a company is being wound up, the court, on the application of the liquidator, may order a receiver to cease acting as a receiver of some or all of the property of the corporation. However, the court may only make such an order if it is satisfied that the objectives for which the receiver was appointed have been achieved so far as is reasonably practicable: s 434B. The purpose of this provision is to enable prolonged receiverships, which are hindering a liquidator, to be terminated.

Voluntary administration [27.1180] An administrator may be appointed to take over the affairs of an insolvent company with a view to bringing into existence a “deed of company arrangement” under which the company might be restored to a sound financial position: Corporations Act 2001 (Cth), ss 435A – 451D. Where a company is unable to pay its debts as they become due, then, as an alternative to proceedings for winding up, the company may be placed under voluntary administration. The object of voluntary administration is to administer the business, property and affairs of the company in a way that maximises the chances of the company continuing in existence, or, if this is not possible, to ensure a better return for the company’s creditors and members than would result from an immediate winding up of the company: s 435A. The voluntary administration of a company begins when an administrator is appointed. An administrator may be appointed in writing by: (a)

the company where the board has resolved to the effect that, in the opinion of the directors, the company is insolvent or is likely to become insolvent, and that an administrator should be appointed (s 436A); or

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(b)

a liquidator or provisional liquidator of the company, if they think that the company is insolvent or is likely to become insolvent (s 436B); or

(c)

a person who is entitled to enforce a security interest on the whole, or substantially the whole, of the company’s property, if the security interest has become, and is still, enforceable: s 436C.

A person is not eligible to be appointed as an administrator unless he or she is a registered liquidator who is not already connected in some way with the company: ss 448A – 448C. The administrator must convene a meeting of the company’s creditors within eight business days of their appointment in order to determine whether to appoint a committee of creditors. At the meeting, the creditors, by resolution, may replace the administrator with someone else: s 436E. The functions of a committee of creditors are to consult with the administrator about matters relating to the voluntary administration and to receive and consider reports by the administrator: s 436F. While a company is under voluntary administration, the administrator, who acts as the company’s agent, has very extensive powers and almost total control of the management of the company. The officers of the company retain their office (unless removed by the administrator). However, no person other than the administrator can perform or exercise a function or power as an officer of the company except with the administrator’s written approval. A transaction entered into by the company, or on behalf of the company, by a person other than the administrator, without the authority of the administrator or the court, is void (although a payment made by an Australian bank is, in certain circumstances, saved). A court may order that compensation be paid in appropriate circumstances. A transfer of shares in a company, or an alteration in the status of members of a company, that is made during the voluntary administration is void except so far as the court otherwise orders: ss 437A – 437F. Within five business days after the voluntary administration begins, the company’s directors must give the administrator a statement about the company’s business, property, affairs and financial circumstances. The directors must as soon as practicable after the voluntary administration begins deliver to the administrator all books that relate to the company. The directors must assist the administrator as much as is reasonably possible: ss 438B – 438C. During voluntary administration, the property of the company is protected in several ways: (a)

the company cannot be wound up, unless the court decides otherwise (s 440A);

(b)

security interest cannot be enforced against the company, except with the written consent of the administrator or the leave of the court (s 440B), except in two situations: (i)

where a person having a security interest over all or substantially the whole of the property of the company enforces the security interest within 13 business days of the commencement of the administration (s 441A); or

(ii)

where the security interest is on perishable property (s 441C);

(c)

owners and lessors of property that is used by, or in the possession of, the company cannot recover that property, except with the written consent of the administrator or the leave of the court (s 440C);

(d)

proceedings cannot be taken against the company, except with the written consent of the administrator or the leave of the court (s 440D);

(e)

no enforcement process in relation to property of the company can be begun or proceeded with, except with the leave of the court: s 440F.

As soon as practicable after their appointment, the administrator must investigate the company’s affairs and form an opinion about each of the following matters:

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(a)

whether it would be in the interests of the company’s creditors for the company to execute a deed of company arrangement;

(b)

whether it would be in the creditors’ interests for the voluntary administration to end;

(c)

whether it would be in the creditors’ interests for the company to be wound up: s 438A.

A second meeting of the company’s creditors must be convened by the administrator, usually within 20 business days of the commencement of the voluntary administration. At this meeting, the creditors may resolve that the company execute a deed of company arrangement specified in the resolution, or that the voluntary administration should end, or that the company be wound up: ss 439A – 439C. Where the creditors resolve that the company execute a deed of company arrangement, the administrator of the company is to be the administrator of the deed, unless the creditors by resolution appoint someone else. The administrator of the deed must prepare an instrument setting out the terms of the deed, including certain matters enumerated in s 444A(4). Subject to these minimum formal requirements, the contents of the instrument are largely left to the creditors to decide. The contents will vary according to the needs of the particular company and its creditors but it might be expected to provide for some form of compromise of debts in exchange for giving the creditors some powers of supervision over the management of the company. The instrument must then be executed by the administrator and by the company within 15 business days after the meeting of creditors, whereupon it becomes a deed of company arrangement: ss 444A, 444B. A deed of company arrangement binds all creditors of the company. However, a secured creditor is not prevented from dealing with the security, and an owner or lessor of property is not prevented from exercising their rights in relation to the property, except so far as the deed so provides in relation to a secured creditor, owner or lessor who voted in favour of the deed, or so far as the court orders. The deed also binds the company, its officers and members, and the deed’s administrator: ss 444D – 444H. Until the deed terminates, a person bound by the deed cannot: (a)

make an application for an order to wind up the company;

(b)

begin a proceeding against the company or in relation to any of its property, except with the leave of the court; or

(c)

commence an enforcement process in relation to property of the company, except with the leave of the court: s 444E.

The deed terminates when: (a)

the court makes an order terminating the deed;

(b)

the company’s creditors pass a resolution at a creditors’ meeting terminating the deed; or

(c)

the circumstances specified in the deed for its termination arise; whichever happens first: ss 445C – 445D.

Where the creditors resolve to terminate the deed, they may also resolve at the same meeting that the company be wound up: s 445E. Where the creditors resolve that a company under voluntary administration be wound up, or that a deed of company arrangement be terminated and the company wound up, the Corporations Act 2001 deems there to have been passed a special resolution giving rise to a creditors’ voluntary winding up (see [27.1280]), with the administrator deemed to have been nominated as liquidator. There is consequently a smooth transition into a winding up: s 446A. The court has very extensive powers in the areas of voluntary administration and deeds of company arrangement, and has a general power to make such order as it thinks appropriate about how the relevant provisions of the Corporations Act 2001 are to operate in relation to any particular company: s 447A. In Patrick Stevedores

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Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, where the power of an administrator to dismiss the unionised workforce in favour of non-union employees was in issue, the High Court ruled that this section did not authorise a court to usurp the discretions vested in administrators to make commercial decisions.

Winding up of companies [27.1190] The winding up of a company is otherwise known as its liquidation and the person who carries out the winding up is called the “liquidator”. The methods by which a company may be wound up are: (a)

winding up by the court (either in insolvency or on other grounds); and

(b)

voluntary winding up.

The methods by which winding up may be effected will be investigated later. The object and purpose of winding up is, however, the same in each case and a large number of the provisions of the Corporations Act 2001 (Cth) apply to both methods of liquidation: ss 513 – 570.

The general object of and procedure in winding up [27.1200] Whilst voluntary winding up is carried out with much less formal control by the court and much more autonomy to the liquidator than in the case of winding up by order of the court, the general basis is the same in all liquidations. As in the case of bankruptcy (see Chapter 31), the aim is to secure realisation of the assets of the company and utilisation of the same to pay debts owing to the creditors of the company. However, company liquidation necessarily differs in that the debtor, being an artificial person, will be legally terminated at the conclusion of the winding up process. The winding up function is reposed in a person called the liquidator who is appointed by the court in a compulsory winding up and by the members or creditors of the company in the case of a voluntary winding up. The authority of the directors is terminated and the business, if continued, is carried on only with a view to its efficient winding up. The liquidator collects and sells the assets of the company. The liquidator or the court, depending on the type of winding up, may make calls on contributories (that is, members or past members of the company liable to contribute to the extent of the amount uncalled on their shares). The liquidator then applies the assets of the company towards satisfaction of the claims of creditors and, if the assets so extend, towards satisfaction of the rights of members.

Contributories [27.1210] A step in either type of winding up is the settlement of the list of contributories by the liquidator. A contributory is a person liable to contribute to the assets of the company in the event of its being wound up. There are basically two classes of contributories; present members or shareholders and past members (those who have ceased to hold shares within 12 months immediately preceding the liquidation). In the case of a company limited by shares, no contribution is required from a member exceeding the amount (if any) unpaid on the shares in respect of which they are liable as a present or past member. As most shares are issued fully paid, calls on contributories are rarely made. Where the company is one limited by guarantee, no contribution is required from a member exceeding the amount undertaken to be contributed by them to the property of the company in the event of its being wound up: Corporations Act 2001 (Cth), ss 514 – 529.

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Modes of winding up [27.1220] Windings up can be either by the court (compulsory) or voluntary.

Winding up by the court in insolvency [27.1230] The court may order that an insolvent company be wound up in insolvency upon the application of: (a)

the company;

(b)

a creditor (a contingent or prospective creditor requires the leave of the court to apply);

(c)

a contributory (only with leave of the court);

(d)

a director (only with leave of the court);

(e)

a liquidator or provisional liquidator of the company;

(f)

ASIC (only with leave of the court); or

(g)

a prescribed agency: Corporations Act 2001 (Cth), s 459P.

The court may only grant leave (where leave is required) if it is satisfied that there is a prima facie case that the company is insolvent: ss 459A, 459P. Where, on an application for winding up by the court on some other ground (see [27.1560]), the court is satisfied that the company is insolvent, the court may order that the company be wound up in insolvency. Likewise, on an application under s 234 for a remedy in cases of oppression, if the court is satisfied that the company is insolvent, it may order that the company be wound up in insolvency: s 459B. The crucial requirement for an application for winding up in insolvency to be successful is that the company actually be insolvent. A company is insolvent if it is unable to pay all its debts as and when they become due and payable: s 95A. The court, in deciding whether a company is solvent or otherwise, is entitled to take into account any contingent or prospective liabilities of the company: s 459D. A company must be presumed to be insolvent, unless the contrary is proved, where: (a)

the company failed to comply with a statutory demand;

(b)

execution or other process issued on a judgment, decree or order of an Australian court in favour of a creditor of the company was returned wholly or partly unsatisfied;

(c)

a receiver, or receiver and manager, of property of the company was appointed under a power contained in an instrument relating to a circulating security interest on such property;

(d)

an order was made for the appointment of such a receiver, or receiver and manager, for the purpose of enforcing such a security interest;

(e)

a person entered into possession, or assumed control, of such property for such a purpose; or

(f)

a person was appointed so to enter into possession or assume control (whether as agent for the secured party or for the company): s 459C(2).

A common ground for application is that the company failed to comply with a statutory demand. A statutory demand may be served on the company by a creditor of the company who is owed one or more debts that are due and payable and whose amounts total at least $2,000 (or other prescribed amount). The demand must specify the debts and their amounts, and must require the company to pay the total amount, or to secure or compound for that amount to the creditor’s reasonable satisfaction within 21 days after the demand is served on the company. Further, the demand must be in writing and in the prescribed form, and must be signed by or on behalf of the creditor: s 459E. Within the 21-day period after service of the demand, the company may apply to the court for an order setting the demand aside. Where the company genuinely disputes the existence or amount of the debt, or

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has a genuine counter-claim against the creditor who served the demand, and consequently the amount admitted by the company to be owing is less than the statutory minimum of $2,000 (or other prescribed amount) the court must set aside the demand. The court also has a discretion to set aside the demand if it is satisfied that: (a)

because of a defect in the demand, substantial injustice will otherwise be caused; or

(b)

there is some other reason why the demand should be set aside.

The court must not otherwise set aside a demand merely because of a defect. This fetter on the court’s discretion is intended to overcome problems which occurred in the past whereby some demands were struck down merely because of an overstatement of the debt owed: ss 459G – 459J. The company on which a demand is served will be taken to have failed to comply with it if, after 21 days from service of the demand, the demand is still in effect and the company has not complied with it. The only exception to that period occurs where the company applies for an order setting aside the demand but is unsuccessful, in which case the demand must be complied with within any period specified by the court or otherwise within seven days after the application is finally determined: s 459F.

Winding up by the court on other grounds [27.1240] A company may be wound up under an order of the court on grounds other than insolvency on the application of either the company itself, any creditor, a contributory, the liquidator (for example, in the case of a prior resolution for a voluntary winding up), or ASIC (following the report of an investigation by an inspector). The other grounds upon which the court can order the winding up of a company are set out in Corporations Act 2001 (Cth), s 461.

Winding up by the court generally [27.1250] The court has extensive powers to deal with a winding up application including powers to dismiss the application (even if a ground has been established on which the court may order the company to be wound up), adjourn the hearing or make any order that it thinks fit: Corporations Act 2001 (Cth), s 467.

Effect of winding up order [27.1260] A winding up order binds all creditors and contributories of the company: Corporations Act 2001 (Cth), s 471. While a company is being wound up by the court, or a provisional liquidator is acting, no person can commence any court proceeding against the company or in respect of property of the company, or any enforcement process in relation to such property, except with the leave of the court and in accordance with any terms imposed by the court: s 471B. Furthermore, no person can perform or exercise a function or power as an officer of the company, except: (a)

as the liquidator or provisional liquidator, as the case may be;

(b)

as an administrator appointed after the winding up order was made or after the provisional liquidator was appointed;

(c)

with the liquidator’s, or the provisional liquidator’s, written approval; or

(d)

with the approval of the court.

This provision does not, however, have the effect of removing company officers from office: s 471A. None of this affects a secured creditor’s right to realise or otherwise deal with the security: s 471C.

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Any disposition of property of the company (other than a disposition made by the liquidator or provisional liquidator pursuant to their powers, a disposition made in good faith by or with the consent of an administrator of the company, or a disposition under a deed of company arrangement), and any transfer of shares or change in the status of members made after the commencement of the winding up is void, unless the court otherwise orders. Similarly, any execution against property of the company made after the commencement of the winding up is void: s 468.

Powers and duties of liquidators under a compulsory winding up [27.1270] On an order being made for the winding up of a company, the court may appoint an official liquidator to be the liquidator of the company. The court can also appoint a provisional liquidator at any time after the filing of a winding up application and before the making of a winding up order. As soon as practicable after a winding up order, the liquidator is to settle a list of contributories, rectify where necessary the register of members, and cause the property of the company to be collected and applied in discharge of its liabilities. A statement of the affairs of the company as at the date of the winding up order, or at any earlier date specified by the liquidator must be submitted to the liquidator by the persons who were the directors and secretary or secretaries at the relevant time. Within two months after receiving a statement of the company’s affairs, a liquidator of a company being wound up by the court must lodge a preliminary report with ASIC as to: (a)

the amount of capital issued, subscribed, and paid up;

(b)

the estimated amount of assets and liabilities of the company;

(c)

if the company has failed, the causes of the failure; and

(d)

whether further inquiry into the promotion, formation or insolvency of the company, or the conduct of the business of the company, is desirable.

The liquidator, subject to the general control of the court, may exercise certain powers such as carrying on the business of the company so far as is necessary for its beneficial winding up, making compromises or arrangements with creditors, and compromising any calls and liabilities to calls, or any debts and liabilities as between contributories and the company. However, the liquidator must not, except with the approval of the court, of the committee of inspection, or of a resolution of the creditors, compromise a debt to the company of more than $20,000 (or such greater amount as may be prescribed) or enter into any agreement on the company’s behalf which might last for more than three months. Still subject to the general control of the court, the liquidator may exercise certain further powers such as the institution of legal proceedings, sale of assets, appointment of legal representatives and appointment of agents to perform business which the liquidator is unable to do personally. In administering and distributing the property, the liquidator must have regard to any directions given by resolution of the creditors or contributories at a general meeting or by the committee of inspection. A committee of inspection may be appointed by separate meetings of the creditors and contributories which must be summoned by the liquidator if required by any creditor or contributory. The corporate existence of the company continues, notwithstanding a winding up order being made, until an order is made by the court that it be deregistered. This order can be made when the liquidator has realised all the property of the company or so much of it as can in the liquidator’s opinion be realised without needlessly protracting the winding up, has distributed a final dividend (if any) to the creditors and adjusted the rights of the contributories. When this stage is reached, the liquidator can apply for an order that they be released and that the company be deregistered.

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At any time during the winding up of a company, the court may, on the application of the liquidator, a creditor or a contributory, make an order staying the winding up either indefinitely or for a limited time, or terminating the winding up. Where the court has made an order terminating the winding up, the court may give directions for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up: Corporations Act 2001 (Cth), s 482.

Voluntary winding up [27.1280] A voluntary liquidation is initiated by a special resolution of the company that it be wound up voluntarily. The company must lodge a copy of the resolution with ASIC within seven days of the passing of the resolution. Within 21 days of the passing of such a resolution the company must publish notice of it in the Commonwealth Gazette. A voluntary winding up commences at the time of the passing of the resolution for voluntary winding up (unless, when the resolution was passed, a winding up of the company was already in progress, the company was under voluntary administration, or a deed of company arrangement was in effect, in which cases the winding up is taken to have commenced at a certain earlier date): Corporations Act 2001 (Cth), ss 491, 513B.

Effect of voluntary winding up [27.1290] From the passing of the resolution, the company must cease to carry on its business except so far as, in the opinion of the liquidator, is required for the winding up of that business. However, the corporate state and powers of the company continue until it is deregistered. Any transfer of shares or alteration in the status of the members made after the passing of the resolution is void unless sanctioned by the liquidator: Corporations Act 2001 (Cth), s 493.

Types of voluntary winding up [27.1300] The Corporations Act 2001 (Cth) distinguishes between a members’ voluntary winding up and a creditors’ voluntary winding up. The determination of the method to adopt depends primarily upon the solvency of the company and its ability to pay its creditors. If it is estimated by the directors, after full inquiry, that the company will be able to pay its debts in full within 12 months from the commencement of the winding up and a written declaration to this effect with an attached statement of affairs is lodged with ASIC, such winding up is termed a members’ voluntary winding up. The declaration by the directors must be lodged before the notices are sent out for the meeting at which the resolution for the winding up is to be proposed: s 494. Where the directors do not declare that the company can pay its debts, the procedure is termed a creditors’ voluntary winding up. This is the most usual method adopted for voluntary winding up, as it is rare for a company to wind up and be in a position to be able to pay its creditors within one year. In the case of a creditors’ voluntary winding up, the company must cause a meeting of the creditors of the company to be summoned for the day when the meeting of members at which the resolution for voluntary winding up is to be proposed, or the day following, and the notice for the meeting of creditors is to be sent by post simultaneously with the notice of the meeting of the company. The company must give the creditors at least seven days’ notice of the meeting and send to each creditor with the notice a summary of the affairs of the company in the prescribed form and a list of the names, addresses, and estimated amounts of claims of all creditors as shown in the records of the company. A copy of the notice of the meeting and accompanying documents must be lodged with ASIC not less than seven days before the meeting. The directors must cause a full statement of the company’s affairs to be laid before the meeting of creditors: s 497.

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In the case of a members’ voluntary winding up there is no meeting of creditors. However, if the liquidator later forms the opinion that the company will not be able to pay its debts within the 12 months, they must do, as soon as practicable, one of the following things: (a)

apply to the court for the company to be wound up in insolvency;

(b)

appoint an administrator of the company; or

(c)

convene a meeting of creditors.

If the liquidator adopts the last course and convenes a meeting of creditors, then the winding up proceeds, subject to certain variations, as a creditors’ winding up: s 496. In the case of a creditors’ winding up the company must and the creditors may at their respective meetings nominate a liquidator and in the case of different persons being nominated, the nominee of the meeting of creditors has priority: s 499. In the case of a members’ voluntary winding up on the other hand, the liquidator is appointed by the company in general meeting: s 495(1). As in the case of a winding up by the court, a committee of inspection to work with the liquidator may be appointed by separate meeting of the creditors and contributories in both types of voluntary winding up: s 497(10). In the case of a creditors’ voluntary winding up no action can be proceeded with or commenced against the company after the passing of the resolution except by leave of the court. Furthermore, any attachment or execution put in force against the property of the company after the passing of the resolution is void: s 500. There are no similar provisions in the case of a members’ voluntary winding up. Nonetheless the basic objects of the winding up and the essential autonomy of the liquidator apply in each case.

Powers and duties of liquidators under a voluntary winding up [27.1310] It is the duty of the liquidator in both a members’ winding up and a creditors’ winding up to apply the property of the company in satisfaction of its liabilities equally but subject to the provisions of the Corporations Act 2001 (Cth) as to preferential payments, and the balance is to be distributed among the members according to their rights and interest in the company: s 501. The powers of settling the list of contributories and of making calls are exercisable by the liquidator: s 506(1)(c)(d). The liquidator under a voluntary winding up may exercise any of the powers that the Corporations Act confers on a liquidator in a winding up by the court (and subject of course to the same limitations): s 506(1)(b); see [27.1290]. On the appointment of a liquidator in the case of a members’ voluntary winding up the powers of the directors cease except in so far as the liquidator, or the company in general meeting with the consent of the liquidator, may sanction the continuance of such powers. On the appointment of a liquidator in the event of a creditors’ voluntary liquidation, the powers of the directors cease except so far as the committee of inspection or, if there is no such committee, the creditors approve the continuance thereof: s 495(2). Notwithstanding the powers given to the liquidator and the very restricted powers remaining to the directors, the corporate state and corporate powers of the company continue until it is deregistered, and the voluntary winding up is not in itself a breach of continuing contracts nor a termination of such contracts. Thus the existence of the company is not extinguished by the commencement of the winding up as this is only a means to an end. Its ultimate dissolution occurs after the final meeting and the filing of final accounts of the liquidator. It is the duty of the voluntary liquidator to summon a general meeting of the company in the case of a members’ winding up, and of the company and the creditors in the case of a creditors’ winding up, within three months after the end of the first year from the commencement of the winding up and the end of each succeeding year. At this meeting the liquidator must present an account of their acts and dealings and of the winding up during the preceding year: s 508.

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As soon as the affairs of the company are fully wound up, the liquidator must make an account of the winding up showing how the winding up has been conducted and the property of the company disposed of, and thereupon the liquidator must call a general meeting of the company, or, in the case of a creditors’ winding up, of the company and the creditors, for the purpose of laying the account before the meeting and giving any explanation of it that may be required: s 509(1). Within seven days after the meeting, the liquidator must lodge with ASIC a return of the holding of the meeting with a copy of the account attached to the return: s 509(3). On the expiration of three months after the lodging of the return with ASIC, ASIC must deregister the company: s 509(5).

Provisions applicable to every mode of winding up Requirements as to liquidators [27.1320] Only a person who is an official liquidator may be appointed as liquidator of a company that is being wound up by order of the court. So far as voluntary windings up are concerned, the position is that (except in the case of a members’ voluntary winding up of a proprietary company) a person cannot be appointed or act as liquidator of a company unless they are either a registered liquidator, or registered as a liquidator of a specified corporation, by ASIC. Furthermore, a person cannot act as liquidator of a company, except with the leave of the court (Corporations Act 2001 (Cth), s 532(2)), if the person has a significant previous business or personal connection with the company. The Corporations Act 2001 imposes a number of obligations on the liquidator of a company including the keeping of books, the lodging of accounts, and the furnishing of reports on various matters to ASIC: ss 531 – 545.

Proof and priority of debts [27.1330] The Corporations Act 2001 (Cth) provides that in every winding up all debts payable by, and all claims against, the company (whether they are present or future, certain or contingent, ascertained or sounding only in damages) being debts or claims the circumstances giving rise to which occurred before the commencement of the winding up, are admissible to proof against the company: s 553. It is further provided that a debt owed to a member (in that person’s capacity as a member) is not admissible as proof against the company unless that member has paid up all contributions that they are liable to pay to the company: s 553A. The Corporations Act 2001 stipulates that, except as otherwise provided, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they are to be paid proportionately: s 555. However, certain debts and liabilities have priority, and are to be paid in advance of the general body of unsecured creditors. The order of payment of debts is determined by s 556 which provides that in the winding up of a company the following debts and claims are to be paid in priority to all other unsecured debts and claims: 1.

The expenses (except “deferred expenses”) properly incurred by the liquidator, provisional liquidator, an administrator of the company or of a deed of company arrangement, in preserving, realising, or getting in property of the company, or in carrying on the company’s business. “Deferred expenses” include the remuneration, or fees for services, payable to any of the persons just mentioned.

2.

If the court ordered the winding up, the costs of the application for the order, including the applicant’s taxed costs.

3.

If within 12 months before the winding up an earlier application had been made for winding up but had been forestalled by the company going into administration, the costs of that application.

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4.

If the company was under voluntary administration prior to the winding up, the debts of the administrator for which they are entitled to be indemnified under s 443D, apart from expenses covered by item 1. (above) and deferred expenses.

5.

If the court ordered the winding up, the costs and expenses incurred by the company officers and other persons in making a report to the liquidator as to the company’s state of affairs under s 475(8).

6.

If a company under administration or subject to a deed of administration resolves to be wound up voluntarily, then the costs of any report required by the liquidator under s 446C(8).

7.

The costs of any audit of the liquidator’s half-yearly accounts required by ASIC under s 539.

8.

Any other expenses (except deferred expenses) properly incurred by a liquidator, provisional liquidator, official manager, administrator of the company or of a deed of company arrangement.

9.

The “deferred expenses” (see item 1. above).

10.

If a committee of inspection has been appointed for the purposes of the winding up, the expenses incurred by a person as a member of that committee.

11.

Wages and superannuation contributions payable by the company for services rendered to the company by employees but not exceeding $2,000 in respect of an “excluded employee” (that is, a director or former director, and their spouse or relative where such were employees of the company).

12.

Amounts due in respect of injury compensation.

13.

All amounts due to employees of the company because of an industrial instrument in respect of leave of absence but not exceeding $1,500 in respect of an “excluded employee” (see item 11. above).

14.

Retrenchment payments payable to employees of the company other than “excluded employees” (see item 11. above).

After provision has been made for the costs, charges and expenses of the winding up (as in 1. above), the debts in each of the preferred classes are entitled to be paid in full before any debts in a subsequent class are paid at all. Within each class debts rank equally between themselves and if the property of the company is insufficient to meet these debts, they are paid proportionately: s 559. Where payments to an employee on account of wages, leave of absence (for example, annual, long service or sick leave) and termination of employment have been paid out of moneys advanced by a third person for that purpose, the third person stands in their shoes for priority purposes: s 560. Moreover, in the case of third party liability insurance, any payment received by the company or liquidator in respect of the liability of the company must be paid straight to the third party in priority over all other debts: s 562. The Corporations Act 2001 provides that if the property of the company available for the payment of general creditors is insufficient to meet the preferred claims in respect of wages, leave of absence (for example annual, long service or sick leave) and retrenchment payments, or advances by a third person for their payment, such claims have priority over the claims of a secured party in relation to a circulating security interest and are to be paid accordingly out of any property subject to that security interest. Thus, to this extent, the rights of secured creditors are interfered with: s 561. [27.1340] Claims by members of the company for debts owed by the company to a person in their capacity as a member or arising from buying, holding, selling or otherwise dealing in the company’s shares are postponed until all other debts owing by the company or claims against it are satisfied: s 563A. This subordination of members’ claims covers situations such as that of a selling shareholder under a buy-back agreement (see [27.550]–[27.600]): s 563AA – and serves to nullify the decision in Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160. In that case, a shareholder who purchased shares shortly before the

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company was placed in voluntary administration was able to lodge a claim as a creditor of the company because the High Court recognised that Margaretic was seeking compensation for the company’s misleading conduct, in failing to notify the stock exchange of a disparity between its gold reserves and the number of sales it had entered into, and not in his capacity as a member. [27.1350] The Commonwealth ranks as an unsecured creditor for tax debts owed to it by the company but the directors of a company will be jointly and severally liable to the Commonwealth for certain losses of taxation revenue where a payment of tax is held to be a voidable transaction under the insolvent trading provisions (Corporations Act 2001 (Cth), ss 588FGA and 588FGB) or if the company failed to make such payments.

Voidable transactions [27.1360] As in the case of bankruptcy law, the need has been felt for rendering voidable certain transactions entered into by the company before the date of the commencement of its winding up. Part 5.7B, Div 2 of the Corporations Act 2001 (Cth) contains provisions which enable the liquidator to apply to the court for orders avoiding certain transactions. The purpose of the provisions is to ensure that unsecured creditors are not prejudiced by the disposition of assets or the incurring of liabilities by a company in a period shortly before the winding up, which would have the effect of favouring certain creditors or other persons and related entities.

Transactions which are voidable [27.1370] The following are voidable transactions (Corporations Act 2001 (Cth), s 588FE): 1.

An insolvent transaction of the company. This is a transaction entered into in the period commencing six months before the relation-back day (generally, the date of filing the winding up application in the case of a court-ordered winding up, or the passing of the special resolution in the case of a voluntary winding up) up to the commencement of the winding up. An insolvent transaction of a company is defined to mean either an unfair preference given by the company or an uncommercial transaction of the company either entered into at a time when the company was insolvent, or being the transaction which caused the company to become insolvent: s 588FC. There is a presumption of insolvency where, for example, it is proved that the company was insolvent at a particular time during the 12 months prior to the “relation-back day”: s 588E(3). A transaction is an unfair preference given by a company to a creditor where the transaction results in the creditor receiving from the company in respect of an unsecured debt more than the creditor would receive in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company. Such a transaction will still be an unfair preference even if entered into or given effect to because of a court order. Where a transaction is, for commercial purposes, an integral part of a continuing business relationship between the company and the creditor (for example, a running account), and in the course of the relationship the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as a result of a series of transactions forming part of the relationship, then, for the purpose of deciding whether or not there is an unfair preference, all the transactions forming part of the relationship are to be treated as if they together constituted a single transaction: s 588FA. A transaction of a company is an uncommercial transaction if a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to the benefits and detriments to the company flowing from the transaction, the benefits derived by other parties to the

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transaction, and any other relevant matters. There is no requirement that a creditor of the company be involved in the transaction. A transaction may be uncommercial even if it is given effect to because of a court order: s 588FB. 2.

An insolvent transaction which is also an uncommercial transaction is voidable if it was entered into within two years of the “relation-back day”.

3.

An insolvent transaction to which a “related entity” of the company is a party and which was entered into during the four years ending on the “relation-back day”. A “related entity” is defined widely to include promoters, directors and members and their relatives and de facto spouses, a body corporate that is related to the company and directors and members of that body corporate: s 9.

4.

An insolvent transaction to which the company became a party, wholly or partly for the purpose of defeating, delaying, or interfering with the rights of creditors on a winding up of the company, where the transaction was entered into during the 10 years ending on the “relation-back day”.

5.

An unfair loan to the company made at any time on or before the day when the winding up began. A loan to a company is an unfair loan if the interest or charges in relation to the loan are extortionate, or were extortionate at some earlier time during the term of the loan. In determining whether the interest or charges were extortionate regard is to be had, inter alia, to the risk to which the lender was exposed, the value of any security, the term and amount of the loan and the schedule for payment of interest and charges and repayment of principal: s 588FD.

6.

An unreasonable director-related transaction entered into during the four years ending on the “relation-back day” or, after that day but before the winding up: s 588FE(6A).

7.

An unfair preference or uncommercial transaction or unfair loan or unreasonable director related transaction entered into between the “relation-back day” and the winding up day where the company was in voluntary administration and the transaction was not entered into on behalf of the company by the administrator: s 588FE(2A), (2B).

Powers of court where a voidable transaction [27.1380] Where the court is satisfied that a particular transaction is voidable it has power to make a wide range of orders, most of which are essentially directed to returning the company as far as possible to the position in which it would have been had it not entered into the voidable transaction. Examples of orders that the court is able to make are: (a)

an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;

(b)

an order directing a person to transfer to the company property that the company has transferred under the transaction;

(c)

an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;

(d)

an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void: Corporations Act 2001 (Cth), s 588FF.

Defences [27.1390] There are two defences available to a person to prevent a court making an order in respect of a voidable transaction, namely: (a)

If the person was not a party to the transaction and it is proved that:

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(b)

(i)

the person received no benefit because of the transaction; or

(ii)

the person received each benefit in good faith and at a time when the person had (and when a reasonable person in the circumstances would have had) no reasonable grounds for suspecting that the company was or would become insolvent.

If the transaction is not an unfair loan to the company and it is proved that: (i)

the person became a party to the transaction in good faith and at a time when the person had (and when a reasonable person in the circumstances would have had) no reasonable grounds for suspecting that the company was or would become insolvent; and

(ii)

the person provided valuable consideration under the transaction or has changed their position in reliance on the transaction: Corporations Act 2001 (Cth), s 588FG.

Other effects of winding up [27.1400] Where a company is being wound up in insolvency and the company created a circulating security interest on property of the company during the six months prior to the “relation-back day”, the security interest is generally void against the company’s liquidator, unless it is proved that the company received value for the security interest or was solvent immediately after creating the security interest: Corporations Act 2001 (Cth), s 588FJ. A company liquidator may disclaim in writing, on the company’s behalf, onerous property of the company, for example land burdened with onerous covenants, shares, property that is not readily saleable, and contracts. However, a liquidator cannot disclaim a contract (other than an unprofitable contract or a lease of land) except with the leave of the court: s 568. There are detailed provisions as to notice of disclaimer, the effect of disclaimer, and applications to set aside a disclaimer: ss 568A – 568F. The Corporations Act 2001 also provides that where a creditor has issued execution or instituted proceedings against the property of a company within six months before the commencement of the winding up of a company, the creditor must pay the liquidator the amount the creditor received as a result of such proceedings. Where the creditor has paid the liquidator under such circumstances, the creditor may prove their debt in the winding up as an unsecured creditor. Furthermore, where a sheriff receives notice in writing of: (a)

an application to the court for the winding up of a company; or

(b)

the convening of a meeting of a company to consider a resolution that the company be wound up voluntarily, the sheriff must not sell property of the company pursuant to any process of execution by a creditor, or pay to such creditor the proceeds of a sale of property which has taken place under such a process: ss 569, 570.

Deregistration of companies [27.1410] Deregistration is the process by which a company ceases to exist upon its name being removed from the Register of Companies. The two main methods of deregistration are voluntary and ASIC-initiated deregistration. The effects of deregistration are that: (a)

the company ceases to exist (although the liabilities of other persons associated with the deregistered company continue);

(b)

the property of the company vests in ASIC subject to any existing security or other interest; and

chapter 27 Company Law

(c)

the directors must retain the books of the company for three years after deregistration, though this does not apply to books kept by a liquidator: Corporations Act 2001 (Cth), s 601AD.

The powers of ASIC with respect to the property vested in it, are set out in ss 601AE and 601AF.

Voluntary deregistration [27.1420] An application for voluntary deregistration may be made by the company (if a person is nominated to give notice of deregistration), a director, member or liquidator of a company. Application can only be made where all the members agree to the deregistration, the company is not carrying on business and the company’s assets are worth less than $1,000. Furthermore, the company must have paid all fees and penalties under the Corporations Act 2001 (Cth), have no outstanding liabilities and must not be a party to any legal proceedings. The applicant must also provide any information that ASIC may request in relation to the current and former officers of the company. If ASIC is satisfied that the applicant has complied with the above steps, it must give two months’ notice of the proposed deregistration on the ASIC database, and in the Commonwealth Gazette. After this time ASIC may deregister the company and notify the applicant: s 601AA.

ASIC-initiated deregistration [27.1430] ASIC may deregister a company if: (a)

The company’s annual return is at least six months late, the company has not lodged any other documents in the previous 18 months and ASIC has no reason to believe that the company is carrying on business; or

(b)

ASIC has reason to believe that the liquidator of the company is no longer acting, or the company’s affairs have been wound up and the liquidator’s return is at least six months late or the company has insufficient property to cover the costs of obtaining a court order for deregistration: Corporations Act 2001 (Cth), s 601AB(2).

If either of the above is satisfied, ASIC must give two months’ notice of the proposed deregistration to the company, its liquidator (if any), and its directors, and must publish the notice on the ASIC database and in the Commonwealth Gazette. After this time, ASIC may deregister the company and must give notice of the deregistration to the liquidator and/or directors of the company: s 601AB. ASIC must deregister a company if the court orders deregistration in relation to the reconstruction or amalgamation of a Pt 5.1 body under s 413(1)(d), the release of a liquidator under s 481(5)(b), or the return of a liquidator following winding up under s 509(6). Finally, ASIC must deregister a company if three months have passed since the lodgment of a liquidator’s return under s 509 and no order has been made under s 509(6) during that time: s 601AC. Reinstatement of a company may occur if ASIC is satisfied that the company should never have been deregistered in the first place, or where the court orders reinstatement on the application of a “person aggrieved” or a former liquidator of the company: s 601AH. The effect of reinstatement is that the company is considered to have continued in existence during the time that it was deregistered, the directors of the company are reinstated and any property that vested in ASIC revests in the company (subject to any interest or claim).

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Company investigations [27.1440] The Australian Securities and Investments Commission Act 2001 (Cth) empowers ASIC to conduct investigations and hearings into the conduct and affairs of a corporation or its officers in certain circumstances. An investigation may be instigated by either ASIC or the Commonwealth Minister administering the Corporations Act 2001 (Cth). If the Minister considers it in the public interest to do so, the Minister may direct ASIC to investigate an alleged or suspected contravention of the Corporations Act 2001 (Cth) or the Australian Securities and Investments Commission Act 2001 (Cth), or a contravention of a Commonwealth or State law concerning the management or affairs of a body corporate, or fraud or dishonesty in relation to a body corporate or financial products, the affairs of a corporation or dealing in financial products: Australian Securities and Investments Commission Act 2001 (Cth), s 14. Without a ministerial directive, ASIC has an independent discretion to embark on such enquiries where it thinks it expedient for the due administration of the Corporations Act 2001 (Cth) or the Australian Securities and Investments Commission Act 2001 (Cth): s 13. ASIC also has power to investigate any matter arising from a report made by a receiver or liquidator to determine whether a person should be prosecuted for an offence against the Corporations Act 2001 (Cth): Australian Securities and Investments Commission Act 2001 (Cth), s 15. Where the Minister has directed ASIC to investigate a matter, ASIC is to prepare a report on the investigation. ASIC may prepare a report on a matter investigated on its own initiative and must do so where so directed by the Minister: s 17. ASIC’s report is to be given to the Minister who may publish all or a part of it: s 18. As part of the investigation process, ASIC is empowered to require a person, whom ASIC suspects or believes on reasonable grounds can give information relevant to the investigation, to give all reasonable assistance in connection with the investigation, and to appear before a member or staff member of ASIC for examination on oath: s 19. Examinations are required to be held in private: s 22. ASIC has extensive powers to require the production of and to inspect books and records of a corporation: ss 28 – 39. Where, as a result of an investigation or examination, it appears to ASIC that a person may have committed an offence against the Corporations Act 2001 (Cth) and ought to be prosecuted for the offence, ASIC may initiate prosecution proceedings: Australian Securities and Investments Commission Act 2001 (Cth), s 49. ASIC is also empowered to commence civil proceedings following an investigation, to recover damages or property if it appears in the public interest to do so: s 50. The expenses of an investigation are generally to be met by ASIC. However, where as a result of investigation by ASIC a person is convicted of an offence against the Corporations Act 2001 (Cth), ASIC can order that the person pay the whole or part of the expenses of the investigation: Australian Securities and Investments Commission Act 2001 (Cth), ss 90, 91.

Note [27.1450] This chapter, in particular some of the matters discussed in [27.950] – [27.1410], will be affected by the Insolvency Law Reform Act 2016 (Cth). That Act was passed by the Federal Parliament on 22 February 2016 and received royal assent on 29 February 2016 but had not come into effect when this chapter was revised. It is expected that the Act will commence on or about 1 March 2017. The main changes effected by this Act, in relation to corporate administration, are:  the alignment of the registration requirements and disciplinary processes for corporate insolvency and personal bankruptcy practitioners;  changes to the remuneration of corporate insolvency practitioners;

chapter 27 Company Law

 changes to creditors’ rights, including the right of creditors to remove a corporate insolvency practitioner via resolution and new powers for creditors’ committees to request information; and  increased powers for ASIC to supervise corporate administrations.

Further reading R Austin and I Ramsey, Ford, Austin and Ramsay’s Principles of Corporations Law (16th ed, LexisNexis Butterworths, Sydney, 2015). E Boros and J Duns, Corporate Law (3rd ed, Oxford University Press, Melbourne, 2013). P Hanrahan, I Ramsay and G Stapledon, Commercial Applications of Company Law (17th ed, Oxford University Press, Melbourne, 2016). J Harris, Company Law: Theories, Principles and Applications (2nd ed, LexisNexis Butterworths, Sydney, 2015). J Harris, A Hargovan and M Adams, Australian Corporate Law (5th ed, LexisNexis Butterworths, Sydney, 2016). P Lipton, A Herzberg and M Welsh, Understanding Company Law (18th ed, Thomson Reuters, Sydney, 2015). P Redmond, Companies and Financial Markets Law (6th ed, Thomson Reuters, Sydney, 2013).

Internet sites Australian Securities and Investments Commission http://www.asic.gov.au Centre for Corporate Law and Securities Regulation http://www.law.unimelb.edu.au/centres/ cclsr

Journals Australian Business Law Review Australian Journal of Corporate Law Company and Securities Law Journal Insolvency Law Journal

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PART PT 5 ALLIED AREAS OF LAW

Chapter 28 Chapter 29 Chapter 30 Chapter 31 Chapter 32 Chapter 33 Chapter 34

Law of Torts Law of Trusts Intellectual Property Bankruptcy Criminal Law Business Ethics The Law of Employment

chapter 28

Law of Torts [28.50] Negligence........................................................................................................................................................... 771 [28.80] Statutory reform .............................................................................................................................................. 771 [28.580] Deceit.................................................................................................................................................................. 798 [28.610] Trespass............................................................................................................................................................ 799 [28.700] Conversion and detinue ............................................................................................................................ 803 [28.730] Nuisance........................................................................................................................................................... 804 [28.780] Torts of strict liability .................................................................................................................................. 805 [28.810] Vicarious liability........................................................................................................................................... 805 [28.850] Defamation...................................................................................................................................................... 807

Introduction [28.10] The word “tort” was originally a synonym for “wrong”. It is used by lawyers to refer to certain types of conduct which give rise to a civil cause of action. The law of torts consists of a miscellaneous group of actions providing redress for unlawful interference with an individual's person, property, and in certain circumstances, economic interests. The principal aim of the law of torts is to provide compensation by putting the plaintiff, as near as possible, in the position he or she would have been if the tort or wrong had not been committed. The usual form of relief given by the courts in a successful tort action is an award of damages, that is, monetary compensation for the loss suffered. Where such remedy is not appropriate or adequate in the circumstances, relief may take the form of a court order restraining the wrongdoer (tortfeasor) from doing, or continuing, the tortious act. As will be seen in the discussion of the more important torts at [28.40], proof of fault on the part of the defendant (either in the form of intention or negligence) is an essential ingredient in many actions in tort.

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[28.20] Liability in tort and criminal liability Like the law of torts, criminal law is concerned with unlawful interference with an individual's person or property. It is therefore not surprising that there is an overlap between criminal and tortious liability. In some cases a wrongdoer's conduct may amount to both a tort and a crime. However, there is an important difference between the two forms of liability. The main focus of criminal law is to protect society by punishing the wrongdoer. A crime is considered to be an offence against the state and therefore criminal proceedings are conducted in the name of the state. On the other hand, the law of torts is concerned with the individual's right to compensation for the wrong suffered. In an action in tort, the plaintiff seeks this relief in proceedings brought in their own name. [28.30] The law of torts and contract law As in the case of the commission of a tort, a breach of contract can also give rise to a civil action for damages. However, there are important differences between the rights protected by the law of torts and the law of contract. Contract law is concerned with vindicating a party's right to have a contractual promise performed. This right arises because the parties voluntarily agreed to fulfil mutual obligations. On the other hand, the law of torts protects general rights enjoyed by all individuals that derive not from specific agreement but are imposed by the law itself. In some cases, conduct that amounts to a breach of contract may also constitute a tort. For example, a contract for the provision of services between a professional person, such as a solicitor or an accountant and their client, includes an implied term that the services will be performed with reasonable care. A failure to do so gives rise to an action not only for a breach of contract but also a claim based on the tort of negligence. According to the decision of the High Court in Astley v Austrust Ltd (1999) 197 CLR 1 at 22, the implied term of reasonable care in a contract of services arises by operation of law. In that case, the High Court rejected earlier dicta suggesting that, in the absence of an express contractual term, the plaintiff's action in a professional negligence case should be based solely in tort.

Particular torts [28.40] The essential elements for establishing the commission of particular torts must now be considered. The principal torts discussed in this chapter are: 1.

Negligence.

2.

Deceit.

3.

Trespass.

4.

Conversion and detinue.

5.

Nuisance.

6.

Torts of strict liability.

7.

Vicarious liability.

8.

Defamation.

chapter 28 Law of Torts

Negligence [28.50] The essence of the tort of negligence is that, in certain circumstances, the law imposes a duty on a person to take reasonable care not to cause harm to other persons. Where a person is in breach of such duty of care, he or she is liable to compensate the person to whom the duty is owed for the loss or damage suffered by the latter if the loss or damage was reasonably foreseeable as a consequence of the breach of duty. Negligence emerged as an independent tort particularly following the landmark decision of the House of Lords in Donoghue v Stevenson [1932] AC 562:

case [28.60] The plaintiff in Donoghue v Stevenson [1932] AC 562 drank part of a bottle of ginger beer which a friend had bought for her. The bottle contained the decomposed remains of a snail which the plaintiff could not detect until she had consumed most of the ginger beer. The plaintiff claimed that as a result of drinking the ginger beer she suffered shock and severe gastroenteritis. She brought an action against the defendant manufacturer of the soft drink. The basic question before the court was: Did the defendant manufacturer owe a duty to the plaintiff to take reasonable care in the manufacture of the ginger beer to ensure that it was free from defects likely to cause injury to health? The House of Lords held, by a majority of three to two, that the defendant did owe such duty of care to the plaintiff. [28.70] Following the decision in Donoghue v Stevenson, the action of negligence has assumed prime importance in the law of torts. More actions in negligence are brought than any other tort and litigation in this area accounts for a large proportion of the courts’ work. Unlike other torts, for example trespass, negligence does not involve a specific form of conduct: an action for negligence is about careless behaviour. It can therefore be applied to any form of human activity. Successful claims have been brought in a wide variety of circumstances including traffic accidents, actions against retailers and manufacturers for loss or injury incurred as a result of the supply of defective products, and against those who fail to exercise reasonable care in carrying on a profession such as doctors, solicitors, accountants and financial advisers. Damages are now recoverable not only for the negligent infliction of physical damage but also financial loss. However, not every case of careless behaviour is actionable in negligence. The defendant will only be liable if the plaintiff can prove that: (a)

the defendant owed the plaintiff a duty of care;

(b)

the defendant was in breach of this duty of care;

(c)

the defendant’s breach of duty was the cause of the plaintiff’s loss (“causation”); and

(d)

the damage suffered by the plaintiff was not too remote (“remoteness of damage”).

Statutory reform [28.80] The common law principles governing negligence liability have been reformed by legislation enacted in all Australian States and Territories. 1 These reforms were largely based on the recommendations 1

Civil Liability Act 2002 (NSW); Wrongs Act 1958 (Vic); Civil Liability Act 2003 (Qld); Civil Liability Act 1936 (SA); Civil Liability Act 2002 (WA); Civil Liability Act 2002 (Tas); Civil Law (Wrongs) Act 2002 (ACT); Personal Injuries (Liabilities and Damages) Act 2003 (NT).

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contained in a report of a review of the law of negligence that was undertaken by the Honourable Justice Ipp (commonly referred to as the “Ipp Report”). 2 As the relevant provision in the New South Wales Civil Liability Act 2002 (NSW) shows, the legislation is broad in its scope 3 and applies to “any claim for damage for harm resulting from negligence regardless of whether the claim is brought in tort, contract, under statute or otherwise”. 4 The laws not only cover personal injury but also property damage and economic loss. 5 One aspect of the operation of these laws is to limit the scope of potential liability for negligence. Broadly speaking, this effect is achieved in two ways: 1.

By modifying the common law principles governing the general ingredients of the cause of action in negligence such as breach and causation as well as the circumstances in which a defendant can raise a defence to a plaintiff’s negligence claim; 6 and

2.

By restricting the plaintiff’s right to recover in a number of particular categories of negligence action. For instance, liability is limited in circumstances where the plaintiff’s injury arises from having been engaged in a “recreational activity”. 7 Other examples include cases involving defendants who are professionals, 8 public authorities, 9 volunteers 10 and food donors. 11 In some cases, the legislation provides an obvious and direct response to particular developments in the common law. For instance, sections such as those contained in Pt 11 of the Civil Liability Act 2002

2

3

4

5

6 7

8

9

10

11

Contrary to the recommendations of the Ipp Report, uniform legislation was not enacted. Where relevant, reference will be made to the Civil Liability Act 2002 (NSW) and, if appropriate, the corresponding legislation in the other States and Territories will be noted. There are areas of exception provided in the legislation. For instance, the Civil Liability Act 2002 (NSW) excludes certain claims including those covered by the relevant legislative scheme for workers’ compensation as well as claims arising from smoking and the use of tobacco products and those covered by the legislation dealing with dust-related diseases: Civil Liability Act 2002 (NSW), s 3B; Wrongs Act 1958 (Vic), s 45; Civil Liability Act 2003 (Qld), s 5; Civil Liability Act 1936 (SA), s 4(4); Civil Liability Act 2002 (WA), s 6; Civil Liability Act 2002 (Tas), s 3B; Civil Law (Wrongs) Act 2002 (ACT), s 41; Personal Injuries (Liabilities and Damages) Act 2003 (NT), s 4. Civil Liability Act 2002 (NSW), s 5A(1) (emphasis added). The corresponding provisions are: Wrongs Act 1958 (Vic), s 44; Civil Liability Act 2003 (Qld), s 4(1); Civil Liability Act 1936 (SA), s 4; Civil Liability Act 2002 (WA), s 6; Civil Liability Act 2002 (Tas), s 4; Civil Law (Wrongs) Act 2002 (ACT), s 41 and Personal Injuries (Liabilities and Damages) Act 2003 (NT), s 4. In the Civil Liability Act 2002 (NSW), “harm” is defined to include “damage to property” and “economic loss”: s 5. The corresponding provisions are: Wrongs Act 1958 (Vic), s 43; Civil Liability Act 2003 (Qld), Sch 2; Civil Liability Act 2002 (WA), s 3; Civil Liability Act 1936 (SA), s 3; Civil Liability Act 2002 (Tas), s 3; Civil Law (Wrongs) Act 2002 (ACT), s 40. Compare Personal Injuries (Liabilities and Damages) Act 2003 (NT), s 3. The Personal Injuries (Liabilities and Damages) Act 2003 (NT) is silent in this respect. Civil Liability Act 2002 (NSW), Pt 1A, Div 5; Civil Liability Act 2003 (Qld), Pt 1, Div 4; Civil Liability Act 2002 (WA), Pt 1A, Div 4 and Civil Liability Act 2002 (Tas), Pt 6, Div 5. In South Australia see the Recreational Services (Limitation of Liability) Act 2002 (SA). Compare Wrongs Act 1958 (Vic); Civil Law (Wrongs) Act 2002 (ACT), and Personal Injuries (Liabilities and Damages) Act 2003 (NT), which do not deal with this issue. Civil Liability Act 2002 (NSW), ss 5O, 5P; Wrongs Act 1958 (Vic), ss 59, 60; Civil Liability Act 2003 (Qld), s 22; Civil Liability Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22. There is no corresponding provision in the legislation enacted in Western Australia, the Northern Territory or the Australian Capital Territory. Civil Liability Act 2002 (NSW), Pt 5; Wrongs Act 1958 (Vic), Pt XXII; Civil Liability Act 2003 (Qld), Pt 3; Civil Liability Act 2002 (WA), Pt 1C; Civil Liability Act 2002 (Tas), Pt 9 and Civil Law (Wrongs) Act 2002 (ACT), Ch 8. Compare the Northern Territory and South Australian laws which are silent on the matter. Civil Liability Act 2002 (NSW), Pt 9; Wrongs Act 1958 (Vic), ss 34 – 37; Civil Liability Act 2003 (Qld), Pt 3, Div 2; Civil Liability Act 2002 (Tas), Pt 10; Civil Law (Wrongs) Act 2002 (ACT), Pt 2.2. In Western Australia, see the Volunteers (Protection from Liability) Act 2002 (WA) and in South Australia the Volunteers Protection Act 2001 (SA). There is no corresponding legislation in the Northern Territory but see the Volunteers Protection Act 2003 (Cth). Civil Liability Act 2002 (Tas), Pt 8B; Civil Liability Act 1936 (SA), Pt 9 Div 11A; Civil Law (Wrongs) Act 2002 (ACT), Pt 2.2A.

chapter 28 Law of Torts 12

(NSW) dealing with “Damages for the Birth of a Child” reverse the effect of the High Court’s decision in Cattanach v Melchior (2003) 215 CLR 1. In that case, a majority of members of the court held that a doctor who negligently advises with respect to the risk of failure of a sterilisation procedure was liable for the cost of rearing and maintaining a subsequently born child. 13 Another similar example relates to the decision in Brodie v Singleton Shire Council (2001) 206 CLR 512 which abolished the immunity of highway authorities for liability for a failure to act. In response to this High Court decision, the legislation provides that a “road authority” will only owe a duty to take positive action where the authority has actual knowledge of the “particular risk”. 14 Another important objective of this legislation is to reduce the amount of damages that can be awarded to a plaintiff for personal injuries in a negligence action. The common law principle that aims to provide the plaintiff with full compensation has been abandoned and replaced with a new system. For example, the Civil Liability Act 2002 (NSW) places a cap on the amount that can be awarded to a plaintiff for general or non-economic damages. 15 Other measures include the abolition of exemplary, punitive and aggravated damages for personal injury 16 and a limitation on damages for past or future economic loss due to loss of earnings or impairment of earning capacity. 17 The common law principles of negligence will now be considered and, where relevant, reference will be made to the operation of the reform legislation.

Duty of care [28.90] Liability for negligence will not arise unless the defendant owed the plaintiff a duty to exercise reasonable care. The classic formulation of the circumstances in which a duty to take reasonable care will arise is the “neighbour principle” espoused by Lord Atkin in Donoghue v Stevenson [1932] AC 562 at 580: “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, then, in law is my neighbour? The answer seems to be – persons who 12 13

14 15

16 17

Civil Liability Act 2002 (NSW), Pt 11. There is corresponding legislation in Queensland and South Australia only: Civil Liability Act 2003 (Qld), Pt 5; Civil Liability Act 1936 (SA), s 67. In Harriton v Stephens (2006) 226 CLR 52 and Waller v James (2006) 226 CLR 136, the High Court refused to recognise an action for wrongful life where a child born with disabilities brought a claim against a doctor who failed to advise the child’s mother during her pregnancy of circumstances which would have led the child’s mother to terminate that pregnancy. Civil Liability Act 2002 (NSW), s 45; Civil Liability Act 2003 (Qld), s 37; Civil Liability Act 2002 (Tas), s 42; Civil Law (Wrongs) Act 2002 (ACT), s 113; Civil Liability Act 1936 (SA), s 42; Civil Liability Act 2002 (WA), s 52. Civil Liability Act 2002 (NSW), s 16; Wrongs Act 1958 (Vic), ss 28G, 28H and Pt VBA; Civil Liability Act 2003 (Qld), s 62; Civil Liability Act 1936 (SA), s 52; Civil Liability Act 2002 (WA), ss 9 – 10A; Civil Liability Act 2002 (Tas), ss 27 – 28; Civil Law (Wrongs) Act 2002 (ACT), s 99; Personal Injuries (Liabilities and Damages) Act 2003 (NT), ss 24 – 28. But note Perisher Blue Pty Ltd v Nair Smith (2015) 90 NSWLR 1 at [195] where the New South Wales Court of Appeal upheld a decision that Pt 2 of the Civil Liability Act 2002 (NSW) is invalid to the extent of its inconsistency with the former s 74(1) of the Trade Practices Act 1974 (Cth), (see now, the Australian Consumer Laws 60 , s 60 (Sch 2 of the Competition and Consumer Act 2010 (Cth)). This means that damages recoverable under s 60 are determined by common law principles and not subject to the limitations imposed by the Civil Liability Act 2002 (NSW). Civil Liability Act 2002 (NSW), s 21 and Civil Liability Act 2003 (Qld), s 52. These provisions are not replicated in the other States or Territories. Civil Liability Act 2002 (NSW), s 12; Wrongs Act 1958 (Vic), s 28F; Civil Liability Act 2003 (Qld), s 54; Civil Liability Act 1936 (SA), s 54; Civil Liability Act 2002 (WA), s 11; Civil Liability Act 2002 (Tas), s 26; Civil Law (Wrongs) Act 2002 (ACT), s 98; Personal Injuries (Liabilities and Damages) Act 2003 (NT), s 20. In Queensland, these provisions must also be read in conjunction with Personal Injuries Proceedings Act 2002 (Qld) which aims to minimise the cost of claims. See also Civil Law (Wrongs) Act 2002 (ACT); and Legal Profession Act 1987 (NSW). The Personal Injuries Proceedings Act 2002 (Qld) and Civil Law (Wrongs) Act 2002 (ACT) also place restrictions on the commencement of actions. See also Personal Injuries (Civil Claims) Act 2003 (NT).

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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.” This “neighbour principle” has often been regarded as no more than a simple test of foreseeability of harm. As such, it has been condemned as an inadequate sole determinant of the duty issue to be applied in all negligence cases. Control mechanisms such as those discussed in the judgment of Gummow and Kirby JJ in Tame v New South Wales (2002) 211 CLR 317 at [186] were devised by the courts in response to the perceived inadequacies of the reasonable foreseeability test in order to limit the boundaries of liability. In addition, the courts flirted with various theories of negligence liability designed to protect against the expansion of the law on the basis of foreseeability alone. Chief among these theories was the “proximity” principle that was devised by Deane J in Jaensch v Coffey (1984) 155 CLR 549 at 583. While, at one time, this proximity theory represented the orthodox approach to negligence liability in this country, the High Court subsequently abandoned the concept without presenting an alternative framework for determining the duty issue in a novel case. In Perre v Apand Pty Ltd (1999) 198 CLR 180, McHugh J advised that in the absence of any authoritative statement as to the correct approach for determining the duty question, the best solution is to proceed incrementally from the established cases and principles. The decision in Tame v New South Wales (2002) 211 CLR 317, however, shows that the High Court is now engaged in a fresh review of the basic principles of negligence liability. This latest reasoning shows a resurgence of the reasonable foreseeability test as the “touchstone” of liability. According to McHugh J at [105], the reasonable foreseeability inquiry is a composite test involving an issue of fact or prediction (foreseeability) and a question of value (reasonableness). The proximity issue is seen as involving the question of “neighbourhood” and is not regarded as an additional, separate requirement. Instead, it is part of the value judgment made in determining whether the requirement of “reasonableness” is satisfied. This determination must, according to the court, involve an assessment of community standards: see per Gleeson CJ at [14]. This resurgence of reasonable foreseeability as the key determinant of liability led the court to abandon the following limitations previously thought to inhibit liability for nervous shock: (a)

the requirement that a person of “normal fortitude” might have suffered nervous shock (see for instance, Gummow and Kirby JJ in Tame v New South Wales (2002) 211 CLR 317 at [199]); and

(b)

the rule that the plaintiff’s injury result from a “sudden shock” or the “direct perception” of the incident brought about by the defendant’s negligence (see for instance Gummow and Kirby JJ at [213] and [225]).

However, while this decision (in relation to the rule outlined in (b) above) may have opened the way for recovery for shock that arises upon hearing bad news, such liability is now, in some Australian jurisdictions, 18 limited by the reform legislation. 19 For example, in King v Philcox (2015) 255 CLR 304, the High Court recently considered the operation of s 53(1) of the Civil Liability Act 1936 (SA) which provides that damages may only be awarded for mental harm if the injured person was “present at the scene of the accident when the accident occurred” and “is a parent, spouse or child of a person killed, injured or endangered in the accident”. It was held that the plaintiff (the brother of a person killed as a result of the defendant’s negligent driving) could not recover damages for a major depressive illness in circumstances where he heard of his deceased brother’s accident a few hours after it happened and realized 18

Civil Liability Act 2002 (NSW), s 30; Wrongs Act 1958 (Vic), s 73; Civil Liability Act 1936 (SA), s 53.

19

Liability for mental harm is dealt with by legislation in all States except Queensland and the Northern Territory: Civil Liability Act 2002 (NSW), Pt 3; Wrongs Act 1958 (Vic), Pt XI; Civil Liability Act 2002 (WA), Pt 1B; Civil Liability Act 1936 (SA), s 53; Civil Liability Act 2002 (Tas), s 34; Civil Law (Wrongs) Act 2002 (ACT), Pt 3.2.

chapter 28 Law of Torts

that he had driven past the location of the accident earlier in the day when his brother had been trapped and was dying in the car: see per French CJ, Kiefel and Gageler JJ at [21]-[22] and Keane J at [34]. By contrast, in Wicks v State Rail Authority of New South Wales (2010) 241 CLR 60, the High Court held that s 30(2) of the Civil Liability Act 2002 (NSW) did not operate to prevent recovery by two police officers who were among the first upon the scene of a train derailment. Section 30(2) provides that a plaintiff who suffers nervous shock in connection with another person being killed, injured or put in peril by the defendant’s negligence is not entitled to recover damages “unless the plaintiff witnessed, at the scene, the victim being killed, injured or put in peril”. The High Court took the view that in this case the injuries of the derailment victims and their being put in peril continued for an extended period during which these events were witnessed by the plaintiff rescuers: see at [44]–[52]. The nature of the duty of care is considered under the following headings: 1.

The duty of care and the positive infliction of physical harm.

2.

The duty of care and liability for omissions.

3.

The duty of care in cases of pure economic loss.

Duty of care and the positive infliction of physical harm [28.100] In the case of a positive infliction of physical harm, the existence of a duty of care depends on whether the harm suffered by the plaintiff was reasonably foreseeable. The requirement of reasonable foreseeability of harm involves the application of an objective test. The court asks whether a hypothetical reasonable onlooker would have foreseen the possibility of injury to certain individuals involved in the particular event. For example, in an action arising from a motor vehicle accident where the plaintiff passenger sues the defendant driver, the court would ask whether it was foreseeable that a passenger in the defendant’s vehicle would suffer injury if the defendant drove carelessly. 20 A number of decisions have recognised that the class of persons to whom a defendant owes a duty to avoid the positive infliction of personal injury extends beyond those persons who were alive at the time the negligent act of the defendant took place. It has been held that a mother owes a duty to her unborn child and will be liable for injuries sustained by the foetus as a result of her negligent driving: Lynch v Lynch (By Her Tutor Lynch) (1991) 25 NSWLR 411; see also, Bowditch v McEwan [2002] 2 Qd R 615. 21 It has also been held that a medical practitioner could owe a duty to exercise reasonable care to avoid causing injury not only to their patient but also to any child that may be conceived by the patient: X and Y (By Her Tutor X) v Pal (1991) 23 NSWLR 26. 22

Duty of care and liability for omissions [28.110] In the case of a negligent omission, the plaintiff’s harm is brought about by the defendant’s failure to act, not by a positive infliction of harm. The courts have always drawn a distinction between 20

21

22

In BHP Billiton Ltd v van Soest (2014) 121 SASR 256, it was held that s 8(2) of the Dust Diseases Act 2005 (SA) creates a presumption of actual or constructive knowledge that the exposure of a plaintiff to asbestos constituted a foreseeable risk of injury if the evidence shows that the plaintiff was exposed to asbestos dust as a result of a prescribed industrial or commercial process. Compare the case of a living child who suffers injury as a result of negligent ordinary day-to-day care by a parent or grandparent. In Hoffmann v Boland [2013] Aust Torts Reports 82-134; [2013] NSWCA 158, the New South Wales Court of Appeal was divided as to whether an enforceable duty was owed by a grandparent exercising parental functions: see per Basten JA at [40]; Sackville AJA at [131] and Barrett JA at [43]. But note in relation to a wrongful life claim Harriton v Stephens (2006) 226 CLR 52 and Waller v James (2006) 226 CLR 136, where the High Court refused to recognise an action for wrongful life where a child born with disabilities brought a claim against a doctor who failed to advise the child’s mother during her pregnancy of circumstances which would have led the child’s mother to terminate that pregnancy.

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liability for positive acts and liability for omissions. The courts are less willing to impose liability for a failure to act than they are to recognise a duty to take care in the course of positive conduct. The reason for this reluctance is that liability for an omission involves the imposition of a duty to take positive action and the courts see this as a more serious interference with a person’s liberty than imposing an obligation to take care when acting. Accordingly, foreseeability of harm has never been regarded as appropriate as the sole test of liability for a failure to act. Broadly speaking, there are two categories of case where the existence of a duty to take positive action is established: (a)

where the parties are in a pre-existing relationship which contains features such as reliance and dependence; and

(b)

where the defendant is in charge of or has control over another person or property. 23

Examples [28.120] Examples of (a) include: 1.

Doctor and patient. A doctor is under a duty to warn a patient of a material risk inherent in proposed treatment: Rogers v Whitaker (1992) 175 CLR 479. 24

2.

School authority and students. A school authority was held to be in breach of the duty it owed to its students to exercise reasonable care while they were in its control: Horne v Queensland [1995] Aust Torts Reports 81-343; revd Horne v Queensland (1995) 22 MVR 111; see also Scrase v Jarvis [2000] 2 Qd R 92 and Oyston v St Patrick’s College [2011] Aust Torts Reports 82-086; [2011] NSWSC 269.

3.

Prison authority and prisoner. A prison authority was held to be under a duty to take reasonable precautions for the safety of its inmates: New South Wales v Bujdoso (2005) 227 CLR 1. 25

4.

Employer and employee. The employment relationship has been found to carry a duty on the part of the defendant employer to protect the plaintiff employee against harm brought about by third party assailants: Chomentowski v Red Garter Restaurant Ltd (1970) 92 WN (NSW) 1070; but compare Coca Cola Amatil (New South Wales) Pty Ltd v Pareezer [2006] Aust Torts Reports 81-834; [2006] NSWCA 45.

An example of category (b) is the situation where an occupier owes a duty to take positive steps to protect persons lawfully entering his or her property. Such liability has attached to supermarkets for the failure to prevent injuries sustained by a customer: Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479; Shoeys Pty Ltd v Allen [1991] Aust Torts Reports 81-104. A supermarket was also held to owe a duty to ensure a safe system for the delivery of goods to a person who delivered bread to its premises: Thompson v Woolworths (Qld) Pty Ltd (2005) 221 CLR 234. It appears however that an occupier’s liability does not extend to a duty to protect against harm inflicted by a third party criminal assailant. In Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254, the High Court held that a shopping centre did not have a duty to protect a video store worker 23

24 25

But note in this context the operation of provisions precluding liability for a negligent omission such as the Civil Liability Act 2002 (NSW), ss 5H and 5L, Civil Liability Act 2003 (Qld), ss 15 and 19; Civil Liability Act 1936 (SA), ss 36 and 38; Civil Liability Act 2002 (WA), ss 5O and 5H; Civil Liability Act 2002 (Tas), ss 17 and 20. The Queensland and Tasmanian laws contain a provision dealing with the extent of a doctor’s duty to warn: Civil Liability Act 2003 (Qld), s 21 and Civil Liability Act 2002 (Tas), s 21. In relation to the liability of prison and school authorities note references to reform law dealing with the liability of public authorities in the Civil Liability Act 2002 (NSW), Pt 5; Wrongs Act 1958 (Vic), Pt XXII; Civil Liability Act 2003 (Qld), Pt 3; Civil Liability Act 2002 (WA), Pt 1C; Civil Liability Act 2002 (Tas), Pt 9 and Civil Law (Wrongs) Act 2002 (ACT), Ch 8; compare the Northern Territory and South Australian laws (which are silent on the matter).

chapter 28 Law of Torts

employed at the centre against physical injury resulting from the criminal behaviour of third parties. Following the decision in Modbury, the New South Wales Court of Appeal in Ashrafi Persian Trading Co Pty Ltd v Ashrafinia [2002] Aust Torts Reports 81-636; [2001] NSWCA 243 held that a motel owner was not liable to a family guest for the physical injury caused by a third party’s criminal assault. Modbury was also applied in Gordon v Tamworth Jockey Club [2003] Aust Torts Reports 81-698; [2003] NSWCA 82 to deny recovery to the plaintiff, a patron of the defendant club for injuries caused by a third party assailant who was an employee of the defendant. 26 Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254 was, however, distinguished by the High Court when it was determining the existence of the relevant duty of care in Adeels Palace Pty Ltd v Mourabak (2009) 239 CLR 420 at [24]–[25] per French CJ, Gummow, Hayne, Heydon and Crennan JJ. 27 In that case, it was held that the proprietor of a licensed restaurant and reception venue owed the plaintiffs, its patrons, a duty to take reasonable care to prevent injury from the violent, quarrelsome and disorderly conduct of other persons. 28

case [28.150] The landmark decision of CAL No 14 Pty Ltd v Motor Accidents Board (2009) 239 CLR 390 shows that responsibility for the consequences of getting drunk rest with the drinker and not the seller of the alcohol. The High Court unanimously overturned a decision of the Full Court of the Supreme Court of Tasmania which had held that a publican owed a duty to prevent a patron from driving his motor cycle home from the hotel where he had been drinking. Although the actual decision in this case was decided on a narrower basis, the High Court took the step of “explicitly stating” the following “fundamental reason” why the lower court’s determination on duty was incorrect: “The reason is that outside exceptional cases … persons in the position of the Proprietor and the Licensee … owe no general duty of care at common law to customers which requires them to monitor and minimise the consequences of the alcohol they choose to consume.” 29 [28.160] The High Court followed its earlier decision in Cole v South Tweed Heads Rugby League Football Club Ltd (2004) 217 CLR 469 where a lower court finding that the defendant club did not owe a duty to take positive steps to moderate and monitor the plaintiff’s drinking or to prevent the plaintiff from leaving its premises without proper assistance was upheld and the court decided that the defendant was not liable for the injuries suffered by the plaintiff when she was run down after leaving the club. 30 26

27

28 29 30

Similarly in Bainbridge v James (2013) 39 VR 457, the Court of Appeal in Victoria held that the duty of care owed by an owner and manager of a shopping centre did not extend to protect against criminal assault by a third party in circumstances where the plaintiff was employed to act as Father Christmas at the centre: see at [24]. Similarly, in Karatjas v Deakin University (2012) 35 VR 355 the decision in Modbury did not preclude recovery by a plaintiff employee of a university contractor who was injured in an attack by a third party assailant when walking to her car. The relevant duty to secure the safety of the contractor’s employees arose because the university exercised control over that aspect of their system of work, that is, where they parked and how they accessed these carparks: at [47] per Nettle JA with whom Hansen and Kyrou AJA agreed. As will be seen in [28.500], the plaintiffs’ case failed on the causation issue. CAL No 14 Pty Ltd v Motor Accidents Board (2009) 239 CLR 390 at [52] per Gummow, Heydon and Crennan JJ with whom Hayne J agreed at [417]. Compare French CJ who expressed no opinion on the issue of a general duty at [1]. Note the following legislative provisions governing the effect of the plaintiff’s intoxication on the standard of care and the defence of contributory negligence: Civil Liability Act 2002 (NSW), Pt 6; Wrongs Act 1958 (Vic), s 14G; Civil Liability Act 2003 (Qld), Pt 4, Div 2; Civil Liability Act 1936 (SA), s 46; Civil Liability Act 2002 (WA), s 5L; Civil Liability Act 2002 (Tas), Pt 2; Civil Law (Wrongs) Act 2002 (ACT), ss 95 – 96; Personal Injuries (Liabilities and Damages) Act 2003 (NT), ss 14 – 15.

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Public authorities and omissions [28.170] In Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1, McHugh J (with whom Gleeson CJ agreed) set out the following test for determining whether a statutory authority owes a common law duty to take positive action: 1.

Was it reasonably foreseeable that an act or omission of the defendant, including a failure to exercise its statutory powers, would result in injury to the plaintiff or the plaintiff’s interests? If no, then there is no duty.

2.

By reason of the defendant’s statutory or assumed obligations or control, did the defendant have the power to protect a specific class including the plaintiff (rather than the public at large) from a risk of harm? If no, then there is no duty.

3.

Was the plaintiff or were the plaintiff’s interests vulnerable in the sense that the plaintiff could not be reasonably expected to adequately safeguard themselves or those interests from harm? If no, then there is no duty.

4.

Did the defendant know, or ought the defendant to have known, of the risk of harm to the specific class including the plaintiff if it did not exercise its powers? If no, then there is no duty.

5.

Would such a duty impose liability with respect to the defendant’s “core policy-making” or “quasi-legislative” functions? If yes, then there is no duty.

6.

Are there any other supervening reasons in policy to deny the existence of a duty of care? If yes, then there is no duty.

In Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1, the High Court held, by a majority of five to two, that the Australian Stevedoring Industry Authority owed a duty of care to Crimmins, a waterside worker employed at Port Melbourne, to take positive steps to protect him against the harmful effects of asbestos. 31 In Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540, the High Court held that the defendant authority was not liable for injury suffered by the plaintiffs when they contracted hepatitis A after eating oysters from Wallis Lake in New South Wales. The court pointed to the fact that the relevant legislation did not give the council any specific powers or functions with respect to oysters or the oyster industry. Accordingly, the council had no control over the risk of contamination, that is, the process by which commercial growers cultivated, harvested and supplied oysters. 32

31

32

Compare State of South Australia v Lampard-Trevorrow (2010) 106 SASR 331 where the court found that the relevant legislative provisions were directed towards the protection and welfare of Aborigines and that the Aboriginal Protection Board owed a duty to an Aboriginal child in relation to whom it was considering exercising its power to remove a child from the care of and contact with its mother: at [369]. The court found that this duty had been breached by the authority’s failure to adequately satisfy itself that the risk of harm of leaving the child with its mother exceeded the risk from removing the child from the mother. Accordingly, the appeal against the trial judge’s award of damages was dismissed: at [412]. In Butler v Queensland [2014] 2 Qd R 423 the decision in Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 was distinguished. Boddice J pointed to the statutory regime which allowed the State to impose conditions on the granting of mining leases as well as monitor, supervise and enforce compliance with those conditions and concluded that the State’s control over the risk of harm from a subsidence event was substantial: at [112]-[119]. Vulnerability on the part of the owners of the surface land was also highlighted: at [128] and [131]. In these circumstances, it was held that the State owed a duty of care with respect to foreseeable economic loss consisting of the diminution in value of the land consequent upon subsidence on surface land above the mining operation: at [137]. As it was found that the State failed to properly monitor, supervise and enforce compliance with the relevant mining lease conditions, the State was liable to the plaintiffs whose properties were immediately adjacent to the subsidence: at [185].

chapter 28 Law of Torts

As indicated earlier, there is now legislation dealing with the liability of public authorities. For instance, in New South Wales the Civil Liability Act 2002 (NSW) 33 sets out the principles to be applied in determining whether a public authority has a duty of care or has breached a duty of care. 34 One factor the Act requires to be taken into account is whether the authority’s functions are limited by the availability of resources. 35 A public authority which controls and manages land, parks, reserves or other public areas can come under a duty to take steps to protect members of the public against foreseeable danger in those areas: Nagle v Rottnest Island Authority (1993) 177 CLR 423 at 430. 36 The scope of this liability arising from a public authority’s control and management of recreational parks and reserves is also now limited by statute. For instance, s 5H of the Civil Liability Act 2002 (NSW) 37 provides that the defendant does not owe a duty to warn of an obvious risk to the plaintiff. In addition, s 5L 38 declares that there is no liability for harm suffered as a result of the materialisation of an obvious risk of a dangerous recreational activity. 39

The duty of care in cases of pure economic loss [28.180] In cases concerning pure economic loss, the plaintiff suffers no personal injury or physical damage to their property but is financially worse off as a result of the defendant’s negligence. In Perre v Apand Pty Ltd (1999) 198 CLR 180, McHugh J identified five principles which are relevant in determining the duty issue in an economic loss case. These principles which were reiterated in his Honour’s judgment in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 are as follows:

1. Reasonable foreseeability [28.190] As McHugh J had pointed out in Tame v New South Wales (2002) 211 CLR 317 at [103], reasonable foreseeability of harm to others is a necessary but not sufficient condition of duty in an economic loss case. 33

Civil Liability Act 2002 (NSW), Pt 5; Wrongs Act 1958 (Vic), Pt XXII; Civil Liability Act 2003 (Qld), Pt 3; Civil Liability Act 2002 (WA), Pt 1C; Civil Liability Act 2002 (Tas), Pt 9 and Civil Law (Wrongs) Act 2002 (ACT), Ch 8. Compare the Northern Territory and South Australian laws which are silent on the matter.

34

Civil Liability Act 2002 (NSW), s 42; Wrongs Act 1958 (Vic), s 83; Civil Liability Act 2003 (Qld), s 35; Civil Liability Act 2002 (WA), s 5W; Civil Liability Act 2002 (Tas), s 38; Civil Law (Wrongs) Act 2002 (ACT), s 110. The legislation in South Australia and the Northern Territory is silent on the matter. Civil Liability Act 2002 (NSW), s 45; Civil Liability Act 2003 (Qld), s 37; Civil Liability Act 2002 (WA), s 5Z; Civil Liability Act 2002 (Tas), s 42 and the Civil Law (Wrongs) Act 2002 (ACT), s 113. In Victoria, see the Transport (Highway Rule) Act 2002 (Vic) amending the Transport Act 1983 (Vic), effective 1 January 2005 and overturning the common law development by enacting the former “highway rule”. Of similar effect is the Civil Liability Act 1936 (SA), s 42. The Northern Territory legislation does not deal with this issue. However, compare: Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431 and two later decisions which were heard together by the High Court: Vairy v Wyong Shire Council (2005) 223 CLR 422 and Mulligan v Coffs Harbour City Council (2005) 223 CLR 486.

35

36

37 38 39

Civil Liability Act 2003 (Qld), s 15; Civil Liability Act 1936 (SA), s 36; Civil Liability Act 2002 (WA), s 5O; Civil Liability Act 2002 (Tas), s 17. Civil Liability Act 2003 (Qld), s 19; Civil Liability Act 1936 (SA), s 38 and Recreational Services (Limitation of Liability) Act 2002 (SA), s 5; Civil Liability Act 2002 (Tas), s 20; Civil Liability Act 2002 (WA), s 5H. In Great Lakes Shire Council v Dederer [2006] Aust Torts Reports 81-860, the plaintiff’s action against the defendant council failed as a result of the application of the Civil Liability Act 2002 (NSW), s 5L. This conclusion was not challenged in the High Court in Roads and Traffic Authority (NSW) v Dederer (2007) 234 CLR 330. In Jaber v Rockdale City Council [2008] Aust Torts Reports 81-952, the defendant council successfully raised both the s 5L and s 5H defences but compare Fallas v Mourlas (2006) 65 NSWLR 418 where the court held that the risk was not obvious. More recently, in circumstances where there were signs warning of danger, the Queensland Court of Appeal upheld the trial judge’s decision that the risk which materialised was not an “obvious risk”: State of Queensland v Kelly [2015] 1 Qd R 577.

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2. Indeterminancy of liability [28.200] The court would refuse to recognise a duty where it would lead to a liability which is “in an indeterminate amount for an indeterminate time to an indeterminate class”: Ultramares Corp v Touche 255 NY 170; 174 NE 441 (1931) at 179 – 180 (NY); 444 (NE) per Cardozo J.

3. The individual autonomy factor [28.210] The court considers that conduct legitimately protecting a person’s social or business interests should not give rise to a duty of care.

4. The vulnerability to risk [28.220] This factor was referred to by McHugh J in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [80] as a “key issue” and takes into account the vulnerability of the plaintiff to harm from the defendant’s conduct. According to the joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ at [23]: “‘Vulnerability’ in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather ‘vulnerability’ is to be understood as a reference to the plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care, either entirely or at least in a way which would ease the consequences of loss on the defendant.” A lack of vulnerability on the part of the plaintiff was a key element in the High Court’s recent decision to deny recovery in Brookfield Multiplex Ltd v Owners - Strata Plan 61288 (2014) 254 CLR 185. 40 In that case, Crennan, Bell and Keane JJ at [130] endorsed the view expressed earlier in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 2016 CLR 515 that vulnerability could be used as a rationale to explain the exceptional cases where recovery for pure economic loss had been allowed. Indeed, Hayne and Kiefel JJ indicated at [51] that the case before the court was to be determined by the “question of vulnerability”. 41 Again in Marsh v Baxter (2015) 49 WAR 1, liability for pure economic loss was denied on the basis that the plaintiff partners were not vulnerable to the relevant risk. In this case, the plaintiffs sought to recover the economic loss suffered as a result of their decertification as organic farmers owing to the incursion of genetically modified material on their property. They claimed that this loss arose from the negligence of the defendant who grew and harvested genetically modified canola nearby. However, the Western Australian Court of Appeal held that the plaintiffs who knew and appreciated the risk of incursion could have taken steps to guard against it such as building buffers and barriers: see [684]-[691]. In Johnson Tiles Ltd v Esso Australia Pty Ltd [2003] Aust Torts Reports 81-692; [2004] VSC 466, the plaintiffs who were commercial gas consumers suffered economic loss as a result of the interruption to the supply of gas by the defendant. Gillard J took the view that the plaintiffs’ vulnerability to this loss was negated by the fact that the plaintiffs could have taken steps to protect themselves against such loss. In particular, his Honour focused on the fact that business interruption insurance was available to the plaintiffs.

40

Discussed further at [28.370].

41

See also French CJ at [30] who referred to vulnerability as a “salient feature” and Gageler J at [185].

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5. The defendant's knowledge, either actual or constructive, of the risk and its magnitude [28.230] According to McHugh J, this element is a “strengthening” factor. 42 These last two factors were highlighted in Perre v Apand Pty Ltd (1999) 198 CLR 180:

case [28.240] The plaintiff potato farmers in Perre v Apand Pty Ltd (1999) 198 CLR 180 suffered economic loss when the defendant supplied diseased potato seeds to a farm 20 kilometres from the plaintiffs’ property. The diseased seeds resulted in the growth of a crop with bacterial wilt. The plaintiffs’ economic loss arose because they were unable to export their potato crop to Western Australia owing to a legislative prohibition on the importation of potatoes grown within a 20-kilometre radius of a disease outbreak. The High Court held unanimously that the plaintiffs could recover the loss suffered. Key factors upon which liability was based included the defendant’s knowledge or constructive knowledge of the following: (a)

that the plaintiffs grew and processed potatoes within a 20-kilometre radius of a diseased crop; and

(b)

that Western Australia law prohibited the importation of such crops.

In addition, the court pointed to the plaintiffs’ vulnerability in the sense that there was no way that the plaintiffs could have protected themselves against the risk. [28.250] The categories of economic loss where the courts have allowed recovery will be considered under the next headings 43 and are as follows: (a)

the defendant has made a negligent misstatement;

(b)

the plaintiff’s loss flowed from damage to the property of a third party;

(c)

the plaintiff has suffered loss as a result of a defective product or structure; and

(d)

the plaintiff’s loss was the result of professional negligence.

Negligent misstatement [28.260] Initially, liability for carelessly made statements was virtually non-existent. A distinction was drawn between negligent words and negligent acts because the courts recognised that a statement may have far wider repercussions than a physical act. Recovery for economic loss arising out of a statement made by another person was limited to cases where the statement was intentionally false (which would give rise to an action for the tort of deceit) or was made in breach of a fiduciary relationship, for example, a solicitor-client relationship. For some time after Donoghue v Stevenson [1932] AC 562, plaintiffs had little success in trying to persuade the courts to apply the principles of negligence to misstatements of fact: recovery was refused on the basis of the distinction between words and acts. 42 43

See Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [87]. Cases involving defendants who are professionals such as auditors and solicitors should now be read subject to the relevant statutory provisions of the Civil Liability Act 2002 (NSW), ss 5O, 5P; Wrongs Act 1958 (Vic), ss 59, 60; Civil Liability Act 2003 (Qld), s 22; Civil Liability Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22; there is no corresponding provision in the legislation enacted in Western Australia, the Northern Territory or the Australian Capital Territory. In addition, the economic loss cases dealing with a public defendant should be considered in the context of the provisions relating to public authorities: Civil Liability Act 2002 (NSW), Pt 5; Wrongs Act 1958 (Vic), Pt XXII; Civil Liability Act 2003 (Qld), Pt 3; Civil Liability Act 2002 (WA), Pt 1C; Civil Liability Act 2002 (Tas), Pt 9 and Civil Law (Wrongs) Act 2002 (ACT), Ch 8; the Northern Territory and South Australian laws are silent on the matter.

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The breakthrough came in 1964 with the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. In that case the House of Lords unanimously held that, in certain circumstances, the law will imply a duty of care in the making of statements, and that a negligent, though honest, statement may give rise to an action for damages.

case [28.270] The plaintiff in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 was an advertising agency that was to place television and newspaper advertisements on behalf of a company called Easipower. As the plaintiff was to personally guarantee the payment of these advertising accounts, it sought credit references from the defendant, Easipower’s bank. The defendant’s written response indicated that Easipower was creditworthy. In its reply the defendant had disclaimed responsibility for its credit reference. Easipower was not creditworthy and the plaintiff agency was unable to recover the amount paid for the advertisements. Although the House of Lords said that a duty of care could arise in circumstances like those before it, the plaintiff’s action failed because the defendant bank had effectively disclaimed responsibility for the reference it had given. [28.280] In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, the House of Lords rejected earlier suggestions that liability for negligent misstatement, apart from contract, was limited to where there was a fiduciary relationship. A duty of care in making statements could arise in circumstances where there existed what the House of Lords referred to as a “special relationship” between the parties. The House of Lords did not detail the precise nature of this relationship, although it is clear that it would involve some element of reliance. The nature of this “special relationship” was explained by Barwick CJ in Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 572 – 573 as follows: “It seems to me, therefore, that whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter, and particularly a matter of business, and the relationship of the parties arising out of the circumstances is such that on the one hand the speaker realises or ought to realise that he is being trusted, particularly if he is thought by the other to have, or to have particular access to, information or to have a capacity or opportunity to exercise judgment or both as to the matter in hand, to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to seek or accept and in either case to act upon that information and advice the speaker, choosing to give the information or advice in such circumstances, comes under a duty of care both to utilise with reasonable care the information and sources of information at his disposal and to employ with reasonable care what capacity he has for judgment in relation to the matter and to exercise reasonable care in the expression of what he is prepared to convey by way of information or advice.” It appears that the High Court has accepted this formulation of the “special relationship” as the test for determining the existence of a duty of care in the making of statements or the giving of advice: San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340. Later, in Tepko Pty Ltd v Water Board (2001) 206 CLR 1 the High Court treated the judgment of Barwick CJ in Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 as the authoritative statement of the circumstances giving rise to a duty of care in Australia. 44

44

See Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at [47] per Gleeson CJ, Gummow and Hayne JJ.

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There is no necessity for the defendant to be in the business or profession of giving advice: Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225; San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340. The High Court’s decision in Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 establishes that the duty extends to the supply of information as well as advice:

case [28.290] In Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225, the plaintiff land developer went ahead with the purchase of a property after obtaining a certificate from the defendant council which indicated that there were no road-widening proposals relevant to the property. This information was incorrect and as a result the plaintiff suffered financial loss. In a unanimous decision, the High Court held that the defendant council was liable to the plaintiff for the loss caused by their failure to take reasonable care in providing the information. [28.300] In San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340, the information and advice was volunteered and there was no antecedent request on the part of the plaintiff. While Gibbs CJ, Mason, Wilson and Dawson JJ pointed out that in the usual case of negligent misstatement, an antecedent request for information or advice demonstrates reliance which is a key determinant of the existence of a duty of care, their joint judgment held that such a request is not essential and that a defendant volunteering information or advice can be liable for negligent misstatement: “The maker of a statement may come under a duty to take care through a combination of circumstances or in various ways, in the absence of a request by the recipient. The author, though volunteering information or advice, may be known to possess, or profess to possess, skill and competence in the area which is the subject of the communication. He may warrant the correctness of what he says or assume responsibility for its correctness. He may invite the recipient to act on the basis of the information or advice, or intend to induce the recipient to act in a particular way. He may actually have an interest in the recipient so acting”: at 357.

case [28.310] San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 concerned the publication of a redevelopment plan by the State Planning Authority and the Sydney City Council. The plan encouraged private developers to buy land sites and construct high density office blocks. On the faith of the plan, the plaintiffs bought up land with a view to redevelopment. When the plan was abandoned because it was found not to be feasible, the plaintiffs suffered a financial loss. The plaintiffs argued that the defendant had falsely represented that the plan was feasible. The High Court held that the plaintiffs could not succeed unless they could establish “at least, amongst other things, (1) that the alleged representation was made, and (2) that the Authority and the council made the representation with the intention of inducing members of the class of the developers to act in reliance on the representation”. The High Court concluded that the plaintiff failed to establish the first matter and therefore the second did not arise. [28.320] An application of the emerging principles regarding liability for negligent misstatements has been in respect of the “overseas foreign currency loan” cases. Thus, banks have been held liable for damages for the loss suffered by their customers who relied on negligent misstatements or advice by bank managers or other bank officials promoting the advantages of borrowing money in a foreign currency

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without giving adequate warning of the dangers associated with such loans: Foti v Banque Nationale de Paris [1990] Aust Torts Reports 81-025; Chiarabaglio v Westpac Banking Corp [1989] ATPR 40-971; [1991] ATPR (Digest) 46-067 (FC); Westpac Banking Corp v Spice [1990] ATPR 41-024. However, where no specific representations were made by the bank to the customer in arranging such loan; or the customer was adequately warned of the inherent dangers of such loans and/or advised to seek professional financial advice from those with expertise in the area; or the evidence disclosed that the customer was aware of the dangers associated with such loans from information from other sources, then the bank has been held not liable for the substantial losses suffered by their customers in respect of such loan: David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1 (the High Court allowed an appeal on a different issue, see [7.390]); McEvoy v ANZ Banking Group Ltd [1988] Aust Torts Reports 80-151; Lloyd v Citicorp Australia Ltd (1986) 11 NSWLR 286. Depending on the particular circumstances, it may be preferable in this context to pursue an action for contravention of the misleading and deceptive conduct provisions of s 18 of the Australian Consumer Law 45 (formerly, s 52 of the Trade Practices Act 1974 (Cth)) rather than the common law principles regarding negligent misstatements: see further, [17.40]. The establishment of liability for negligent misstatement has also led to an increasing number of actions against accountants, company auditors and other financial advisers for recoupment of financial losses allegedly suffered as a result of reliance on negligent advice, information or negligently prepared tax returns or company audits: see, for example, Hungerfords (Registered Firm) v Walker (1989) 171 CLR 125; Segenhoe Ltd v Atkins (1990) 29 NSWLR 569; Norris v Sibberas [1990] VR 161.

Liability of auditors [28.330] An issue which has arisen in respect of an auditor’s liability for misstatement is whether the auditor’s duty of care is limited to the client for whom the audited accounts are prepared, or whether the duty extends to any person who relies on a statement contained in the auditor’s report. In the United Kingdom, the House of Lords has held that the liability of an auditor does not extend to the situation where the audit statement was relied on by a third party for a purpose other than the particular purpose for which it was prepared: Caparo Industries Plc v Dickman [1990] 2 AC 605. The decision of the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) (1997) 188 CLR 241, clearly shows that the court does not regard foreseeability of the third party’s reliance as a sufficient basis for imposing liability on an auditor. The question which remains to be determined in this context is whether the “reasonableness of reliance” element of the test formulated by Barwick CJ in Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 (see discussion at [28.280]) could be satisfied in circumstances where a third party uses an audit statement for purposes such as investment. After pointing out in Esanda Finance (see above) that the defendant auditors were in a “particularly advantageous position to know or ascertain the true financial position” of Excel, their audit client, Toohey and Gaudron JJ made the following remark about the plaintiff finance company: “However, there is nothing to suggest Esanda was not itself able to have accountants undertake the same task on its behalf as a condition of its entertaining the possibility of entering into financial transactions with Excel. And, which is much the same thing in the circumstances of this case, there is nothing to suggest that it was reasonable for Esanda to act on the audited reports without further inquiry.” 45

The Australian Consumer Law is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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Economic loss flowing from damage to the property of a third party [28.340] The breakthrough case in this area of economic loss is the High Court decision in Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529. In that case the High Court held that the appellant, Caltex Oil, was entitled to recover the economic loss it had suffered when a pipeline owned and operated by Australian Oil Refinery Pty Ltd (hereafter AOR) was damaged as a result of the respondent’s negligent navigation. The pipeline carried oil products from the AOR refinery at Kurnell to the Caltex Oil terminal on the opposite shore. Owing to the damage, the pipeline could not be used for some time and Caltex Oil incurred considerable additional expense in transporting the oil by alternative means. The High Court held unanimously that Caltex could recover the economic loss suffered. The decision was an important departure from the traditional “exclusory rule” which limited recovery for economic loss consequent upon damage to property to where the plaintiff had a proprietary or possessory interest in the property. Apart from the Supreme Court of Queensland case, Fortuna Seafoods Pty Ltd v The Ship “Eternal Wind” [2005] QSC 4, where Douglas J relied on the reasoning in Caltex to support the conclusion that the relevant duty existed, 46 the High Court’s decision has rarely been used as a basis for imposing liability. Nevertheless, its authority was confirmed by subsequent High Court endorsement in Perre v Apand Pty Ltd (1999) 198 CLR 180. 47

Economic loss resulting from a defective structure or product [28.350] In circumstances where the plaintiff suffers no personal injury or damage to other property, the High Court has classified the loss flowing from a defective structure (for example, a building constructed on defective foundations) as economic loss: Sutherland Shire Council v Heyman (1985) 157 CLR 424. Such loss may consist of the diminution in value of the property, or the cost of rectifying the defect and repairing the superstructure of the building. Potential defendants to actions to recover this kind of loss include builders, architects and engineers, as well as the public authority responsible for the supervision of building work in the particular area. The first of the High Court authorities dealing with this type of loss is the decision in Sutherland Shire Council v Heyman (1985) 157 CLR 424:

case [28.360] In Sutherland Shire Council v Heyman (1985) 157 CLR 424, the plaintiffs sought to recover from the local council the loss they sustained when their house subsided because it had been built on inadequate footings. The plaintiffs argued that the council was liable for its failure to exercise its statutory powers of inspection of building work in order to protect the plaintiffs against this type of harm. The High Court unanimously rejected this argument and held that the plaintiffs could not recover the loss sustained from the defendant council. [28.370] Although the judgments in Sutherland Shire Council v Heyman (1985) 157 CLR 424 differ in their reasoning, the case can be seen as laying down a very narrow test of liability. Before a public authority will be liable for the economic loss flowing from its failure to carry out its statutory powers of inspection with due care, the plaintiff must be able to show actual reliance on the performance of this function. As the 46 47

A majority of the Queensland Court of Appeal dismissed an appeal against the decision: Fortuna Seafoods Pty Ltd v The Ship “Eternal Wind” [2008] 1 Qd R 429. Perre v Apand Pty Ltd (1999) 198 CLR 180 at [113] per McHugh J and at [341] per Hayne J.

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plaintiffs were not the original owners of the house and could not therefore point to any actual reliance on the performance by the council of its power to inspect the foundations, their case failed. Clearly, there were strong policy considerations behind the High Court’s decision to limit the liability of a public authority in this manner. Essentially, the High Court took the view that the general body of ratepayers should not have to bear the economic burden when someone purchases a defectively built structure. The High Court considered that the plaintiffs could have taken steps to protect themselves against this type of loss. In particular, the court emphasised that the plaintiffs had not taken advantage of the fact that there was a section in the relevant statute which provided for the furnishing of a certificate to the effect that, in the council’s opinion, the house complied with the council’s building standards. The next relevant High Court authority is Bryan v Maloney (1995) 182 CLR 609. In that case, the High Court, by a majority of four to one, held that a builder owes a duty to take reasonable care in the construction of a dwelling house so as to avoid causing a subsequent owner economic loss. The court appeared to base this liability on the fact that the “connecting link” between the parties is a dwelling house which is a structure intended to be used indefinitely and which represents probably the most significant investment the owner will make; the nature of the damage – the diminution in the value of the structure; and “known reliance” on the part of the home owner. The High Court framed the relevant duty very narrowly and pointed out that its decision did not extend to the situation where the loss flowed from a defect in a commercial building or a defective product. 48 In a later High Court authority dealing with this type of loss, the High Court held that consulting engineers did not owe a duty of care to the subsequent purchasers of a defectively built commercial building: Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515. The court distinguished Bryan v Maloney (1995) 182 CLR 609 and focused on the plaintiff’s lack of vulnerability. 49 The decision of the High Court in the recent case of Brookfield Multiplex Ltd v Owners - Strata Plan 61288 (2014) 254 CLR 185 also turned on the question of vulnerability. In that case, the plaintiff Owners Corporation sought to recover economic loss arising from latent defects in the common property of a commercial apartment complex which had been constructed by the defendant builder. The court held that there was no vulnerability on the part of the Owners Corporation owing to provisions contained in the contracts between the developer and subsequent purchasers dealing with construction and repair of building defects. According to Hayne and Kiefel JJ at [58], there was no need to define what would or would not constitute vulnerability; it was enough to “observe” these contracts which gave the purchasers the right 50 to have the defects remedied. Their Honours added: “The making of the contracts which expressly provided for what quality of work was promised demonstrates the ability of the parties to protect against and denies their vulnerability to, any lack of care by the builder in the performance of its contractual obligations.” 51 48

The question of whether recovery in negligence for the economic loss flowing from a defect in a product will be allowed has yet to be determined by the High Court.

49

50

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [31] per Gleeson CJ, Gummow, Hayne and Gaudron JJ; at [110] per McHugh J and at [224] per Callinan J. The Supreme Court of the Australian Capital Territory also distinguished Bryan v Maloney (1995) 182 CLR 609 in ACTEW Corporation Ltd v Mihaljevic (2011) 247 FLR 186 when determining the extent of the duty of care owed by a professional certifier who approved building work constructed over a sewerage line which encroached on the plaintiff utility service provider’s sewerage easement. Gray J at [86] pointed to the absence of the “characteristics” of known reliance and an assumption of responsibility as a basis for denying the claim for economic loss arising from the relocating of the sewer. The lack of vulnerability on the part of the plaintiff was also highlighted: at [93] per Gray J. Which vested in the Owners Corporation.

51

See at [58]. See also per French CJ at [34], Crennan, Bell and Keane JJ at [140] and Gageler J at [185].

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The High Court distinguished its earlier decision in Bryan v Maloney (1995) 182 CLR 609 on the basis of the vulnerability factor because it was a “special” case 52 where the plaintiff subsequent owner was found to be incapable of protecting itself against economic loss arising from a latent defect caused by the defendant builder’s negligence. 53 Another ground of distinction identified by Crennan, Bell and Keane JJ focused on the detailed provisions in the “design and construct” contract between the defendant builders and the developer in Brookfield Multiplex Ltd v Owners - Strata Plan 61288 (2014) 254 CLR 185 which were absent in the relationship between the builder and the original owner in the earlier case. 54 The question of whether recovery in negligence for the economic loss flowing from a defect in a product will be allowed has yet to be determined by the High Court.

Professional negligence and economic loss [28.380] Examples of the recovery of economic loss caused by the negligent performance of a professional task are as follows: (a)

an engineer was held liable to his client for the economic loss suffered as a result of the engineer’s negligent design of a swimming pool (Pullen v Gutteridge Haskins & Davey Pty Ltd [1993] 1 VR 27);

(b)

auditors were held liable for breach of the duty of care owed to the plaintiff company to exercise reasonable care and skill in auditing the company’s accounts so as not to cause the company financial loss (AWA Ltd v Daniels t/a Deloitte Haskins & Sells (1992) 10 ACLC 933); and

(c)

a solicitor was held liable for the economic loss sustained by his clients for whom he had acted in relation to the purchase of a business: Twidale v Bradley [1990] 2 Qd R 464.

The High Court has held that a solicitor is liable to a beneficiary in circumstances where, owing to the solicitor’s negligence, the will naming the plaintiff as beneficiary was void because it was witnessed by the plaintiff’s husband: Hill v Van Erp (1997) 188 CLR 159. However, by contrast, in Badenach v Calvert (2016) 90 ALJR 610 the intended beneficiary was denied recovery where the defendant solicitor had failed to advise the deceased client of the possibility of a claim under the Testators Family Maintenance Act 1912 (Tas) and the options for avoiding such a claim. As French CJ, Keifel and Keane JJ indicated, although the case bore some resemblance to the previous authority, the circumstances supporting the existence of a duty of care were not present. 55 The key difference was that, in the later case, the content of the duty which the plaintiff claimed was owed went beyond giving effect to the client’s testamentary intentions. 56 According to Gageler J (at [62]): “Unless there is some further factor affecting the relationship of the parties, however, a solicitor retained to prepare a will can have no duty to a person whom the testator intends to benefit other than to act in the manner and to the extent identified in the testator’s instructions. That is because, 52 53

54

55 56

Per French CJ at [29]. Earlier at [23] his Honour had referred to the “sharp distinction” between the two cases in relation to vulnerability. Per French CJ at [35], Crennan, Bell and Keane JJ at [140] and Gageler J at [185]. Gageler J at [185] confined the continuing authority of Bryan v Maloney (1995) 182 CLR 609 to the situation where there is vulnerability on the part of a subsequent owner of a dwelling house. However, as Crennan, Bell and Keane JJ at [135] indicated, the dwelling house/commercial building distinction alone is not sufficient ground on which to distinguish the two cases. At [136]-[139]. Hayne and Kiefel JJ at [60] also pointed to the issue of “disconformity” between the obligations owed to the original owner under the original contract and the duty of care allegedly owed to the subsequent purchaser. Without deciding whether it would necessarily deny the existence of a duty of care, their Honours said that the absence of disconformity was an “essential step in the reasoning” of the earlier case which was not available in the case before the court. On this point see also French CJ at [28]. Badenach v Calvert (2016) 90 ALJR 610 at [44] and [49]. See per French CJ, Kiefel and Keane JJ at [45]-[46]; per Gageler J at [61]-[68] and Gordon J at [83]ff.

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outside the scope of the testator’s instructions: there can be no requirement for the solicitor to act for the benefit of the person; there can be no damage to the person if the solicitor fails to act for that person’s benefit; there can be no relevant vulnerability on the part of the person to the action or inaction of the solicitor; and there can be no necessary coincidence between the person’s interests and those of the client. Where the testator’s instructions stop, so does the solicitor’s duty of care to the intended beneficiary.” 57 Recently, in Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 90 ALJR 572, the High Court refused to overturn its previous decisions in Giannarelli v Wraith (1988) 165 CLR 543 and D’Orta Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 affording advocates an immunity from common law liability for negligence arising from their participation in the judicial process. According to the majority joint judgment of French CJ, Kiefel, Bell, Gageler and Keane JJ (at [36]): “The common law of Australia, as expounded in D’Orta and Giannarelli, reflects the priority accorded by this Court to the values of certainty and finality in the administration of justice as it affects the public life of the community.” This immunity applies not only to barristers but also to solicitors involved in the conduct of litigation. 58 In addition, it extends to protect an advocate’s work preparing the case outside the courtroom because as Mason J pointed out in Giannarelli v Wraith (1988) 165 CLR 543, “preparation of a case out of court cannot be divorced from presentation in court.” However, in order for the immunity not to be taken beyond the boundaries of the public policy considerations of judicial finality and certainty which sustain the protection, the High Court insists upon an “intimate connection” between the advocate’s work and the conduct of the case in court such that the work affects the way the case is conducted and its resolution by the court. 59 In Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 90 ALJR 572, it was found that there was no such connection where the negligent advice led to out of court settlement. 60 While the High Court’s decision in Astley v Austrust Ltd (1999) 197 CLR 1 runs counter to the notion that negligence liability can extend beyond the terms of the professional retainer, the earlier decision in Hawkins v Clayton (1988) 164 CLR 539 remains authority for the proposition that a solicitor who retains custody of a client’s will and subsequently learns of the client’s death comes under a duty to locate the executor and notify him or her of its contents.

Breach of the standard of care [28.390] Whether there has been a breach of the duty of care in the particular circumstances involves consideration of whether the defendant met the standard of care required by the law of negligence. The standard expected is that of the “reasonable man”. In Blyth v Birmingham Waterworks Co (1856) 11 Exch 781, 156 ER 1047, Alderson B said: 57

58 59

60

See also Gordon J (at [83]) who indicated that the scope and content of the duty owed to the beneficiary must be the same as that owed to the client. Gordon J also stated (at [85[-[86]) that the interests of the client and the beneficiary must be the “same, consistent and coincident” to attract the liability recognised in Hill v Van Erp (1997) 188 CLR 159. D’Orta Ekenaike v Victoria Legal Aid (2015) 223 CLR 1. In that case, the court held the immunity applied where Victoria Legal Aid (which was performing the function of a solicitor) gave negligent advice as to a plea of guilty. See per French CJ, Kiefel, Bell, Gageler and Keane JJ at [6] and [43]. See also D’Orta Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 at [154] per McHugh J who gave examples of work held by the courts to be “intimately connected with the conduct of the cause” and also Giannarelli v Wraith (1988) 165 CLR 543 at [21] per Mason CJ. It was held that there must be a functional and not just an historical connection and it is not enough that there is merely litigation on foot. D’Orta Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 was distinguished on the basis that the negligent advice given in the earlier case affected the judicial determination: Attwells v Jackson Lalic Lawyers Pty Ltd [2016} HCA 16 at [43] - [46]. Nettle and Gordon JJ dissented.

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“Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs would do, or something which a prudent and reasonable man would not do”: at 784; 1049. As indicated at [28.80], the reform legislation deals with the breach of duty issue. Section 5B of the Civil Liability Act 2002 (NSW) mirrors the common law principle established in Wyong Shire Council v Shirt (1980) 146 CLR 40 in so far as it provides a two-stage inquiry for determining whether there has been a breach of duty. Section 5B(1) 61 alters the common law by requiring a greater degree of probability in determining whether there is a foreseeable risk of harm to which a reasonable person would have responded. At common law, it is thought that a reasonable person would respond to a risk of harm that is not “far-fetched and fanciful”. 62 Under the Act, the defendant will only be in breach of duty for a failure to respond if the risk of harm is “not insignificant”. 63 As to the second stage of the inquiry, s 5B(2) of the Civil Liability Act 2002 (NSW) 64 adopts the common law approach of taking into account various factors to consider whether, and if so how, a reasonable man would have responded to the risk. These factors, which are not looked at in isolation but are weighed against one another, include the following: (a)

the probability of the risk of injury;

(b)

the gravity of the harm;

(c)

the burden of eliminating the risk; and

(d)

the utility of the defendant’s conduct.

(a) Probability of the risk of injury [28.400] The decision of the House of Lords in Bolton v Stone [1951] AC 850 established that a defendant may be justified in disregarding a foreseeable risk of injury where the probability of that risk occurring is small and the circumstances are such that a reasonable man would think it right to neglect the risk. In that case, the plaintiff brought an action against the defendant cricket club after being injured by a ball that was hit out of the cricket ground during a match. The evidence showed that the risk of a person being struck by a ball hit out of the cricket ground was negligible. The court weighed this factor against the reality that the only sensible way to entirely eliminate the risk of a person being hit by a ball would be to cease playing cricket on the ground altogether. The House of Lords held that in these circumstances a reasonable man would have thought it right to ignore the risk. In Romeo v Conservation Commission of the Northern Territory (1998) 192 CLR 431, one of the factors taken into account in deciding that the Conservation Commission was not liable was the remote possibility that the accident would occur. In that case, the plaintiff who had been drinking with friends at Dripstone Cliffs, a natural beauty spot near Darwin, fell down a six-metre cliff. 61

62 63

64

Civil Liability Act 2002 (NSW), s 5B(1); Wrongs Act 1958 (Vic), s 48(1); Civil Liability Act 2003 (Qld), s 9(1); Civil Liability Act 1936 (SA), s 32(1); Civil Liability Act 2002 (WA), s 5B(1); Civil Liability Act 2002 (Tas), s 11(1) and the Civil Law (Wrongs) Act 2002 (ACT), s 43(1). The Northern Territory legislation does not deal with this issue. Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47 per Mason J. In New South Wales v Fahy (2007) 232 CLR 486, the High Court considered whether the common law formulation laid down in Wyong Shire Council v Shirt (1980) 146 CLR 40 should be revisited. While Gleeson CJ at [78] and Crennan J at [241] took the view that there was no need to deal with this issue and Kirby J at [119]ff said that a re-expression of the Shirt formulation should be rejected, Callinan and Heydon JJ at [226] thought that the common law test should be changed to foreseeability of a risk that is significant “enough in a practical sense”. Civil Liability Act 2002 (NSW), s 5B(2); Wrongs Act 1958 (Vic), s 48(2); Civil Liability Act 2003 (Qld), s 9(2); Civil Liability Act 1936 (SA), s 32(2); Civil Liability Act 2002 (WA), s 5B(2); Civil Liability Act 2002 (Tas), s 11(2) and Civil Law (Wrongs) Act 2002 (ACT), s 43(2). The Northern Territory legislation does not deal with this issue.

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In Shaw v Thomas [2010] Aust Torts Reports 82-065; [2010] NSWCA 169, the New South Wales Court of Appeal pointed to the low probability of a risk that a normal 10-year-old would not descend safely from the top level of a double bunk and the remoteness of the possibility that such a child would suffer serious injuries doing so: at [50]-[53] per Macfarlan CJ with whom Beazley and Tobias JJA agreed. In these circumstances, the court found that the duty owed to the plaintiff, a friend of the defendants’ son, did not extend to ensuring that a bunk bed had a ladder and a guard rail: at [54] per Macfarlan CJ with whom Beazley and Tobias JJA agreed.

(b) Gravity of the harm [28.410] The more serious the risk, the greater the demand for precautions on the part of the defendant. There are two ways in which this factor can be relevant: (a)

where the defendant’s activity is dangerous (Swinton v China Mercantile Navigation Co Ltd (1951) 83 CLR 553). As explained in Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 554 per Mason CJ, Deane, Dawson, Toohey and Gaudron JJ in the case of dangerous substances or activities, “a reasonably prudent person would exercise a higher degree of care”; and

(b)

where the plaintiff, to the defendant’s knowledge, has a particular susceptibility which increases the seriousness or gravity of the risk: Paris v Stepney Borough Council [1951] AC 367:

case [28.420] In Paris v Stepney Borough Council [1951] AC 367, the defendant employer knew that the plaintiff, his employee, was blind in one eye. Consequently, the plaintiff’s condition was taken into account in determining whether the defendant was negligent in failing to provide the plaintiff with goggles which would have protected him against injury to his good eye. The House of Lords held that whatever the defendant’s duty to his other workers, the gravity of the consequences of an injury to the plaintiff’s good eye (that is, complete blindness) meant that the defendant employer was in breach of the duty of care owed to the plaintiff employee.

(c) Burden of eliminating the risk [28.430] As Denning LJ pointed out in Watt v Hertfordshire CC [1954] 1 WLR 835 at 838: “One must balance the risk against the measures necessary to eliminate the risk.” The easier it is to eliminate a risk, the less likely a defendant’s failure to take precautionary steps will be justifiable. In considering this factor, the court can take into account not only the cost and inconvenience involved in taking precautionary measures but also any risk that these steps may themselves involve: Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580. In Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540, a case discussed earlier (see [28.170]) the court found that the cessation of sale of Wallis Lake oysters or the removal of operations to another area constituted “alleviating action of the most difficult, expensive and inconvenient type”: at [201]–[202] per Gummow and Hayne JJ (with whom Gaudron J agreed).

case [28.440] In Woods v Multi-Sport Holding Pty Ltd (2002) 208 CLR 460, the market availability of a protective helmet was a critical issue in determining whether it was reasonable to expect the defendant indoor cricket game organiser to provide the player with such protective gear. In

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circumstances where such headgear had yet to be designed and manufactured and the rules of the game did not allow for the use of helmets, the High Court held that it was open for the trial judge to find that the defendant was not negligent in failing to provide the plaintiff with a helmet. [28.450] In New South Wales, s 5C of the Civil Liability Act 2002 (NSW) 65 restates three common law principles relating to the reasonableness of the defendant’s response: (a)

the burden of taking precautions to avoid risk of harm includes the burden of taking precautions to avoid similar risks;

(b)

the fact that the risk could have been avoided by doing something a different way does not of itself give rise to liability; and

(c)

the subsequent taking of action does not constitute an admission of liability.

(d) Utility of the defendant's conduct [28.460] The gravity of the risk is also weighed against the utility or social value of the defendant’s conduct. For example, in Watt v Hertfordshire CC [1954] 1 WLR 835, the risk of injury to the plaintiff fireman was weighed against the life-saving activity engaged in by the fire service. More generally, in determining whether there has been a breach of the duty of care, the defendant’s compliance or non-compliance with applicable statutory standards may also be relevant. However, compliance with relevant statutory standards is not conclusive of the issue. For example, a defendant who has complied with the appropriate traffic regulations may still be found to have been in breach of the duty of care they owed to other road-users. Similarly, in professional negligence and industrial accident cases, evidence of compliance with the common practices and customs in the particular profession or industry is relevant but not conclusive.

The “reasonable man” test [28.470] The standard of the reasonable man, which is used to determine the issue of whether there has been a breach of the duty of care, involves an objective, impersonal test. The personal idiosyncrasies of the defendant, such as a quick temper or low intelligence, are not taken into account. However, in some cases, the objective standard can be defined in more detail. For example, in a case involving a very young defendant, the reasonable man test gives way to the standard of a child of similar age and experience: McHale v Watson (1964) 111 CLR 384. The reasonable man is also equipped with the same skills and expertise expected of a person exercising a particular trade or profession. For example, in an action against a doctor for professional negligence, the relevant standard is that of an ordinary, competent doctor exercising ordinary professional skill: Chin Keow v Government of Malaysia [1967] 1 WLR 813 (PC). As pointed out above, the reform legislation deals with the liability of professional persons including doctors. 66 For instance, in New South Wales the Civil Liability Act 2002 (NSW), s 50 provides that a 65

66

Wrongs Act 1958 (Vic), s 49; Civil Liability Act 2003 (Qld), s 10; Civil Liability Act 2002 (Tas), s 12; Civil Law (Wrongs) Act 2002 (ACT), s 44 and Civil Liability Act 2002 (WA), s 5PB(1). The South Australian and Northern Territory legislation does not contain this provision. Civil Liability Act 2002 (NSW), ss 5O, 5P; Wrongs Act 1958 (Vic), ss 59, 60; Civil Liability Act 2003 (Qld), s 22; Civil Liability Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22. There is no corresponding provision in the legislation enacted in Western Australia, the Northern Territory or the Australian Capital Territory.

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professional person is not negligent if it is established that he or she acted in a manner that “was widely accepted in Australia by peer professional opinion as competent professional practice”. 67 In Imbree v McNeilly (2008) 236 CLR 510, the High Court reconsidered the standard of care owed by an unskilled and inexperienced driver. Previously, in Cook v Cook (1986) 162 CLR 376, the High Court held that there may be circumstances where the objective standard of care will need to be adjusted. Applying reasoning based on the then orthodox theory of negligence liability (the proximity principle), the court decided that the standard of care to be attained by a defendant in a particular case depends on the nature of the relationship between the parties. The facts of Cook v Cook concerned an action for damages for negligence arising out of a motor vehicle accident. The High Court stated that where the relationship is simply one of driver and passenger, then the standard of care to be attained is the ordinary standard of a reasonably competent and experienced driver. If, on the other hand, there are special and exceptional circumstances which take the parties’ relationship outside the usual category, then an adjustment of the ordinary standard is warranted. Thus, in Cook v Cook (above), although the plaintiff knew that the defendant was an inexperienced and unlicensed driver, the plaintiff instigated the defendant’s driving and undertook to supervise her driving efforts. The High Court held that these special and exceptional circumstances warranted adjusting the usual standard of care to the standard of an ordinary inexperienced driver. 68 The decision of the High Court in Imbree v McNeilly (2008) 236 CLR 510 also involved an unskilled and inexperienced driver: 69

case [28.480] In Imbree v McNeilly (2008) 236 CLR 510, the 16-year-old defendant driver lost control of a 4-wheel drive vehicle which overturned causing serious injury to the plaintiff, his front seat passenger who had allowed the defendant to drive and had been providing him with driving instruction. At first instance, the primary judge found that the defendant was in breach of the duty owed to the plaintiff as he had failed to even attain the standard of an ordinary, inexperienced driver. The plaintiff’s damages were assessed at more than $9.5 million but were reduced by 30 per cent on account of contributory negligence. However, the New South Wales Court of Appeal, by a majority of two to one, found that the plaintiff’s contribution should be assessed as two-thirds. On appeal by the passenger and cross appeal by the driver, the central issue for the High Court was the standard of care owed by the defendant inexperienced driver to the plaintiff supervising passenger. The High Court held that the decision in Cook v Cook (1986) 162 CLR 376 should be overturned and that: “No different standard of care is to be applied in deciding whether a passenger supervising a learner driver has suffered damage a cause of which was the failure of the learner driver to act with reasonable care.”

67

See also, Wrongs Act 1958 (Vic), s 59; Civil Liability Act 2003 (Qld), s 22; Wrongs Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22. There is no equivalent provision in Western Australia or the Territories.

68

The principle in Cook v Cook (1986) 162 CLR 376 was applied by the High Court to a situation where the parties were engaged in the joint criminal activity of “joy riding” in a stolen car after consuming a considerable amount of alcohol. The High Court held that in such circumstances the defendant driver did not owe the plaintiff passenger a duty of care: Gala v Preston (1991) 172 CLR 243. The same principle was applied by the New South Wales Court of Appeal to absolve the defendant driver from liability in circumstances where both the driver and the plaintiff passenger were attempting to escape from the police after the commission of a criminal offence: Fabre v Arenales (1992) 27 NSWLR 437. Imbree v McNeilly (2008) 236 CLR 510 per Gummow, Hayne and Keifel JJ at [51] with whom Gleeson CJ at [13] and Kirby J at [181] agreed. Heydon J on the other hand reserved his opinion on the correctness of the case at [190].

69

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[28.490] This means that while a plaintiff passenger’s knowledge of a defendant driver’s inexperience may be relevant in determining the availability of the defences of voluntary assumption of risk and contributory negligence, the care that the learner driver must take is that of a reasonable driver. This standard is to be expected of the inexperienced motorist regardless of whether the plaintiff passenger undertook to supervise the learner driver. 70

Causation [28.500] It is not enough for the plaintiff to establish the existence of a duty of care and its breach by the defendant. The plaintiff must also be able to prove that the defendant’s negligence caused the damage suffered. As pointed out at [28.80], the reform legislation also deals with the issue of causation. In New South Wales, s 5D(1)(a) of the Civil Liability Act 2002 (NSW) provides that the decision whether a breach of duty caused the particular harm involves a test or element of “factual causation”. 71 As the High Court pointed out in Strong v Woolworths Limited (2012) 246 CLR 182 at [18], the determination of factual causation under this provision is a statutory statement of the common law “but for” test of causation. The application of this test involves the consideration of a hypothetical situation where the circumstances are the same as the facts of the case except for the defendant’s negligence. If, in this hypothetical situation, the plaintiff would not have suffered damage then the defendant’s negligence is taken to be the effective cause of the plaintiff’s damage. In Strong v Woolworths Limited, the plaintiff was able to show that she would not have slipped on a greasy chip if Woolworths had fulfilled its duty to inspect and remove slipping hazards from a sidewalk sales area at intervals not greater than 20 minutes. Accordingly, Woolworths’ negligent failure to act was found to be the cause of the injuries sustained by the plaintiff. 72 Conversely, if the plaintiff would have suffered damage in any event, then the defendant’s negligence is not the effective cause of the plaintiff’s damage: Cork v Kirby McLean [1952] 2 All ER 402 at 404. For example, in Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254, a shopping centre worker was injured when set upon by assailants one night in an unlit shopping centre carpark. The High Court held that while the poor lighting may have facilitated the criminal attack, the lack of lighting did not cause the plaintiff’s injuries. Similarly, in Adeels Palace Pty Ltd v Mourabak (2009) 239 CLR 420 at [53], the High Court applying the “but for” test, held that it was not established that the defendant’s negligent failure to provide security personnel would have prevented the shootings that injured the plaintiffs. 73 70

71

72

73

In Imbree v McNeilly (2008) 236 CLR 510, as the court points out at [70] the standard of care owed by the inexperienced driver should not differ according to whether the plaintiff passenger was supervising or instructing the learner. The issue of whether a supervising passenger “could have influenced the outcome” goes directly to the question of contributory negligence and not the question of the driver’s negligence: at [68]. Kirby J argued that the statutory context including “the universal operation of compulsory third party insurance” should be acknowledged as affecting the existence and content of a driver’s duty of care: see at [181] but compare Gleeson CJ at [22]. Wrongs Act 1958 (Vic), s 51(1)(a); Civil Liability Act 2003 (Qld), s 11(1)(a); Civil Liability Act 1936 (SA), s 34(1)(a); Civil Liability Act 2002 (WA), s 5C(1)(a); Civil Liability Act 2002 (Tas), s 13(1)(a); and Civil Law (Wrongs) Act 2002 (ACT), s 45(1)(a). The legislation in the Northern Territory does not deal with the matter. Even though the plaintiff could not show exactly when the chip was dropped, the court found that the onus was discharged as probabilities favoured the conclusion that the chip was dropped more than 20 minutes before the fall rather than less than 20 minutes prior to the incident: at [38] per French CJ, Gummow, Crennan and Bell JJ; Heydon J dissenting. The court also rejected the argument that s 5D(2) of the Civil Liability Act 2002 (NSW) could be applied to establish causation. The plaintiffs had argued that this was “an exceptional case” within the meaning of s 5D(2) of the Civil Liability Act 2002 (NSW) because the presence of security personnel may have prevented the shootings or had a deterrent effect or that security guards could have intervened to prevent injury: Adeels Palace Pty Ltd v Mourabak (2009) 239 CLR 420 at [56].

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The “but for” test has been applied in industrial accident cases to determine the causal relevance of a defendant employer’s failure to provide or warn employees to wear protective gear: Qualcast (Wolverhampton) Ltd v Haynes [1959] AC 743; Cummings v Sir William Arrol & Co Ltd [1962] 1 WLR 295. In the latter case, the plaintiff was unable to show that the deceased construction worker who fell to his death from a steel tower would have worn a safety belt if one had been provided. Accordingly, the plaintiff was unable to show that the defendant’s failure to provide the equipment caused the accident. In circumstances where the plaintiff argued that the defendant cinema complex owed a duty to warn of retractable seats, the High Court upheld the trial judge’s finding that a warning would not have had any impact upon the plaintiff’s actions: Hoyts Pty Ltd v Burns (2003) 201 ALR 470. The “but for” test was also applied in Chappel v Hart (1998) 185 CLR 232 where it was held by a majority of three to two that damage to the plaintiff patient’s vocal chords and resultant voice loss was caused by the defendant specialist doctor’s failure to warn the plaintiff patient of that risk. Although the defendant surgeon performed the operation with reasonable care and skill and surgery would have been required at some later stage in any event, the plaintiff, had she been made aware of the risk, would have delayed the surgery and taken steps to have it performed by the most experienced surgeon in the field. By contrast, in Rosenberg v Percival (2001) 205 CLR 434 the plaintiff patient was unable to establish that if she had been made aware of temporomandibular joint complications, she would not have gone ahead with the procedure performed by the defendant dental surgeon. Accordingly, any failure to warn of the risk of such complications was not a cause of the plaintiff’s harm. However, the “but for” test is not appropriate in all cases. 74 For instance, its application could lead to absurd results where there was more than one cause which would have been sufficient in itself to bring about the plaintiff’s damage: March v E & MH Stramare Pty Ltd (1991) 171 CLR 506. Again, more recently in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613, the High Court found that the application of the “but for” test was inappropriate in circumstances where both the defendant solicitors’ negligent failure to include a covenant to repay in a mortgage and the fraudsters’ forgery of loan documents were causes of the plaintiff’s damage which consisted of the inability to recover the moneys advanced. 75 The Court took the view that although the “but for” test is useful, its function is limited and a common sense approach is to be favoured: at [56]. The High Court has also pointed out the inadequacy of the “but for” test in cases in which a superseding cause, amounting to a “novus actus interveniens” (a new intervening cause), has been held to break the chain of causation which would otherwise have resulted from an earlier wrongful act or omission: Bennett v Minister of Community Welfare (1992) 176 CLR 408. In Tabet v Gett (2010) 240 CLR 537, the High Court considered the causation issue in the context of a medical negligence action where the plaintiff was unable to establish that the injury suffered (brain damage) would not have happened “but for” the defendant doctor’s negligent delay in treatment. In circumstances where the evidence showed that, at most, the defendant doctor’s negligent omission deprived the plaintiff of the chance of a better outcome, the plaintiff argued that this “loss of chance” should be recognised as actionable damage. The High Court rejected this argument and held that such an approach 74

75

In Strong v Woolworths Limited (2012) 246 CLR 182 at [26] per French CJ, Gummow, Crennan and Bell JJ, the High Court noted that s 5D(2) of the Civil Liability Act 2002 (NSW) makes special provision for cases in which factual causation cannot be established on a “but for” analysis. The Court held that the defendant was a concurrent wrongdoer within the meaning of s 34(2) of the Civil Liability Act 2002 (NSW) and that the claim was apportionable upholding the trial judge’s apportionment of 12.5 per cent responsibility to the solicitors: at [58].

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would involve lowering the standard of care and “a fundamental change to the law of negligence” which was not warranted in the circumstances: at [152] per Kiefel J with whom Hayne, Bell and Crennan JJ agreed. More recently, the distinction between a risk of an occurrence and the cause of an occurrence has been highlighted. In Amaca Pty Ltd v Booth (2011) 246 CLR 36 at [41] per French CJ, the High Court indicated that it is not enough for the plaintiff to show that the defendant’s negligence increased the risk of injury. A causal connection must exist between the conduct and the injury: at [49] per French CJ. In circumstances where the plaintiff had been exposed to asbestos both in his earlier life and later, owing to the defendant’s negligence, the High Court found that causation could be established on the basis of medical evidence to the effect that all asbestos exposure materially contributed to the plaintiff’s malignant pleural mesothelioma: at [51] per French CJ and [91] per Gummow, Hayne and Crennan JJ. 76

Remoteness of damage [28.510] In New South Wales, s 5D(1)(b) of the Civil Liability Act 2002 (NSW) 77 sets out an additional test or element for determining whether a breach of duty caused the particular harm. This requirement relates to the “scope of liability”. It involves a consideration of policy issues including the “remoteness of damage” question considered at common law to determine whether, and to what extent, a defendant should have to answer for the consequences of their negligent conduct. In Paul v Cooke (2013) 85 NSWLR 167, the harm suffered by the plaintiff was found to be outside the scope of the defendant’s liability. The New South Wales Court of Appeal found that the absence of any relationship between the defendant radiologist’s negligent failure to diagnose an intracranial aneurysm and harm suffered by the plaintiff due to its rupture in surgery three years later made it inappropriate to impose liability: see at [12] and [117]. The test for determining whether the damage is too remote, and therefore not recoverable, is whether the damage was reasonably foreseeable by the defendant. A leading case on the issue is the decision of the Privy Council in Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388:

76

Compare the earlier decision of the Federal Court of Australia in Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 where the “but for” test could not be satisfied. The plaintiff in that case alleged that his consumption of the arthritis drug Vioxx (which drug trials showed increased the risk of cardiovascular disease) had contributed to his heart attack. Although epidemiological evidence showed that his consumption of Vioxx could have possibly been a cause of the plaintiff’s injury, his personal risk factors were “other candidates as causes of his injury” and the court was unable to see how it was more probable than not that Vioxx, alone or in combination with these personal risk factors, was a necessary condition of his heart attack: at [120] per Keane CJ, Bennett and Gordon JJ.

77

Wrongs Act 1958 (Vic), s 51(1)(b); Civil Liability Act 2003 (Qld), Pt 1, Div 2, s 11(1)(b); Civil Liability Act 1936 (SA), s 34(1)(b); Civil Liability Act 2002 (WA), s 5C(1)(b); Civil Liability Act 2002 (Tas), s 13(1)(b) and Civil Law (Wrongs) Act 2002 (ACT), s 45(1)(b). The legislation in the Northern Territory does not deal with the matter.

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case [28.520] In Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388, the defendant charterer of a ship negligently spilt a quantity of oil while it was being loaded. The oil floated on the surface of the water in Sydney Harbour. The oil was ignited by some molten metal falling from the plaintiffs’ wharf, where welding operations were being carried out, onto cotton waste floating in the oil which acted as a wick. The ensuing fire extensively damaged the plaintiffs’ wharf. The flashpoint of the oil was 170°F and would not normally have ignited on water. The Privy Council held that the defendant charterer was not liable to the plaintiffs for the damage caused to their wharf because the kind of damage resulting from the spillage of the oil was not reasonably foreseeable in the circumstances. [28.530] By way of contrast, in a later case relating to the same incident, the plaintiff owner of a ship which was damaged by the fire succeeded in an action against the negligent charterer where the shipowner proved that the charterer was aware that there was a real risk of fire damage as a result of the oil spill: Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound No 2) [1967] AC 617 (PC). The difference in result between the two cases arose because in the first case the plaintiff wharf owners failed to prove that a reasonable man in the position of the defendant charterer would foresee the real risk of damage by fire as a result of the oil spill, whereas in the later case, the plaintiff shipowner did prove that the damage in question was reasonably foreseeable and therefore not too remote. The damage suffered by the plaintiff must have been reasonably foreseeable, or of the same type or kind as the foreseeable damage.

case [28.540] The plaintiff, at the defendant’s request, had allowed the defendant to drive her powerful car. The defendant drove negligently, struck a telegraph pole and suffered severe injuries which resulted in him becoming a quadriplegic. The plaintiff, who was a passenger in the car, incurred only minor physical injury. However, the plaintiff suffered mental illness brought on by her sense of guilt in allowing the defendant to drive her car. The New South Wales Court of Appeal, by a majority, held that the psychiatric illness suffered by the plaintiff was neither reasonably foreseeable, nor was it of the same type or kind of injury that was reasonably foreseeable in the circumstances. The type or kind of injury that would have been foreseeable was mental illness arising from nervous shock from seeing or hearing about the injury of another, or from shock or worry about her own injury: Rowe v McCartney [1976] 2 NSWLR 72.

Defences to an action in negligence [28.550] The principal defences to an action for negligence are: (a)

contributory negligence; and

(b)

voluntary assumption of risk.

Contributory negligence [28.560] At common law, contributory negligence was a complete defence. No compensation could be recovered where the plaintiff suffered damage partly through their own negligence and partly through the negligence of another. However, the defence of contributory negligence is now governed by legislation that

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allows for an apportionment of damage. For example, in New South Wales the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 10 provides: Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage. Like actionable negligence, contributory negligence is the failure to take reasonable precautions against a foreseeable risk of injury. However, unlike actionable negligence, it does not involve a duty on the plaintiff’s part to avoid harm to others. Contributory negligence is concerned with the plaintiff’s failure to take precautions for their own safety. To be “contributory”, the plaintiff’s negligence must be causally relevant to the damage suffered. The reform legislation provides that the same principles that apply to determine a breach of duty to another are to be applied to determine whether there has been a failure to take reasonable care for one’s own safety. 79 Contributory negligence is a special defence and must be pleaded by the defendant. The burden of establishing contributory negligence is on the party alleging it. The jury, or the judge (if there is no jury), apportions the damages. An assessment is made of the damages that would have been awarded if there had been no fault on the plaintiff’s part. This amount is then reduced by the percentage of the plaintiff’s contribution. The apportionment is worked out by a comparison of the party’s degree of departure from the standard of a reasonable man: Pennington v Norris (1956) 96 CLR 10. In New South Wales the Civil Liability Act 2002 (NSW) 80 alters the common law relating to contributory negligence by allowing a court to reduce a plaintiff’s damages by 100 per cent. 81 In Liftronic Pty Ltd v Unver (2001) 179 ALR 321 at [33], the High Court held that it was open for the jury to reduce the plaintiff’s damages by 60 per cent. In that case, the plaintiff sustained back injury lifting heavy objects in the course of his employment with the defendant. However, the defendant had in place a safe system of lifting which, if it had been used by the plaintiff, would have prevented the plaintiff’s injury. In 1999, the High Court held that the apportionment legislation was concerned only with actions in tort, and did not affect actions based on breach of contract whether or not the plaintiff had or could have sued in 78

Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 10; Wrongs Act 1958 (Vic), s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA), s 7; Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA), s 4; Wrongs Act 1954 (Tas), s 4; Law Reform (Miscellaneous Provisions) Act 1955 (ACT), s 15; Law Reform (Miscellaneous Provisions) Act 1956 (NT), s 16.

79

Civil Liability Act 2002 (NSW), s 5R; Wrongs Act 1958 (Vic), s 62; Civil Liability Act 2003 (Qld), s 23; Civil Liability Act 1936 (SA), s 44; Civil Liability Act 2002 (WA), s 5K; Civil Liability Act 2002 (Tas), s 23. There is no corresponding legislation in either of the Territories. In Boral Bricks Pty Ltd v Cosmidis (No 2) (2014) 86 NSWLR 393, the New South Wales Court of Appeal considered the operation of s 5R of the Civil Liability Act 2002 (NSW) and assessed the contributory negligence of the plaintiff at 30 per cent. In that case, the plaintiff who suffered injuries when he was struck by a forklift was aware that there were forklifts in use but failed to keep a proper lookout: see at [114]-[117]. Civil Liability Act 2002 (NSW), s 5S; Wrongs Act 1958 (Vic), s 63; Civil Liability Act 2003 (Qld), s 24. There is no corresponding provision in the other States or Territories. Compare the decision of the High Court in Wynbergen v Hoyts Corporation Pty Ltd (1997) 149 ALR 25. Note the following legislative provisions governing the effect of the plaintiff’s intoxication on the standard of care and the defence of contributory negligence: Civil Liability Act 2002 (NSW), Pt 6; Wrongs Act 1958 (Vic), s 14G; Civil Liability Act 2003 (Qld), Pt 4, Div 2; Civil Liability Act 1936 (SA), s 46; Civil Liability Act 2002 (WA), s 5L; Civil Liability Act 2002 (Tas), Pt 2; Civil Law (Wrongs) Act 2002 (ACT), ss 95–96; Personal Injuries (Liabilities and Damages) Act 2003 (NT), ss 14–15. In the recent High Court decision in Allen v Chadwick (2015) 256 CLR 148, it was held that the exception to the presumption of contributory negligence in s 47(1) of the Civil Liability Act 1936 (SA) applied as the plaintiff could not have been reasonably expected to have avoided the risk of travelling with the intoxicated driver: see at [61].

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tort: Astley v Austrust Ltd (1999) 197 CLR 1. All jurisdictions have since amended their apportionment legislation to permit the apportionment of damages for breach of contractual duty of care in cases of contributory negligence. 82

Voluntary assumption of risk [28.570] Unlike contributory negligence, a successful plea of voluntary assumption of risk is a complete defence. 83 The rationale behind this defence is that no wrong can be done to a person who consents. Over the years the courts have limited the scope of this defence. It is not enough for the defendant to show that the plaintiff knew of the risk. The plaintiff must have fully appreciated the risk and accepted it freely and willingly. The strict requirements of the defence mean that it is now rarely raised successfully. However, in Schuller v SJ Webb Nominees Pty Ltd [2015] SASCFC 162 the Supreme Court of South Australia dismissed an appeal against a decision finding that the defence had been made out. The plaintiff had fallen from a chair on which she had been dancing whilst inebriated at the defendant’s hotel after the hotel staff had given her three warnings to stop and had refused her further service of alcohol. 84 In cases involving an obvious risk, the reform legislation applies to introduce a presumption of awareness of the risk on the part of the plaintiff and place the onus on the plaintiff to show he or she was not aware of that risk. 85

Deceit [28.580] The tort of deceit is committed where the defendant, knowingly or recklessly, makes a false representation with the intention that the plaintiff should act in reliance on the representation: Derry v Peek (1889) 14 App Cas 337. The representation need not be made directly to the plaintiff.

82

83 84

85

See Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9; Wrongs Act 1958 (Vic), s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA), s 4; Wrongs Act 1954 (Tas), s 44; Civil Law (Wrongs) Act 2002 (ACT), s 102; Law Reform (Miscellaneous Provisions) Act 2001 (NT), s 16. Note that this defence is made redundant in circumstances where the following provisions apply: Civil Liability Act 2003 (Qld), s 48; Civil Liability Act 1936 (SA), s 47; Civil Law (Wrongs) Act 2002 (ACT), s 96. See at [54]. The court held that while s 37 of the Civil Liability Act 1936 (SA) required that the defendant show that the plaintiff consciously adverted to the risk and voluntarily assumed it, proof that the plaintiff knew of the circumstances constituting the risk and exposed herself to them can be sufficient to support an inference that the plaintiff voluntarily assumed the risk. Civil Liability Act 2002 (NSW), s 5G; Wrongs Act 1958 (Vic), s 54; Civil Liability Act 2003 (Qld), s 14; Civil Liability Act 2002 (WA), s 5N; Civil Liability Act 1936 (SA), s 37; Civil Liability Act 2002 (Tas), s 16. There is no corresponding legislation in the Northern Territory. The relevant provision in the legislation of the Australian Capital Territory deals with obvious risk only in cases involving equine activity: Civil Law (Wrongs) Act 2002 (ACT), Sch 3.

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case [28.590] The plaintiff woolgrowers asked their bank to make inquiries about the financial standing of a customer of the plaintiffs. The bank sought this information from the customer’s bank, the CBC. The manager of the CBC wrote to the plaintiffs’ bank saying that the customer was “safe for its trading engagements generally”. This was a misrepresentation of the customer’s financial standing and it was found that the manager of the CBC did not honestly hold the opinion he had expressed. The High Court held that the CBC was liable to the plaintiffs in deceit for the value of the wool supplied to the customer who had defaulted in payment, even though the opinion was only conveyed to the plaintiffs’ bank and not to the plaintiffs directly. It was enough that the representation by the manager of the CBC had been made “with intent to deceive and with intent that it should be acted on” by the plaintiffs’ bank and any customer of that bank concerned in obtaining the opinion: Commercial Banking Co of Sydney Ltd v RH Brown & Co (1972) 126 CLR 337. [28.600] In an action for deceit the plaintiff must suffer actual damage as a result of acting on the representation. The basic measure of damages recoverable is the amount which will put the plaintiff in the position they would have been in had they not acted on the fraudulent misrepresentation; in other words, damages are awarded to compensate the plaintiff for the loss they have suffered as a result of the defendant’s fraud. In appropriate circumstances consequential loss is also recoverable; for example, the loss incurred in carrying on a business, purchased as a result of the defendant’s fraudulent misrepresentation, for as long as it is reasonable to do so: Gould v Vaggelas (1984) 157 CLR 215.

Trespass [28.610] The action of trespass is the oldest tort. It emerged in the 13th century to perform a peace-keeping function. It provides a remedy for direct interference with the plaintiff’s person, land or goods. In the United Kingdom, it has been held that the interference must be intentional: Letang v Cooper [1965] 1 QB 232. In Australia, it seems that the interference may be either intentional or negligent, the onus being on the defendant to prove the absence of intention or negligence on their part: McHale v Watson (1964) 111 CLR 384; Venning v Chin (1974) 10 SASR 299. However, there are indications that the High Court could follow the United Kingdom example and limit the action of trespass to cases of intentional interference: Hackshaw v Shaw (1984) 155 CLR 614 at 619. An important feature of an action of trespass is that the plaintiff does not have to prove any actual damage. Trespass takes a number of different forms, namely: (a)

trespass to the person;

(b)

trespass to land; and

(c)

trespass to goods.

Trespass to the person [28.620] There are three main types of trespass to the person: (a)

battery;

(b)

assault; and

(c)

false imprisonment.

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Battery [28.630] A battery consists of any direct contact or application of force to the person of another without consent. It is not necessary that there be actual bodily contact between the plaintiff and the defendant, for example, a battery will be committed where the defendant throws an object at the plaintiff. As there is no requirement to prove actual damage in an action for trespass, a plaintiff can recover for an interference with their person even though no injury was inflicted. The mere trespass is the harm for which the plaintiff can recover: Battiato v Lagana [1992] 2 Qd R 234. A plaintiff will be taken to have consented to contact which is a normal part of everyday life, for example brushing against another person in a crowded passageway is not a battery: Cole v Turner (1704) 6 Mod 149; 87 ER 907. The High Court takes the view that these sorts of contacts are part of a general exception covering what is considered to be accepted in the conduct of our everyday life: Department of Health and Community Services v JWB and SMB (Marion’s Case) (1992) 175 CLR 218 at 229 per Mason CJ, Dawson, Toohey and Gaudron JJ. On the other hand, if the contact is hostile, for example, where a person pushes their way through a crowd, then there will be a battery. Although a battery can be committed where a person suffers no injury, it is unlikely that an action would be pursued for mere harmless contact. This does not mean that a plaintiff cannot use battery to recover damages for an insulting or humiliating contact such as being spat at by the defendant. In such a case damages will be awarded to compensate the plaintiff’s outraged feelings. Those who participate in a bodily contact sport such as Australian Rules Football are taken to consent to the infliction on them of such physical force as is permitted by the rules of the game and to certain commonly encountered infringements of the rules. However, “such consent cannot be taken to include physical violence applied in contravention of the rules of the game by an opposing player who intends to cause bodily harm or knows, or ought to know, that such harm is the likely result of his actions”, and a player will be liable for damages for the personal injuries caused to another player by such battery: Giumelli v Johnston [1991] Aust Torts Reports 81-085 at 68,710 per King CJ. A football club can be vicariously liable for a player’s deliberate head-high tackle on a member of another team. In circumstances where the defendant club’s coach “revved up” the team and told them to “stop” three members of the other team, including the plaintiff, it was held that the tackle was an illegitimate way of doing what the player was employed to do in a legitimate way: Canterbury Bankstown Rugby League Football Club v Rogers [1993] Aust Torts Reports 81-246. A dentist who performed root canal therapy and fitted crowns on all of his patient’s teeth was found to have committed trespass to the patient’s person. In circumstances where the dental work undertaken was inappropriate and unnecessary for the treatment of the patient’s condition, the New South Wales Court of Appeal held that the defence of consent was not available: Dean v Phung (2012) Aust Torts Reports 82-111; [2012] NSWCA 223 at [65]–[66] per Basten JA (with whom Beazley JA agreed) and at [93]–[95] per McFarlan JA. In White v Johnson (2015) 87 NSWLR 779 the New South Wales Court of Appeal held that while the patient’s consent will not be valid if the medical practitioner was solely motivated by an unrevealed non-therapeutic purpose, it is for the plaintiff to show that the treatment provided was devoid of therapeutic purpose. 86

Assault [28.640] An assault is the creation in another person of an apprehension of imminent harmful or offensive contact. Because a battery usually follows after an assault, the word “assault” is often used, in 86

At [92] per Leeming JA with whom Barrett JA and Emmett JA agreed. The court held that some genuine therapeutic outcome was intended and achieved by the defendant dentist and that any purpose she had of “over servicing” for financial gain was irrelevant to the issue of liability for assault.

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ordinary language, to refer to conduct which amounts to or includes a battery. However, the torts of assault and battery can be committed separately. For example, there will be a battery without an assault where the defendant creeps up on the plaintiff and strikes her or him: Gambriell v Caparelli (1974) 7 OR (2d) 205. The key issue in an assault action is the effect of the defendant’s conduct on the plaintiff’s mind: the plaintiff must “apprehend” an impending physical contact. This does not mean that the plaintiff must be frightened. It is enough that the plaintiff expects that the contact will take place: Brady v Schatzel [1911] QSR 206. The plaintiff’s state of mind is tested objectively. There must be reasonable grounds for the apprehension of imminent physical contact. For example, if the defendant has no apparent ability to carry out the threat, then the plaintiff’s apprehension will be unreasonable.

False imprisonment [28.650] The tort of false imprisonment is not limited to the situation where a person is locked in a prison cell without lawful justification. 87 There will be a false imprisonment in any situation where the defendant’s act results in a total restraint on the liberty of the plaintiff. For example, a false imprisonment was committed when the driver of a car drove at a speed which prevented the passenger from alighting: Burton v Davies [1953] QSR 26. The tort may also be committed by a store detective who detains a suspected shoplifter: Myer Stores Ltd v Soo [1991] 2 VR 597; Photi v Target Australia Pty Ltd [2007] NSWDC 265. It was also committed by casino management who detained a patron during a dispute about whether or not he owed the casino money: Vignoli v Sydney Harbour Casino [2000] Aust Torts Reports 81-541; [1999] NSWSC 1113. The restraint on the plaintiff must be total. If there is some other reasonable means of exit available to the plaintiff then there will be no false imprisonment: Balmain New Ferry Co v Robertson (1906) 4 CLR 379. Although false imprisonment is a form of trespass, there is no need for the defendant to use force or have any physical contact with the plaintiff. For example, there will be a false imprisonment where a defendant turns a key in a door which unlawfully locks a person in a room. A plaintiff may also be restrained by some form of psychological coercion: Symes v Mahon [1922] SASR 447. There will only be a false imprisonment if the defendant acts unlawfully. The police acting within their common law or statutory powers of arrest do not commit a false imprisonment. 88 The defendant bears the onus of proving lawful authority. In Ruddock v Taylor (2005) 222 CLR 612, the High Court by a majority of five to two upheld an appeal from a New South Wales Court of Appeal decision which found that the Commonwealth’s detention of the respondent amounted to false imprisonment. By contrast, in White v State of South Australia (2010) 106 SASR 521, the Supreme Court of South Australia held that there had been no lawful justification for either the initial imprisonment or the continuance of the detention: at [424] per Anderson J. In that case, the plaintiff protesters at the Beverley uranium mine were wrongfully arrested and detained by police – some for up to seven to eight hours – in a disused shipping container without water, fresh air or light.

87

88

See, for example, State of New South Wales v TD (2013) 83 NSWLR 566 where the plaintiff was awarded damages for false imprisonment following unlawful detention in a prison hospital. Similarly, incarceration at a Sydney Police Centre following an unlawful arrest amounted to a false imprisonment: Su v Commonwealth of Australia (2016) 307 FLR 357. In Haskins v Commonwealth (2011) 244 CLR 22, the High Court held unanimously that a false imprisonment action should not lie against a member of the defence force who acts on a superior’s orders: at [67] per French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ.

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Trespass to land [28.660] Trespass to land is the direct physical interference with another person’s lawful possession of land. The clearest example of such an interference is entry onto the plaintiff’s land without their consent. The general principle was stated in the High Court as follows: “A person who enters the property of another must justify that entry by showing that he or she either entered with the consent of the occupier or otherwise had lawful authority to enter the premises … In Robson v Hallett [1967] 2 QB 939 at 951, Lord Parker CJ said: ‘[T]he occupier of any dwelling-house gives implied licence to any member of the public coming on his lawful business to come through the gate, up the steps, and knock on the door of the house.’ This implied licence extends to the driveway of a dwelling-house: Halliday v Nevill (1984) 155 CLR 1. However, the licence may be withdrawn by giving notice of its withdrawal. A person who enters or remains on property after the withdrawal of the licence is a trespasser”: Plenty v Dillon (1991) 171 CLR 635 at 647 per Gaudron and McHugh JJ.

case [28.670] Where a television program had sought and was refused an interview with a director of the plaintiff company, the entry of the program’s reporter and camera crew onto the plaintiff’s land constituted a trespass: Rinsale Pty Ltd v Australian Broadcasting Commission [1993] Aust Torts Reports 81-231. [28.680] There is no need for the defendant to have intended to invade another person’s rights. A trespass to land will be committed where the defendant enters upon the plaintiff’s land in the mistaken belief that the land belonged to the defendant. There can be a trespassory contact without the defendant physically entering the plaintiff’s land, for example it is enough that the defendant threw an object onto the plaintiff’s land. A trespass will also be committed where a defendant who entered the land with the plaintiff’s consent remains on the land after that consent has been withdrawn: Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 607. If a person is given either express or implied permission to enter the land for a particular purpose, entry for a different purpose is also a trespass: Lincoln Hunt Australia Pty Ltd v Willesee (1986) 4 NSWLR 457. The interest protected by the tort of trespass is not confined to the surface of the land. A trespass can be committed above or beneath the land, for example by digging a tunnel under the plaintiff’s land (Bulli Coal Mining Co v Osborne [1899] AC 351), or projecting an advertising sign over the plaintiff’s land: Kelsen v Imperial Tobacco [1957] 2 QB 334. In the case of encroaching building operations, for example, scaffolding or an overhanging crane, an injunction may be obtained to restrain an interference with the plaintiff’s rights: LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 3) (1991) 24 NSWLR 499; Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464. However, an aircraft’s flight over the plaintiff’s land will only constitute a trespass if it was at such a height that it interfered with the enjoyment of the land and the structures on it. A flight several hundred metres over the land, even if undertaken for the purpose of aerial photography of the plaintiff’s house, is not a trespass: Bernstein v Skyviews & General Ltd [1978] QB 479. The lopping of trees over the plaintiff’s land constitutes a trespass whether or not the tree lopper steps onto the plaintiff’s land to perform the work: Gazzard v Hutchesson [1995] Aust Torts Reports 81-337. Trespass to land only protects the person who is actually in possession of land at the time of the interference. This means, for example, that the owner of the land cannot recover if, at the time of the trespass, the land was leased to a tenant with an exclusive right to possession. Even if the plaintiff has no

chapter 28 Law of Torts

legal right to possession he or she can maintain an action for trespass: in such a case, the defendant cannot justify the interference by pointing to the fact that there was someone with a better entitlement to possession than the plaintiff.

Trespass to chattels [28.690] Trespass to chattels involves a direct interference by the defendant with the possession of the plaintiff’s chattel. The interference may consist of the destruction of, or damage to, the plaintiff’s goods or their removal by the defendant. Trespass can also be committed by a defendant merely coming into contact with the plaintiff’s chattel either physically or by propelling some object against it. The tort protects the possession and not the ownership of goods. Only the person who was in possession of, or had physical control over, the goods at the time of the interference can maintain an action for trespass. If the defendant destroys the goods, the plaintiff can recover their full value. Similarly, if the goods are damaged the plaintiff can recover for the loss, for example, the cost of repairs.

Conversion and detinue [28.700] Two other torts of importance regarding an unlawful interference with chattels are conversion and detinue.

Conversion [28.710] Conversion is the intentional exercise of control over another person’s goods amounting to a denial of the latter’s right to the goods. 89 There must be an intentional act on the part of the defendant. For example, the sale and delivery, destruction or consumption of another person’s goods are all intentional dealings that may amount to conversion. On the other hand, merely moving goods without an intention to exercise control or dominion over them does not amount to conversion: Fouldes v Willoughby (1841) 8 M & W 540; 151 ER 1153. The ordinary measure of damages in an action for conversion is the full value of the chattel at the date of the conversion. In addition to the value of the chattel, the plaintiff is also entitled to compensation for any special loss they may have suffered as a result of the unlawful conversion. For instance, where there is a conversion of a chattel which was owned by the person who let it out on hire, the proper measure of damages is the full standard rate of hire without deduction if it can be shown that the chattel would have been hired throughout the period: Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd [1993] Aust Torts Reports 81-244. Where the conversion is of a particularly flagrant kind, exemplary (that is, punitive) damages may be awarded: Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584; Egan v State Transport Authority (1982) 31 SASR 481.

Detinue [28.720] Detinue is the wrongful detention of another person’s goods. To bring an action in detinue, the plaintiff must have demanded the return of the goods and the defendant unconditionally and unequivocally refused to comply with the request. In an action of detinue, the court has power to order that the goods be returned to the plaintiff. Alternatively, the court may order that the defendant pay the plaintiff the full value of the goods assessed at the date of judgment. Damages may also be awarded for any loss that the plaintiff suffers as a consequence of the wrongful detention, for example, the loss of profits caused by the wrongful detention of a profit-making machine. 89

Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204. Compare Myer Stores Ltd v Jovanovic [2004] VSC 478.

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Nuisance [28.730] There are two types of nuisance, namely, public nuisance and private nuisance.

Public nuisance [28.740] Public nuisance is concerned with the interference with a public or common right. It has been defined as an act or omission which materially affects the reasonable comfort and convenience of life of a class of Her Majesty’s subjects: Attorney-General v PYA Quarries Ltd [1957] 2 QB 169. An obstruction of a public highway or footpath is an interference which could amount to a public nuisance. Public nuisance is a crime at common law. An individual can bring an action in tort based on a public nuisance provided that they can show some “particular” loss was incurred over and above the inconvenience suffered by the public at large. For example, a plaintiff would have an action if they suffered personal injury due to the defendant’s obstruction of the highway.

Private nuisance [28.750] Private nuisance is concerned with an invasion of a person’s interest in the use and enjoyment of land. It complements the action of trespass by protecting an occupier’s interest against indirect interference. The interference may take the form of physical damage brought about by, for example, flooding, fire or vibration. It may also consist of disturbance to the plaintiff’s health and comfort caused by noise, smell or dust: Halsey v Esso Petroleum Co Ltd [1961] 1 WLR 683. To be actionable, the interference must be substantial and unreasonable. The relevant question is whether the interference is greater than the plaintiff should be expected to bear in the circumstances. Regard is had to the gravity and duration of the interference, the locality, and the utility of the defendant’s conduct.

case [28.760] An injunction was granted to restrain the use of jackhammers during business hours on a construction site in the central business district of Sydney. The plaintiff, a solicitor who practised in an adjoining building, had been unable to carry on normal conversation in his office owing to the noise emanating from the excavation site: Wherry v KB Hutcherson Pty Ltd [1987] Aust Torts Reports 80-107. [28.770] A prima facie case of nuisance was held to have been established by the installation of a backyard swimming pool which caused flooding to a neighbour’s land: Corbett v Pallas [1995] Aust Torts Reports 81-329. An interference with a riparian right to take and use water can also constitute a nuisance: Van Son v Forestry Commission of New South Wales (1995) 86 LGERA 108; Lawrence v Kempsey Shire Council (1995) 87 LGERA 49. The right to complain of a nuisance rests with the person who has a legal right to actual possession of the land. The defendant will be liable if they created the interference. Liability can also attach to the occupier of the land from which the nuisance emanates even if they did not create the nuisance. An occupier will be liable if they continue a nuisance by failing to take reasonable steps to bring it to an end in circumstances where they knew, or can be presumed to have had knowledge, of its existence. An occupier will also be liable if they adopt a nuisance by making use of the thing which creates the nuisance: Sedleigh-Denfield v O’Callaghan [1940] AC 880. For example, a property owner is liable for damage caused to an adjoining

chapter 28 Law of Torts

property by tree roots from trees planted by her or him on the boundary line. A person who acquires the land after the trees were planted will not be liable unless they have continued or adopted the nuisance after being informed of the damage being caused by the tree roots. Thus, in a case where the new owner was informed of the damage being caused but failed to take steps to abate the nuisance they were held liable for the further damage caused to the adjoining property by the tree roots: The Proprietors – Strata Plan No 14198 v Cowell (1991) 24 NSWLR 478. On the other hand, it was held that an occupier of land was not liable in nuisance for damage caused to an adjoining building by a flow of water from a defective downpipe, since in the circumstances there was no reason why the occupier should have known of the leak: Montana Hotels Pty Ltd v Fasson Pty Ltd (1986) 61 ALJR 282 (PC).

Torts of strict liability [28.780] In some cases, tort liability can attach even though there was no intention or negligence on the part of the defendant. Liability is strict in the sense there is no element of fault. Strict liability was once imposed on an occupier of land for any damage caused by the escape of a dangerous or mischievous substance which the occupier brought onto the land. This was known as the rule in Rylands v Fletcher (1868) LR 3 HL 330. However, following the decision of the High Court in Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520, the rule in Rylands v Fletcher is no longer to be regarded as a separate tort. The High Court held that the rule should now be seen, for the purposes of Australian common law, as absorbed by the principles of ordinary negligence. Under those principles, a person who takes advantage of their control of premises to introduce a dangerous substance, to carry on a dangerous activity, or to allow another to do one of those things, owes a duty of reasonable care to avoid a reasonably foreseeable risk of injury or damage to the person or property of another.

case [28.790] In Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520, a fire broke out in premises owned by the defendant, part of which was used by the plaintiff to store frozen vegetables. It was held that the risk of damage to the plaintiff’s property by fire was a reasonably foreseeable consequence of the introduction of large quantities of polystyrene to the premises and the carrying out of extensive welding work within the premises by a contractor engaged by the defendant to extend the building. As a result, it was held that the defendant owed the plaintiff a non-delegable duty of care which extended to ensuring that the contractor took reasonable care to prevent the polystyrene being set alight as a result of welding activities. [28.800] Strict liability can, however, be imposed with respect to animals which are by their nature dangerous: Behrens v Bertram Mills Circus Ltd [1957] 2 QB 1.

Vicarious liability [28.810] In certain circumstances a person is regarded by the law as responsible for the acts or omissions of another person: such liability is known as vicarious liability. It is a form of strict liability as the person held responsible for the acts or defaults of another may not themselves have been personally at fault. Vicarious liability arises where a particular relationship exists between the person held responsible and the wrongdoer, the most common example being the relationship of employer and employee.

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An employer or master is vicariously liable for the acts or omissions committed by their employee or servant. However, an employer is not vicariously liable for the tortious acts committed by an independent contractor: Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at [32]; Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161. Accordingly, a distinction is drawn between servants and independent contractors. The general test used to determine the distinction between a servant and an independent contractor is what is known as the “control test”. If an employer has legal authority to tell a worker not only what to do but how to do it then a master-servant relationship will exist: Humberstone v Northern Timber Mills (1949) 79 CLR 389. Other factors can also be relevant such as the mode of remuneration, the power of dismissal and the provision of equipment. In circumstances where a worker is “borrowed” by another employer, the lending employer prima facie remains liable for the employee’s acts or omissions. The High Court found that Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 and Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161 were both cases involving independent contractors. However, in Hollis v Vabu Pty Ltd (2001) 207 CLR 21, an employer/employee relationship was present.

case [28.820] The appellants hired out the use of a crane together with its operator to the respondent stevedores to load a ship. The stevedores were entitled to tell the crane driver where to go, what parcels to lift and where to take them. However, it was held that the stevedores were not liable for the crane driver’s negligence because they had no authority to tell him how to handle the crane while carrying out the work: Mersey Docks and Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1. [28.830] In Frost v Warner (2002) 209 CLR 509 the High Court held that the fact that the defendant was, pursuant to statutory regulations, the holder of a certificate of registration as a “controller” was insufficient, on its own, to found vicarious liability for the injury caused by the negligence of her husband, the owner and master of a boat which capsized due to overloading. A lending employer can only escape liability for the wrongdoing of a “borrowed” employee if they can show that control over the employee has been effectively transferred to the “borrowing” employer. The vicarious liability of an employer is limited to acts or omissions which are committed in the course of the employee’s employment. It is not always easy to determine whether a servant’s act or omission took place in the course of their employment. Clearly, an employer will be vicariously liable for acts or omissions which they authorised or ratified. The notion of “course of employment” also covers conduct which can be regarded as an unauthorised mode of performing an authorised task. For example, the employer of a petrol-tanker driver was held vicariously liable for the damage caused by a fire which ignited when the driver lit a cigarette when delivering petrol to an underground tank. The driver’s action was considered to be an unauthorised way of performing the authorised task, namely, delivering petrol: Century Insurance Co Ltd v Northern Ireland Road Transport Board [1942] AC 509. However, an employer will not be liable for an employee’s wrongdoing if it was unrelated to their employment. In New South Wales v Lepore (2003) 212 CLR 511, deliberate predatory sexual behaviour was not seen as having been committed in the course of the teacher’s employment: at [78] per Gleeson CJ, [243] per Gummow and Hayne JJ.

chapter 28 Law of Torts

case [28.840] Where a barmaid threw a glass into the face of an inebriated customer who as a result lost the sight of an eye, it was held that the act was of a personal nature unconnected with the employee’s duties and therefore the employer was not vicariously liable for the injury suffered by the customer: Deatons Pty Ltd v Flew (1949) 79 CLR 370. [28.845] However, in the recent decision of Prince Alfred College Incorporated v ADC [2016] HCA 37, the High Court has indicated that the fact that the wrongful act is a criminal offence does not preclude the possibility of vicarious liability. 90 According to the joint judgment of French CJ, Kiefel, Bell, Keane and Nettle JJ (at [81]): “[I]n cases of this kind, the relevant approach is to consider any special role that the employer has assigned to the employee and the position in which the employee is thereby placed vis-à-vis the victim. In determining whether the apparent performance of such a role may be said to give the ‘occasion’ for the wrongful act, particular features may be taken into account. They include authority, power, trust, control and the ability to achieve intimacy with the victim. The latter feature may be especially important. Where, in such circumstances, the employee takes advantage of his or her position with respect to the victim, that may suffice to determine that the wrongful act should be regarded as committed in the course or scope of employment and as such render the employer vicariously liable.” 91 On the particular facts, the High Court allowed an appeal by the appellant college against a finding of vicarious liability by the Full Court of the Supreme Court of South Australia on the basis that an extension of time under the Limitations of Actions Act 1936 (SA) should not have been granted. The action against the college related to the sexual abuse perpetrated on the respondent in 1962 when he was a 12 year old boarder by a house master employed by the college. 92

Defamation Nature of defamation [28.850] Defamation involves the publication of matter which tends to injure a person’s reputation. It is both a tort giving rise to civil liability and a criminal wrong which can give rise to prosecution, although criminal prosecutions are very uncommon. The law relating to the civil action for defamation is now governed by largely uniform legislative provisions operating throughout the Australian States and Territories. 93 Some of the key reforms enacted by this legislation include the following: 90 91 92

93

At [80] per French CJ, Kiefel, Bell, Keane and Nettle JJ. See also Gageler and Gordon JJ at [131]. In a separate judgment, Gageler and Gordon JJ accepted that this “relevant approach” will now be applied in Australia: at [130]. At [131], they added that it is “necessarily general” and “does not and cannot prescribe an absolute rule”. The High Court took the view that although the decision with respect to the extension of time precluded the Court from making a decision as to liability, the principles governing the liability of an employer for an intentional criminal act of an employee are relevant to the extension of time issue: at [10]. The Court also thought that “guidance” was needed because of the differing view expressed in the earlier case of NSW v Lepore (2003) 212 CLR 511. Defamation Act 2005 (NSW); Defamation Act 2005 (Vic); Defamation Act 2005 (Qld); Defamation Act 2005 (SA); Defamation Act 2005 (WA); Defamation Act 2005 (Tas); Civil Law (Wrongs) Amendment Act 2006 (ACT), which amended Civil Law (Wrongs) Act 2002 (ACT) and the Defamation Act 2006 (NT). The uniform legislation came into effect on 1 January 2006 apart from the ACT where it commenced on 23 February 2006.

807

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Pt 5 Allied Areas of Law

(a)

the abolition of the distinction between libel and slander; 94

(b)

the reduction of the relevant limitation period from six years to one year from the date of publication;

(c)

the removal of the right of a trading corporation with more than 10 employees to sue for defamation; 95

(d)

limiting the plaintiff to one cause of action per publication rather than per imputation; 96 and

(e)

judges and not juries to decide damages. 97

Other key reforms relating to damages and remedies will be outlined shortly. These uniform defamation laws do not codify the law. Instead, they are designed to supplement the common law. In New South Wales, s 6(2) of the Defamation Act 2005 (NSW) expressly provides that the legislation does not affect the operation of the common law except to the extent it otherwise provides. 98 Common law principles continue to be relevant including in relation to the following: (a)

the elements which establish the cause of action such as defamatory meaning, identification and publication;

(b)

interpreting the statutory defences and allowing additional defences; and

(c)

damages.

Basically, for a defamation action to succeed, the following four elements need to be satisfied: (a)

the statement must be defamatory;

(b)

the statement must be understood to refer to the plaintiff;

(c)

the statement must be communicated to a third person; and

(d)

the defendant is unable to rely on a valid defence.

A statement is defamatory if it is likely to injure a person’s reputation by exposing them to hate, contempt or ridicule; or likely to induce others to shun or avoid a person or if it has a tendency to lower the plaintiff in the estimation of others. Before a statement can be regarded as defaming a person, it must identify that person. If the plaintiff is not named in the statement then the question of identification will be tested objectively according to whether a reasonable person would have thought that the statement was about the plaintiff. A plaintiff can allege that the defamatory statement is found in the ordinary meaning of the words used by the defendant, 94

95

96

97

98

Defamation Act 2005 (NSW), s 7; Defamation Act 2005 (Vic), s 7; Defamation Act 2005 (Qld), s 7; Defamation Act 2005 (SA), s 7; Defamation Act 2005 (WA), s 7; Defamation Act 2005 (Tas), s 7; Civil Law (Wrongs) Act 2002 (ACT), s 119; Defamation Act 2006 (NT), s 6. Defamation Act 2005 (NSW), s 9; Defamation Act 2005 (Vic), s 9; Defamation Act 2005 (Qld), s 9; Defamation Act 2005 (SA), s 9; Defamation Act 2005 (WA), s 9; Defamation Act 2005 (Tas), s 9; Civil Law (Wrongs) Act 2002 (ACT), s 121; Defamation Act 2006 (NT), s 8. Defamation Act 2005 (NSW), s 8; Defamation Act 2005 (Vic), s 8; Defamation Act 2005 (Qld), s 8; Defamation Act 2005 (SA), s 8; Defamation Act 2005 (WA), s 8; Defamation Act 2005 (Tas), s 8; Civil Law (Wrongs) Act 2002 (ACT), s 120; Defamation Act 2006 (NT), s 7. Defamation Act 2005 (NSW), s 22; Defamation Act 2005 (Vic), s 22; Defamation Act 2005 (Qld), s 22; Defamation Act 2005 (WA), s 22; Defamation Act 2005 (Tas), s 22; Defamation Act 2006 (NT), s 54 which inserted s 6A into the Juries Act (NT). Although jury trials had been abolished in South Australia and ACT, they could arise by election of the parties in Queensland, Victoria, Tasmania and Western Australia and if the court decided in the Northern Territory. Compare New South Wales where juries did not determine defences or damages. Defamation Act 2005 (Vic), s 6(2); Defamation Act 2005 (Qld), s 6(2); Defamation Act 2005 (SA), s 6(2); Defamation Act 2005 (WA), s 6(2); Defamation Act 2005 (Tas), s 6(2); Civil Law (Wrongs) Act 2002 (ACT), s 118(2); Defamation Act 2006 (NT), s 5(2).

chapter 28 Law of Torts

or that it arises from a secondary meaning by way of innuendo. Again an objective test is applied to determine whether the statement has the meaning alleged by the plaintiff. The issue of whether a statement has a defamatory effect on the plaintiff’s reputation is tested according to general community standards. A defamatory statement is not actionable unless it is communicated to someone other than the person about whom it is made, that is, the defendant must have communicated the statement to someone other than the plaintiff. More than one person may well be liable for the one defamatory publication, for example, the author, printer, and publisher all publish a defamatory statement contained in a book.

Defences to an action for defamation [28.860] The defences provided in the uniform defamation legislation supplement any defences available at common law or by statute 99 and are as follows: 100 (a)

justification (or truth);

(b)

absolute privilege;

(c)

defence for the publication of public documents and defences of fair reports of proceedings of public concern;

(d)

qualified privilege;

(e)

honest opinion;

(f)

innocent dissemination; and

(g)

triviality.

Justification [28.870] The uniform defamation legislation provides that it is a defence to the publication of defamatory matter if the defendant proves that the defamatory imputations carried by the matter of which the plaintiff complains are true. 101 This mirrors the common law and represents a change to the law in those States where the defendant previously had to also show that the statement was made for the public benefit 102 or in the public interest. 103 The legislation also provides for a defence of contextual truth. 104

99

100 101

102 103 104

Defamation Act 2005 (NSW), s 24; Defamation Act 2005 (Vic), s 24; Defamation Act 2005 (Qld), s 24; Defamation Act 2005 (SA), s 24; Defamation Act 2005 (WA), s 24; Defamation Act 2005 (Tas), s 24 and Civil Law (Wrongs) Act 2002 (ACT), s 134; Defamation Act 2006 (NT), s 21. They are supplemented by additional common law defences such as consent. Defamation Act 2005 (NSW), s 25; Defamation Act 2005 (Vic), s 25; Defamation Act 2005 (Qld), s 25; Defamation Act 2005 (SA), s 25; Defamation Act 2005 (WA), s 25; Defamation Act 2005 (Tas), s 25; Civil Law (Wrongs) Act 2002 (ACT), s 135; Defamation Act 2006 (NT), s 22. As was the case in Queensland, Tasmania and the ACT. As was the case in New South Wales. Defamation Act 2005 (NSW), s 26; Defamation Act 2005 (Vic), s 26; Defamation Act 2005 (Qld), s 26; Defamation Act 2005 (SA), s 26; Defamation Act 2005 (WA), s 26; Defamation Act 2005 (Tas), s 26; Civil Law (Wrongs) Act 2002 (ACT), s 136; Defamation Act 2006 (NT), s 23. This defence was previously available in New South Wales and the ACT.

809

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Pt 5 Allied Areas of Law

Absolute privilege [28.880] The uniform defamation legislation reflects the absolute privilege afforded to parliamentary and judicial proceedings at common law. 105

Defence for the publication of public documents and defences of fair reports of proceedings of public concern [28.890] The legislation provides a defence where the defendant can show that the matter was contained in a public document or a fair copy of a public document or a fair summary of or fair extract from a public document. 106 It also allows a defence if the defendant can show that the matter was contained in a fair report of a proceeding of public concern. 107 These defences go further than the protection provided at common law.

Qualified privilege [28.900] The defence of qualified privilege provided by the uniform Defamation Acts arises where the defendant can show the following: (a)

the recipient had an interest or apparent interest in having the information;

(b)

the matter is published in the course of giving the information to the recipient; and

(c)

the conduct of the defendant is reasonable in the circumstances. 108

The legislation also enumerates factors which the court can take into account in determining whether the defendant’s conduct was reasonable including factors such as the sources of the information and the integrity of those sources and whether the matter published contained the substance of the defamed person’s side of the story. 109 This statutory defence differs from the common law defence of qualified privilege which required reciprocity of interest and was defeated by evidence of malice or improper purpose.

Honest opinion [28.910] The uniform defamation legislation provides for defences of honest opinion. 110 This resembles the defence of “fair comment” under the common law. 105

Defamation Act 2005 (NSW), s 27; Defamation Act 2005 (Vic), s 27; Defamation Act 2005 (Qld), s 27; Defamation Act 2005 (SA), s 27; Defamation Act 2005 (WA), s 27; Defamation Act 2005 (Tas), s 27; Civil Law (Wrongs) Act 2002 (ACT), s 137; Defamation Act 2006 (NT), s 24. The additional absolute privilege afforded by the common law, for example in the case of executive communications, remains applicable.

106

Defamation Act 2005 (NSW), s 28; Defamation Act 2005 (Vic), s 28; Defamation Act 2005 (Qld), s 28; Defamation Act 2005 (SA), s 28; Defamation Act 2005 (WA), s 28; Defamation Act 2005 (Tas), s 28; Civil Law (Wrongs) Act 2002 (ACT), s 138; Defamation Act 2006 (NT), s 25. Defamation Act 2005 (NSW), s 29; Defamation Act 2005 (Vic), s 29; Defamation Act 2005 (Qld), s 29; Defamation Act 2005 (SA), s 29; Defamation Act 2005 (WA), s 29; Defamation Act 2005 (Tas), s 29; Civil Law (Wrongs) Act 2002 (ACT), s 139; Defamation Act 2006 (NT), s 26. Defamation Act 2005 (NSW), s 30(1); Defamation Act 2005 (Vic), s 30(1); Defamation Act 2005 (Qld), s 30(1); Defamation Act 2005 (SA), s 30(1); Defamation Act 2005 (WA), s 30(1); Defamation Act 2005 (Tas), s 30(1); Civil Law (Wrongs) Act 2002 (ACT), s 139A(1); Defamation Act 2006 (NT), s 27(1). Defamation Act 2005 (NSW), s 30(3); Defamation Act 2005 (Vic), s 30(3); Defamation Act 2005 (Qld), s 30(3); Defamation Act 2005 (SA), s 30(3); Defamation Act 2005 (WA), s 30(3); Defamation Act 2005 (Tas), s 30(3); Civil Law (Wrongs) Act 2002 (ACT), s 139A(3); Defamation Act 2006 (NT), s 27(3). Defamation Act 2005 (NSW), s 31; Defamation Act 2005 (Vic), s 31; Defamation Act 2005 (Qld), s 31; Defamation Act 2005 (SA), s 31; Defamation Act 2005 (WA), s 31; Defamation Act 2005 (Tas), 31; Civil Law (Wrongs) Act 2002 (ACT), s 139B; Defamation Act 2006 (NT), s 28.

107

108

109

110

chapter 28 Law of Torts

The defences of honest opinion apply in relation to the defendant’s opinion, the opinion of the defendant’s employee and the opinion of a commentator provided: (a)

the matter was an expression of opinion rather than a statement of fact;

(b)

the opinion related to a matter of public interest; and

(c)

the opinion was based on proper material which means that it is either substantially true, published on an occasion of absolute or qualified privilege or on an occasion which attracts the defence of publication of a public document or the defences of fair report of proceedings of public concern.

In relation to the defendant’s opinion the defence will only be defeated if the plaintiff can show that the opinion was not honestly held. In the case of the employee’s opinion, the plaintiff must prove that the defendant did not believe that the opinion was honestly held by the employee. With respect to the commentator’s opinion, the defence will be lost if the plaintiff can establish that the defendant had reasonable grounds to believe that the opinion was not honestly held by the commentator.

Innocent dissemination [28.920] This statutory defence 111 provided in the uniform legislation mirrors the common law in relation to the protection provided to booksellers, newsagents and libraries. It also extends beyond the common law to take account of modern technological developments in publication and communication such as advances in printing technology, the Internet and live-feeds of radio and television broadcasts.

Triviality [28.930] Unlike the common law, the uniform legislation provides for a specific defence of triviality. According to the relevant provisions, it is a defence if the defendant proves that the circumstances of publication were such that the plaintiff was unlikely to sustain any harm.

Resolution of disputes without litigation [28.940] Another key element of the uniform legislation is the provision of an offer of amends procedure for the non-litigious, voluntary settlement of disputes. 112 Significant changes were made in relation to apologies: they no longer constitute an admission of fault and are not relevant to the determination of fault or liability. 113

Damages [28.950] Damages are the usual remedy when a matter proceeds to court. While the common law principles remain largely applicable, the uniform legislation includes the following provisions:

111

112

113

Defamation Act 2005 (NSW), s 33; Defamation Act 2005 (Vic), s 33; Defamation Act 2005 (Qld), s 33; Defamation Act 2005 (SA), s 33; Defamation Act 2005 (WA), s 33; Defamation Act 2005 (Tas), s 3; Civil Law (Wrongs) Act 2002 (ACT), s 139D; Defamation Act 2006 (NT), s 29. Defamation Act 2005 (NSW), Pt 3, Div 1; Defamation Act 2005 (Vic), Pt 3, Div 1; Defamation Act 2005 (Qld), Pt 3, Div 1; Defamation Act 2005 (SA), Pt 3, Div 1; Defamation Act 2005 (WA), Pt 3, Div 1; Defamation Act 2005 (Tas), Pt 3, Div 1; Civil Law (Wrongs) Act 2002 (ACT), Pt 9.3, Div 1; Defamation Act 2006 (NT), Pt 3, Div 1. Defamation Act 2005 (NSW), s 20; Defamation Act 2005 (Vic), s 20; Defamation Act 2005 (Qld), s 20; Defamation Act 2005 (SA), s 20; Defamation Act 2005 (WA), s 20; Defamation Act 2005 (Tas), s 20; Civil Law (Wrongs) Act 2002 (ACT), s 132; Defamation Act 2006 (NT), s 19.

811

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Pt 5 Allied Areas of Law

(a)

the court is to ensure that there is an appropriate and rational relationship between the harm sustained by the plaintiff and the amount of damages awarded; 114

(b)

the amount of damages for non-economic loss is capped apart from a case where an award of aggravated damages is warranted; 115

(c)

the court is to disregard the malice or other state of mind of the defendant at the time of publication or at any other time except to the extent that it affects the harm sustained by the plaintiff; 116

(d)

there can be no award of exemplary or punitive damages; 117 and

(e)

the factors that are admissible on behalf of the defendant in mitigation of damages are set out although the relevant provision does not limit the factors that can be taken into account. 118

Further reading RP Balkin and JLR Davis, Law of Torts (5th ed, LexisNexis Butterworths, Sydney, 2013). K Barker, P Cane, M Lunney and F Trindade, The Law of Torts in Australia (5th ed, Oxford University Press, Melbourne, 2011). A Clarke et al, Torts – A Practical Learning Approach (3rd ed, LexisNexis Butterworths, Sydney, 2013). H Luntz et al, Torts – Cases and Commentary (7th ed, LexisNexis Butterworths, Sydney, 2012). C Sappideen and P Vines, Fleming's The Law of Torts (10th ed, Thomson Reuters, Sydney, 2011). C Sappideen, P Vines and P Watson, Torts: Commentary and Materials (12th ed, Thomson Reuters, Sydney, 2016).

Journals Australian Civil Liability Torts Law Journal Torts Law Review 114

115

116

117

118

Defamation Act 2005 (NSW), s 34; Defamation Act 2005 (Vic), s 34; Defamation Act 2005 (Qld), s 34; Defamation Act 2005 (SA), s 34; Defamation Act 2005 (WA), s 34; Defamation Act 2005 (Tas), s 34; Civil Law (Wrongs) Act 2002 (ACT), s 139E; Defamation Act 2006 (NT), s 31. Defamation Act 2005 (NSW), s 35; Defamation Act 2005 (Vic), s 35; Defamation Act 2005 (Qld), s 35; Defamation Act 2005 (SA), s 35; Defamation Act 2005 (WA), s 35; Defamation Act 2005 (Tas), s 35; Civil Law (Wrongs) Act 2002 (ACT), s 139F; Defamation Act 2006 (NT), s 32. Defamation Act 2005 (NSW), s 36; Defamation Act 2005 (Vic), s 36; Defamation Act 2005 (Qld), s 36; Defamation Act 2005 (SA), s 36; Defamation Act 2005 (WA), s 36; Defamation Act 2005 (Tas), s 36; Civil Law (Wrongs) Act 2002 (ACT), s 139G; Defamation Act 2006 (NT), s 33. Defamation Act 2005 (NSW), s 37; Defamation Act 2005 (Vic), s 37; Defamation Act 2005 (Qld), s 37; Defamation Act 2005 (SA), s 37; Defamation Act 2005 (WA), s 37; Defamation Act 2005 (Tas), s 37; Civil Law (Wrongs) Act 2002 (ACT), s 139H; Defamation Act 2006 (NT), s 34. Defamation Act 2005 (NSW), s 38; Defamation Act 2005 (Vic), s 38; Defamation Act 2005 (Qld), s 38; Defamation Act 2005 (SA), s 38; Defamation Act 2005 (WA), s 38; Defamation Act 2005 (Tas), s 38; Civil Law (Wrongs) Act 2002 (ACT), s 139I; Defamation Act 2006 (NT), s 35.

chapter 29

Law of Trusts [29.30] Elements of an express trust .................................................................................................................... 814 [29.90] Trusts distinguished from other legal relationships ..................................................................... 815 [29.160] Classification and types of trusts ........................................................................................................ 817 [29.280] Creation of trusts.......................................................................................................................................... 820 [29.350] Appointment, duties and powers of trustees................................................................................ 822 [29.600] Rights and liabilities of trustees ........................................................................................................... 828 [29.660] Disclaimer, retirement and removal of trustees and termination of trusteeship...... 829 [29.710] Rights of beneficiaries ............................................................................................................................... 830 [29.730] Termination of trusts.................................................................................................................................. 831

Introduction [29.10] The basic concept of a trust is that of a person holding property for the benefit of another as, for example, where B holds property in trust for C. The common law acknowledged B as the legal owner of the property with all the rights of such. Equity went further and recognised that B held the property not for his own benefit but for the benefit of C, and provided remedies for the protection of C's beneficial (that is, equitable) interest in the property. Broadly speaking, in relation to every trust there is a person who has the control of property (called the trustee) and a person on whose behalf he or she must apply any benefit accruing from the property (called the beneficiary). [29.20] Definition and nature of a trust A trust may be defined as an equitable obligation binding a person (the trustee) to deal with property over which he or she has control (the trust property) for the benefit of persons (the beneficiaries) who may enforce the obligations created by the trust. The essential nature of a trust can be illustrated by the following example: Example A transfers property to B and directs that B hold it for the benefit of A's son, C. B has control of the property but the beneficial interest in it belongs to C. B holds the title deeds, pays the expenses, collects the income, brings and defends actions. To third persons B is the owner of the property. However, C is entitled to the benefit of the property and can assert his rights in equity.

814

Pt 5 Allied Areas of Law

Elements of an express trust [29.30] The basic elements of an expressly created trust are: (a)

the settlor;

(b)

the trustee;

(c)

the trust property;

(d)

the beneficiary; and

(e)

an obligation enforceable in equity.

The settlor [29.40] The settlor is the person creating the trust by the settlement of property, that is, A in the example at [29.20].

The trustee [29.50] The trustee is the person in whom the trust property is vested and is the legal owner of the property, that is, B in the example at [29.20]. There may be one or more trustees. A person may declare themselves a trustee of their own property for the benefit of a third person, in which case the settlor and trustee would be one and the same. A trustee is not necessarily merely the bare holder of the legal interest in property for the benefit of another but is often required to exercise active duties in relation to the property. Thus, the trustee may be required to manage and control the property, paying the income derived from it to a specified person for a defined period, or, as is frequently the case under a will, the trustee may be required to sell and convert the property into money and to invest the proceeds of sale, and deal with the income and capital of the investments for the benefit of the beneficiaries.

The trust property [29.60] The property held on trust may be either real property (that is, land, and buildings on land), or personal property (for example, chattels) including choses in action such as copyright, company shares, debts and so on.

The beneficiary [29.70] The beneficiary is the person for whose benefit the trust is created, that is, C in the example at [29.20]. Although the trustee is the legal owner of the trust property, the beneficiary is recognised in equity as the person for whose benefit the property is really held. Consequently, the beneficiary is also referred to as the equitable or beneficial owner of the trust property.

Obligation enforceable in equity [29.80] A trust gives rise to an obligation on the part of the trustee, enforceable in equity, to deal with the trust property for the benefit of the beneficiaries. The trustee is obliged to hold trust moneys separately from their own moneys: Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62 at [84], [111], [136].

chapter 29 Law of Trusts

Where a trust is created by a person while alive, it is referred to as a trust inter vivos, that is, between living persons. A person’s will may also provide for the creation of a trust to take effect on the testator’s death, in which case it is referred to as a testamentary trust.

Trusts distinguished from other legal relationships [29.90] To more fully appreciate the essential nature of a trust, it is useful to compare and contrast a trust from certain other basic legal concepts, namely: (a)

contract;

(b)

agency;

(c)

bailment;

(d)

the relationship of creditor and debtor;

(e)

a company; and

(f)

an executor.

Trusts and contract [29.100] A contract is an agreement made between two or more parties, creating legal rights and obligations enforceable at common law. These legal rights and obligations are personal, not proprietary. An essential element of a contract is consideration, or execution under seal. Only the parties to a contract may enforce it. A person who is not a party to the contract (that is, a third party) generally cannot enforce it. 1 A trust differs from a contract in all of these respects since: (a)

agreement is not an essential element of a trust. A trust generally depends simply upon the presence of an intention by the settlor to create a trust;

(b)

a trust is not an obligation which the common law will enforce, it is an obligation enforceable in equity;

(c)

a trust confers personal and proprietary rights on a beneficiary;

(d)

a trust does not depend for its existence upon the presence of consideration. A beneficiary may enforce a trust notwithstanding that the beneficiary gave no consideration; and

(e)

a beneficiary may enforce a trust even though the beneficiary was not a party to the instrument under which the trust came into being. By contrast, a contract is generally only enforceable by the parties to it. 2

Trusts and agency [29.110] An agent is a person who has authority either express or implied, to act for a principal with the general object of bringing the principal into legal relations with a third party. A trust is comparable with an agency relationship in two respects. First, an agent is a fiduciary of her or his principal, and must act for the benefit of the principal. Similarly, a trustee is a fiduciary of the beneficiaries and must act for their benefit. Secondly, both a trustee and an agent must act personally and may not delegate their respective functions. 1 2

Subject to the exceptions created in Queensland by the Property Law Act 1974 (Qld), s 55, and in Western Australia by the Property Law Act 1969 (WA), s 11(1). Apart from the statutory exceptions in Queensland (see the Property Law Act 1974 (Qld), s 55) and in Western Australia (see the Property Law Act 1969 (WA), s 11(1)).

815

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Pt 5 Allied Areas of Law

However, a trust differs from agency in a number of important respects: 1.

In order to create a trust, ownership of the trust property must be vested in the trustee. In contrast, it is not essential to an agency relationship that title to property be vested in the agent.

2.

An agent will not incur personal liability for contracts into which he or she enters on behalf of the principal provided the agent discloses that he or she is contracting as an agent. On the other hand, a trustee who enters a contract on behalf of the trust does so as principal and is personally liable on the contract.

3.

An agency is usually terminated by the death of the principal or the agent, while a trust continues notwithstanding the death of a trustee or a beneficiary.

4.

An agent may be instructed and directed by the principal but generally a trustee cannot be directed by the beneficiary.

Trusts and bailment [29.120] A bailment of goods is a delivery of goods from one person (the bailor) to another (the bailee) on a condition that they are to be returned by the bailee to the bailor, or according to the bailor’s direction, as soon as the purpose of the bailment has been completed. There are a number of differences between a trust and a bailment: (a)

a bailment is a relationship recognised by the common law, while a trust is an equitable obligation;

(b)

a bailment may only arise in relation to personal property but a trust may have as its subject either real or personal property; and

(c)

a trustee is vested with title to the trust property but a bailee is merely given possession of the bailed property.

Trusts and the relationship of debtor and creditor [29.130] A relationship of debt exists when a person (the debtor) owes a sum of money to another person (the creditor). A debtor’s obligation is personal and does not relate to any particular property. On the other hand, a trustee’s obligation is both personal and relates to specific property, namely the trust property. The relationship of debtor and creditor is recognised at common law but a trust is an equitable obligation. The mere fact that the consideration for which money has been paid has wholly failed does not in itself give rise to a trust of the money in the hands of the payee for the benefit of the person who has paid the money. The relationship between the parties in such a case is that of creditor and debtor rather than that of trustee and beneficiary: Re Associated Securities Ltd and the Companies Act [1981] 1 NSWLR 742 at 750.

Trusts and companies [29.140] A company is a legal entity which is capable of entering into contracts, acquiring, holding and disposing of property, and of suing and being sued. A trust and a company differ in a number of respects: 1.

A trust, unlike a company, is not on its creation a new separate legal entity. Rather, a trust is a collection of duties, powers, liabilities and rights which are imposed upon the trustee, who is an existing legal person.

2.

A company does not hold property on trust for its objects, whereas trust property is held on trust for the objects or beneficiaries of the trust.

3.

A company, unlike a trust, is the full legal and beneficial owner of its property. However, like a trustee, directors of a company owe certain fiduciary obligations to their company.

chapter 29 Law of Trusts

Trustees and executors [29.150] An executor is a person to whom the execution of a will, that is, the duty of carrying its provisions into effect, is confided by the testator. Therefore, like a trustee, an executor has a fiduciary obligation to the beneficiaries. The executor’s principal duty is to gather the deceased’s assets and distribute them in pursuance of the terms of the will. The trustee’s principal duty is to preserve the trust property for the benefit of all the beneficiaries, and not to unduly favour a beneficiary or a class of beneficiaries.

Classification and types of trusts [29.160] The usual classification of trusts is as follows: (a)

express trusts;

(b)

implied trusts; and

(c)

constructive trusts.

Express trusts [29.170] An express trust is a trust created by an express declaration of intention by the settlor, for example, “I give $5,000 to X on trust for Y”. The settlor’s declaration of intention may be written or spoken. A discretionary trust is a type of express trust, as is a charitable trust: see [29.270].

Implied trusts [29.180] An implied trust is a trust which arises because the law presumes in the particular circumstances an intention on the part of the settlor to create a trust, although such intention has not been expressed. An important category of implied trust is the resulting trust. In fact the current trend amongst writers on trusts is to regard implied trusts and resulting trusts as being interchangeable terms and classify trusts into express trusts, resulting trusts and constructive trusts. In essence, a resulting trust arises where property, or an interest in property, reverts to the settlor. This would occur, for instance, where under the terms of the trust the entire beneficial interest in the property had not been disposed of: in such a case, an interest in the property would revert back to the settlor by way of resulting trust. A resulting trust will also arise where an express trust fails for some reason, for example, because its objects are uncertain, or because the trust beneficiary dies before the testator. A further situation where a resulting trust has been held to arise is where A purchases property but directs the vendor to transfer it not to himself but to B who has given no consideration for it. In such a case B is presumed to be a trustee of the property for A, in the absence of evidence that A intended the property as a gift to B: Napier v Public Trustee (WA) (1980) 32 ALR 153 at 158 (HC). Where property is conveyed to two or more purchasers who have contributed unequally to the purchase price, the presumption is that they hold the property on a resulting trust in proportions representing their contributions to the total purchase price: Calverley v Green (1984) 155 CLR 242 at 258. However, there is a presumption of advancement that where a husband and wife have both contributed to the purchase price

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of the matrimonial home, they hold in equal proportions, irrespective of their actual contributions to the price: Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [55], [71]. 3

Constructive trusts [29.190] A constructive trust arises in circumstances where the law considers it would be inequitable or unconscionable for a person to retain property for their own benefit: Baumgartner v Baumgartner (1987) 164 CLR 137 at 149. It comes into existence by operation of law and not by virtue of an intention, express or implied, to create a trust: Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62 at [8]-[9]. “Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle”: Muschinski v Dodds (1985) 160 CLR 583 at 614 per Deane J.

case [29.200] For example, the parties to a de facto relationship pooled their earnings in the proportions of 55 per cent by the man and 45 per cent by the woman which was used to buy a home. The house was purchased in the name of the man. The couple later separated and the man asserted that the house was his sole property. The High Court held that a constructive trust arose whereby the man held the house on trust for the parties in the proportions in which they had contributed their earnings to its acquisition, subject to certain adjustments to take account of other payments made towards purchase of the home. It was said that: “the [man’s] assertion, after the relationship had failed, that the property … is his sole property … amounts to unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust”: Baumgartner v Baumgartner (1987) 164 CLR 137 at 149. [29.210] The principal operation of the constructive trust has been in the area of breach of fiduciary duty. For example, where a trustee or person in a fiduciary relationship obtains a benefit from their position, such benefit will be regarded by law as being held by that person as constructive trustee for the beneficiary: Boardman v Phipps [1967] 2 AC 46 at 102-103, 118. Where a party misapplies money in breach of a fiduciary duty, that party will be regarded as a constructive trustee in relation to those moneys: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [50]–[51]. In John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 the court observed that “to impose a constructive trust for a breach of contract would be, if not an impossible step, at least a very unusual and extreme one”: at [97]. Sometimes a stranger to a trust may incur liability as a constructive trustee, for example where they receive trust property and deal with it in a way which they know to be in breach of the trust, or “assist with knowledge in a dishonest or fraudulent design” on the part of a trustee, or a fiduciary in breach of their fiduciary duty: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 396, 408. A constructive trust should not be imposed where there is “an appropriate form of equitable relief which falls short of the imposition of a trust”: Giumelli v Giumelli (1999) 196 CLR 101 at 113. 3

See L Sarmas, “A Step in the Wrong Direction: The Emergence of Gender ‘Neutrality’ in the Equitable Presumption of Advancement” (1994) 19 Melbourne University Law Review 758; J Glister, “Is There a Presumption of Advancement?” (2011) 33 Sydney Law Review 39.

chapter 29 Law of Trusts

Types of trusts [29.220] The broad scope of operation of the modern trust can be seen from the following discussion of the more common types of trust, namely: (a)

discretionary trusts;

(b)

trading trusts;

(c)

unit trusts;

(d)

testamentary trusts; and

(e)

charitable trusts.

Discretionary trusts [29.230] In a fixed trust the beneficiaries are ascertained, as is the amount of their interest in the trust property. On the other hand, in a discretionary trust the trustee has a discretion as to: (a)

who in the designated class of beneficiaries is to receive any benefit; and

(b)

the amount of any benefit to be paid.

The discretionary trust has proved popular in modern times, particularly as a vehicle for minimising taxation, for example by facilitating income splitting by non-PAYE taxpayers with consequential tax advantages. A discretionary trust is often used within a family or a family business when it is commonly referred to as a family trust, its primary purpose again being to minimise liability for taxation.

Trading trusts [29.240] In a trading trust the property of the trust is used in the conduct of a business. The trustee of a trading trust is often a limited liability private company, the effect of which is to afford the advantages of limited liability protection to the trading trust. The trading trust will generally be a discretionary trust with a discretion in the trustee to select the beneficiaries and the amount of their interest.

Unit trusts [29.250] Unit trusts are commercial trusts in which beneficiaries (called unitholders) own units of the trust fund. The trust fund is usually divided into a number of equal units, and the number of units held by the unitholder determines the latter’s proportional entitlement to distributions of income and capital. Units are transferable. The assets of a unit trust are usually made up of real estate, shares or other securities and are vested in a trustee who is bound by a trust deed to deal with it as directed by managers of the trust. It is a fixed trust in that the unitholders have a fixed interest in the property of the trust according to the value of their units which are evidenced by the issue of unit certificates. Thus, the trustees do not have a discretion as to the selection of beneficiaries or the amount of their interest. The unit trust is often used as a medium for investment, providing a means whereby moneys subscribed by numerous small investors can be utilised by the trust in making much larger investments, for example, in property or shares.

Testamentary trusts [29.260] One of the more traditional uses of the trust is to enable a testator to provide for the administration of the testator’s estate upon her or his death. For example, a testator may leave property to

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be held in trust for their family upon the testator’s death on the terms set out in their will. Where a trust is created by will then the formalities required for a valid testamentary disposition must be observed. 4

Charitable trusts [29.270] Generally speaking, the object of a trust must be a person (that is, an individual or a corporation) if the trust is to be upheld by the courts. The practical reason for this principle is that there must be someone who can apply to the court to compel the trustee to perform their obligations under the trust. Charitable trusts constitute an exception to this principle, since it is the duty of the Attorney-General to enforce charitable trusts: Leahy v Attorney-General (NSW) [1959] AC 457 at 479 (PC). However, the legal connotation of “charitable” in this context is more restricted than the ordinary use of the word. The position was explained by Lord Macnaghten in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 at 583, as follows: “‘Charity’ in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads.” A trust will not constitute a charitable trust unless it falls within one of the categories mentioned above, and (with the exception of trusts for the relief of poverty) also satisfies the test of being for the public benefit. Charitable trusts do not have to fulfil all the strict requirements of other express trusts, for example, where it is clear that the settlor intended to give property for charitable purposes, the trust will not fail even if the objects are uncertain. Furthermore, charitable trusts are not subject to the rule against perpetuities to the same extent as non-charitable trusts.

Creation of trusts [29.280] The following discussion of the principles applicable to the creation of trusts relates to express trusts. By virtue of their nature, there are no formal requirements for the creation of implied (or resulting) and constructive trusts. An express trust may be created either: (a)

by a transfer of ownership of property from the settlor to the trustee(s) to hold on trust for the beneficiary or beneficiaries, or for a charitable purpose; or

(b)

by a declaration of trust by the settlor under which the settlor declares themselves to hold the property on trust for a beneficiary.

In order for an express trust to be valid and enforceable, the three certainties of intention, subject matter, and objects must be present: Clay v Clay (2001) 202 CLR 410 at [42]; Pascoe v Boensch (2008) 250 ALR 24 at [20]; Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62 at [7], [204].

Certainty of intention [29.290] An intention to create a trust must be shown, that is, an intention that X hold property for the benefit of Y. An intention to benefit X absolutely, for example by way of gift, will not create a trust. No particular form of words is necessary but there must appear upon construction of the whole instrument, or declaration, a clear intention to create a trust: Re Robertson (1975) 10 SASR 189 at 192; Re Armstrong [1960] VR 202 at 205. 4

The formalities are set out in the following State legislation: Succession Act 2006 (NSW), s 6; Wills Act 1997 (Vic), s 7; Succession Act 1981 (Qld), s 10; Wills Act 1936 (SA), s 8; Wills Act 1970 (WA), s 8; Wills Act 2008 (Tas), s 8; Wills Act 1968 (ACT), s 9; Wills Act 2000 (NT), s 8.

chapter 29 Law of Trusts

Certainty of subject matter [29.300] The subject matter of the trust must be certain, that is, the trustees must be able to clearly identify the trust property, otherwise the trust will fail. Any real or personal property may be the subject of a trust.

Certainty of objects [29.310] The requirement of certainty of objects means that the persons who are to have the benefit of the trust must be certain; if they are not, then the trust will fail: Perpetual Trustee Co Ltd v John Fairfax & Sons Pty Ltd (1959) 76 WN (NSW) 226 at 228. 5 However, a trust is not uncertain merely because the actual persons to whom the distribution is to be made cannot be known in advance of the date of distribution. It is sufficient that under the provisions of the trust the beneficiaries will be ascertainable at that date: Kinsela v Caldwell (1975) 132 CLR 458 at 461. Where the above certainties are present, a valid trust may be created since no special form is necessary for the creation of a trust: Re Kayford Ltd [1975] 1 WLR 279 at 282. However, an express trust which disposes of land, or an interest in land, must be in writing. 6 Accordingly, an oral declaration to hold land on trust for the benefit of others is not enforceable: Wratten v Hunter [1978] 2 NSWLR 367 at 371. An express trust may be created during the life of the settlor or by will. Where a person wants to create a trust to take effect after that person’s death, the trust must be contained in a valid will. 7 Accordingly, all trusts which are to take effect only after the death of the testator must be in writing, whether the trust property is real or personal property.

Trust property [29.320] A trust may be created over either real or personal property or both. There are certain rules, namely: (a)

the rule against perpetuities; and

(b)

the rule against the accumulation of income,

which aim to prevent settlors and testators from tying up their property for unduly lengthy periods.

The rule against perpetuities [29.330] The rule against perpetuities is concerned with not allowing the vesting of an interest in property to be postponed indefinitely, that is, “in perpetuity”. The basic common law rule is that a grant of any estate or interest to take effect at a future time must vest, if at all, not later than 21 years after some life in being at the creation of the interest. A provision which infringes the rule is void. The rule has been modified by legislation in all the States and Territories. Broadly, the legislation in Victoria, Queensland, Western Australia and Tasmania enables settlors to avoid the complexities of the 5 6

7

See generally P Creighton, “Certainty of Objects of Trusts and Powers: The Impact of McPhail v Doulton in Australia” (2000) 22 Sydney Law Review 93. Conveyancing Act 1919 (NSW), s 23C; Property Law Act 1958 (Vic), s 53; Property Law Act 1974 (Qld), s 11; Law of Property Act 1936 (SA), s 29; Property Law Act 1969 (WA), s 34; Conveyancing and Law of Property Act 1884 (Tas), s 60(2); Civil Law (Property) Act 2006 (ACT), s 201(2); Law of Property Act 2000 (NT), s 10(1)(b). For the statutory provisions concerning the formalities for making a valid will, see: Succession Act 2006 (NSW), s 6; Wills Act 1997 (Vic), s 7; Succession Act 1981 (Qld), s 10; Wills Act 1936 (SA), s 8; Wills Act 1970 (WA), s 8; Wills Act 2008 (Tas), s 8; Wills Act 1968 (ACT), s 9; Wills Act 2000 (NT), s 8.

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common law rule by specifying in the instrument a number of years not exceeding 80 as the perpetuity period applicable to their disposition. 8 If no number of years is specified the common law period is applicable. In New South Wales and the Australian Capital Territory, the perpetuity period under the legislation is 80 years from the date on which the disposition takes effect. This is also the position in the Northern Territory unless an alternative period of a life in being plus 21 years is specified. 9 In South Australia, the rule against perpetuities has been abolished. The court is empowered to vary the terms of a disposition of property so that interests that cannot vest, or are unlikely to vest, within 80 years after the date of the disposition, will vest within that period. 10

Accumulation of income [29.340] There are statutory provisions in certain States forbidding the accumulation of income for unduly lengthy periods. In England the period allowed for the accumulation of income was restricted by the Thellusson Act 11 and this Act formed part of the inherited law of Australia. However, the Act no longer applies in any of the Australian States and Territories. In most jurisdictions that have repealed the accumulation provisions, dispositions involving accumulations are subject only to the rule against perpetuities. 12 In South Australia, the rule against accumulations has been abolished together with the rule against perpetuities. If a disposition provides for the accumulation, or partial accumulation, of income from property over a period that will or may terminate 80 years or more after the date of the disposition, the court may vary the terms of the disposition so that both capital and income will vest within 80 years from the date of the disposition. 13

Appointment, duties and powers of trustees Appointment of trustees [29.350] Any company or natural person who is legally empowered to hold property in their own right may be a trustee. A minor should not be appointed trustee because of her or his contractual disability: in New South Wales and the Australian Capital Territory the appointment of a minor as a trustee is void. 14 The appointment of trustees is usually made by one of the following:

The settlor [29.360] The settlor in making the settlement may appoint any competent person as trustee. 8 9 10 11 12

Perpetuities and Accumulations Act 1968 (Vic), s 5; Property Law Act 1974 (Qld), s 209; Property Law Act 1969 (WA), s 101; Perpetuities and Accumulations Act 1992 (Tas), s 6(1). Perpetuities Act 1984 (NSW), s 7; Perpetuities and Accumulations Act 1985 (ACT), s 8; Law of Property Act 2000 (NT), s 187. Law of Property Act 1936 (SA), ss 61 – 62.

13

Accumulation Act 1800 (39 & 40 Geo 111 c 98) (IMP). Perpetuities Act 1984 (NSW), s 18; Perpetuities and Accumulations Act 1968 (Vic), s 19; Property Law Act 1974 (Qld), s 222; Property Law Act 1969 (WA), s 113; Perpetuities and Accumulations Act 1992 (Tas), ss 22, 27(1); Perpetuities and Accumulations Act 1985 (ACT), s 19 ; Law of Property Act 2000 (NT), s 202. Law of Property Act 1936 (SA), ss 61–62.

14

Conveyancing Act 1919 (NSW), s 151A; Trustee Act 1925 (ACT), s 7A.

chapter 29 Law of Trusts

The beneficiaries [29.370] The beneficiaries, if they are all sui juris and between them entitled to the whole beneficial interest, may appoint any competent person.

A person with a power to appoint, express or statutory [29.380] A power to appoint trustees may: (a)

be conferred expressly by the trust instrument; or

(b)

arise under the Trustee Act in the various States.

A power to appoint a trustee under the Trustee Act arises, inter alia, when a trustee: (a)

is dead; or

(b)

in New South Wales, Victoria, Queensland, Western Australia and the Australian Capital Territory, remains out of the State for more than 12 months without properly delegating the trust; or

(c)

in South Australia, Tasmania, Australian Capital Territory and the Northern Territory, remains out of the State for more than one year (two years in New South Wales); or

(d)

desires to be discharged; or

(e)

refuses or is unfit to act; or

(f)

is incapable of acting; or

(g)

is a minor; or

(h)

is removed under a power contained in the trust instrument; or

(i)

being a corporation, is dissolved.

The appointment in these cases may be made by the persons nominated in the trust instrument for that purpose or, if there is no such person willing and able to make the appointment, then by the surviving or continuing trustee or trustees, or by the legal personal representative of the last surviving trustee. 15

The court [29.390] The court has power to appoint trustees under the Trustee Act. 16 The court may appoint a new trustee in substitution for, or in addition to, any existing trustee or where there is no existing trustee. This power arises whenever it is difficult or impracticable to appoint a new trustee without the court’s help (for example, when a trustee is of unsound mind, a convicted person, or a bankrupt). Application to the court may be made by any beneficiary or trustee. Most of the Acts provide that the court may exercise this power whenever it is “expedient” to appoint a new trustee and it is “inexpedient, difficult or impracticable” to do so without the court’s assistance. 17 “Expedient” means “advantageous or merely appropriate or suitable” while “inexpedient” means their opposite. Bad faith or breach of trust need not be proven in order for the court to exercise this power: Scaffidi v Montevento Holdings Pty Ltd (2011) 6 ASTLR 446; [2011] WASCA 146 at [173], [174]. On appeal the High Court reversed the Court of Appeal’s interpretation of the trust deed in this case but did 15

16 17

Trustee Act 1925 (NSW), s 6(4); Trustee Act 1958 (Vic), s 41(1); Trusts Act 1973 (Qld), s 12(1); Trustee Act 1936 (SA), s 14(1); Trustees Act 1962 (WA), s 7(1); Trustee Act 1898 (Tas), s 13(1); Trustee Act 1925 (ACT), s 6; Trustee Act 1893 (NT), s 11. Trustee Act 1925 (NSW), s 70; Trustee Act 1958 (Vic), s 48; Trustee Act 1936 (SA), s 36; Trusts Act 1973 (Qld), s 80; Trustees Act 1962 (WA), s 77; Trustee Act 1898 (Tas), s 32; Trustee Act 1925 (ACT), s 70; Trustee Act 1893 (NT), s 27. The South Australian and Australian Capital Territory provisions do not use these words.

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not discuss the operation of the legislation: Montevento Holdings Pty Ltd v Scaffidi (2012) 246 CLR 325. Hostility between the trustee and the beneficiary is not “in itself” sufficient justification for the removal of the trustee: Benson v Doloraine Pty Ltd (2015) 13 ASTLR 156; [2015] TASSC 41 at [105].

Duties of trustees [29.400] The primary duty of a trustee is to carry out the terms of the trust instrument. In addition to that basic obligation, a trustee has the following duties:

Duty to preserve trust property [29.410] The trustee is under a duty to take possession of the trust property and preserve it, and to properly invest the trust fund. The investment powers of trustees in most jurisdictions have been significantly widened. A trustee may now “invest trust funds in any form of investment”, unless expressly prohibited by the instrument creating the trust. In exercising a power of investment a trustee is under a duty to exercise the care, diligence and skill of a prudent person; comply with any provision of the trust instrument which requires a consent or approval to be obtained with respect to investments; and review the performance of trust investments at least once a year. The duties imposed by common law and equity on a trustee exercising a power of investment are expressly preserved, and a list of matters to which the trustee must have regard in exercising a power of investment is set down. 18 If the trust is owed outstanding debts, the trustee is obliged to collect them, or at least obtain an acknowledgment that they are owing: Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149 at 163-164.

Duty to exercise reasonable care [29.420] In administering the trust estate, the trustee is obliged to exercise the degree of care expected from an ordinary prudent business person managing similar affairs of their own. Where a trustee is in breach of the duty to exercise reasonable care, he or she will be liable to make good the actual loss caused to the estate by the breach: Elder’s Trustee & Executor Co Ltd v Higgins (1963) 113 CLR 426 at 453, 471.

case [29.430] The primary question is whether the loss was caused by the breach of trust. In Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484, Y paid moneys to M on trust for the purchase of company shares. The trust required that M would disburse the money to a bank only where the money was secured by a bearer certificate of deposit. In breach of trust M disbursed the money without obtaining the bearer certificate. Following this breach of trust, Y executed a deed poll authorising the withdrawal of money under the same condition (that the money was secured by a bearer certificate). The moneys disbursed under the deed poll were not secured by a bearer certificate. The company went into liquidation. Since the moneys were unsecured, they were paid in satisfaction of the company’s debts. Y lost the entire amount and sued M for breach of trust.

18

Trustee Act 1925 (NSW), ss 14 – 14C; Trustee Act 1958 (Vic), ss 6 – 8; Trusts Act 1973 (Qld), ss 21 – 24; Trustee Act 1936 (SA), ss 6 – 9; Trustees Act 1962 (WA), ss 17 – 20; Trustee Act 1898 (Tas), ss 6 – 9; Trustee Act 1925 (ACT), ss 14 – 14C; Trustee Act 1893 (NT), ss 5 – 8. See WA Lee, “Trustee Investing: Homes and Hedges” (2001) 1 QUT Law and Justice Journal 3.

chapter 29 Law of Trusts

The High Court held that as trustee M was personally liable for losses caused by its breach of trust: at [43]. The court ordered M to repay to Y the entire amount held in trust: at [44]. While the trustee is liable to compensate for losses caused by its breach of trust, it is not liable for losses which would have occurred anyway, such as through the fraud of a third party: at [47]. Here the execution of the deed poll was not the cause of the loss. The deed poll would only have excused the trustee from liability if it had released an existing (secured) bearer certificate, replacing it with an (unsecured) non-bearer instrument. The beneficiary’s loss was caused by the trustee’s disbursement of moneys without obtaining the bearer certificate: at [63].

Duty not to make a profit out of the trust [29.440] Trustees, executors and other persons standing in a fiduciary position cannot make a profit out of their trust. If they do so, they must account for the profit to the trust: Scott v Scott (1963) 109 CLR 649 at 658-659; Hagan v Waterhouse (1991) 34 NSWLR 308 at 354. Where a trustee is in a position where her or his duty conflicts with personal interest, the trustee must put duty first: Williams v Barton [1927] 2 Ch 9 at 12. If the trustee speculates with the trust fund, the beneficiaries are entitled to all the profits and the trustee bears all the losses.

Duty to keep accounts [29.450] A trustee must keep proper accounts and produce them to any beneficiary when required and give the beneficiary all reasonable information as to investment of the trust property.

Duty to provide information [29.460] A trustee must provide all reasonable information to a beneficiary as to the beneficiary’s share and as to the investment of the trust property generally. On a beneficiary attaining majority and becoming entitled to a share of the trust fund, the trustee is obliged to inform the beneficiary of their rights under the trust instrument: Hawkesley v May [1956] 1 QB 304 at 322.

Duty to act in person [29.470] A trustee must act in person in administering the trust estate. The general principle is that a trustee may not delegate the performance of their duties and powers to a third party, unless the trustee is expressly authorised by the trust instrument or by statute. 19 This does not mean that trustees must themselves personally do every act which is necessary to be done in the execution of the trust. Trustees have always been allowed to administer the trust through the instrumentality of others whenever there is a necessity for so doing, or where as prudent business people they would do so on their own behalf; for example, where a prudent man or woman would employ a stockbroker, so too can a trustee. A trustee or personal representative, unless forbidden by the trust instrument, may employ and pay an agent, for example a solicitor, to transact any business required to be done for the purpose of carrying out 19

In South Australia, the Trustee Act 1936 (SA), s 17, specifically empowers a trustee to delegate their powers for a maximum period of 12 months by power of attorney created by deed, provided that the trustee is not expressly prohibited from doing so by the instrument creating the trust. In Tasmania, the Trustee Act 1898 (Tas), s 25AA empowers a trustee to delegate their powers, subject to certain conditions, where the trustee will be absent from the State either permanently or temporarily. In the Australian Capital Territory a trustee who will be absent from the ACT may delegate their powers for up to two years: Trustee Act 1925 (ACT), s 64.

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the trust. The trustee will not be responsible for the agent’s default if employed in good faith and provided the trustee has not failed to exercise reasonable care in the circumstances: Wyman v Paterson [1900] AC 271 at 290.

Duty to act impartially between the beneficiaries [29.480] A trustee has a duty to act impartially between the beneficiaries, particularly with regard to the distribution of the income and capital of the trust: Howe v Lord Dartmouth (1802) 7 Ves 137; 32 ER 56 at 148-149 (Ves); 60 (ER).

Enforcement of duties [29.490] Any beneficiary may apply to the court to compel the trustees to execute any particular duty. The court will compel trustees to carry out their duties but where the trustees are given a discretion, the court will not interfere unless: (a)

they refuse to exercise it (unless given an absolute discretion); or

(b)

they are not exercising it bona fide: Karger v Paul [1984] VR 161 at 163-164. 20

Where there is more than one trustee, all the trustees must concur in exercising a discretionary power: Tempest v Lord Camoys (1882) 21 Ch D 571 at 575.

Powers of trustees [29.500] A trustee has power to do all acts necessary for the protection and administration of the trust property. Apart from the powers contained in the trust instrument, a trustee has certain statutory and implied powers. Some of these powers are exercisable at the discretion of the trustee (providing such is not negatived by the trust instrument) and other powers may only be exercised with the consent of the court. The most important powers, apart from those mentioned in the trust instrument, are as follows:

Power of sale [29.510] Except in the case of wasting (that is, depreciating) assets, a trustee has no power to sell trust property unless a power of sale is given by the trust instrument. There is no general statutory power of sale although the trustee is given a power of sale in certain circumstances. For example, under the Trustee Act 1925 (NSW), s 38 the trustee has a power of sale where the trustee has power to pay or apply capital money for any purpose, or where the trustee has to pay rates and charges due on trust property and lacks the funds to do so otherwise than by selling trust property. If a power of sale is not granted by the will or trust instrument and it is desired to sell any part of the trust property, then an application must be made to the court, or the consent of all the beneficiaries obtained if ascertained and all are sui juris. The trustee and the beneficiaries should all be parties to the application to the court.

Power to mortgage [29.520] Unless the trust instrument gives power, a trustee for the preservation of assets may only mortgage the property with the sanction of the court, or the beneficiaries if ascertained and all are sui juris. 20

Statutory provisions frequently confer such discretion. For example, in New South Wales the Trustee Act 1925 (NSW), s 27B(2) provides: “Where there is a power to postpone sale, then (subject to any express direction to the contrary in the instrument, if any, creating the trust for sale) the trustee for sale shall not be liable in any way for postponing the sale, in the exercise of his discretion, for any indefinite period; nor shall a purchaser be concerned in any case with any directions respecting the postponement of sale.” See also Trustee Act 1925 (ACT), s 27B(2).

chapter 29 Law of Trusts

Power to insure [29.530] Trustees may insure any building or property against loss or damage by fire and may pay the premiums out of the income.

Power to lease [29.540] A trustee who has the management of property can always grant a reasonable lease, the onus being on both the trustee and the lessee to show that it is reasonable. In New South Wales and the Australian Capital Territory, statutory provisions empower a trustee to grant a lease for a term of up to five years where the trustee holds the land with power to manage the same, or on trust for sale with express power to postpone sale, and in other cases (that is, where there is no power to manage and no trust for sale) for up to three years. 21

Power to carry on a business [29.550] Under the general law a trustee cannot carry on a business unless the trust instrument authorises the trustee to do so. Where the power is not given, the trustee should only carry on the business so far as it is necessary for prompt realisation. However, in Queensland and Western Australia a trustee is given a limited statutory power to conduct a business. 22

Power to repair or improve [29.560] If the trustee has no active duties to perform, he or she cannot effect repairs unless a beneficiary is under a disability (for example, minority). Where the trustee has a power of management he or she may effect repairs and improvements, in which case temporary repairs are charged to income, and permanent improvements are charged to capital of the trust. In some cases the cost of repairs may be apportioned between capital and income.

Power to apply to court for advice [29.570] A trustee, executor or administrator may apply to the court for advice on any question respecting the administration of the trust property. If a trustee, having disclosed to the court all relevant facts, acts in accordance with the judicial advice given then, notwithstanding that the trust may suffer loss, the trustee is not liable for breach of trust.

Power of maintenance and advancement [29.580] A trustee has a statutory power to pay the parent or guardian or otherwise apply the whole or any part of the income for the maintenance, education or benefit of a minor. 23

Power to compromise [29.590] Trustees may compromise, submit to arbitration, or otherwise settle claims so long as they act in good faith. 21 22 23

Trustee Act 1925 (NSW), s 36; Trustee Act 1925 (ACT), s 36. Trusts Act 1973 (Qld), s 57; Trustees Act 1962 (WA), s 55. Trustee Act 1925 (NSW), s 44; Trustee Act 1958 (Vic), s 38; Trusts Act 1973 (Qld), s 62; Trustee Act 1936 (SA), s 33A; Trustees Act 1962 (WA), s 59; Trustee Act 1898 (Tas), s 29; Trustee Act 1925 (ACT), s 44; Trustee Act 1893 (NT), s 24A.

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Rights and liabilities of trustees Rights of trustee Right to remuneration [29.600] The general rule is that a trustee is not entitled to charge for her or his services. This rule is subject to the following exceptions: (a)

where remuneration is allowed by the trust instrument, or by the court under a statutory provision; 24

(b)

where the trustee has expressly stipulated for remuneration and all the beneficiaries are sui juris and have consented; or

(c)

where sanctioned by the court.

Right to reimbursement [29.610] A trustee is entitled to be reimbursed for moneys properly paid by the trustee in connection with the trust. Where the trust assets are insufficient to reimburse the trustee against liabilities incurred in carrying out the trust, the beneficiaries are liable to indemnify the trustee: JW Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd [1985] VR 891 at 936.

Right to settlement of account [29.620] Where a trustee has completed their duties, the trustee is entitled to have their accounts taken and settled by the beneficiaries and receive from them a formal discharge.

Right to indemnity [29.630] A trustee has the right to be indemnified by a beneficiary who is of full legal capacity, and who knowingly consents to a breach of trust. Likewise, a trustee is entitled to seek contribution from a co-trustee. The court may make an order for the impounding of a beneficiary’s interest as an indemnity if the beneficiary consented to a breach, and benefited personally from the breach. 25

Right to apply to the court for advice [29.640] A trustee is not obliged to take personal risks. It is the trustee’s right and duty in cases involving doubt or uncertainty in the execution of the trust, to apply to the court for advice or direction. 26 In Macedonian Orthodox Community Church of St Petka Inc v His Eminence Petar (2008) 237 CLR 66 it was held that the giving of judicial advice is not limited to non-adversarial proceedings: at [56], [112]. A trustee ought not to defend legal proceedings against the estate without first obtaining the advice of the court: at [74]. Judicial advice is not a trial of the main proceedings: at [74]. It provides a “facility for giving 24

25 26

Trustee Act 1958 (Vic), s 77; Succession Act 1981 (Qld), s 68; Trusts Act 1973 (Qld), s 101; Trustee Act 1936 (SA), s 91; Trustees Act 1962 (WA), s 98; Trustee Act 1898 (Tas), s 58; Trustee Act 1893 (NT), s 78. The Queensland Court of Appeal held that special circumstances need not be shown before the court could exercise its discretion under the relevant provision of the Trusts Act 1973 (Qld): Zevering v Callaghan [2012] 1 Qd R 194 at [1]–[2], [49]–[50], [54]. Trustee Act 1925 (NSW), s 86; Trustee Act 1958 (Vic), s 68; Trusts Act 1973 (Qld), s 77; Trustee Act 1898 (Tas), s 53; Trustee Act 1925 (ACT), s 86; Trustee Act 1893 (NT), s 50. Trustee Act 1925 (NSW), s 63; Trusts Act 1973 (Qld), s 96; Trustee Act 1936 (SA), s 91; Trustees Act 1962 (WA), s 92; Trustee Act 1925 (ACT), s 63.

chapter 29 Law of Trusts 27

‘private advice’ … because its function is to give personal protection to the trustee”: at [64]. Relations between the trust and third parties fall within the advice jurisdiction as matters concerning the “management or administration of trust property”: Hodges v Waters (2015) 232 FCR 97 at [54].

Liability for breach of trust [29.650] A trustee is answerable and accountable for their own acts or defaults in the administration of the trust and will be liable to make good any loss suffered by the trust as a result of the breach. The trustee’s obligation is to put the trust estate in the same position it would have enjoyed had the breach not occurred: Re Dawson (decd) [1966] 2 NSWR 211 at 215. A trustee’s failure to fulfil their duty may be active, such as where the trustee profits personally from trust property, or passive, such as where the trustee fails to familiarise themselves with the terms of the trust. Where a trustee has committed a breach of trust, but in the opinion of the court has acted honestly and reasonably and ought fairly to be excused, the court may excuse the trustee wholly or partly from such breach. 28 The court will not excuse a trustee for a breach of trust unless they demonstrate that they acted honestly and reasonably: Re Suncoast Restoration Pty Ltd (in liq) (2013) 211 FCR 203 at [58]–[59]. Where two or more trustees are liable for a breach of trust each may be sued for the whole amount of the loss. As between themselves the trustees usually bear the burden equally, that is, if X pays more than her fair proportion she can claim contribution from the others: Bahin v Hughes (1886) 31 Ch D 390 at 394.

Disclaimer, retirement and removal of trustees and termination of trusteeship [29.660] A trusteeship may cease upon the occurrence of one of the following events:

Disclaimer by trustee [29.670] A person appointed trustee may disclaim the trust unless they have done something which shows acceptance of it. Disclaimer must be of the whole trust. A person is not obliged to accept the position of trustee and may decline to act prior to accepting the office. However, once a person accepts the position, whether by failing to disclaim within a reasonable time after appointment, or by doing some act in relation to the trust property which shows acceptance, the trustee can no longer disclaim the position and must retire from the office. To effect a disclaimer, a deed is usual but is not generally necessary. Disclaimer may even be verbal, or inferred from conduct or from lapse of time.

Retirement of trustee [29.680] A trustee may retire from the trust only in the following ways: (a)

under power contained in the trust instrument;

(b)

under statutory power either by the appointment of a new trustee or without such appointment if at least two trustees, or the Public Trustee, or trustee company, remain;

27 28

See VJ Vann, “The High Court Gives Some Advice to Trustees: The Macedonian Church Case” (2009) 32 Australian Bar Review 123. Trustee Act 1925 (NSW), s 85; Trustee Act 1958 (Vic), s 67; Trusts Act 1973 (Qld), s 76; Trustee Act 1936 (SA), s 56; Trustees Act 1962 (WA), s 75; Trustee Act 1898 (Tas), s 50; Trustee Act 1925 (ACT), s 85; Trustee Act 1893 (NT), s 49A.

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(c)

by consent of all the beneficiaries sui juris; or

(d)

by order of the court.

Removal of trustee [29.690] There are also statutory powers of removal (for example, on bankruptcy). The welfare of the beneficiaries is the chief consideration. A bankrupt trustee will not necessarily be removed unless there is danger to the trust property. Some trust deeds provide that a trustee ceases to hold that position if they become “subject to any bankruptcy law”: Thorne Developments Pty Ltd v Thorne [2016] QCA 63 at [39]. A trustee may be removed from office: (a)

where the trust instrument so provides (now uncommon);

(b)

when the trustee remains out of the State; or

(c)

by the court in its inherent jurisdiction, when the trustee refuses or is unfit to act, or incapable of acting.

Termination of trusteeship [29.700] A trusteeship will terminate upon the occurrence of one of the following events: (a)

where all the beneficiaries, who are of full legal capacity, agree to conclude the trust and release the trustee from her or his obligations;

(b)

where the trustee concludes the administration of the trust;

(c)

where the trustee is removed or retires; or

(d)

upon the death of a trustee (although the trust may continue on foot).

Rights of beneficiaries [29.710] A beneficiary has the following rights: (a)

if all the beneficiaries are of full legal capacity and direct the trustee to transfer the trust property to them, the trust is terminated; in other words, the beneficiaries have the right to end the trust (Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 at 116 (Beav); 282 (ER); CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 at [43], [47]);

(b)

beneficiaries have the rights conferred on them by the trust instrument;

(c)

a beneficiary has the right to be shown accurate accounts relating to the administration of the trust estate, and otherwise to be fully informed by the trustee about trust affairs;

(d)

to compel performance of trust duties by the trustees;

(e)

to restrain a breach of trust by the trustee;

(f)

to sue a trustee for breach of trust;

(g)

to appoint and remove a trustee; or

(h)

to seek the court’s advice on issues concerning administration of the trust estate.

Proprietary remedies [29.720] Where the trustee has improperly sold trust property and converted it into money which has been used to buy other property, this can be “traced” or “followed” and claimed by the beneficiaries

chapter 29 Law of Trusts 29

provided that the means of identification still remain. Subject to some reservations, trust money can be “followed” into the trustee’s private banking account and recovered as property. The right to “follow” is more limited when the property has passed into the hands of third parties. A purchaser for value without notice of the trust is protected but not a person who is not a purchaser: Ministry of Health v Simpson [1951] AC 251 at 269.

Termination of trusts [29.730] A trust will terminate upon the occurrence of one of the following events: [29.740] Distribution of trust assets: When the trust assets are finally distributed to the beneficiaries in accordance with the terms of the trust instrument, the trust will come to an end. [29.750] Court order: The court may order that a trust be terminated and its assets distributed. [29.760] Beneficiaries’ right to terminate: The beneficiaries, all of whom are of full legal capacity, may terminate a trust by directing the trustees to pay them their respective interests in the trust property. [29.770] Sale: A sale of the trust property may terminate the trust. [29.780] Revocation: While a settlor or trustee cannot revoke a trust as of right, they may do so where the trust instrument includes a power to revoke and terminate the trust.

Further reading S Barkehall Thomas and V Vann, Trusts (3rd ed, LexisNexis Butterworths, Sydney, 2016). M Bryan and V Vann, Equity and Trusts in Australia (Cambridge University Press, Melbourne, 2012). T Cockburn, T Carver, A Matthew, Equity and Trusts (4th ed, LexisNexis Butterworths, Sydney, 2014). G Dal Pont, Equity and Trusts in Australia (6th ed, Thomson Reuters, Sydney, 2015). G Dal Pont, Equity and Trusts: Commentary and Materials (6th ed, Thomson Reuters, Sydney, 2015). R Douglas and J Knowler, Trusts: In Principle (Lawbook Co., Sydney, 2006). M Evans and B Jones, Equity and Trusts (3rd ed, LexisNexis Butterworths, Sydney, 2012). JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, LexisNexis Butterworths, Sydney, 2016). JD Heydon and MJ Leeming, Cases and Materials on Equity and Trusts (8th ed, LexisNexis Butterworths, Sydney, 2011). DSK Ong, Trusts Law in Australia (4th ed, Federation Press, Sydney, 2012).

29

M Stone and A McKeough, “Tracing in the Age of Restitution”(2003) 26 University of New South Wales Law Journal 377; S Barkehall Thomas, “Restitution and Innocent Donees: Who Wants to be a Volunteer Anyway?” (2006) 18 Bond Law Review 47; J Edelman, “Understanding Tracing Rules” (2016) 16(2) QUT Law Review 1.

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Intellectual Property [30.20] Copyright .............................................................................................................................................................. 834 [30.1570] Designs........................................................................................................................................................... 875 [30.1780] Patents ........................................................................................................................................................... 883 [30.2180] Trade marks................................................................................................................................................. 902 [30.2560] Passing off .................................................................................................................................................... 915 [30.2600] Character merchandising ..................................................................................................................... 917 [30.2700] Confidential information........................................................................................................................ 919 [30.2770] Franchising ................................................................................................................................................... 922

Introduction [30.10] The expression intellectual property is a general term encompassing the law relating to copyright, designs, patents, trade marks, passing off and confidential information. These particular areas of law are concerned with the legal protection of the creative manifestations of human thought whether in the form of literary, artistic or musical expression, which is the province of copyright law; or in the form of new inventions, which is the concern of patent law. Designs law is primarily concerned with the protection of industrial designs, that is, with the design or appearance of manufactured products. Trade marks law is concerned with the protection of a trader's individual mark or symbol which distinguishes the particular trader's goods or services from those of others in the market place. An action for passing off provides relief against those falsely representing their goods or services as those of another. The law of confidential information concerns the protection of information imparted to another in confidence against unauthorised use or disclosure. The chapter also outlines the method of marketing goods and services by franchising because of the intellectual property aspects of this rapidly growing industry.

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Copyright [30.20] Australian copyright law is contained in the Copyright Act 1968 (Cth) which came into operation on 1 May 1969. The Act repealed earlier copyright legislation then in force and was passed pursuant to s 51(xviii) of the Commonwealth Constitution which empowers the federal Parliament to make laws with respect to copyright, patents of inventions and designs, and trade marks.

Nature of copyright [30.30] Copyright, as its name implies, is basically the right to reproduce or copy a particular form of expression, and thus a right to prevent others from doing so without the authority of the copyright owner. Basically, copyright comprises a number of exclusive rights, for example a right to reproduce or publish, in relation to certain categories of subject matter such as a literary or artistic work, for the term of the copyright. Accordingly, it is an infringement of copyright for a person to do, or authorise the doing of, one of the exclusive rights comprised in the copyright, for example to reproduce or publish a literary or artistic work without the licence or permission of the copyright owner. For copyright to exist in a particular subject matter it must fall within one of the categories recognised by the Copyright Act 1968 (Cth). Both published and unpublished works are protected by the Act. The categories of subject matter recognised by the Act comprise original literary, dramatic, musical and artistic works, and also sound recordings, cinematograph films, radio and television broadcasts, and published editions of works (that is, the typographical arrangement of works). No formal steps by way of registration are necessary for copyright protection: in other words, where copyright exists, it does so automatically.

Subject matter of copyright [30.40] The subject matter of copyright for the purposes of the Copyright Act 1968 (Cth) falls into two broad categories, namely: (a)

copyright in works, that is, original literary, dramatic, musical and artistic works, which are the concern of Pt III of the Act; and

(b)

copyright in subject matter other than works, that is, copyright in sound recordings (for example, CDs), cinematograph films, television and radio broadcasts, and published editions of works (that is, the typographical arrangement of a work). Copyright in such subject matter is dealt with in Pt IV of the Act and is considered separately at [30.750].

It is important to bear in mind that copyright is an incorporeal right, that is, a right to prevent an unauthorised reproduction or copying of one’s work, which is quite distinct from the general rights of property or ownership in the chattel, for example the book or painting, which is copied: Pacific Film Laboratories Pty Ltd v Commissioner of Taxation (1970) 121 CLR 154. In other words, copyright is quite separate from the physical object on which the ideas of the author or artist may be expressed. For example, when a person buys a painting that person will own the physical object, that is, the canvas, but not usually the copyright in the painting itself. Accordingly, in the absence of an assignment (that is, transfer) of copyright, or a licence or permission from the copyright owner (usually the artist), the purchaser may not reproduce the work, and if they do so, will be in breach of the artist’s copyright: Blackwell v Wadsworth (1982) 64 FLR 145.

chapter 30 Intellectual Property

Basis of copyright protection in works [30.50] The Copyright Act 1968 (Cth) deals separately with the question of the subsistence (that is, existence) of copyright in: (a)

unpublished works; and

(b)

published works.

Unpublished works [30.60] Copyright subsists in an unpublished original literary, dramatic, musical or artistic work if the author of the work was a qualified person at the time when the work was made: Copyright Act 1968 (Cth), s 32(1). A qualified person means, in essence, an Australian citizen or a person resident in Australia: s 32(4).

Published works [30.70] Copyright subsists in a published original literary, dramatic, musical or artistic work if: (a)

the first publication of the work took place in Australia; or

(b)

the author of the work was a qualified person at the time when the work was first published (as to the meaning of qualified person, see [30.60]: Copyright Act 1968 (Cth), s 32(2).

A literary, dramatic, musical or artistic work is deemed to have been published only if reproductions of the work have been supplied (whether by sale or otherwise) to the public: s 29(1).

Meaning of an original work [30.80] As we have seen, copyright may subsist in an unpublished or published original literary, dramatic musical or artistic work. This raises the question of what constitutes an original work. If the work in question originates from the author in the sense that it is the result of her or his skill, labour or judgment and is not copied from another, it is an original work for the purposes of copyright law: University of London Press Ltd v University Tutorial Press [1916] 2 Ch 601; Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273 (HL). Copyright may subsist in an original literary, dramatic, musical or artistic work: Copyright Act 1968 (Cth), s 32. These categories of “works” require further explanation.

Literary work [30.90] Literary work has a much broader meaning in copyright law than its conventional usage. The expression is not confined to a work of literature but includes, inter alia, work which is expressed in writing irrespective of whether the quality or style is high: University of London Press Ltd v University Tutorial Press [1916] 2 Ch 601 at 608. In other words, one is not concerned with the question of the quality of a work in determining whether it is a literary work for the purposes of copyright law. The Copyright Act 1968 (Cth) defines “literary work” as including (s 10(1)): (a)

a table or compilation, expressed in words, figures or symbols; and

(b)

a computer program or compilation of computer programs.

The definition of literary work is not exhaustive. Accordingly, the court has to determine whether a particular work is a “literary work” and therefore whether copyright exists in it. For example, it has been held that copyright does not subsist in individual headlines of newspaper articles since they are generally too insubstantial to qualify for protection as literary works: Fairfax Media Publications Pty Ltd v Reed International Books Australia Pty Ltd (2010) 189 FCR 109.

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Compilations [30.100] The definition of literary work includes, inter alia, a table or compilation. Consequently, it has been held that the following constituted a literary work for the purposes of the Copyright Act 1968 (Cth): (a)

football pool coupons (Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273 (HL));

(b)

trade catalogues of motorcycle parts (A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (1996) 65 FCR 478);

(c)

racing programs (Mander v O’Brien [1934] SASR 87); and

(d)

published lists of winning bingo numbers: Mirror Newspapers Ltd v Queensland Newspapers Pty Ltd [1962] Qd R 305.

Compilations are protected as “literary works” under the Copyright Act 1968, provided they are “original”: s 32(1), (2).

case [30.110] Telstra published annual telephone directories consisting of an alphabetical listing of subscribers’ names, addresses and telephone numbers. Another company, Desktop, copied the information in the Telstra directories onto CD-ROMs which they then sold. Desktop argued that there was no copyright in the Telstra directories because they lacked the necessary element of originality. The Full Federal Court held that copyright subsisted in Telstra’s telephone directories as original literary works and that copyright had been infringed by the substantial reproduction of the directories in Desktop’s CD-ROMs. The court held that as regards a compilation of factual material, the requirement of originality will be satisfied where sufficient labour and expense has been involved in collecting the information. It was not necessary to go further and establish some element of creativity by the compiler of the information: Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 119 FCR 491. [30.120] However, the later decision of the High Court in IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458 signals a departure from the approach in Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 119 FCR 491 discussed at [30.110].

case [30.130] In IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458, the Channel Nine television station produced a Weekly Schedule of programs to be broadcast on Nine Network stations. The Weekly Schedules were produced from a database on Nine’s computer network and included particulars of the time and title of programs to be broadcast, additional programming information and synopses of the programs. The Weekly Schedules were distributed to licensees who combined the information with similar information provided by other broadcasters. IceTV accessed the aggregated guides and provided, via the Internet, a subscription-based electronic television guide containing program titles, times, duration and other details. Channel Nine claimed that IceTV had infringed its copyright by copying information from the aggregated guides. The High Court unanimously held (reversing the decision of the Full Federal Court) that IceTV had not infringed copyright since it had not reproduced a substantial part of Nine’s Weekly

chapter 30 Intellectual Property

Schedules. The High Court emphasised that the role of copyright is to protect authors’ particular form of expression of facts and information, not the facts or information themselves. Since IceTV had conceded that copyright subsisted in Nine’s Weekly Schedules, the question of subsistence did not have to be determined by the High Court. However, the High Court did comment on the issue and noted that the reasoning in Desktop Marketing Systems Pty Ltd v Telstra Corporation Ltd (2002) 119 FCR 491, with respect to compilations, may be “out of line with the understanding of copyright law over many years” and that its emphasis on “‘labour and expense’ per se” should be treated “with some caution”: IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239 CLR 458 at [188] per Gummow, Hayne and Heydon JJ. [30.140] Subsequently, in Telstra Corporation Ltd v Phone Directories Co Pty Ltd (2010) 194 FCR 142, an action by Telstra for alleged infringement of copyright in its White Pages and Yellow Pages directories failed on the ground that Telstra was unable to establish that copyright subsisted in the directories. The Full Federal Court held that to establish originality in a literary work, it is essential that the work originate from one or more human authors. In contrast, the directories could not be characterised as having originated from human authors because the compilation of the directories in the form in which they were published was primarily by an automated computerised process. 1

Computer programs [30.150] The definition of literary work set out at [30.90] expressly includes computer programs which are therefore protected by the Copyright Act 1968 (Cth). 2 A computer program is defined as meaning “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result”: s 10(1). 3

Dramatic work [30.160] The essential character of a dramatic work is that it is intended to be represented or performed in some way, such as by acting or dancing. The Copyright Act 1968 (Cth) defines a dramatic work as including a choreographic show (for example, ballet or modern dance) or other dumb show: s 10. The definition also includes a scenario or script for a cinematograph film but does not include the film itself, since copyright in a film is the subject of a separate copyright: see [30.830]. 4

1

See D Lindsay, “Protection of Compilations and Databases after IceTV: Authorship, Originality and the Transformation of Australian Copyright Law” (2012) 38 Monash University Law Review 17; J McCutcheon, “The Vanishing Author in Computer-Generated Works: A Critical Analysis of Recent Australian Case Law” (2012) 36 Melbourne University Law Review 917; J McCutcheon, “Curing the Authorless Void: Protecting Computer-Generated Works following IceTV and Phone Directories” (2013) 37 Melbourne University Law Review 46.

2

A complementary piece of legislation, the Circuit Layouts Act 1989 (Cth) provides special copyright style rights for original circuit layouts for integrated circuits (in essence, the design of a computer chip) called EL (that is, eligible layout) rights. EL rights are protected for 10 years after first commercial exploitation, a much shorter period of protection than under the Copyright Act 1968 (Cth) which is generally the life of the author plus 70 years. For the application of the Copyright Act 1968 (Cth) to computer programs, see Autodesk Inc v Dyason (1992) 173 CLR 330; Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; compare Data Access Corpn v Powerflex Services Pty Ltd (1999) 202 CLR 1. See also, P Knight, “Copyright in Databases and Computer Programs: Why is it so Hard to Understand?” (2010) 21 Australian Intellectual Property Journal 118. See S Bellingham, “Exploring the Boundaries of Copyright Subsistence in Dramatic Works” (2011) 22 Australian Intellectual Property Journal 106.

3

4

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Musical work [30.170] There is no definition of “musical work” in the Copyright Act 1968 (Cth) and consequently, the ordinary meaning of the expression applies. 5

Artistic work [30.180] The Copyright Act 1968 (Cth) (s 10) defines an artistic work as meaning: (a)

a painting, sculpture, drawing, engraving or photograph, whether the work is of artistic quality or not;

(b)

a building or a model of a building, whether the building or model is of artistic quality or not; or

(c)

a work of artistic craftsmanship whether or not mentioned in paragraph (a) or (b).

A number of the expressions used in the definition are further defined. For example, a “drawing” includes a diagram, map, chart or plan: s 10. Accordingly, copyright may subsist in an architect’s plan as an artistic work and if reproduced without permission will constitute an infringement of copyright: see, for example, Ancher Mortlock Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd [1971] 2 NSWLR 278; Clarendon Homes (Aust) Pty Ltd v Henley Arch Pty Ltd (1999) 46 IPR 309. 6

Works of artistic craftsmanship [30.190] For an item to fall within category (c) of the definition of “artistic work” (see [30.180]), it must be a “work of artistic craftsmanship”. Basically, the expression would include all kinds of articles made by craftspersons, for example, jewellery, metal work, pottery, furniture and so on. However, beyond these obvious cases it can be difficult to determine whether a particular object constitutes a “work of artistic craftsmanship”. In its analysis of the expression in Burge v Swarbrick (2007) 232 CLR 336, the High Court said that the phrase is a composite one that needs to be construed as a whole. The issue is one for “objective determination by the court, assisted by admissible evidence” (at [63]). More particularly, the High Court said: “[D]etermining whether a work is ‘a work of artistic craftsmanship’ does not turn on assessing the beauty or aesthetic appeal of work or on assessing any harmony between its visual appeal and its utility. The determination turns on assessing the extent to which the particular work’s artistic expression, in its form, is unconstrained by functional considerations”: at [256].

case [30.200] In Burge v Swarbrick (2007) 232 CLR 336, the respondent, Swarbrick was a naval architect. In the course of designing a new class of yacht, he made a hand-built full-scale model of the hull and deck sections of the yacht. This was known as a “plug” and was the precursor for the creation of fibreglass moulds used for reproducing the design. A number of yachts were made from the moulds and sold to customers. The appellants obtained a hull and deck moulding of the yacht from a former employee of the respondent and intended to manufacture and sell the yachts. The respondent, Swarbrick (the plaintiff in the original proceedings), had contended, inter alia, that the 5 6

See WPH Forrest, “Musicological and Legal Perspectives on Music Borrowing: Past Present and Future” (2011) 22 Australian Intellectual Property Journal 137. On indigenous works, see M Wyburn, “Protecting the Works of Indigenous Artists Under Copyright Law and at its Borders” (2012) 86 Australian Law Journal 829.

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“plug” hull and deck mouldings of the yacht were works of artistic craftsmanship and had obtained an injunction restraining the appellants from, in effect, copying his yacht design. The High Court allowed the appellant’s appeal and held that the “plug” of the yacht did not constitute “a work of artistic craftsmanship”. The court said that the “plug” was primarily influenced by functional and utilitarian considerations such as how to make the yacht travel faster rather than by artistic or aesthetic considerations. Since the “plug” was not “a work of artistic craftsmanship”, it followed that the hull and deck moulds made from it were also not works of that character and the same applied to the hull and deck mouldings.

Copyright does not protect ideas as such [30.210] A basic principle of copyright law is that copyright does not protect ideas as such but only the particular form of expression in which they are embodied. This principle can be seen in Donoghue v Allied Newspapers Ltd [1938] 1 Ch 106:

case [30.220] In Donoghue v Allied Newspapers Ltd [1938] 1 Ch 106, the plaintiff, a famous jockey, recounted his racing experiences to a journalist who wrote articles based on what the jockey had told him. The articles were published in a newspaper. The court rejected the plaintiff jockey’s argument that he was an author of the articles. In the course of his judgment Farwell J said (at 109): “This at any rate is clear beyond all question, that there is no copyright in an idea, or in ideas. A person may have a brilliant idea for a story, or for a picture, or for a play, and one which appears to him to be original; but if he communicates that idea to an author or an artist or a playwright, the production which is the result of the communication of the idea to the author or the artist or the playwright is the copyright of the person who has clothed the idea in form, whether by means of a picture, a play, or a book, and the owner of the idea has no rights in the product.” [30.230] Once the idea has been reduced to some material form, for example in a novel, painting or drawing, then although copyright law will protect the formulated expression of the idea as seen, for example in the series of events or pattern of incidents set down in the novel, it does not protect the general idea or concept behind the work. The distinction between the general idea or concept behind a work that is not protected by copyright, and the formulated expression of the idea which is protected, is often difficult to draw. In Zeccola v Universal City Studios Inc (1982) 46 ALR 189, Lockhart and Fitzgerald JJ stated the basic position as follows (at 192): “In general, there is no copyright in the central idea or theme of a story or play, however original it may be; copyright subsists in the combination of situations, events and scenes which constitute the particular working out or expression of the idea or theme. If these are totally different, the taking of the idea or theme does not constitute an infringement of copyright.” In that case it was held that an Italian film had gone beyond merely taking the basic idea of a killer shark terrorising a community but had copied many of the incidents from the book and script on which Jaws the film was based and therefore had prima facie infringed copyright. By way of contrast, the United Kingdom Court of Appeal held that the popular thriller, The Da Vinci Code, had not infringed copyright in an earlier non-fiction work, The Holy Blood and the Holy Grail,

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which had raised a number of the themes of historical conjecture which provided the background to The Da Vinci Code: Baigent v Random House Group Ltd [2007] All ER (D) 456; (2007) 72 IPR 195.

Ownership of copyright General principles [30.240] The general rule is that the author of a literary, dramatic, musical or artistic work is the owner of the copyright in the work: Copyright Act 1968 (Cth), s 35(2). The Act does not define author (except in relation to photographs) but the term means, in essence, the person who created the work in the sense of originating the particular form of literary, dramatic, musical or artistic expression: Donoghue v Allied Newspapers Ltd [1938] 1 Ch 106. Author in relation to a photograph taken after the commencement of the Act, that is, 1 May 1969, means the person who took the photograph: s 10.

Statutory exceptions [30.250] There are certain statutory exceptions to the general rule that the author of the work is the owner of the copyright in the work. These are as follows:

Works created in the course of employment [30.260] Where a literary, dramatic, artistic or musical work is made by the author “in pursuance of the terms of his or her employment” under a contract of service or apprenticeship, the employer is the owner of copyright in the work (Copyright Act 1968 (Cth), s 35(6)): Beloff v Pressdram Ltd [1973] 1 All ER 241. The expression “in pursuance of the terms of his or her employment” raises for consideration not only the question of whether the author was employed under a contract of service at the time a work is made but also “whether the relevant work is made in furtherance of the contract of employment with the employer. That is, did the employee make the work because the contract of employment expressly or impliedly required or at least authorised the work to be made”: Edsonic Pty Ltd v Cassidy (2010) 189 FCR 271 at [41] per Moore J. If the contract between the parties is not one of service (that is, if the relationship between the parties is not that of employer and employee) but a contract for services, the author of the work will retain copyright in it subject to any contrary agreement between the parties. This can be of considerable importance because a good deal of copyright material is created by people who work on a freelance or consultancy basis, and in those circumstances they remain the owner of any copyright material they produce unless the contract provides otherwise: Oceanroutes (Aust) Pty Ltd v MC Lamond [1984] AIPC 90-134.

Special provisions for journalists [30.270] Under the Copyright Act 1968 (Cth) special provisions apply to journalists employed by newspapers and magazines. The provisions apply where a literary, dramatic or artistic work: (a)

is made by the author (that is, a journalist) under the terms of their employment by the proprietor of a newspaper, magazine or similar periodical under a contract of service; and

(b)

is made for the purpose of inclusion in a newspaper, magazine or similar periodical. In such a case, the author (that is, the journalist) is the owner of the copyright only in so far as the copyright relates to: (i)

reproduction of the work for the purpose of inclusion in a book; or

(ii)

reproduction of the work in the form of a hard copy facsimile (that is, a photocopy) made from a paper edition of an issue of the newspaper, magazine or similar periodical.

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The proprietor of the newspaper or magazine is the owner of copyright for any other purpose: s 35(4).

case [30.280] Three articles of a journalist employed by a metropolitan newspaper were photocopied by a company as part of its press-clipping and news-monitoring service for distribution to its subscribers. It was held that the journalist was entitled to sue the company for infringement of his copyright in the articles he had written for the newspaper: De Garis v Neville Jeffress Pidler Pty Ltd (1990) 37 FCR 99. Although the case was decided under an earlier provision of the Copyright Act 1968 (Cth), the result would be the same under the current section. [30.290] The newspaper proprietor owns copyright in the work of their employed journalists for inclusion of the work in some form of electronic transmission including, for example, computer networks, computer databases or pay-TV services. Self-employed or freelance journalists retain all rights in their works, subject to a provision of their contract to the contrary.

Certain commissioned artistic works [30.300] The general principle in relation to commissioned works is that the author of the work, not the person who commissioned it, is the owner of the copyright unless there is agreement to the contrary: Blackwell v Wadsworth (1982) 64 FLR 145. However, the Copyright Act 1968 (Cth) makes special provision for ownership of copyright for certain commissioned artistic works, namely, photographs taken for a private or domestic purpose, portraits and engravings: s 35(5). The latter section provides, in effect, that where A makes an agreement with B for the taking of a photograph for a private or domestic purpose, the painting or drawing of a portrait, or the making of an engraving by B, A is the owner of any copyright in the work if the agreement is made for valuable consideration and the work is made in pursuance of the agreement. A photograph taken for a private or domestic purpose is defined as including a portrait of family members, a wedding party or children: s 35(7). The section further provides that if at the time the agreement was made A made known to B, expressly or by implication, the purpose for which the work was required, B is entitled to restrain the doing of any act comprised in the copyright in the work otherwise than for that purpose: s 35(5). One effect is that a commercial photographer may license future uses of their photographs where such photographs are not commissioned for a private or domestic purpose. Apart from these limited exceptions, the person who was commissioned to do the work will retain copyright in it and accordingly will be entitled to use the work for other purposes: Cope Allman (Marrickville) Ltd v Farrow (1984) 3 IPR 567. The provisions may be excluded or modified by agreement.

Rights comprised in copyright and infringement [30.310] Copyright comprises certain exclusive rights in relation to specified subject matter. In the case of a literary, dramatic or musical work, the Copyright Act 1968 (Cth), s 31(1)(a) provides that copyright is the exclusive right to do all or any of the following acts: (i)

to reproduce the work in a material form;

(ii)

to publish the work;

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(iii)

to perform the work in public;

(iv)

to communicate the work to the public;

(v)

to make an adaptation of the work;

(vi)

to do, in relation to a work that is an adaptation of another work, any of the aforementioned acts.

Copyright in the case of an artistic work is the exclusive right to do all or any of the following acts (s 31(1)(b)): (i)

to reproduce the work in a material form;

(ii)

to publish the work;

(iii)

to communicate the work to the public.

The Copyright Act 1968 also includes a commercial rental right in respect of computer programs (s 31(1)(d)), and literary, musical or dramatic works reproduced in a sound recording (for example, a CD or tape): s 31(1)(c) (see further, [30.420]). Copyright in a literary, dramatic, musical or artistic work is infringed by a person who, not being the owner of the copyright (and without the licence of the owner), does or authorises the doing in Australia of any act comprised in the copyright: s 36(1). The nature of the exclusive rights of the copyright owner set out above requires further explanation.

Reproduction in a material form [30.320] Copyright protects against unauthorised reproduction of a work in a material form: Copyright Act 1968 (Cth), s 31(1)(a)(i), (b)(i). The infringing act need not be done in relation to the whole of the work: it is sufficient if it is done in relation to a substantial part of the work: s 14(1). In other words, to establish an infringement of copyright it is not necessary to show, for example, that the whole of the work was copied, it is sufficient that a substantial part of the work was reproduced. What constitutes a substantial reproduction in any particular case is a question of fact to be determined having regard to all the circumstances. The most important factor is the quality of what is taken rather than the quantity: Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273 (HL). For example, to copy a few bars of music of a popular song may constitute a substantial reproduction where the bars copied constitute the main theme of the song: Hawkes & Son (London) Ltd v Paramount Film Service Ltd [1934] 1 Ch 593. In EMI Songs Australia Pty Ltd v Larrikin Music Publishing Pty Ltd (2011) 191 FCR 444 the Full Federal Court held that the inclusion of two bars of the air or theme of the musical round “Kookaburra Sits in the Old Gum Tree” in a flute riff in the appellants’ recordings of the song “Down Under” constituted an infringement of the respondent’s copyright in the “Kookaburra” round. The exclusive right being considered is the exclusive right of the copyright owner to reproduce the work in a material form. Reproduction in the present context essentially means copying, and to establish infringement of copyright on this ground requires proof of: (a)

a sufficient degree of objective similarity between the plaintiff’s and the defendant’s work, that is, the defendant must have produced a work which closely resembles the plaintiff’s; and

(b)

a causal connection between the two works, that is, the defendant’s work must be derived directly or indirectly from the plaintiff’s copyright work.

The general position was succinctly stated in the High Court by Gibbs CJ in SW Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466 at 472, as follows: “The notion of reproduction, for the purposes of copyright law, involves two elements – resemblance to, and actual use of, the copyright work, or, to adopt the words which appear in the

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judgment of Willmer LJ in Francis Day & Hunter Ltd v Bron [1963] Ch 587 at 614, ‘a sufficient degree of objective similarity between the two works’ and ‘some causal connection between the plaintiffs’ and the defendants’ work’.” If the defendant can show that, despite the similarity between the two works, he or she was not aware of, or did not have access to, the plaintiff’s work, there will have been no infringement of the plaintiff’s copyright: Francis Day & Hunter Ltd v Bron [1963] Ch 587.

Reproduction where sound recording or film made of the work [30.330] A literary, dramatic, musical or artistic work is deemed to have been reproduced in a material form if a sound recording or cinematograph film is made of the work (Copyright Act 1968 (Cth), s 21(1)); for example, where the words or music of a song are used in making a record of the song without the licence of the copyright owner there will be an infringement of copyright.

Reproduction in a digitised form [30.340] A copyright owner’s exclusive right to reproduce a work now includes, in effect, the right to digitise the work, that is, to convert it into or from a digital or other electronic machine-readable form: Copyright Act 1968 (Cth), s 21(1A).

Reproduction in three-dimensional form [30.350] Copyright in a two-dimensional artistic work is deemed to have been reproduced if a representation of it is produced in a three-dimensional form, or vice versa: Copyright Act 1968 (Cth), s 21(3). For example, the construction of a building by making unauthorised use of an architect’s plans would constitute a reproduction of the plan (the two-dimensional work) in the form of the building (the three-dimensional version of the two-dimensional artistic work) and hence infringement of the architect’s copyright in her or his plans: Ancher Mortlock Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd [1971] 2 NSWLR 278. Similarly, to manufacture a truck trailer which substantially reproduces without permission another company’s sketches and drawings of a trailer constitutes an infringement of copyright in the sketches and drawings: Vawdrey Australia Pty Ltd v Kreuger Transport Equipment Pty Ltd (2009) 261 ALR 269.

Publication [30.360] An author has the exclusive right to publish her or his work: Copyright Act 1968 (Cth), s 31(1)(a)(ii), (b)(ii). The High Court has held that to publish in this context means to make public in Australia that which has not previously been made public: Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88.

Public performance [30.370] Copyright in a literary, dramatic or musical work includes the exclusive right to control public performance of the work: Copyright Act 1968 (Cth), s 31(1)(a)(iii). Basically, a performance of a work given to members of the public is a performance in public unless it is shown to be private or domestic in character. For example, in Australasian Performing Right Assoc v Canterbury-Bankstown League Club Ltd [1964] NSWR 138, it was held that music played by a dance band at a sporting and social club for members and their guests constituted a performance in public and hence an infringement of copyright of the performing rights in the music being played.

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The term performance includes any method of visual or aural presentation: s 27(1). The playing of music over a loudspeaker system in a record shop was held to constitute a performance in public of the music played (Performing Right Society Ltd v Harlequin Record Shop Ltd [1979] 1 WLR 851), as was the playing of music over car radios displayed for sale in a chain of retail automotive equipment shops: Australasian Performing Right Assoc Ltd v Tolbush Pty Ltd [1986] 2 Qd R 146.

case [30.380] A musical work was incorporated in an instructional video cassette and played to 11 employees of the defendant bank at one of its branches prior to opening for business. It was held that this constituted a public performance of the musical work which, since it was unauthorised, constituted an infringement of copyright: Australasian Performing Right Assoc Ltd v Commonwealth Bank of Australia (1992) 40 FCR 59.

Australasian Performing Right Association (APRA) [30.390] Copyright in the performing rights of most popular music played in Australia is usually assigned to the Australasian Performing Right Association (APRA) and, accordingly, permission should be obtained from APRA to perform such music in public which will usually be granted on payment of the appropriate licence fee. The revenue collected by APRA is distributed to the members of the Association comprising composers and publishers of musical works.

Communication of the work to the public [30.400] The Copyright Amendment (Digital Agenda) Act 2000 (Cth) introduced a broadly-based, technology neutral right of communication to the public. The right is an exclusive right in literary, dramatic, musical and artistic works (Copyright Act 1968 (Cth), ss 31(1)(a)(iv) and 31(1)(b)(iii)), and sound recordings, films and broadcasts: ss 85(1)(c), 86(c) and 87(c), respectively. “Communicate” means to make available online or electronically transmit (whether over a path, or a combination of paths, provided by a material substance or otherwise) a work or other subject matter: s 10(1). The exclusive right of communication to the public replaces and extends the former technology-specific broadcasting right that was limited to wireless broadcasts: it also includes cable transmissions. The right covers making copyright material available online, for example uploading material onto the Internet. The expression “to the public” is defined as meaning to the public within or outside Australia: s 10(1).

Adaptations [30.410] The right to make an adaptation of a literary, dramatic or musical work is one of the exclusive rights conferred on the copyright owner: Copyright Act 1968 (Cth), s 31(1)(a)(vi). Adaptation means a dramatisation of a non-dramatic literary work; a non-dramatic version of a literary work in a dramatic form; a version of a computer program; a translation; a pictorial version of a literary work, and in the case of a musical work an arrangement or transcription of the work: s 10. The copyright owner has the same exclusive rights in the adaptation as he or she had in the original work (s 31(1)(a)(vii)), that is, the right to reproduce, publish, perform in public and communicate the work to the public.

The commercial rental right [30.420] A commercial rental right only applies to: (a)

a sound recording (for example, a CD) (Copyright Act 1968 (Cth), s 85, see [30.760]);

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(b)

a literary, musical or dramatic work reproduced in a sound recording (s 31(1)(c)); and

(c)

a computer program: s 31(1)(d).

The nature of the exclusive right is expressed as a right to enter into a commercial rental arrangement: s 31(5). In essence, the owner of copyright in a sound recording, a work embodied in the recording, or in a computer program, has the exclusive right to rent out the sound recording or computer program for consideration in the course of a business. The Federal Court has rejected the contention that a “movie” embodied in a DVD is, in essence, a computer program and therefore subject to the copyright owner’s right to control commercial rental arrangements in respect of computer programs: Australian Video Retailers Association Ltd v Warner Home Video Pty Ltd (2001) 114 FCR 324.

Authorising infringement of copyright [30.430] Infringement of copyright occurs not only by doing an act comprised in the copyright without the licence of the copyright owner but also by authorising such act: Copyright Act 1968 (Cth), s 36(1). What amounts to an authorisation was considered by the High Court in the University of New South Wales v Moorhouse (1975) 133 CLR 1:

case [30.440] In University of New South Wales v Moorhouse (1975) 133 CLR 1, a graduate of the University of New South Wales made two photocopies of a story on a photocopying machine in the university library. In making the two photocopies of the same story, the graduate had infringed the copyright in the work. However, the proceedings were brought by the author and the publishers not against the graduate but against the university on whose photocopying machines the infringement had occurred. The High Court held that the university had “authorised” the infringement of copyright. The reason was that the university had provided the books and the photocopying machine and taken inadequate steps to warn potential users against possible infringement of copyright. The High Court gave a broad interpretation to the expression “authorises” as meaning sanction, approve or countenance. [30.450] To establish infringement of copyright by authorisation, some connection should exist between the person alleged to have authorised the infringing act and the infringer. That is, the person alleged to have authorised another to commit an infringing act must have had some form of control over the latter at the time the infringing act occurred or, alternatively, have been responsible for placing in the other’s hands materials which by their nature would almost invariably be used for the purpose of an infringing act: RCA Corp v John Fairfax & Sons (1981) 34 ALR 345; WEA International Inc v Hanimex Corp Ltd (1987) 17 FCR 274. The Copyright Act 1968 (Cth) requires that in determining the issue of authorisation, the matters that must be taken into account include: (a)

the extent (if any) of the person’s power to prevent the doing of the act concerned;

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(b)

the nature of any relationship existing between the person and the person who did the act concerned; 7 and

(c)

whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice: s 36(1A).

Importation and sale of infringing copies [30.460] So far we have been concerned with the infringement of copyright by the doing, or authorising of doing, of one or more of the exclusive rights of the copyright owner set out in Copyright Act 1968 (Cth), s 31, for example, reproducing the work in a material form without the licence (that is, consent) of the copyright owner. In addition, the Copyright Act 1968 provides that certain other acts also constitute an infringement of copyright. These are sometimes referred to as secondary infringements as distinct from primary infringements under s 31. These other activities involving an infringement of copyright are: (a)

importing articles which infringe copyright: under s 37; and

(b)

selling or otherwise dealing in articles which infringe copyright: under s 38.

In contrast with infringement of copyright in respect of the owner’s exclusive rights set out in s 31, infringement of copyright by way of importation and/or sale of “infringing articles” under ss 37 and 38 require proof of knowledge on the part of the defendant. That is, there is no liability for the importation and/or sale of the “infringing articles” unless the defendant knew or ought reasonably to have known that the articles being imported or sold infringed copyright.

Importation [30.470] Copyright in a literary, dramatic, musical or artistic work is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for sale, hire or other trade purpose, if the importer knew, or ought reasonably to have known, that if the importer had made the article in Australia it would have constituted an infringement of copyright: Copyright Act 1968 (Cth), s 37. Under this provision if the article imported is an unauthorised reproduction or pirate copy of the plaintiff copyright owner’s work, and the importer knew this, then the importer will infringe copyright by importing the pirate copy.

case [30.480] The respondent company imported carpets from a factory in Vietnam. The carpets reproduced five Aboriginal artworks and substantially reproduced three others, copyright in which was owned by the applicants. The Federal Court held that the company had infringed the applicants’ copyright by importing the carpets. Thus, the managing director of the respondent company knew, or ought reasonably to have known, that had he made the carpets in Australia that making would have constituted an infringement of copyright. The managing director’s knowledge in that respect was imputed to the company, that is both the managing director and the company were held liable for infringement of copyright: Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240.

7

B Scott, “Authorisation under Copyright Law and ’the Nature of any Relationship’” (2011) 22 Australian Intellectual Property Journal 172.

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Parallel importation [30.490] A further important effect of the importation provision is that the article imported might be lawfully made and purchased overseas, that is, be a genuine work, but its importation into Australia will constitute an infringement of the Australian copyright in the work if the making of it in Australia by the importer would have infringed copyright and the importer knew this. The effect of the provision on the importation of genuine goods in which copyright subsists can be seen in the leading decision of the High Court in Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534:

case [30.500] In Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534, Time Incorporated owned the copyright in a series of cookery books. Time Incorporated granted to its affiliate company, Time-Life, an exclusive licence to distribute the books. Angus & Robertson, a Sydney bookseller, wanted to obtain the books to sell in Australia. The bookseller found that it was able to purchase the books by wholesale in America and sell the books cheaper by retail than the price at which it could buy them at wholesale through Time-Life’s authorised distribution channels in Australia. Accordingly, the bookseller purchased 8,400 copies of the book from a Californian book wholesaler. After the sale of the first consignment, Angus & Robertson ordered a further 8,400 copies from the Californian book wholesaler having been warned by Time-Life that its importation and sale of the books was in breach of copyright. Time-Life sought an interlocutory injunction to restrain the bookseller from selling any of the second consignment of books. The High Court held that the importation and sale of the books by Angus & Robertson infringed Time-Life’s copyright under ss 37 and 38 of the Copyright Act 1968 (Cth). The Court rejected the bookseller’s argument that the sale of the books in the US without restriction on their resale in Australia, implied a licence for their importation into this country. In the Court’s view only a positive licence from the copyright owner or exclusive licensee would prevent infringement of copyright (under ss 37 and 38) by the importer.

Relaxation of the restrictions on parallel importation [30.510] In view of the potential anti-competitive effects of the copyright importation provisions, there has been a gradual relaxation of the restrictions on parallel importation by a series of statutory amendments to the importation provisions.

1. Partial relaxation in the case of books [30.520] Following amendments to the Copyright Act 1968 (Cth) in 1991, there has been a partial relaxation of the copyright restrictions on the parallel importation of books. Broadly, books can be imported from overseas without the licence or permission of the copyright owner in the following situations (s 44A): 1.

Where a book is first published outside Australia and not published in Australia within 30 days, it is not an infringement of copyright to import non-pirated copies of the book for commercial purposes. In such a case the right of the copyright owner to control the importation of the book into Australia is permanently lost.

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2.

Where a copyright owner does first publish a book in Australia, or makes copies available within 30 days of first publication overseas, the copyright owner will lose the right to prevent importation by another person to the extent that the copyright owner is unable to meet an order for supply of the book within 90 days.

3.

A single copy of a book may be imported for a customer who does not intend to use the book for commercial purposes.

4.

Multiple copies of books may be imported for a non-profit library. 8

2. Removal of restrictions on parallel importation by reliance on labels and other copyright material accompanying a product [30.530] An overseas copyright owner was formerly able to control the distribution of goods in Australia through its own distribution channels by relying on copyright in a label or packaging of the goods. For example, in RA & A Bailey & Co Ltd v Boccaccio Pty Ltd (1986) 4 NSWLR 701, the overseas manufacturer of the liqueur “Bailey’s Original Irish Cream” was able to prevent the parallel importation of the liqueur by relying on copyright in the distinctive label on the bottle. However, this practice no longer applies following amendment of the Copyright Act 1968 (Cth). It is now provided that it is not an infringement of copyright in a work (for example, an artistic work), a copy of which is, or is on, or embodied in, a non-infringing accessory (for example, a label) to an article, to import the accessory with the article: s 44C. The definition of “accessory” in s 10(1) is wide and includes labels and packaging and also written instructions, warranties and other information provided with an article and instructional records and films. A “non-infringing accessory” is, in essence, an “accessory” made with the permission of the owner of the copyright in the accessory material: s 10(1). If the importation of the accessory is not an infringement of copyright in a work, subsequent commercial dealings with the accessory (for example, sale) are also not infringing acts: s 44C(2).

case [30.540] The respondent imported into Australia from the United States for the purposes of sale genuine Polo Lauren garments. The garments bore the well-known polo player logo which is a representation of a polo player swinging a mallet while astride a cantering polo pony. The garments had been acquired at various trade fairs in the United States where the previous season’s fashions could be purchased at a substantial discount. The appellant sought to prevent the respondent’s importation and sale of the garments relying on its copyright in the logo as an artistic work. The Full Court of the Federal Court upheld the decision at first instance that the logo was a label incorporated into the surface of the garments and therefore an “accessory” 9 and that, in consequence, the respondent could rely on s 44C of the Copyright Act 1968 (Cth) as a defence to the appellant’s action: Polo/Lauren Company LP v Ziliani Holdings Pty Ltd (2008) 173 FCR 266.

8

9

At the time of writing, removal of the remaining restrictions on the parallel importation of books was once again under consideration by the Commonwealth Government. See generally, A Duke and ME Taylor, “Parallel import restrictions: Core intellectual property rights or unjustified restraints on trade?” (2015) 22 Competition & Consumer Law Journal 254. The Copyright Act 1968 (Cth), s 10(1) provides: “accessory, in relation to an article, means one or more of the following: (a) a label affixed to, displayed on, incorporated into the surface of, or accompanying, the article” (emphasis added).

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3. Removal of restrictions on parallel importation of computer software [30.550] The Copyright Amendment (Parallel Importation) Act 2003 (Cth) enacted provisions allowing the parallel importation of legitimate computer software including computer games: see Copyright Act 1968 (Cth), s 44E.

4. Removal of restrictions on parallel importation of certain electronic items [30.560] The Copyright Amendment (Parallel Importation) Act 2003 (Cth), referred to in the previous section, removes the restrictions on the parallel importation of non-infringing copies of an “electronic literary or musical item”. The latter phrase is defined (in s 10) to mean a book, a periodical publication or sheet music in electronic form. As will be discussed at [30.1000], the former restrictions on the parallel importation of sound recordings (for example, CDs) have been removed in recent years.

Sale [30.570] Copyright in a work is infringed by a person who sells or hires an article in Australia if the person knew, or ought reasonably to have known, that the making of the article constituted an infringement of the copyright or, in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted such an infringement: Copyright Act 1968 (Cth), s 38. Accordingly, if a retailer sells articles in which copyright subsists knowing that the articles are pirate copies, or that their importation into Australia infringed copyright, the retailer will be liable for infringement of copyright in selling the infringing articles.

Proof of knowledge [30.580] The provisions as to importation and sale outlined at [30.470] and [30.570] require proof of knowledge on the part of the defendant, that is, that the defendant knew, or ought reasonably to have known, of the necessary facts which would suggest a breach of copyright was being committed: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88.

Statutory defences to an action for infringement [30.590] The Copyright Act 1968 (Cth) contains a number of statutory defences that are available to a defendant who would otherwise be liable for infringement of copyright.

Fair dealing [30.600] The most important statutory defence is that of fair dealing for certain specific purposes. The Copyright Act 1968 (Cth) provides that a fair dealing with a literary, dramatic, musical or artistic work does not constitute an infringement of copyright where the fair dealing was for the purpose of: (a)

research or study (s 40);

(b)

criticism or review (s 41);

(c)

parody or satire (s 41A);

(d)

the reporting of news (s 42); or

(e)

the giving of professional advice by a legal practitioner, patent attorney or trade marks attorney: s 43(2).

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The expression “fair dealing” is not defined by the Copyright Act 1968 (except in relation to copying a work for the purpose of research or study (see [30.650])) and, accordingly, the question of what constitutes a fair dealing requires a careful assessment of the nature and extent of the use of the work in the circumstances of each case.

case [30.610] In Hubbard v Vosper [1972] 2 QB 84, the defendant’s book, entitled the Mindbenders, was highly critical of the cult of Scientology. The book contained substantial extracts from the plaintiff’s writings on the subject. The United Kingdom Court of Appeal held that the defence of fair dealing for the purpose of criticism or review had been made out on the particular facts. [30.620] On the meaning of fair dealing Lord Denning MR said in Hubbard v Vosper [1972] 2 QB 84 at 94: “It is impossible to define what is ‘fair dealing’. It must be a question of degree. You must consider first the number and extent of the quotations and extracts. Are they altogether too many and too long to be fair? Then you must consider the use made of them. If they are used as a basis for comment, criticism or review, that may be fair dealing. If they are used to convey the same information as the author for a rival purpose, that may be unfair. Next, you must consider the proportions. To take long extracts and attach short comments may be unfair. But, short extracts and long comments may be fair. Other considerations may come to mind also. But, after all is said and done, it must be a matter of impression.”

case [30.630] An interlocutory injunction was sought to restrain the intended publication by certain newspapers of extracts from a book containing classified government documents concerning Australian foreign policy. The defence of fair dealing was rejected by the High Court since it was clear that the primary intention was publication of the documents themselves, rather than the publication of extracts for the purpose of criticism or review, or the reporting of news: Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39. [30.640] In De Garis v Neville Jeffress Pidler Pty Ltd (1990) 37 FCR 99 it was held that to photocopy articles from newspapers for distribution to subscribers as part of a press-clipping and news monitoring service did not constitute a fair dealing with the material copied for the purposes of research or study, criticism or review, or for the reporting of news and therefore constituted an infringement of the copyright of those who had written the articles.

Fair dealing – copying for research or study [30.650] The Copyright Act 1968 (Cth) sets out certain criteria to be taken into account in determining whether the copying of a literary, dramatic, musical or artistic work constitutes a fair dealing for the purpose of research or study. These include the purpose and character of the dealing; the nature of the work or adaptation; the possibility of obtaining the work or adaptation within a reasonable time at an ordinary commercial price; the effect of the dealing upon the potential market for, or value of, the work or adaptation; and where part only of the work or adaptation is copied, the amount and substantiality of the part copied in relation to the whole: s 40(2). Reproduction for research or study of all or part of an article in a periodical publication is taken to be a fair dealing (s 40(3)); this does not apply if another article in the publication is reproduced for different

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research or a different course of study: s 40(4). Further, reproduction for research or study of not more than a “reasonable portion” of a work is taken to be a fair dealing: “reasonable portion” is 10 per cent of a published edition of a work (except a computer program) provided it is not less than 10 pages, or one chapter of the work: ss 40(5) and 10(2). The reproduction of part of a literary or dramatic work in electronic form will be taken to contain only a reasonable portion of the work if the number of words copied does not exceed 10 per cent of the number of words in the work or if the work is divided into chapters, a single chapter of the work: s 40(5) and s 10(2A).

Educational copying of broadcast programs [30.660] The Copyright Act 1968 (Cth), Pt VA (ss 135A – 135ZA) provides a statutory licence scheme for educational institutions to copy off-air television and radio broadcasts. The scheme allows a participating institution to copy for educational purposes any program without infringing the broadcasting copyright, or the copyright in any subject matter included in the broadcast, provided the institution complies with certain requirements including the payment of equitable remuneration to the copyright owners. Copyright owners exercise their rights through a single collecting society approved by the Attorney-General.

Educational photocopying [30.670] The Copyright Act 1968 (Cth), Pt VB (ss 135ZB – 135ZZH) provides for the photocopying of works for educational purposes subject to a number of limitations and compliance with certain formalities.

Format-shifting [30.680] The Copyright Act 1968 (Cth) (following amendment by the Copyright Amendment Act 2006 (Cth)) permits a person who has purchased a legitimate copy of some categories of copyright material to make a copy in a different format. The format-shifting provisions apply to four categories of copyright material and provide that it is permissible to copy, without infringing copyright: (a)

the content of a book, newspaper or periodical into another format (for example, this allows a person to scan an article from a newspaper they have purchased to save on their computer) (s 43C);

(b)

a photograph from hardcopy into electronic format, or from electronic format into hardcopy form (47J);

(c)

a sound recording from a CD, tape or record to any other format (for example, this allows a person to store their personal music collection recorded on CDs, audio tapes or vinyl records in the memory of an MP3 player or home entertainment personal computer) (s 109A); and

(d)

a film from video to electronic format: s 110AA.

The provisions allowing format shifting referred to above are subject to a number of conditions: (a)

a person is only able to copy for their own “private and domestic use”;

(b)

a person can only copy from a legitimately purchased or owned original, that is, it is not permissible to copy from a borrowed or pirated copy;

(c)

the provisions do not apply if a copy is sold, let for hire, offered for sale or hire, or distributed for trade or other purposes, or if the owner of the original item disposes of it to another person;

(d)

the copy may be lent to a member of the lender’s family or household for the member’s private and domestic use; and

(e)

a person can only make one copy in any given format.

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Other statutory exceptions to infringement [30.690] The Copyright Act 1968 (Cth) contains other provisions delineating acts that do not constitute an infringement of copyright. These include: (a)

performance in the course of educational instruction (s 28);

(b)

performance of works on for example, a radio or television set, at premises where persons reside or sleep (s 46);

(c)

public reading or recitation of literary or dramatic works (s 45); and

(d)

the making of a painting, drawing or photograph or inclusion in a film or television broadcast of a sculpture situated in a public place or of a building: ss 65 – 67.

Copying Acts of Parliament or judgments [30.700] The Copyright Act 1968 (Cth) provides that it is not an infringement of copyright, or any prerogative right or privilege of the Crown, for an individual to make one copy for herself or himself or another of certain prescribed works by reprographic reproduction: s 182A. These works include the whole or part of a federal, State or Territory Act, or a judgment, order or award of a court or tribunal. Copyright in a literary, dramatic, musical or artistic work is not infringed by anything done for the purposes of a judicial proceeding or of a report of a judicial proceeding: s 43(1).

Statutory licences and the manufacture of records of musical works [30.710] The Copyright Act 1968 (Cth) contains provisions for the grant of statutory licences for the manufacture of recordings of musical works: the relevant provisions are to be found in ss 54 – 64 and s 215 and in the Copyright Regulations 1969 (Cth). The royalty payable in respect of a record is the amount agreed between the manufacturer and the owner of copyright in the work or, if the parties cannot agree, the amount determined by the Copyright Tribunal of Australia or, if there is no agreement or Tribunal determination, the royalty is 6.25 per cent of the retail selling price of the record: Copyright Act 1968 (Cth), s 55. The statutory licence only permits the making of records of musical works (and associated lyrics): it does not permit the copying of sound recordings of musical works made in or imported into Australia.

Duration of copyright in works Literary, dramatic and musical works [30.720] The general rule is that copyright in a literary, dramatic or musical work subsists for 70 years after the end of the calendar year in which the author died: Copyright Act 1968 (Cth), s 33(2). However, if, before the death of the author, the work or an adaptation of it has not been published, performed in public, broadcast, or offered for sale to the public in the form of records, any copyright subsisting in the work will continue to subsist for 70 years after the end of the calendar year in which one of those events happens for the first time: s 33(3).

Artistic works [30.730] Copyright in artistic works subsists for 70 years after the end of the calendar year in which the author died: Copyright Act 1968 (Cth), s 33(2). The term of copyright in engravings published during the life of the author is the same as for other artistic works, that is, the life of the author plus 70 years. However, if the engraving has not been published

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before the death of the author, then copyright continues to subsist in it for 70 years after the end of the calendar year in which the engraving is first published: s 33(5).

Works of joint authorship [30.740] In the case of works of joint authorship, insofar as the duration of copyright is dependent on the life of the author, the period of protection runs from the death of the last surviving joint author: Copyright Act 1968 (Cth), s 80. The Act contains special provisions where a work of joint authorship is first published under two or more names of which one or more (but not all) are pseudonyms: see s 81.

Copyright in subject matter other than works [30.750] While Pt III of the Copyright Act 1968 (Cth) deals with copyright in original works, Pt IV concerns copyright in subject matter other than works, that is: (a)

sound recordings (including CDs, tapes and records);

(b)

cinematograph films (including movies);

(c)

television and sound broadcasts; and

(d)

published editions of works (that is, the typographical arrangement of a work).

Part IV contains provisions dealing with the subsistence, ownership and duration of copyright in respect of each of the categories referred to above. The nature of the exclusive rights in each of those categories is also set out separately as discussed below. Copyright is infringed by a person who, not being the owner of the copyright (and without the licence of the owner), does or authorises the doing in Australia of any act comprised in the copyright: s 101(1). In determining the issue of authorisation, the matters to be taken into account include: (a)

the extent (if any) of the person’s power to prevent the doing of the act concerned;

(b)

the nature of any relationship existing between the person and the person who did the act concerned;

(c)

whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice: s 101(1A).

The High Court held in Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42 that the respondent internet service provider (ISP) was not liable for authorising infringements of copyright by its customers using its facilities to make the appellants’ films available online to be downloaded by others through the use of the BitTorrent peer-to-peer file-sharing system. The ISP had no power to prevent the infringements and could take no reasonable steps to prevent or avoid the infringements (see further, [16.590]–[16.600]). Copyright in Pt IV subject matter (sound recordings, cinematograph films, television and sound broadcasts and published editions of works) is in addition to, and independent of, any copyright subsisting in a work (for example, a literary or musical work under Pt III) embodied in the sound recording, film, broadcast or edition: s 113(1). Each of the categories of subject matter in which copyright may subsist by virtue of Pt IV is discussed in turn.

1. Sound recordings [30.760] A sound recording as defined by the Copyright Act 1968 (Cth) (s 10) includes, for example, CDs and tapes of music.

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Subsistence of copyright [30.770] Copyright subsists in a sound recording provided one of the following factors exists (Copyright Act 1968 (Cth), s 89): (a)

the maker was a qualified person at the time when the recording was made;

(b)

the recording was made in Australia; or

(c)

the first publication of the recording took place in Australia (or in a country to which the Act applies).

Qualified person means an Australian citizen, an Australian protected person, a person resident in Australia, or a body corporate incorporated under a law of the Commonwealth or of a State: s 84. A sound recording is deemed to have been published if, but only if, records embodying the recording or a part of the recording have been supplied (whether by sale or otherwise) to the public: s 29(1)(c).

Exclusive rights [30.780] Copyright in a sound recording is the exclusive right to: (a)

make a copy of the sound recording;

(b)

cause the recording to be heard in public;

(c)

communicate the recording to the public; and

(d)

enter into a commercial rental arrangement in respect of the recording: Copyright Act 1968 (Cth), s 85(1).

The exclusive right to communicate the recording to the public replaces and extends the former exclusive right to broadcast the recording: as to the meaning of “communicate” and “to the public”, see [30.400]. It will be observed that the owner of copyright in a sound recording has an exclusive right to enter into a “commercial rental arrangement”, that is, to rent out the CD for instance. As to the meaning of “commercial rental arrangement”, see [30.420].

Ownership of copyright [30.790] The maker of a sound recording is the owner of copyright in the recording: Copyright Act 1968 (Cth), s 97(2). However, where the maker of the sound recording made it under contract for some other person, then the latter (that is, the party commissioning the making of the recording) is the owner of the copyright in the absence of any agreement to the contrary: s 97(3).

Statutory licences [30.800] The Copyright Act 1968 (Cth) provides for statutory licences to play sound recordings in public and to broadcast them: ss 108, 109. For example, it is not an infringement of copyright in a published sound recording for a person to cause it to be heard in public, or to broadcast it, if the required royalties are paid and the recording has been published in Australia; the royalty is such amount as the parties agree upon or, in default of agreement, the amount determined by the Copyright Tribunal of Australia (ss 108, 151; ss 109, 152): see Reference by Australasian Performing Right Assoc Ltd; Re Australian Broadcasting Corp (1985) 5 IPR 449.

Exception to infringement: format-shifting [30.810] The Copyright Act 1968 (Cth), s 109A permits the owner of a sound recording, for example a CD, to make a copy of the recording for private and domestic use in a different format, for example on an MP3, subject to certain conditions: see [30.680].

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Duration of copyright [30.820] Copyright subsists in a sound recording for 70 years after the end of the calendar year in which the recording is first published: Copyright Act 1968 (Cth), s 93.

2. Cinematograph films [30.830] The Copyright Act 1968 (Cth) defines a cinematograph film as meaning the aggregate of the visual images embodied in an article or thing so as to be capable by the use of that article or thing of being shown as a moving picture, and includes the aggregate of the sounds embodied in a soundtrack associated with such visual images: s 10.

case [30.840] A computer video game has been held to be a cinematograph film notwithstanding that the game’s visual images were created by a computer running a computer program: Galaxy Electronics Pty Ltd v Sega Enterprises Ltd (1997) 75 FCR 8.

Subsistence of copyright [30.850] Copyright subsists in a cinematograph film if either: (a)

the maker was a qualified person for the whole or a substantial part of the period during which the film was made;

(b)

the film was made in Australia; or

(c)

the first publication of the film took place in Australia: Copyright Act 1968 (Cth), s 90 (for the meaning of “qualified person”, see [30.770]).

A cinematograph film is deemed to have been published if copies of the film have been sold, let on hire, or offered or exposed for sale or hire to the public: s 29(1)(b).

Exclusive rights [30.860] Copyright in a cinematograph film is the exclusive right: (a)

to make a copy of the film;

(b)

to cause the film to be seen or heard in public; and

(c)

to communicate the film to the public.

The exclusive right to communicate the film to the public replaces and extends the former exclusive right to broadcast the film. As to the meaning of “communicate” and “to the public”, see [30.400].

Ownership of copyright [30.870] The owner of the copyright in a cinematograph film is the maker of the film: Copyright Act 1968 (Cth), s 98(2). The maker of a film is the person who does the things necessary for the production of the first copy of the film: s 22(4). However, where the maker of the film has made it under contract for some other person, then the latter (that is, the party commissioning the making of the film) is the copyright owner in the absence of any agreement to the contrary: s 98(3).

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Exception to infringement: format-shifting [30.880] The Copyright Act 1968 (Cth), s 110AA permits the owner of a videotape embodying a cinematograph film to make a copy of the film in electronic form for his or her private and domestic use subject to certain conditions: see [30.680].

Duration of copyright [30.890] Where copyright subsists in a cinematograph film under the Copyright Act 1968 (Cth) it continues to subsist until the film is published, and thereafter for 70 years after the end of the calendar year in which the film is first published: s 94(1).

3. Television and sound broadcasts [30.900] The Copyright Act 1968 (Cth) defines television broadcast as meaning visual images broadcast by way of television, together with any sounds broadcast for reception along with those images: s 10. A sound broadcast means sounds broadcast otherwise than as part of a television broadcast. A broadcast is a communication to the public delivered by a broadcasting service within the meaning of the Broadcasting Services Act 1992 (Cth).

Subsistence of copyright [30.910] Copyright subsists in a television broadcast or a sound broadcast made from a place in Australia: (a)

under the authority of a licence under the Broadcasting Services Act 1992 (Cth); or

(b)

by the Australian Broadcasting Corporation (ABC) or the Special Broadcasting Service Corporation (SBS): Copyright Act 1968 (Cth), s 91.

Exclusive rights [30.920] Copyright in relation to a television broadcast or sound broadcast is the exclusive right: (a)

in the case of a television broadcast insofar as it consists of visual images, to make a cinematograph film of the broadcast, or a copy of such a film;

(b)

in the case of a sound broadcast or television broadcast, so far as it consists of sounds, to make a sound recording of the broadcast, or a copy of such a sound recording; and

(c)

in the case of a television or sound broadcast, to rebroadcast it or otherwise communicate it to the public: Copyright Act 1968 (Cth), s 87.

case [30.930] Network Ten used excerpts from Channel Nine programs as part of its satirical program, The Panel. The excerpts ranged from eight seconds to 42 seconds in duration. The Full Federal Court held that Network Ten, by making a video tape (that is, cinematograph film) of the excerpts (see Copyright Act 1968 (Cth), s 87(a) at [30.920]) and rebroadcasting them (see s 87(c) at [30.920]), had infringed copyright in Channel Nine’s television broadcasts from which the excerpts were extracted. The High Court (by a majority of 3:2) allowed Channel Ten’s appeal. In doing so, the High Court rejected the Full Court’s decision that each visual image capable of being observed as a separate image on a television screen and accompanying sounds is “a television broadcast” in which copyright subsists. The High Court held “a television broadcast” comprised a television program identified by a title such as The Today Show, Wide World of Sports etc. The issue therefore was whether the excerpts

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broadcast by Channel Ten constituted a substantial part of the Channel Nine programs for the purposes of s 14(1) and the case was remitted back to the Full Federal Court to be decided on the basis of the High Court’s decision: Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273. In later proceedings, the Full Federal Court emphasised that substantiality involves a question of quality and not primarily quantity. The majority held that a substantial part of six of the eleven programs was copied by re-broadcasting extracts that were material, important, central or which were highlights. However, the extracts of five of the programs were held not to be substantial because they were insignificant in the context of the program: TCN Channel Nine Pty Ltd v Network Ten Pty Ltd (No 2) (2005) 145 FCR 35. [30.940] As to the meaning of “communicate” and “to the public”, in relation to the exclusive right to communicate the broadcast to the public in (c) at [30.920], see [30.400].

Ownership of copyright [30.950] The maker of a television or sound broadcast is the owner of any copyright subsisting in the broadcast: Copyright Act 1968 (Cth), s 99. A broadcast is taken to have been made by the person who provided the broadcasting service by which the broadcast was delivered: s 22(5).

Exception to infringement: time-shifting [30.960] The Copyright Act 1968 (Cth), s 111 (following amendment by the Copyright Amendment Act 2006 (Cth)) permits “time-shifting”, that is, the recording of broadcasts for replaying at a more convenient time than when the broadcast is made. More specifically, it is not an infringement of copyright to make a cinematograph film or sound recording of a broadcast solely for private or domestic use by watching or listening to the broadcast at a more convenient time: s 111(1). The making of the film or recording does not infringe copyright either in the broadcast itself or in any work or other subject matter included in the broadcast: s 111(2). If a copy is sold, let for hire, offered for sale or hire, or distributed for trade or other purposes then the recording becomes an infringing copy: s 111(3). The person making the recording may lend it to a member of their family or household for the member’s private and domestic use: s 111(4). The Full Federal Court held that the provision did not apply to an electronic subscription service provided by Optus which allowed its customers to play back television broadcasts of football matches at a later time on their mobile devices or personal computers: National Rugby League Investments Pty Ltd v Singtel Optus Pty Ltd (2012) 201 FCR 147; see further, [16.570]–[16.580].

Duration of copyright [30.970] Copyright in a television or sound broadcast subsists until the expiration of 50 years after the end of the calendar year in which the broadcast was made: Copyright Act 1968 (Cth), s 95(1).

4. Published editions [30.980] The Copyright Act 1968 (Cth) provides for copyright in a new published edition of a literary, dramatic, musical or artistic work: s 92. Thus, copyright subsists in the typographical arrangement of the printed pages separate from any copyright that may subsist in the material published. Copyright subsists in a published edition of a work where the first publication of the edition took place in Australia, or the publisher of the edition was a qualified person at the date of the first publication of the edition (as to the meaning of “qualified person”, see [30.770]). An edition of a work is deemed to have been published if reproductions of the edition have been supplied (whether by sale or otherwise) to the public: s 29(1).

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Copyright in a published edition of a literary, dramatic, musical or artistic work is the exclusive right to make a facsimile copy of the edition: s 88. The owner of the copyright is the publisher of the edition: s 100. Copyright in a published edition of a work subsists for 25 years after the end of the year in which the edition was first published: s 96.

Importation and sale [30.990] Part IV (ss 102, 103) of the Copyright Act 1968 (Cth) contains analogous provisions to those found in Pt III (ss 37, 38, [30.460]) under which it is an infringement of copyright for a person to import an article into Australia for sale or hire if it would have been an infringement of copyright for the importer to have made the article in Australia and the importer knew, or ought reasonably to have known, this: s 102. Similarly, it is an infringement for a person to sell or hire an article if the person knew, or ought reasonably to have known, that the making of the article constituted an infringement of the copyright or, in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted such an infringement: s 103. The importation and sale provisions can be used to prevent the sale of pirate copies of CDs, tapes and videos, provided the requisite knowledge on the part of the retailer that they were infringing copies can be shown: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88. Furthermore, importers are strictly liable for the importation of goods with, for example, pirate labelling or packaging: s 102(2).

Removal of the restrictions on the parallel importation of sound recordings [30.1000] Formerly, ss 102 and 103 of the Copyright Act 1968 (Cth) were frequently used by the overseas owners of the Australian copyright in CDs and tapes to prevent their importation other than through authorised Australian distributors. However, the use of the importation and sale provisions in ss 102 and 103 to prevent the parallel importation of genuine copies of CDs and tapes from overseas has been effectively removed. It is now provided that it is not an infringement of copyright in a work (that is, a musical, dramatic or literary work) recorded in a sound recording (including CDs and tapes), nor is it an infringement of copyright in the sound recording itself, to import a non-infringing copy of the sound recording into Australia and to deal commercially with that copy: ss 44D and 112D. It is important to observe that the provisions permitting the parallel importation of sound recordings only apply to legitimate (as distinct from pirate) sound recordings, referred to in the Act as a “non-infringing copy” as defined in s 10AA. Further, if the importation of a sound recording is challenged, the onus is on the importer or seller to establish that it is genuine: s 130A.

Statutory defences Fair dealing [30.1010] Originally, the defence of fair dealing was only applicable in respect of works, that is, literary, dramatic, musical and artistic works. However, it is now provided that a fair dealing with an “audio-visual item” (that is, a sound recording, a cinematograph film, and a sound or television broadcast (Copyright Act 1968 (Cth), s 100A)), does not constitute an infringement of the copyright in the item, or in any work or other audio-visual item included in the item, if it is for one of the following purposes: (a)

criticism or review – provided a sufficient acknowledgment of the work is made (s 103A);

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(b)

parody or satire (s 103AA);

(c)

the reporting of news – either in a newspaper, magazine or similar periodical (with acknowledgment), or by means of a communication or in a cinematograph film (s 103B); or

(d)

research or study: s 103C.

In determining whether a dealing with an audio-visual item constitutes a fair dealing for the purpose of research or study, regard is to be had to a number of matters including: (a)

the purpose and character of the dealing;

(b)

the nature of the audio-visual item;

(c)

the possibility of obtaining the audio-visual item within a reasonable time at an ordinary commercial price;

(d)

the effect of the dealing on the potential market for, or value of, the audio-visual item; and

(e)

where only a part of the audio-visual item is copied, the amount and substantiality of the part copied in relation to the whole item.

Acts done for purposes of judicial proceedings [30.1020] Copyright subsisting by virtue of Pt IV of the Copyright Act 1968 (Cth), that is, in sound recordings, cinematograph films, television and sound broadcasts, and published editions of works, is not infringed by anything done: (a)

for the purposes of a judicial proceeding or a report of a judicial proceeding;

(b)

for the purpose of seeking professional advice from, or the giving of professional advice by, a legal practitioner, patent attorney or trade marks attorney: s 104.

Assignments and licences [30.1030] Copyright can be dealt with in the same way as other forms of personal property. It can be assigned, included in a will or passed on according to the laws relating to intestacy: Copyright Act 1968 (Cth), s 196(1).

Assignments [30.1040] An assignment must be in writing and signed by or on behalf of the assignor, that is, the copyright owner, in order to be effective against third parties: Copyright Act 1968 (Cth), s 196(3). Partial assignments are generally permissible: thus, an assignment may be limited to one or more of the exclusive rights comprised in the copyright, or to rights not separately specified in the Act as being comprised in the copyright (for example, serial rights) but which fall within one of the classes of acts which the copyright owner is given the exclusive right to do (for example, to reproduce the work in a material form). Further, the assignment may be limited as to time or geographical area: s 196(2). Consequently, there may be a number of legal owners entitled to copyright according to their respective interests, independently of the other owners: s 30. Each legal owner has a right to sue, for example, for damages to compensate for breach of copyright according to the nature of their interest.

Licences [30.1050] A licence is to be distinguished from an assignment. In the case of an assignment there is a transfer of copyright to the assignee that vests the copyright in the assignee, whereas a licence authorises the licensee to do an act that without the licence would constitute an infringement of copyright. A licence is as

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effective and enforceable against successors in title of the grantor of the licence as it was against the grantor: Copyright Act 1968 (Cth), s 196(4). A licence may be exclusive or non-exclusive.

Exclusive licence [30.1060] An exclusive licence must be in writing, signed by or on behalf of the owner or prospective owner of the copyright, authorising the licensee to the exclusion of all other persons (including the grantor) to do an act that the owner of the copyright would have the exclusive right to do but for the licence: see definition of “exclusive licence” in Copyright Act 1968 (Cth), s 10, and Young v Odeon Music House Pty Ltd (1976) 10 ALR 153. The Copyright Act 1968 gives the exclusive licensee a right of action concurrent with that of the owner of the copyright in relation to the remedies of injunction, damages or account of profits provided by s 115, and an exclusive right of action for conversion or detention provided by s 116 in respect of infringing copies: s 119; see also ss 120 – 125. On the remedies for infringement generally, see [30.1100].

Implied licences [30.1070] A licence that is not exclusive may be oral or implied by conduct or the custom of the trade, since only an exclusive licence must be in writing. For example, where an author is engaged for a fee to prepare a particular work which would of its nature be reproduced, there is an implied permission or consent by the author for use of the work in the manner and for the purpose contemplated between the parties at the time of the engagement: Beck v Montana Constructions Pty Ltd [1964] NSWR 229. In that case, it was held that payment by the owner of land for an architect’s sketch plans included implied permission or consent to use the plans for the purpose of building a structure on the land in substantial accordance with the plans and the right to transfer them to the new owner of the land. This principle appears to have been accepted by the High Court in Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577, at least in circumstances where the architect is paid a professional fee to prepare the plans and drawings. However, such implied licence may be excluded either by an express provision of the contract or if it is inconsistent with the terms of the contract: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 37 IPR 477:

case [30.1080] In Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 37 IPR 477 an engineer prepared plans for a client for the construction of a building. The contract provided that a licence to use the plans was granted to the client only and prohibited assignment of the benefit of the contract without the consent in writing of the engineer. The client, who was in financial difficulty and had not paid for the plans, sold the building site to a developer who used the engineer’s plans to construct the building. It was held by the Full Federal Court that any term which otherwise might be implied in the contract between the engineer and the client was superseded or supplanted by the terms of the contract. Accordingly, the use of the plans by the developer to construct the building constituted an infringement of the engineer’s copyright in the plans.

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Transfer of future copyright [30.1090] A future copyright is also transferable either wholly or partially. Where an agreement is made assigning a copyright not yet in existence (for example, in a contract by an author with a publisher to write a book), the copyright vests in the assignee (for example, the publisher) when it comes into existence: Copyright Act 1968 (Cth), s 197(1).

Remedies for infringement of copyright [30.1100] The civil remedies available for infringement of copyright are: (a)

an injunction;

(b)

damages;

(c)

an account of profits;

(d)

additional damages;

(e)

damages for conversion; and

(f)

delivery up of infringing copies or plates used for making such copies: Copyright Act 1968 (Cth), ss 115, 116.

Injunction [30.1110] The Copyright Act 1968 (Cth) provides that a court may grant an injunction for infringement of copyright subject to such terms, if any, as the court thinks fit. The court may grant either an interlocutory or final injunction to restrain the infringement or threatened infringement. To obtain a final injunction the plaintiff must prove an infringement which is likely to continue or a strong case of threatened infringement, and at least a probability of damage, although actual damage need not be proved: Sydney Organising Committee for the Olympic Games v Clarke (1998) 41 IPR 403. An interlocutory injunction is an injunction granted before the trial of the action to ensure that the specified acts do not take place pending the trial and the final determination of the rights of the parties. In determining whether to grant an interlocutory injunction, the court must first inquire whether there is a serious question to be tried and then consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief being sought: Hinchliff v Abu-Dabat (1998) 41 IPR 400. What is meant by balance of convenience in this context is whether the inconvenience or injury that the plaintiff would be likely to suffer if an injunction was refused, outweighs or is outweighed by the injury which the defendant would suffer if an injunction was granted.

Damages [30.1120] In an action for infringement of copyright the court may grant either damages or an account of profits: Copyright Act 1968 (Cth), s 115(2). These remedies are alternative not cumulative. Accordingly, if a plaintiff elects to seek damages for infringement, they cannot obtain relief by way of an account of profits and vice versa. In appropriate cases, the measure of damages may be assessed as the price the infringer would have had to pay had they obtained a licence or permission to use the work.

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case [30.1130] The appellant project builder was awarded $3,000 against the respondents, a husband and wife, who had used the appellants’ floor plan with some slight modifications to have a house built for them by another builder since they regarded the appellant builder’s price for building the house as too high. The damages were assessed on the basis of what would be the appropriate licence fee for the user of the plans in question: Caj Amadio Constructions Pty Ltd v Kitchen (1991) 23 IPR 284; see similarly, Tolmark Homes Pty Ltd v Paul (1999) 46 IPR 321.

The “innocent infringer” defence [30.1140] Where in an action for infringement of copyright it is established that an infringement was committed but it is also established that at the time of the infringement the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting infringement was an infringement, the plaintiff cannot recover damages for the infringement although he or she is entitled to an account of profits: Copyright Act 1968 (Cth), s 115(3).

case [30.1150] The plaintiff builder had given a couple a plan for building a house on land which they owned. The couple made a pencil sketch of the plan which they showed the first defendant, another builder. The defendant builder suggested that a draftsman prepare a more detailed plan which was done and the house was built by the first defendant builder. It was held that the pencil sketch made by the couple, the plans drawn up by the draftsman, and the house built by the defendant builder all infringed copyright in the plaintiff builder’s plan. However, it was further held that the defendant builder was not liable for damages for infringement because he was unaware of the plaintiff’s copyright in the plan and hence was able to make out the “innocent infringer” defence. Accordingly, only the couple were liable for infringement of the plaintiff’s copyright: Kiama Constructions v MC Casella Building Co Pty Ltd (1980) 10 IPR 345; see also, Golden Editions Pty Ltd v Polygram Pty Ltd (1996) 61 FCR 479.

Account of profits [30.1160] A court may order an account of profits in an action for infringement of copyright: Copyright Act 1968 (Cth), s 115(2). An account of profits is an equitable remedy and, accordingly, the court has a discretion whether to order an account. The purpose of the remedy is not to punish the infringer but to prevent unjust enrichment. An account of profits may be awarded even if the infringer was unaware and had no reasonable grounds for suspecting there was an infringement of copyright: s 115(3). In quantifying an account of profits, it is only those profits that can be attributed to the infringing use that will be awarded. Accordingly, without any evidence to demonstrate the profits actually made attributable to the infringing use, an account of profits will not be awarded: Facton Ltd v Toast Sales Group Pty Ltd (2012) 205 FCR 378.

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Where an order for an account of profits is made, the applicant is entitled to recover a sum which represents that proportion of the respondent’s profit which was fairly attributable to the infringement of the applicant’s copyright: Robert J Zupanovich Pty Ltd v B & N Beale Nominees Pty Ltd (1995) 59 FCR 49.

case [30.1170] The plaintiff company was a project home builder. It successfully argued that the building plans for some 90 houses built by the defendant company, which was also a project home builder, infringed copyright in nine of the plaintiff’s floor plans. It was held that the plaintiff company was entitled to 35 per cent of the defendant company’s profits as the amount calculated as being derived by the defendant as a result of its infringement of the plaintiff’s copyright. This figure was based on the plaintiff being entitled to the proportion of the defendant’s building profit that fairly reflected the extent to which the infringing plans (as opposed to other factors) induced the defendant’s customers to contract with the defendant: LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 44 IPR 24.

Additional damages [30.1180] Where an infringement of copyright is established, the Copyright Act 1968 (Cth) gives a court power to award additional damages where it is satisfied that it is appropriate to do so having regard to: (a)

the flagrancy of the infringement;

(b)

the need to deter similar infringements of copyright;

(c)

the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright;

(d)

whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analogue form into a digital or other electronic machine-readable form;

(e)

any benefit shown to have accrued to the defendant by reason of the infringement; and

(f)

all other relevant matters: s 115(4).

case [30.1190] The defendant offered to supply prospective customers with an unauthorised copy of the plaintiff’s computer program as an inducement for them to purchase a personal computer from him. The plaintiff owner of the copyright was awarded $15,000 compensatory damages for the defendant’s infringement of copyright in the computer program, and a further $35,000 additional damages for the flagrancy of the infringement: Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472; see similarly, Microsoft Corpn v Ezy Loans Pty Ltd (2004) 63 IPR 54.

case [30.1200] Substantial additional damages of $70,000 were awarded for the personal harm caused by the flagrant pirating of Aboriginal cultural heritage on imported carpets which reproduced Aboriginal artworks without authority. This amount was in addition to compensatory and conversion damages and an order for the delivery up of those infringing carpets which had not been sold: Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240.

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[30.1210] The Full Court of the Federal Court awarded additional damages of $200,000 for the blatant infringement of copyright in the artwork panels on reconditioned electronic gaming machines and the computer programs that operated the machines: Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564. The plaintiff collecting society was awarded additional damages of $60,000 against the defendant directors of a Melbourne restaurant in which sound recordings were played without a licence for over five years despite repeated requests to either obtain a licence or cease playing the recordings: Phonographic Performance Company of Australia Ltd v Cattch Pty Ltd (2013) 102 IPR 286. Infringement of copyright by the importation and sale of counterfeit branded clothing resulted in an award of additional damages of $17,000 as well as damages of $8,662.50 for lost sales and $10,000 damages for loss of reputation: Facton Ltd v Erdogan (No 1) (2012) 99 IPR 46.

Damages for conversion or detention [30.1220] The owner of copyright in a work or other subject matter (that is, a sound recording, film, broadcast or published edition) has the right to bring an action for conversion or detention in respect of infringing copies and any device used in making them. In such an action the court may grant those remedies that would be available as if the copyright owner had been the owner of the infringing copy since the time the copy was made, or the owner of the device used in making them: Copyright Act 1968 (Cth), s 116(1), (1A). However, the court is not to grant relief in an action for conversion or detention if the relief the court has granted under s 115 (that is, an injunction, damages or an account of profits) is, in the court’s opinion, a sufficient remedy. In deciding whether to grant relief and in assessing the amount of damages payable, the court may have regard to: (a)

the expenses incurred by the defendant in manufacturing or acquiring the infringing copy;

(b)

whether the expenses were incurred before or after the infringing copy was sold or otherwise disposed of by the defendant; and

(c)

any other matter that the court considers relevant.

If the infringing copy is an article of which only part consists of material that infringes copyright, the court, in deciding whether to grant relief and in assessing the amount of damages payable, may also have regard to: (a)

the importance to the market value of the article of the material that infringes the copyright;

(b)

the proportion the material that infringes copyright bears to the article; and

(c)

the extent to which the material that infringes copyright may be separated from the article: s 116(1C) – (1E); see Sony Entertainment (Australia) Ltd v Smith (2005) 64 IPR 18.

The “innocent infringer” defence [30.1230] As in the case of a claim for damages for infringement (see [30.1140]), the Copyright Act 1968 (Cth) provides, in essence, that damages cannot be obtained against an innocent defendant in an action for conversion or detention: s 116(2). Under the latter subsection a plaintiff is not entitled to any damages, or to any other pecuniary remedy other than costs, in an action for conversion or detention if it is established that at the time of the conversion or detention: (a)

the defendant was not aware, and had no reasonable grounds for suspecting, that copyright subsisted in the work or other subject matter to which the action relates; or

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(b)

the defendant believed, and had reasonable grounds for believing, that the articles converted or detained were not infringing copies (see, for example, Golden Editions Pty Ltd v Polygram Pty Ltd (1996) 61 FCR 479); or

(c)

where the article converted or detained was a device used or intended to be used for making articles, the defendant believed, and had reasonable grounds for believing, that the articles so made or intended to be made were not or would not be infringing articles.

Delivery up of infringing copies or plates [30.1240] As indicated in the previous section, a claim may be made by the copyright owner in an action for detinue under s 116(1) of the Copyright Act 1968 (Cth) for the delivery up of infringing copies or plates on the basis that the copyright owner is deemed to be the owner of the copies or plates. Independently of the Copyright Act 1968, the court may order to be delivered up any infringing copies based on the general jurisdiction of the court to order delivery up of all articles which have been created in violation of the plaintiff’s rights: Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240.

Anton Piller orders [30.1250] Australian courts have power to make orders on the application of a plaintiff whereby the defendant is ordered to permit the plaintiff’s solicitors to enter the defendant’s premises for the purpose of searching for and removing into custody infringing copies of works or other subject matter and documents relating to them: Polygram Records Pty Ltd v Monash Records (Aust) Pty Ltd (1985) 10 FCR 332. Such order is of particular value against a recalcitrant defendant. It is commonly referred to as an Anton Piller Order from the name of the English case (Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55) from which it is derived. However, the power to make such an order will only be exercised in exceptional circumstances: Microsoft Corporation v Goodview Electronics Pty Ltd (1999) 46 IPR 159.

Limitations on the liability of carriage service providers [30.1260] One of the purposes of the Copyright Amendment (Digital Agenda) Act 2000 (Cth) was to clarify the liability of carriage service providers, for example Internet service providers (ISPs), for infringements of copyright committed by third parties while using their facilities. A carriage service provider is not directly liable for an infringement of copyright involved in a communication (that is, making copyright material available online – see [30.400]) where they were not responsible for determining the content of the communication: Copyright Act 1968 (Cth), s 22(6). Furthermore, a carriage service provider is not to be taken to have authorised an infringement of copyright simply by providing facilities which are used to infringe copyright: Copyright Act 1968 (Cth), ss 39B, 112E. On the matters to be taken into account in determining whether a carriage service provider has authorised an infringement of copyright under Pt IV, see [30.750] and Roadshow Films Pty Ltd v iiNet Ltd (2012) 248 CLR 42. Following the introduction of Div 2AA (ss 116AA – 116AJ) in the Copyright Act 1968 (Cth) by the US Free Trade Agreement Implementation Act 2004 (Cth), limitations have been placed on the remedies available against carriage service providers who comply with certain conditions on becoming aware of infringing material on the facilities provided by them.

Combatting online piracy [30.1265] In an endeavour to combat online piracy, particularly movies and television shows, the Copyright Amendment (Online Infringement) Act 2015 (Cth) provides a new mechanism enabling overseas

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online infringing material to be blocked by a carriage service provider. The Amendment Act inserts a new s 115A in the Copyright Act 1968 (Cth) which provides that the Federal Court, on application by the owner of a copyright, may grant an injunction to require a carriage service provider to take reasonable steps to disable access to an online location if the Court is satisfied that: (a) a carriage service provider provides access to an online location outside Australia; (b) the online location infringes, or facilitates an infringement of the copyright; and (c) the primary purpose of the online location is to infringe, or to facilitate the infringement of copyright (whether or not in Australia): s 115A(1), (2). Notification of an application is to be given by the copyright owner to the carriage service provider and the person who operates the online location unless the latter’s identity or address cannot be determined by the copyright owner despite reasonable efforts: s 115A(4). In determining whether to grant an injunction the Federal Court is to take into account a list of matters including: (a) the flagrancy of the infringement; (b) whether the online location makes available or contains directories, indexes or categories of the means to infringe; (c) whether the owner or operator of the online location demonstrates a disregard for copyright generally; (d) whether disabling access to the online location is a proportionate response; (e) the impact on any person, or class of persons, likely to be affected by the grant of an injunction; and (f) whether it is in the public interest to disable access to the online location: s 115A(5). The Court may limit the duration of, rescind or vary an injunction: s 115A(7), (8). The carriage service provider is not liable for any costs unless the provider takes part in the proceedings: s 115A(9).

Technological protection measures The anti-circumvention provisions [30.1270] The growth of copyright material in digital form and the ease with which virtually perfect reproductions of such material, legitimate or otherwise, could be made led to copyright owners incorporating various “technological protection measures” (TPMs) in their digital products to prevent copyright material from being copied or accessed. TPMs would commonly include program locks, password protection and encryption mechanisms. However, TPMs could be circumvented by password cracking tools, software decompilation programs and so on. Accordingly, the Copyright Amendment (Digital Agenda) Act 2000 (Cth) introduced civil remedies and criminal sanctions against the manufacture, commercial dealing, making available online and advertising of a circumvention device or service used to circumvent TPMs. The provisions were designed to assist copyright owners in enforcing their rights in the digital environment. The federal government gave undertakings in the Australia–United States Free Trade Agreement 2004 (AUSFTA) to implement a new liability regime for circumventing TPMs. The result was the introduction of wider provisions by the Copyright Amendment Act 2006 (Cth) to fulfil Australia’s obligations under the AUSFTA: Copyright Act 1968 (Cth), ss 116AK – 116AQ. Basically, action may be taken in respect of three types of conduct in relation to technological protection measures. That is, the owner or exclusive licensee of copyright may bring an action against a person who: (a)

does an act that results in the circumvention of an “access control technological protection measure” (s 116AN);

(b)

manufactures, imports, distributes, offers to the public or otherwise provides to another person a “circumvention device” for a “technological protection measure” (s 116AO); or

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(c)

provides a “circumvention service”

10

for a technological protection measure: s 116AP.

An “access control technological protection measure” is defined as a device, product technology or component (including a computer program) that in the normal course of its operation “controls access” 11 to the work or other subject matter: s 10(1). A “technological protection measure” is defined as a device, product, technology or component (including a computer program) that in the normal course of its operation prevents, inhibits or restricts the doing of an act comprised in the copyright, or is an “access control technological protection measure”: s 10(1). Excluded from these definitions is a device or other measure which controls geographic market segmentation by preventing the playback in Australia of a non-infringing copy of a cinematograph film or computer program (including a computer game) acquired outside Australia.

Exceptions [30.1280] There are a number of exceptions to the provisions outlined in the previous section. A person is not liable if the action was done: to facilitate interoperability; 12 to enable encryption research; 13 to allow computer security testing; 14 or for the purposes of law enforcement and national security. 15 Further exceptions in relation to an act that results in the circumvention of an “access control technological protection measure” (Copyright Act 1968 (Cth), s 116AN) include: where the circumvention was done with the permission of the copyright owner or exclusive licensee; 16 to provide online privacy; 17 to enable non-profit libraries and archives to make acquisition decisions; 18 and to enable a person to do a prescribed act. 19

Remedies [30.1290] The civil remedies available in actions relating to technological protection measures include an injunction and either damages or an account of profits, and an order that the circumvention device be destroyed or otherwise dealt with. In assessing damages, the court is also empowered to award such additional damages as it considers appropriate having regard to the flagrancy of the defendant’s actions; the need to deter similar acts; any benefit shown to have accrued to the defendant and any other relevant matters: Copyright Act 1968 (Cth), s 116AQ. The defendant’s conduct may also constitute a criminal offence: ss 132APC – 132APE.

Electronic rights management information [30.1300] Civil remedies and criminal offences have been introduced in respect of the intentional removal and alteration of electronic rights management information, or the commercial dealing with copyright 10

12

A “circumvention device” (in (b) above) and a “circumvention service” (in (c) above) are defined as a device or service which is promoted, advertised or marketed as having the purpose or ability to circumvent a technological protection measure; has no other or only a limited other commercially significant purpose; or is primarily or solely designed to produce or facilitate the circumvention of the technological protection measure: Copyright Act 1968 (Cth), s 10(1). A device, product technology or component (including a computer program) “controls access” if it requires the application of information or a process to gain access to the subject matter: Copyright Act 1968 (Cth), s 10(1). Copyright Act 1968 (Cth), ss 116AN(3), 116AO(3), 116AP(3).

13 14 15

Copyright Act 1968 (Cth), ss 116AN(4), 116AO(4), 116AP(4). Copyright Act 1968 (Cth), ss 116AN(5), 116AO(5), 116AP(5). Copyright Act 1968 (Cth), ss 116AN(7), 116AO(6), 116AP(6).

16 17 18 19

Copyright Act 1968 (Cth), s 116AN(2). Copyright Act 1968 (Cth), s 116AN(6). Copyright Act 1968 (Cth), s 116AN(8). Copyright Act 1968 (Cth), s 116AN(9).

11

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material where such information has been removed: Copyright Act 1968 (Cth), ss 116B, 116C. Electronic rights management information is information attached to, or embodied in, a copy of the work or other subject matter that identifies the work or other subject matter, its author or copyright owner; indicates the conditions on which the work may be used; or any numbers or codes that represent such information in electronic form: s 10(1). A copyright owner or their exclusive licensee may bring a civil action against a person who removes or alters any electronic rights management information attached to a copy of a work or other subject matter where such person knew, or ought reasonably to have known, that the removal or alteration would induce, facilitate or conceal an infringement of the copyright in the work or other subject matter. The defendant is presumed to have had the requisite knowledge unless they prove otherwise: s 116B. A copyright owner or an exclusive licensee also has a right of action against a person who distributes, imports or communicates a copy of a work or other subject matter in circumstances where the rights management information has been removed or altered: s 116C.

Remedies [30.1310] The civil remedies available for actions in relation to rights management information are the same as those discussed at [30.1290] with respect to circumvention devices: Copyright Act 1968 (Cth), s 116D. The defendant’s conduct may also constitute a criminal offence: ss 132AQ – 132AS.

Unauthorised access to encoded broadcasts [30.1320] The Copyright Amendment Act 2006 (Cth) introduced a scheme enabling action to be brought in relation to unauthorised access to encoded broadcasts: Copyright Act 1968 (Cth), Pt VAA, ss 135AL – 135AU. The scheme enables a channel provider or any person with an interest in an encoded broadcast to bring an action against a person who: makes, sells or deals in an unauthorised decoder (s 135AOA); makes a decoder available online (s 135AOB); causes unauthorised access to an encoded broadcast (s 135AOC); or makes unauthorised commercial use of a subscription broadcast: s 135AOD. An “encoded broadcast” is defined as a subscription broadcast or an encrypted broadcast (other than a subscription or radio broadcast) delivered by a commercial broadcasting service or national broadcasting service within the meaning of the Broadcasting Services Act 1992 (Cth): Copyright Act 1968 (Cth), s 135AL. The civil remedies available include an injunction and either damages or an account of profits, and an order that the decoder be destroyed or otherwise dealt with. In assessing damages, the court is also empowered to award such additional damages as it considers appropriate having regard to the flagrancy of the defendant’s actions; the need to deter similar acts; any benefit shown to have accrued to the defendant and any other relevant matters: ss 135AOE, 135AOF. The defendant’s conduct may also constitute a criminal offence: ss 135ASA – 135AU.

Offences General [30.1330] The Copyright Act 1968 (Cth) provides for offences and penalties for certain dealings in infringing copies and devices: Pt V, Div 5, ss 132AA – 132AT. There is a tiered system of copyright criminal offences, namely: indictable, summary and strict liability offences. The main differences between the three levels of offence provisions lie in the degree of fault that must be satisfied and in the penalties.

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To establish an indictable offence, it is necessary to show that the infringement was either intentional or reckless. Indictable offences have penalties of up to five years’ imprisonment and/or between 550 ($99,000) to 850 ($153,000) penalty units for natural persons. In the case of corporations, the fine is up to five times that for a natural person. Most summary offences require intention and/or negligence with penalties of up to two years’ imprisonment and/or 120 penalty units ($21,600). The strict liability offences do not contain a fault element and are designed to deal with lower level copyright criminal activity such as first-time offenders, street stall or market operators and attract maximum penalties of 60 penalty units ($10,800). Examples of the offence provisions include:  commercial scale infringement prejudicing the copyright owner (Copyright Act 1968 (Cth), s 132AC);  making an infringing copy commercially (s 132AD);  selling or hiring out an infringing copy (s 132AE);  importing an infringing copy commercially (s 132AH);  possession of infringing copies with the intention of selling them (s 132AJ; Ly v R (2014) 227 FCR 304 (FCAFC));  circumventing an access control technological protection measure (s 132APC); and  removing or altering electronic rights management information: s 132AQ.

Performers' protection [30.1340] The Copyright Act 1968 (Cth) contains provisions dealing with performers’ protection: Pt XIA, ss 248A – 248V. The provisions do not confer on performers copyright in their performances but do provide civil remedies and criminal sanctions for the unauthorised use of a performer’s performance.

Meaning of “performance” [30.1350] Broadly, performers are given civil remedies against those making unauthorised use of their performances. A performance includes any live performance (or improvisation) of a dramatic or musical work, performance of a dance, presentations of literary works, and performances of circus or variety acts. News reading and sporting performances are excluded: Copyright Act 1968 (Cth), s 248A.

What constitutes unauthorised use [30.1360] It is an unauthorised use, giving rise to a claim by the performer, to do the following acts without the authority of the performer: (a)

to record a performance, for example on film, video or audio tape, either directly, that is, from a live performance, or from a broadcast of a live performance; or

(b)

to broadcast or re-broadcast a live performance or an unauthorised recording.

A performer also has a right of action for unauthorised use of a performance against a person who knows, or ought reasonably to know, that a recording is unauthorised and who, inter alia, copies, sells, hires, distributes, exhibits, imports for commercial purposes, is in possession of, or gives a public performance of the unauthorised recording: Copyright Act 1968 (Cth), s 248G.

Remedies for unauthorised use [30.1370] In an action brought by a performer for unauthorised use of their performance, the court may grant an injunction to restrain further unauthorised use, damages and such additional damages as are considered to be appropriate in the circumstances: Copyright Act 1968 (Cth), s 248J.

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Effect of consent to use [30.1380] Once a performer has consented to the initial recording of their performance on, for example, cassette, disc, film or video, the performer generally has no legal right to control subsequent uses of that recording. The one exception is that where the performance is recorded on a soundtrack of a film or video, the performer can prevent the recording being used for other purposes. A performer will have no claim in respect of an exempt recording which includes, for example, a recording of a performance made off-air (that is, from a broadcast) for the private and domestic use of the person who made it, scientific research, education, helping the disabled, and a recording of a performance either made live or off-air for the reporting of news, criticism and review, judicial proceedings and legal advice: Copyright Act 1968 (Cth), s 248A.

Duration of protection [30.1390] The general period of protection for a performance is 20 years after the calendar year in which the performance was given (although this period has been extended to 50 years in respect of certain of the offence provisions referred to at [30.1400]): Copyright Act 1968 (Cth), s 248CA. The provisions apply to all acts done in relation to a performance after the commencement of Pt XIA (that is, 1 October 1989), whether the performance took place before or after the commencement of the Part. The right of a performer to bring an action under the provisions is not assignable.

Offences [30.1400] It is an offence, inter alia, without the authority of the performer to: (a)

make a sound recording or film of a live performance;

(b)

make a film or sound recording of a broadcast of a performance, subject to the exceptions with respect to exempt recordings;

(c)

broadcast or rebroadcast a live or recorded performance; or

(d)

give a public performance of a sound recording or film of a performance known to be an unauthorised recording or film: Copyright Act 1968 (Cth), s 248P.

Additional offences relating to the unauthorised use of a performer’s performance include: copying a recording known to be unauthorised; selling, hiring, or by way of trade offering for sale or hire a recording known to be unauthorised; and the commercial exhibition of a recording known to be unauthorised. Penalties for breach are analogous to those outlined in the previous section with respect to other criminal penalties for offences committed under the Copyright Act 1968: s 248Q. As indicated above, the general period of protection of a performance is 20 years after it was given. However, in order to implement Australia’s international obligations under the Agreement on Traderelated Aspects of Intellectual Property Rights (TRIPS) (discussed at [30.1560]), the Copyright (World Trade Organization Amendments) Act 1994 (Cth) amended the Copyright Act 1968 (Cth) to extend the period of protection of performers in respect of certain of the offence provisions outlined above. Thus, in the case of existing unauthorised sound recordings of performances given before 1 July 1995 the offence provisions apply for a period of 50 years from the end of the calendar year in which the performance was given. A further 50-year protection period also applies to future unauthorised sound recordings of performances: s 248CA. The performers’ protection provisions of the Copyright Act 1968 discussed above apply to a live performance given in Australia, or a performance given by one or more qualified persons, that is, Australian citizens and residents. In addition, protection is extended by the Copyright (International

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Protection) Regulations 1969 (Cth), regs 4A, 4B to overseas performances and performers in countries which offer equivalent protection to Australian performers and to certain performances having a connection with certain World Trade Organisation countries: see “International copyright protection” at [30.1550].

Extension of protection for performers [30.1410] As a consequence of the Australia–United States Free Trade Agreement 2004 (established under the US Free Trade Agreement Implementation Act 2004 (Cth)), the rights of performers have been extended in certain respects. A performer is now recognised as a co-owner with the maker of the copyright in sound recordings: Copyright Act 1968 (Cth), ss 22(3A), 22(3B) and s 116AAA. Moral rights have also been extended to performers. Broadly, performers’ moral rights closely follow the moral rights granted to authors discussed at [30.1420]: that is, a performer has a right of attribution of performership (s 195ABA); a right not to have performership falsely attributed (s 195AHA) and a right of integrity of performership: s 195ALA. Detailed discussion of these provisions is beyond the scope of the present work.

Moral rights [30.1420] The Copyright Act 1968 (Cth) was amended by the Copyright Amendment (Moral Rights) Act 2000 (Cth) to provide greater recognition of the moral rights of authors: Copyright Act 1968 (Cth), Pt IX, ss 189 – 195AZO. The provisions came into effect on 21 December 2000.

Nature of moral rights [30.1430] The expression moral rights refers to the personal or non-economic rights of authors. They are rights that are essentially concerned with the personal relationship between authors, artists and other creators and their works. Moral rights are in addition to, and separate from, the economic rights protected by copyright. The basic moral rights recognised by the legislation are (Copyright Act 1968 (Cth), s 189): (a)

the right of attribution of authorship (that is, the right to be recognised as the author of a work);

(b)

the right not to have authorship falsely attributed; and

(c)

the right of integrity of authorship (that is, the right of a creator to object to derogatory treatment of their work).

These rights are additional to any other rights in relation to the work that the author or anyone else has under the Act: s 192.

Beneficiaries of protection [30.1440] Moral rights are held by individual creators of literary, dramatic, musical and artistic works, and the makers of cinematograph films. The maker of a film includes the director, producer and the screenwriter of the film: Copyright Act 1968 (Cth), s 189.

Right of attribution of authorship [30.1450] The right of attribution is the right to be identified as the author of a work if any attributable act is done in relation to the work: Copyright Act 1968 (Cth), s 193(2). “Attributable act” essentially means the doing of an act comprised in any of the exclusive economic rights conferred on the work or film under the provisions of Pt III or IV of the Act, for example, reproducing or publishing the work: s 194. In

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the case of an artistic work, an attributable act also includes exhibiting the work in public (s 194(2)(c)); accordingly, where an artistic work is exhibited, the artist must be identified. An author may be identified by any reasonable form of identification which, however, must be clear and reasonably prominent: ss 195(1), 195AA, 195BB. The moral right of attribution is infringed where a person does an attributable act in respect of the work, for example reproduces or publishes the work, without identifying the author in accordance with these provisions: s 195AO.

Right not to have authorship falsely attributed [30.1460] This is the right of an author not to have a person do any of the acts of false attribution enumerated by the Copyright Act 1968 (Cth), for example, affixing a person’s name on a work or film in such a way as to imply falsely that the person is the author of the work or film: ss 195AC – 195AH. The right is infringed if a person does an act of false attribution in respect of the work (s 195AP), for example, puts a person’s name on a work so as to falsely represent that the person is the author of the work.

Right of integrity of authorship [30.1470] An author’s right of integrity is the right not to have their work or film subjected to derogatory treatment: Copyright Act 1968 (Cth), s 195AI. Derogatory treatment includes the doing of anything that results in a material distortion of, the mutilation of, or a material alteration to, the work that is prejudicial to the author’s honour or reputation: ss 195AJ – 195AL. A person infringes an author’s right of integrity if the person subjects the work to derogatory treatment: s 195AQ. The alteration by a disc jockey of the sound recording of a song by the introduction of extraneous matter and streaming the edited version from his website resulted in an award of $10,000 damages for infringement of the author’s right of integrity in the song: Perez v Fernandez (2012) 260 FLR 1. 20

Consent provisions [30.1480] The Copyright Act 1968 (Cth) provides for the users of material to which moral rights attach to obtain the written consent of an author to do, or omit to do, something which would otherwise constitute an infringement of the author’s moral rights. In the case of cinematograph films, and works used in films, such consent may be given in relation to all or any acts occurring before or after the consent is given, and may relate to a specified work or works, or a work of a particular description, the making of which has not yet begun or is not yet completed: s 195AW. In relation to other works, there are similar consent provisions but they require an author to specify the acts or omissions, or specified classes or types of acts or omissions to which the consent relates: s 195AWA. Employees may give consent in favour of their employer in relation to all works produced in the course of their employment: ss 195AW(4), 195AWA(4).

Defences to alleged infringements [30.1490] The Copyright Act 1968 (Cth), provides a defence to an alleged infringement of the right of attribution or the right of integrity: that the act or omission was reasonable in all the circumstances. In determining whether the act or omission was reasonable, the matters to be taken into account include: 20

See J McCutcheon, “Perez v Fernandez: Australia’s First Decision on the Moral Right of Integrity” (2013) 24 Australian Intellectual Property Journal 174.

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(a)

the nature of the work and, in the case of a cinematograph film, the primary purpose of the film;

(b)

the purpose, manner and context in which the work or film is used;

(c)

any practice used in the industry concerned, or specified in a voluntary code of practice developed by the relevant industry;

(d)

in relation to the right of attribution, any difficulty or expense that would have been incurred as a result of identifying the author; and

(e)

whether the work or film was made in the course of the author’s employment: ss 195AR, 195AS.

There is no express provision for judicial immunity as a defence to proceedings for infringement of moral rights; however, the common law doctrine of judicial immunity provides a defence to a judge alleged to have infringed an author’s moral rights in the course of judicial proceedings: Ogawa v Spender (2006) 151 FCR 228.

Provisions in relation to buildings [30.1500] The Copyright Act 1968 (Cth) contains provisions regarding moveable artistic works such as public art, and artistic works affixed to buildings or comprising the building itself. Basically, the Act provides that an architect’s or artist’s moral rights in a building, or a work attached to a building, will not prevent the alteration, demolition or destruction of the building provided the owner has undertaken certain actions. Broadly, the owner is required to contact the artist or architect and advise them of the proposed change or demolition. Provided the artist or architect responds within a specified time period, then where, for example, the building is to be demolished, they are to be given a reasonable opportunity to make a record of, or remove, the work: s 195AT.

Remedies for infringement of moral rights [30.1510] The relief which a court may grant in an action for infringement of an author’s moral rights include: (a)

an injunction;

(b)

damages for loss resulting from the infringement;

(c)

a declaration that a moral right of the author has been infringed;

(d)

an order that the defendant make a public apology for the infringement; and

(e)

an order that any false attribution of authorship, or derogatory treatment, of the work be removed or reversed: Copyright Act 1968 (Cth), s 195AZA.

case [30.1520] The respondent published in one of its magazines a photograph of Princess Mary, wife of the Crown Prince of Denmark, standing in front of a portrait of the late Dr Victor Chang which had been painted by the applicant artist shortly before Dr Chang was murdered in Sydney. Unfortunately, the caption to the photograph incorrectly attributed the portrait to another artist. The applicant, distressed by the wrong attribution, sought a correction and an apology. A meeting was held between the applicant artist, his son and representatives of the respondent publisher. A personal apology was given at the meeting but no apology was published until over a year later, when the respondent

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published a photograph. However, the respondent had managed to reverse the image of the negative so that the photograph did not accurately reproduce the portrait. The Federal Magistrate awarded the applicant artist $1,100 for infringement of his moral rights of attribution of authorship in respect of the portrait and not to have his work falsely attributed (Copyright Act 1968 (Cth), ss 195AO and 195AP) and a further $8,000 in aggravated damages arising out of the conduct of the respondent newspaper in the particular circumstances: Meskenas v ACP Publishing Pty Ltd (2006) 70 IPR 172.

Application and duration of moral rights [30.1530] Moral rights exist in works whether the works are made before or after the commencement of the legislation but only in relation to infringements that take place after commencement. However, for cinematograph films, and works included in a film, moral rights apply only to films made after the legislation came into force: Copyright Act 1968 (Cth), ss 195AZM – 195AZO. Generally, an author’s moral rights in respect of a work continue in force for as long as copyright subsists in a work, that is, the life of the author plus 70 years for works and 70 years from the first publication of a film. However, in the case of a cinematograph film, the right of integrity ceases on the death of the maker of the film: s 195AM. After an author’s death, their moral rights can be enforced by their legal personal representative (other than the right of integrity in respect of a cinematograph film): s 195AN.

Resale royalty right for visual artists [30.1540] A resale royalty scheme has been established under the Resale Royalty Right for Visual Artists Act 2009 (Cth). The scheme commenced on 9 June 2010. Broadly, artists are eligible to receive 5 per cent of the sale price on the “commercial resale” of their original works. A “commercial resale” means, in essence, a resale through the art market, for example, by an art auctioneer, the owner of an art gallery or an art dealer. The resale royalty is payable on the sale of an artwork if: (i) the sale occurs on after 9 June 2010; (ii) the sale price is not less than $1,000; (iii) the artist is living or has been dead for less than 70 years; (iv) the artist, or beneficiary of the artist’s estate, is an Australian citizen or permanent resident; and (v) it is not the first change of ownership on or after 9 June 2010. Artworks covered by the scheme include artists’ books; batiks; carvings; ceramics; collages; digital artworks; drawings; engravings; fine art jewellery; glassware; installations; lithographs; multimedia artworks; paintings; photographs; pictures; prints; sculptures; tapestries; video artworks; and weavings. The scheme is administered by Copyright Agency Limited (CAL).

International copyright protection The Berne and UCC Conventions [30.1550] Australia is a member of the Berne Convention for the Protection of Literary and Artistic Works of 1886 and the Universal Copyright Convention of 1952. In consequence, it is part of a worldwide international system of copyright protection since most of the major countries of the world are members of one or both of these international Conventions. Briefly, the Conventions provide for certain minimum standards of protection for works and also embody the principle of national treatment whereby works of nationals of member countries and works first published in a member country must be given the same protection as each member country gives to the works of its own nationals.

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In Australia, the Copyright Act 1968 (Cth) makes provision for the Act to be applied to member countries of the Berne Convention and the Universal Copyright Convention: ss 184 – 188. This is achieved by the Copyright (International Protection) Regulations 1969 (Cth), which have extended the operation of the Copyright Act 1968 (Cth) in relation to works and other subject matter to cover making or first publication in a Convention country or by a national or resident of such a country: Copyright (International Protection) Regulations 1969 (Cth), reg 4. In this way literary, dramatic, musical and artistic works, sound recordings and cinematograph films made or published in a Convention country are given the same protection as they would be given in the event of making or first publishing in Australia. However, the protection afforded to foreign works will not be greater than that given by the law of the Convention country concerned. For example, the Copyright (International Protection) Regulations 1969 provide for the recognition of a public performance right or broadcasting right only where such rights are recognised under the law of the Convention country concerned: regs 6, 7. Australian authors and publishers are accorded similar copyright protection for their works and other subject matter in the member countries of the Berne and Universal Copyright Conventions.

The TRIPS agreement [30.1560] On 1 January 1995, Australia became a party to the World Trade Organization (WTO), an international body which administers certain international trade agreements including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS requires Member States to comply with the basic provisions of the Berne Convention and sets down a number of other minimum requirements for the protection of intellectual property. The significance of TRIPS is that it contains extensive provisions for the enforcement of intellectual property rights. The Copyright (World Trade Organization Amendments) Act 1994 (Cth) amended the Copyright Act 1968 (Cth) to comply with the requirements of TRIPS as it applies to copyright and related rights.

Designs [30.1570] Designs law is concerned with the protection of the visual form of articles with the object of encouraging innovation in the creation of new designs. The Australian law of designs is governed by the Designs Act 2003 (Cth) which came into operation on 17 June 2004. The Act implements many of the recommendations of the Australian Law Reform Commission in its report on designs 21 which was highly critical of the operation of the former legislation governing the protection of industrial designs, the now repealed Designs Act 1906 (Cth). Protection for industrial designs is available by way of registration of new and distinctive designs for products in the Register of Designs administered by the Designs Office in IP Australia. Designs are registered for a very wide range of articles including electrical and electronic goods, building materials, domestic items such as chairs and air conditioners, sporting goods and fashion accessories, optical goods, jewellery, cutlery, toys and so on.

Meaning of “design” [30.1580] The definition of “design” in the Designs Act 2003 (Cth) emphasises that a design for the purposes of the Act means the visual features of a product: design, in relation to a product, means the overall appearance of the product resulting from one or more visual features of the product: s 5. 21

ALRC, Report No 74, Designs (1995).

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A “visual feature” in relation to a product is in turn defined as including the shape, configuration, pattern and ornamentation of the product. A visual feature may serve a functional purpose: s 7. The definition of a “design” (above) refers to the overall appearance of a “product” which is “a thing that is manufactured or hand made”: s 6(1). A component part of a product may itself be a product if it is made separately: s 6(2). A kit which forms a product when assembled is also included in the definition: s 6(4).

Registration of a design [30.1590] An application in respect of a design may be made by one or more persons in relation to one or more designs and must specify the person or persons who is or are entitled to be entered on the Register as the registered owner or owners of the design: Designs Act 2003 (Cth), ss 21, 22.

Design must be new and distinctive [30.1600] To be registrable the design must be new and distinctive. Section 15(1) of the Designs Act 2003 (Cth) provides: A design is a registrable design if the design is new and distinctive when compared with the prior art base for the design as it existed before the priority date of the design. The “prior art base” against which the question of whether the design is new and distinctive is to be compared, essentially consists of those designs publicly used in Australia and designs published in Australia and overseas at the priority date of the design. For example, the design of a vacuum cleaner on a brochure distributed at the Canton fair in China was held to be part of the “prior art base” for the purpose of determining registrability of a similar design in Australia: World of Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd (2007) 71 IPR 307. The “prior art base” also includes designs disclosed in published designs applications with an earlier priority date: s 15(2). The priority date is usually the filing date of the design application: s 27. The standards for determining whether the design is new and distinctive are set out in s 16. Under s 16 a design will be “new” unless it is “identical” to an existing design, and it will be “distinctive” unless it is “substantially similar in overall impression” to an existing design. The factors to be considered in assessing “substantial similarity in overall impression” are set out in s 19. In particular, s 19 requires more weight to be given to similarities when comparing the designs than to the differences between them. Further, the standard of the “informed user” is to be applied, that is, “the standard of a person who is familiar with the product to which the design relates, or products similar to the product to which the design relates”: s 19(4). The standard of the “informed user” does not require that the notional person be a user of the products in question: the necessary and only qualification is that the notional person is familiar with those products: Multisteps Pty Ltd v Source and Sell Pty Ltd (2013) 214 FCR 323 at [66]–[70]. The issue of whether a design is “new” and “distinctive” is to be assessed not by comparing the design in question to the prior art base as a whole but by comparing it individually to each relevant piece of prior art. In other words, a design that combines various features each of which can be found in the prior art base when considered as a whole but not in any one particular piece of prior art, is capable of being new or distinctive: LED Technologies Pty Ltd v Elecspess Pty Ltd (2008) 80 IPR 85 at [12] and [55] per Gordon J. The decision in that case that the plaintiff’s registered designs of lenses in combination rear lights for motor vehicles were new and distinctive designs which had been infringed by the defendant’s imported products was upheld by the Full Federal Court: Keller v LED Technologies Pty Ltd (2010) 185 FCR 449.

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Ownership of a design [30.1610] Basically, the owner of an unregistered design is entitled to be entered on the Register as the registered owner of the design. More particularly, the Designs Act 2003 (Cth) provides that a person in any of the following categories is entitled to be entered on the Register as the registered owner of a design that has not yet been registered: (a)

the person who created the design (the “designer”);

(b)

if the designer created the design in the course of employment, or under a contract, with another person – the other person (that is, the employer or the party who commissioned the design), unless they have agreed to the contrary;

(c)

a person who derives title to the design from a person mentioned in (a) or (b) (for example, under an assignment) or by devolution by will or by operation of law;

(d)

a person who would, on registration of the design, be entitled to have the exclusive rights in the design assigned to the person; or

(e)

the legal personal representative of a deceased person in one of the above categories: s 13(1).

The registered owner of a registered design is the person who, at a particular time, is entered in the Register as the registered owner of the design, or if there are two or more such persons, each of them: s 14(1).

Registration procedure [30.1620] The registration procedure under the Designs Act 2003 (Cth) is significantly different than under the previous legislation. The purpose of the provisions is to streamline the system so that an application for registration of a design will only be examined in the first instance to check that it complies with the formal requirements. The Registrar must register a design if the prescribed formalities are all satisfied: ss 39 – 40. After a formalities check, the application will proceed to grant and publication: s 45. So, essentially an application for design registration will be granted if the forms are correctly completed and official fees paid. In other words, a design application will not be examined before grant. However, any person may request examination of whether a design is new and distinctive (that is, a substantive examination). On receiving a request, for example, by the owner of the design or the order of a court, the Registrar is required to examine a registered design: s 63. In examining the registered design, the Registrar is to consider whether grounds exist for the revocation of the registration, either because the design is not a registrable design or on the basis of any other ground specified in the regulations: s 65. If a ground of revocation is established, the Registrar may revoke the registration if it is not possible to amend it so as to remove the ground for revocation: ss 66, 68. If the Registrar is satisfied that a ground of revocation has not been made out or that any ground of revocation has been removed, the Registrar issues a certificate of examination as prima facie evidence of the validity of the design registration: s 67. The important point is that a design must have been examined and a certificate of examination granted before the applicant can bring an action for infringement: s 73(3).

Priority date [30.1630] The priority date of a design application is important since it is the date from which design rights are deemed to commence and therefore enabling the registered owner to bring an action for

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infringement in respect of the registered design. The priority date of a design disclosed in a design application is the filing date of the application: Designs Act 2003 (Cth), s 27(1). The validity of a design is not affected by publication or use after the priority date, or by the registration of a design with the same or a later priority date: s 16(3).

Infringement of a registered design Exclusive rights of a registered owner [30.1640] The owner of a registered design has a number of exclusive rights; these, in short, are the exclusive right to: (a)

make a product which embodies the design;

(b)

import, sell, hire or dispose of such a product;

(c)

use such a product for the purposes of any trade or business;

(d)

keep a product to do any of these things; and

(e)

authorise another person to do any of these things: Designs Act 2003 (Cth), s 10(1).

The registered owner’s exclusive rights are personal property which may be assigned or may devolve by will or operation of law: s 10(2). To be effective, an assignment must be in writing and signed by, or on behalf of, the assignor and the assignee: s 10(2).

Infringement proceedings [30.1650] The registered owner of a registered design may bring proceedings against another person alleging that the person has infringed the registered design: Designs Act 2003 (Cth), s 73. The circumstances in which a person will infringe a registered design are set out in s 71(1) which provides: A person infringes a registered design if, during the term of the registration of the design, and without the licence or authority of the registered owner of the design, the person: (a)

makes or offers to make a product, in relation to which the design is registered, which embodies a design that is identical to, or substantially similar in overall impression to, the registered design; or

(b)

imports such a product into Australia for sale, or for use for the purposes of any trade or business; or

(c)

sells hires, or otherwise disposes of, or offers to sell, hire or otherwise dispose of, such a product;

(d)

uses such a product in any way for the purposes of any trade or business; or

(e)

keeps such a product for the purpose of doing any of the things mentioned in paragraph (c) or (d) [emphasis added].

An infringement under s 71(1)(a) is referred to as a “primary” infringement, whereas infringement by conduct falling within s 71(1)(b) – (e) is referred to as a “secondary” infringement. The difference is relevant to the issue of the remedies available for infringement discussed in [30.1670]. Infringement is determined by comparing the allegedly infringing product against the registered design, not by comparing a product embodying the registered design against the infringing product: LED Technologies Pty Ltd v Elecspess Pty Ltd (2008) 80 IPR 85 at [77] per Gordon J.

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Meaning of “substantially similar in overall impression” [30.1660] Section 71(1)(a) of the Designs Act 2003 (Cth) (see [30.1650]) refers to a person being liable for infringement where that person makes a product, in relation to which the design is registered, which embodies a design that is: “identical to, or substantially similar in overall impression to, the registered design”. The heads of infringement in s 71(1) (see [30.1650]) basically concern dealings with a product embodying such a design. Section 71(3) provides that in determining whether an allegedly infringing design is “substantially similar in overall impression to the registered design, a court is to consider the factors specified in section 19” (emphasis added). As we saw earlier when discussing the eligibility of a design for registration (see [30.1600]) s 19 requires, inter alia, a person to give more weight to similarities between the designs than the differences between them when deciding whether a design is substantially similar in overall impression to another design. The Act provides that a person does not infringe a registered design by importing a product embodying a design that is identical to or substantially similar in overall impression to the registered design where the product embodied the design with the licence or authority of the registered owner: s 71(2). In other words, the Act does not prevent the parallel importation of genuine goods. A defendant in infringement proceedings may counter-claim for revocation of the registration of the design under s 93.

Remedies for infringement [30.1670] The relief which a court may grant in infringement proceedings includes: (a)

an injunction; and,

(b)

at the option of the plaintiff – damages or an account of profits: Designs Act 2003 (Cth), s 75(1).

The court may refuse to award damages, reduce the damages that would otherwise be awarded, or refuse to make an order for an account of profits, if the defendant satisfies the court: (a)

(b)

in the case of primary infringement: (i)

that at the time of the infringement, the defendant was not aware that the design was registered; and

(ii)

that before that time, the defendant had taken all reasonable steps to ascertain whether the design was registered; or

in the case of secondary infringement – that at the time of the infringement, the defendant was not aware, and could not reasonably have been expected to be aware, that the design was registered: s 75(2). (For conduct constituting a “primary” infringement and a “secondary” infringement, see [30.1650].)

It is prima facie evidence that the defendant was aware that the design was registered if the product, or the packaging of the product, is marked so as to indicate registration of the design: s 75(4). The court may award such additional damages as it considers appropriate having regard to the flagrancy of the infringement and all other relevant matters: s 75(3). For example, the respondent was ordered to pay $7,500 compensatory damages and $10,000 additional damages for making and selling dresses which were substantially similar in overall impression to the applicant’s registered design for a particular style of dress: Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd (2008) 166 FCR 358.

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Duration of a registered design [30.1680] The term of registration of a design under the Designs Act 2003 (Cth) is initially five years from the filing date of the design application with provision for renewal for a further five years, that is, a maximum of 10 years: ss 46, 47. After this time the design will be open for any other person to use.

Right of repair defence for spare parts [30.1690] One of the more contentious issues in designs law is the extent to which the manufacturer of products requiring replacement parts, for example motor vehicle parts, should be able to obtain, in effect, monopoly protection for such parts by design registration with the potential for high prices being charged. To deal with this issue, the Designs Act 2003 (Cth) provides, in essence, a right of repair defence. A design is not infringed where: (a)

a person uses, or authorises another to use, a product in relation to which the design is registered;

(b)

the product embodies a design that is identical or substantially similar in overall impression to the registered design;

(c)

the product is a component of a complex product; and

(d)

the purpose of the use or authorisation is the repair of the complex product so as to restore its overall appearance in whole or in part: s 72(1).

A “complex product” is a product comprising at least two replaceable component parts (s 10), that is, in effect a product comprising at least two spare parts. In essence, the defence applies where a spare part is being used to repair a complex product. It does not apply where the use of a component part embodying a design results in the enhancement of the appearance of the complex product: s 72(3). “Repair” in this context includes: (a)

restoring or replacing a decayed or damaged component;

(b)

necessarily replacing incidental items at the same time; or

(c)

carrying out maintenance on the complex product: s 72(5).

The onus is on the owner of the design to prove that parts were being used for non-repair purposes: s 72(2). The approach taken by the Designs Act 2003 is aimed at striking a balance between providing an incentive for creative activity in design and enabling competition in the spare parts market.

Registration or publication [30.1700] The Designs Act 2003 (Cth) provides for a design applicant to request publication of their design as an alternative to registration: s 35. Registration gives the creator an exclusive property right in the design, preventing others from applying the design. In contrast, publication does not prevent others from applying the design but prevents them from registering the design for their own exclusive benefit since the design would no longer be new and therefore not registrable. The reason for the introduction of this novel procedure appears to be that publication may be of advantage to certain industries, for example the textile industry, where because of the large numbers of short-lived designs produced, registration could be too costly.

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Relationship between copyright and designs protection [30.1710] In the absence of special provision, it would be possible for some designs to be protected not only as registered designs under the Designs Act 2003 (Cth) but also as artistic works under the Copyright Act 1968 (Cth). For example, the drawing of a chair would constitute a two-dimensional artistic work protected against unauthorised copying by the Copyright Act 1968. The owner of the copyright in the drawing also has the exclusive right to reproduce the drawing in three dimensions; that is, to make a chair in accordance with the drawing: s 21(3). However, the drawing of the chair may also be registrable as a design under the Designs Act 2003 (Cth). If the shape of the chair was registered as a design, then the owner would not only obtain the benefits of registration under the Designs Act 2003 but also the much longer period of protection as an artistic work under the Copyright Act 1968 (Cth). Accordingly, ss 74 – 77 of the Copyright Act 1968 are designed to prevent such dual protection. The present sections are the product of significant amendments by the Designs (Consequential Amendments) Act 2003 (Cth). The amended ss 74 – 77 of the Copyright Act 1968 (Cth) came into operation on 17 June 2004, the same date as the commencement of the Designs Act 2003 (Cth). Their general effect is to remove the possibility of copyright protection for essentially three-dimensional industrial products. Designs for the latter, if they are to be protected at all, must be registrable and be registered under the Designs Act 2003.

Position where the corresponding design is registered [30.1720] Section 75 of the Copyright Act 1968 (Cth) provides that, where copyright subsists in an artistic work and a “corresponding design” has been registered under the Designs Act 2003 (Cth), it is not an infringement of that copyright to reproduce the work by embodying that corresponding design in a product.

Meaning of “corresponding design” [30.1730] “Corresponding design” is defined by s 74(1) of the Copyright Act 1968 (Cth) which provides: corresponding design, in relation to an artistic work, means visual features of shape or configuration which, when embodied in a product, result in a reproduction of that work, whether or not the visual features constitute a design that is capable of being registered under the Designs Act 2003. The general effect of s 75 of the Copyright Act 1968 (Cth) is to preclude an action for copyright infringement where the artistic work is reproduced by making products in accordance with the corresponding design. Protection of the registered design in such a case is provided only under the Designs Act 2003 (Cth), not the Copyright Act 1968 (Cth).

Position where the corresponding design is not registered [30.1740] Section 77 of the Copyright Act 1968 (Cth) deals with the situation where the corresponding design either has not been registered under the Designs Act 2003 (Cth) or is not registrable under that Act. The section applies where: (a)

copyright subsists in an artistic work (other than a building or a model of a building, or work of artistic craftsmanship) whether made before or after the commencement of the section;

(b)

a corresponding design is applied industrially, whether in Australia or elsewhere, by or with the licence of the owner of the copyright in the work;

(c)

products to which the corresponding design has been applied are sold, let for hire, or offered for sale or hire, whether in Australia or elsewhere; and

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(d)

at that time, the corresponding design is not registrable under the Designs Act 2003 (Cth), or has not been registered under that Act or under the Designs Act 1906 (Cth): Copyright Act 1968 (Cth), s 77(1).

Where the above criteria are met, then it is not an infringement of the copyright in the artistic work to reproduce the work by embodying the corresponding design in a product: Copyright Act 1968 (Cth), s 77(2)(a). For example, it would not be an infringement of copyright in the drawing of an exhaust pipe (that is, the artistic work) for another manufacturer to copy exhaust pipes made in accordance with the design (that is, the corresponding design) where the latter was either not registrable or not registered under the Designs Act 2003 (Cth).

Meaning of “applied industrially” [30.1750] It will be observed that for s 77 of the Copyright Act 1968 (Cth) to apply, the corresponding design must have been “applied industrially”. A design is deemed to have been applied industrially if it is applied to more than 50 articles, or to one or more articles (other than handmade articles) manufactured in lengths or pieces: Copyright Regulations 1969 (Cth), reg 17(1). However, this is not an exhaustive definition and hence there may be an industrial application of a design for the purposes of s 77 of the Copyright Act 1968 (Cth) even where the plaintiff has made fewer than 50 articles in accordance with her or his design: Shacklady v Atkins (1994) 30 IPR 387 at 393.

Exceptions to the operation of s 77 of the Copyright Act 1968 [30.1760] It is important to note the exceptions to the operation of s 77 of the Copyright Act 1968 (Cth): 1.

Section 77 does not apply to works of artistic craftsmanship (for the meaning of this expression, see [30.190]. Accordingly, even where a work of artistic craftsmanship is industrially applied, the artist will still retain full copyright protection where the work has not been registered, or is not registrable under the Designs Act 2003 (Cth).

2.

The section does not apply to a building or model of a building. 22

3.

The section does not apply in relation to any articles in respect of which, at the time when they were sold or hired, the corresponding design was excluded from registration by regulations made under the Designs Act 2003: Copyright Act 1968 (Cth), s 77(3). There are currently no relevant provisions in this context in the Designs Regulations 2004 (Cth).

4.

The section would not appear to apply to two-dimensional “surface” designs applied to products, for example, the artwork for a Christmas card or the drawing of a design applied to T-shirts, which will therefore retain copyright protection as artistic works. The reason is that for the s 77 defence to apply there must be a “corresponding design”. The definition of “corresponding design” in s 74(1) (see above [30.1730]) refers to visual features of shape or configuration “embodied in” a product, which expression includes “woven into, impressed on or worked into the product” (s 77(2)) The Federal Court held that artwork embroidered by the plaintiff on its swimwear was not “embodied in” the swimwear. Accordingly, the defendant could not rely on the s 77 defence when it substantially reproduced the artwork on its own swimwear and was held liable for compensatory

22

Section 77(5) of the Copyright Act 1968 (Cth) provides that a building or model of a building “does not include a portable building such as a shed, a pre-constructed swimming pool, a demountable building or similar portable building”.

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and additional damages for infringement of copyright in the original artistic work: Seafolly Pty Ltd v Fewstone Pty Ltd (2014) 313 ALR 41; cf Polo/Lauren Co LP v Ziliani Holdings Pty Ltd (2008) 173 FCR 266 (FCAFC). 23 The Copyright Act 1968 (Cth) also provides a defence to copyright infringement for certain reproductions of artistic works made in the course of, or incidental to, products that do not themselves infringe copyright: s 77A.

Summation of the basic position [30.1770] In summary, protection for the design of a three-dimensional industrial product must be obtained by registration of the design under the Designs Act 2003 (Cth), subject to the limited exceptions mentioned at [30.1760]. If the design is either not registered, or is not registrable under that Act, copyright law will not fill the gap, that is, will not provide a right of action against those who copy the design of another’s product: compare Digga Australia Pty Ltd v Norm Engineering Pty Ltd (2008) 166 FCR 268 (FCAFC).

Patents The Patents Act 1990 [30.1780] The protection of new inventions by way of the grant of a patent is regulated by the Patents Act 1990 (Cth) and the Patents Regulations 1991 (Cth). Patents are granted for a very wide range of inventions including new mechanical products and chemical and biological products and processes. The Patents Act 1990 (Cth) was significantly amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) to address concerns, inter alia, that the threshold for the grant of patents was too low. The general effect of the provisions is to raise the quality of patents which are granted by increasing the threshold of patentability of inventions and requirements for a valid patent specification. The amendments are intended to raise the standard set in Australia to a level that is more consistent with that of our major trading partners. The new provisions of the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) concerning the patentability and validity of patents came into operation in respect of patent applications filed after 15 April 2013, or for which examination of the patent is requested after that date: they do not apply to patent applications for which examination of the patent was requested prior to 15 April 2013 to which the previous law still applies. Certain provisions, more particularly those providing for access to patented inventions for experimental purposes (see [30.2115]) commenced on 15 April 2012. The discussion of patent law which follows is based on the provisions of the Patents Act 1990 (Cth) as amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) and the Patents Regulations 1991 (Cth) as amended by the Intellectual Property Legislation Amendment (Raising the Bar) Regulation 2013 (Cth).

The nature of a patent [30.1790] A patent is a temporary monopoly granted by the Crown to a patentee in return for the disclosure of an invention to the public in the form of a patent specification. It gives the owner, that is, the 23

See J Luck, “Section 18 of the Designs Act 2003: The neglected copyright/design overlap provisions” (2013) 23 Australian Intellectual Property Journal 68.

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patentee, the right to prevent others from exploiting her or his invention in Australia for a limited period. The basic rationale behind the patent system is to stimulate technical development, and hence promote industry, by offering the opportunity of acquiring exclusive rights in an invention for a limited period. The grant of a patent is said to be a kind of bargain between the inventor and the state in that, in consideration for the grant of letters patent, the applicant must disclose her or his invention by lodging at the Patent Office a patent specification clearly describing what he or she has invented. Subsequently, the specification will become open to public inspection and the invention then becomes public knowledge. In return for the disclosure, the patentee enjoys the exclusive right to exploit the invention during the term of the patent. In other words, the patentee is given a monopoly on her or his invention for the term of the patent. On expiry of the patent, the invention becomes public property and may be freely used by anybody. There are two types of patent that can be granted under Australian patent law, namely: (a)

a standard patent; and

(b)

an innovation patent.

The term of a standard patent is 20 years from the date of the patent (that is, the date of filing the complete specification): Patents Act 1990 (Cth), ss 67, 65. The term of an innovation patent is eight years from the date of the patent: s 68. The principal differences between standard and innovation patents are more appropriately considered later in this chapter: see [30.2060]-[30.2090].

Subject matter of a patent [30.1800] In order for an invention to be patentable, it must satisfy certain requirements. The Patents Act 1990 (Cth), s 18(1) provides that: [A]n invention is a patentable invention for the purposes of a standard patent if the invention, so far as claimed in any claim: (a)

is a manner of manufacture within the meaning of section 6 of the Statute of Monopolies; 24 and

(b)

when compared with the prior art base as it existed before the priority date of that claim: (i)

is novel; and

(ii)

involves an inventive step; and

(c)

is useful; and

(d)

was not secretly used in the patent area before the priority date of that claim.

It will be seen from that section that the basic requirements for an invention to be patentable as a standard patent are that it must: (a)

be a manner of manufacture;

(b)

be novel, that is, new;

(c)

involve an inventive step;

(d)

be useful; and

(e)

not have been secretly used.

24

The Statute of Monopolies 1624 (IMP) declared all monopolies void but specifically exempted the grant of letters patent for an invention. Thus, s 6 provided that the declaration of invalidity contained in the preceding section of the statute: “shall not extend to any letters patents and grants of privilege … hereafter to be made, of the sole working or making of any manner of new manufactures within this Realm, to the true and first inventor and inventors of such manufactures, which others at the time of making such letters patents and grants shall not use, so as also they be not contrary to the law or mischievous to the State, by raising prices of commodities at home or hurt of trade, or generally inconvenient”.

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Each of these requirements is discussed at [30.1820]–[13.1920]. However, before doing so, it is necessary to consider the threshold requirement of patentability.

Threshold requirement [30.1810] The High Court held in NV Philips Gloeilampenfabrieken v Mirabella International Pty Ltd (1995) 183 CLR 655 that, in order to be patentable, the subject matter of a claim must first satisfy the threshold requirement imposed by traditional principles of patent law, that is, that the claim must disclose a manner of new manufacture. Accordingly, if it is apparent on the face of the relevant patent specification that the subject matter of the claim is, by reason of the absence of the necessary quality of inventiveness, not a manner of new manufacture, the alleged invention is not patentable. It is only if the latter requirement is satisfied that it is necessary to then consider the further requirements of novelty, inventive step and so on: compare Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1998) 194 CLR 171.

Manner of manufacture [30.1820] The question of whether the subject matter of an invention concerns a manner of manufacture has occupied the courts on many occasions, since on the interpretation of that expression will often depend the patentability of the invention claimed. 25 To constitute a manner of manufacture the invention must relate to something tangible in a commercial sense. Thus, mere discoveries, theoretical principles, or information per se are not patentable: some practical application of the discovery or theoretical principle with an economically significant result must be shown. On the other hand, the expression “manner of manufacture” covers not only a new product, for example a new article, contrivance or substance, but also a new method or process. The leading decision in this area is that of the High Court of Australia in National Research Development Corp v Commissioner of Patents (1959) 102 CLR 252, where a method of eradicating weeds from a growing crop by spraying with a selective weed killer was held to be patentable.

Methods of medical treatment [30.1830] Formerly, methods of surgery and processes for treating diseases of the human body were considered to be outside the concept of invention. However, the Full Federal Court subsequently determined in two cases (although strictly obiter) that a new method of medical treatment is patentable: Anaesthetic Supplies Pty Ltd v Rescare Ltd (1994) 50 FCR 1; Bristol-Myers Squibb Co v FH Faulding & Co Ltd (2000) 97 FCR 524. The High Court (by a majority of 4:1) confirmed that a method of medical treatment is patentable in Australia: Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd (2013) 253 CLR 284. More particularly, the majority upheld the validity of the respondents’ patent for a new method of medical treatment of a disease by use of a known drug. French CJ said (at [50]): “The exclusion from patentability of methods of medical treatment represents an anomaly for which no clear and consistent foundation has been enunciated. Whatever views may have been held in the past, methods of medical treatment, particularly the use of pharmaceutical drugs, cannot today be conceived as ‘essentially non-economic’… In my opinion the application of the rubric ‘manner of new manufacture’ in a logically and normatively coherent way is not served by 25

The requirement under the Patents Act 1990 (Cth), s 18(1) is essentially the same in this respect as that under the former Patents Act 1952 (Cth).

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excluding from its scope methods of medical treatment of human beings. Methods of medical treatment can fall within the scope of a manner of new manufacture within the meaning of s 6 of the Statute and therefore within s 18(1)(a) of the 1990 Act”: see similarly at [276]–[286] per Crennan and Kiefel JJ.

Biological processes [30.1840] Biological processes and their products are patentable. On the other hand, the Patents Act 1990 (Cth), s 18(2) provides that: “Human beings, and the biological processes for their generation, are not patentable inventions.” 26 Naturally occurring DNA and RNA sequences (that is, nucleic acids encoding genes) as they exist inside the human body cannot be the subject of a valid patent.

case [30.1845] The respondent, the United States biotechnology corporation Myriad Genetics Inc, had been granted a patent in respect of claims to an isolated nucleic acid, the so-called “breast cancer gene” BRCA1. The appellant D’Arcy, a breast cancer survivor, challenged the validity of the patent claims on the basis that genes were naturally occurring in the human body and so were “discovered” rather than “invented” and therefore were not patentable. Myriad Genetics Inc., contended that an isolated nucleic acid was chemically, structurally and functionally different to naturally occurring DNA. The High Court (French CJ, Kiefel, Bell, Gageler, Keane, Nettle and Gordon JJ) held unanimously (reversing the decisions of the Full Federal Court and the Federal Court) that in so far as the claims in the patent were for an isolated nucleic acid they did not disclose a patentable invention. Genetic information was not something that was “made” or “artificially created”. Consequently, the patent claims did not satisfy the requirement in s 18(1)(a) of the Patents Act 1990 (Cth) that the invention as claimed be a “manner of manufacture” within the meaning of that expression. As regards claim 1 of the patent, Gageler and Nettle JJ said (at [168]-[169]): “It is a claim for a monopoly over such isolated fragments of naturally occurring DNA as comprise the BRCA1 gene as are found upon examination to contain the (naturally occurring) specified mutations and polymorphisms. 27 In the result the claim extends too far…[T]he first respondent has attempted to patent those sequences of the gene themselves notwithstanding that, even when isolated, they are naturally occurring and therefore not new.” The claims in dispute were held to be invalid and an order made for their revocation: D’Arcy v Myriad Genetics Inc (2015) 89 ALJR 924.

Computer programs [30.1850] Computer programs per se are not patentable, although a computer program-related invention is patentable. For example, an application to patent a method of producing an improved curved image used 26

27

See E O’Sullivan, “The Patentability of Human Embryonic Stem Cells in Australia and Europe: Section 18(2) Reconsidered in Light of Brüstle v Greenpeace eV” (2013) 24 Australian Intellectual Property Journal 18; C Lawson, “’Human Beings’ as Excluded Subject Matter for the Purposes of the Patents Act 1990 (Cth)” (2009) 20 Australian Intellectual Property Journal 223. “A polymorphism is a genetic variant which has arisen in a distant common ancestor and is therefore not unique to an individual or that individual’s immediate family. Forty per cent of women in the general female population have one or more polymorphisms in the BRCA1 gene that are not found in the remaining 60% of the population” (at [207] per Gordon J).

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in computer graphics displays was held to disclose patentable subject matter: International Business Machines Corp v Commissioner of Patents (1991) 33 FCR 218. See similarly, CCOM Pty Ltd v Jiejing Pty Ltd (1994) 51 FCR 260 (the storage and retrieval of Chinese characters represented on a computer screen for word processing held by the Full Federal Court to be patentable). By contrast, in Commissioner of Patents v RPL Central Pty Ltd (2015) 238 FCR 27, the Full Federal Court held that a method of gathering evidence for the purpose of assessing an individual’s competency relative to a recognised qualification standard was not patentable subject matter.

New plant varieties [30.1860] New plant varieties are patentable provided that the other requirements as to patentability discussed at [30.1870]–[30.1920] are satisfied. It should also be observed in this context that an alternative method of protection for new varieties of plants is provided by a separate piece of legislation, namely, the Plant Breeder’s Rights Act 1994 (Cth). The plant breeder’s right (PBR) obtained under the latter Act lasts for 25 years in the case of trees and vines, and 20 years for any other plant variety: s 22.

Novelty [30.1870] The essential purpose behind the requirement of novelty is that a patent should not be granted for inventions that are already known. In other words, once the public has been made aware of an invention, a subsequent patent cannot be granted for it or, if granted, is invalid. To say that an invention, or a claim in a complete specification, lacks novelty is, in essence, to say that a claim or claims of the patent specification includes something that has already been published or used before the priority date of the claim. The claim is then said to have been anticipated by the prior publication or the prior user, that is, to have been anticipated by the prior art. The Patents Act 1990 (Cth) provides that the novelty of each claim in a complete specification is to be assessed against the prior art base as it existed immediately before the priority date of the claim: s 18(1)(b)(i). This requires an explanation of the meaning of “prior art base”.

Prior art base [30.1880] The “prior art base” is defined in the Dictionary in Sch 1 of the Patents Act 1990 (Cth) to include information in a document that is publicly available whether in or out of the patent area (that is, Australia): in other words, novelty is assessed by reference to information in a document anywhere in the world. In addition, “prior art base” also includes information made publicly available through doing an act whether in or out of the patent area: that is, in assessing novelty against alleged prior use of the invention regard is given to prior use of the invention anywhere in the world.

Assessment of novelty [30.1890] In determining the question of novelty, the Patents Act 1990 (Cth) provides that an invention is to be taken as novel when compared with the prior art base unless it is not novel in the light of any one of the following categories of information, each of which must be considered separately: (a)

information made publicly available in a single document or through the doing of a single act;

(b)

information made publicly available in two or more related documents, or through the doing of two or more related acts, if the relationship between the documents or acts is such that a person skilled in the relevant art would treat them as a single source of information; and

(c)

information contained in a single, published patent specification which was filed but not published at the priority date of the claim under consideration: s 7(1).

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Where it is contended that a claim lacks novelty because of a prior publication, the general proposition is that the prior document must disclose all the essential integers, that is, features, of the claim to a person skilled in the relevant area: Nicaro Holdings Pty Ltd v Martin Engineering Co (1990) 91 ALR 513. Broadly: “The concept of novelty in Australia involves a comparison between the invention as claimed in the claims of the patent and prior art information. Often, this must be determined by looking to prior publications which are to be read by the skilled addressee to determine what they disclose”: H Lunbeck A/S v Alphapharm Pty Ltd (2009) 177 FCR 151 at [178] per Bennett J. The learned judge added (at [182]): “If the prior art discloses some but not all integers of a claimed patent to a product, such as a combination, there is anticipation [that is, a lack of novelty] if the skilled addressee would add the missing information as a matter of course and without the application of inventive ingenuity or undue experimentation: Nicaro 91 ALR 530-1”: see similarly, SNF (Australia) Pty Ltd v Ciba Specialty Chemicals Water Treatments Ltd (2012) 204 FCR 325 at [321]. It has been held that what is disclosed to the skilled addressee is to be judged as at the date of publication of the prior art information (for example, the earlier patent specification) and not the date of the claim in the patent specification at issue, although the authorities appear to be divided on the question: Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd (2012) 210 FCR 21 at [210]–[214]. Earlier disclosure of the same invention in a document (for example, a patent specification) even if in a foreign language will result in lack of novelty (Dennison Manufacturing Co v Monarch Marketing Systems Inc (1983) 66 ALR 265), as will publication of photographs in a magazine if enough detail is shown: Van der Lely NV v Bamfords Ltd [1963] RPC 61. Prior public use of the invention by others who had earlier created the same device will result in a lack of novelty: Windsurfing International Inc v Petit (1983) 3 IPR 449. On the other hand, to establish lack of novelty through the doing of a single act under s 7(1)(a) (see above), it is necessary to establish that the information made “publicly available” by the doing of that act, for example the display of a product, extended to each of the essential integers of the patent claim: Damorgold Pty Ltd v JAI Products Pty Ltd (2015) 229 FCR 68 (FCAFC). The test applied by the courts in determining whether an invention lacks novelty is what is known as the “reverse infringement test”. In Meyers Taylor Pty Ltd v Vicarr Industries Ltd (1977) 137 CLR 228 at 235, this test was stated by Aickin J as follows: “The basic test for anticipation or want of novelty is the same as that for infringement and generally one can properly ask oneself whether the alleged anticipation would, if the patent were valid, constitute an infringement.” In other words, if the prior publication contained a description of the invention that would have constituted an infringement if performed, or if the prior use would constitute an infringement of the patent if valid, the invention has been anticipated by the prior publication or prior use and accordingly lacks novelty. The previous position was that disclosure of an invention to a single person before the priority date with no restrictions on the use that could be made of the invention would anticipate the patent and result in its invalidity on the ground of lack of novelty: Re Bristol-Myers Company’s Application [1969] RPC 146.

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However, a “grace period” now applies in respect of any information made publicly available by or with the consent of the patentee provided that a complete specification for the invention is made within 12 months: s 24(1). 28

Inventive step [30.1900] It is not sufficient for an invention to be novel in order to be patentable: it must also involve an inventive step. 29 In determining the issue of inventive step consideration needs to be given to the prior art base (discussed at [30.1880]), that is, to information publicly available in a document, or the doing of acts, either in Australia or anywhere else in the world. However, not all information so disclosed is taken into account in deciding whether the invention involves an inventive step. Following amendment by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth), the Patents Act 1990 (Cth) provides that an invention is to be taken to involve an inventive step when compared with the prior art base unless the invention would have been obvious to a person skilled in the relevant art in the light of the common general knowledge as it existed whether inside or outside of Australia 30 before the priority date of the relevant claim in the specification, whether that knowledge is considered separately or together with the information described in s 7(3) of the Patents Act 1990 (Cth): s 7(2). In other words, only those disclosures which form part of the common general knowledge of those skilled in the relevant field are relevant, either separately or together with the additional information specified in s 7(3). The additional information that can be taken into consideration under s 7(3) is: (a)

any single piece of prior art information (that is, information in a document or the doing of an act); or

(b)

a combination of any two or more pieces of prior art information that the skilled person could be reasonably expected to have combined.

Where there is more than one piece of prior art information, each may be considered separately in conjunction with the common general knowledge to determine whether the invention claimed involves an inventive step. For example, in AstraZeneca AB v Apotex Pty Ltd (2015) 89 ALJR 798, the High Court affirmed the revocation of a patent for a method of treatment of high blood cholesterol using low doses of a particular compound on the ground of a lack of inventive step under s 7(2) because the claimed invention was obvious to a person skilled in the relevant art in light of common general knowledge in conjunction with either of two prior art publications, namely, a European patent and a Japanese journal article under s 7(3). Prior to the Patents Act 1990, the notion of common general knowledge was described as the general body of knowledge known or used by all those in the relevant trade, and as such formed the background knowledge and experience which was available to all in the trade in considering the making of new products or the making of improvements in old products: Minnesota Mining & Manufacturing Co v Beiersdorf (Aust) Ltd (1980) 144 CLR 253 at 292; Winner v Ammar Holdings Pty Ltd (1993) 41 FCR 205. Factors to be considered include whether the skilled person would have understood and appreciated the relevance of the prior art to the problem the invention was seeking to solve. 28

The grace period is in addition to the protection already afforded to applicants who have previously disclosed their invention under certain specified prescribed circumstances such as: the showing of the invention at a recognised exhibition; disclosure in a paper read before a learned society; or the working of the invention within 12 months for the purpose of reasonable trial: Patents Act 1990 (Cth), s 24(1) and the Patents Regulations 1991 (Cth), regs 2.2 – 2.2D.

29

The alternative way of expressing this requirement, in the language of the now repealed Patents Act 1952 (Cth), is that the invention must not be obvious. Prior to the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth), the common general knowledge of the person skilled in the field was limited to that existing within Australia.

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The basic issue is whether the invention would have been obvious to a skilled, non-inventive worker in the field, equipped with such knowledge. In other words, would it have been obvious to such person to take the same steps as the inventor if faced with the same problem? If so, the invention will lack the necessary requirement that it involve an inventive step. On the other hand: “When skilled, non-inventive persons, and in this case also a skilled inventive person … looking for improvements, fail to arrive at the invention, it is impossible to suggest that it would have been obvious to the skilled and not necessarily inventive person”: Lockwood Security Products Pty Ltd v Doric Products Pty Ltd (No 2) (2007) 235 CLR 173 at [119]. On the quantum of inventiveness required it has been said that: “The inventive element needed to sustain a patent may be small. A ‘scintilla of inventiveness’ is sufficient. … However, while a simple idea may be inventive, it is nevertheless essential for the validity of a patent that there be some inventiveness”: Aktiebolaget Hässle v Alphapharm Pty Ltd (2000) 51 IPR 375 at [31].

The invention must be “useful” [30.1910] The requirement that the invention must be useful in order to be patentable has been construed as meaning that the result claimed can be achieved by following the instructions in the specification, in other words, that what is claimed actually works. For example, a plaintiff’s patent for a sailboard used for windsurfing was held invalid on the ground, inter alia, of lack of utility because the claims in the specification included a method of working the invention which would not produce the results mentioned in the specification: Windsurfing International Inc v Petit (1983) 3 IPR 449. Following amendment by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth), the Patents Act 1990 (Cth), s 7A provides that: (1)

An invention is taken not to be useful unless a specific, substantial and credible use for the invention (so far as claimed) is disclosed in the complete specification.

(2)

The disclosure in the complete specification must be sufficient for that specific, substantial and credible use to be appreciated by a person skilled in the relevant art.

Secret use [30.1920] The Patents Act 1990 (Cth) requires that for an invention to be patentable, it must not previously have been secretly used. The rationale behind the provision is that where the actual inventor has secretly used her or his invention prior to applying for a patent, then to allow the patent to continue may give the inventor a longer monopoly than the statutory period as a result of the earlier secret use of the invention before the grant of the patent. “Secret use” involves some element of deliberate concealment of the invention: Bristol-Myers Co v Beecham Group Ltd [1974] AC 646. The Patents Act 1990, s 9 provides that the following acts do not constitute a secret use of the invention: (a)

use for the purpose of reasonable trial and experiment only;

(b)

use pursuant to a confidential disclosure;

(c)

use of the invention for a purpose other than trade or commerce;

(d)

use by a Commonwealth, State or Territory authority to whom the patentee has disclosed the invention; and

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(e)

any use of the invention by or on behalf of the patentee for any purpose, if a complete application is made for the invention within the “prescribed period”, that is, within 12 months of filing a complete patent application: Patents Regulations 1991 (Cth), reg 1.6. This significant additional exception to secret use was introduced following amendment of the Patents Act 1990 by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012.

Procedure for obtaining a patent Persons who may be granted a patent [30.1930] Any person or group can apply for a patent but must nominate a person, either an individual or body corporate, who is eligible to be granted the patent. The Patents Act 1990 (Cth) limits the class of persons to whom a patent can be granted. The potential grantee must be a person who: (a)

is the inventor; or

(b)

would, on the grant of a patent for the invention, be entitled to have the patent assigned to her or him;

(c)

derives title to the invention from either of the above (for example, an assignee); or

(d)

is the legal representative of a deceased person who falls into one of the above categories: s 15.

The provision under (b) above, is primarily intended to cover employment or service contracts under which an employer may be entitled to have assigned to them rights in inventions made by their employees: see “Employee Inventions” at [30.2150]. Most patents are owned by corporations as persons entitled to take an assignment from the actual inventor.

Application for a patent [30.1940] An application for a patent is made to the Patent Office in Canberra or to one of its sub-offices in each of the State capital cities. A person may apply for a patent by filing in accordance with the Patent Regulations 1991 (Cth) a patent request and such other documents as are prescribed: Patents Act 1990 (Cth), s 29(1). A patent request is a form which identifies the applicant, the nominated person (that is, the person nominated to be granted a patent), the inventor, the type of application (that is, whether it is for a complete specification or a provisional specification, and whether it is for a standard patent or an innovation patent), and lists any earlier associated provisional applications. The application for a patent may be a provisional application or a complete application: s 29(2). A patent request in relation to a provisional application must be accompanied by a provisional specification: s 29(3). A patent request in relation to a complete application must be accompanied by a complete specification: s 29(4). A complete specification should also be accompanied by a notice of entitlement which sets out the relationship between the person nominated for the grant of a patent and the inventor. A complete specification must also be accompanied by an abstract of the invention.

Specifications [30.1950] In essence, the purpose of a patent specification is to describe the invention. A specification is extremely important in the patent procedure and needs to be carefully drafted since the value and validity of a patent that may be subsequently granted will to a large extent depend on the competence with which the specification has been prepared. Accordingly, patent specifications are usually drafted by a patent attorney who specialises in this kind of work.

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Provisional specification [30.1960] As indicated at [30.1940], a provisional application must be accompanied by a provisional specification: Patents Act 1990 (Cth), s 29(3). The Patents Act 1990 (Cth) as amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) provides that: A provisional specification must disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art: s 40(1). A provisional application and specification will lapse unless a complete application and a complete specification are filed within 12 months of the filing of the provisional application: ss 38, 142(1), Patents Regulations 1991 (Cth), reg 3.10. The advantage of a provisional application is that it gives the applicant a further 12 months for further development of their invention before a complete application has to be filed. In essence, the purpose of a provisional specification is to establish a priority date for the invention, that is, to establish a priority date for the claims made subsequently in a complete specification (priority dates are discussed further at [30.1990]).

Complete specification [30.1970] As mentioned at [30.1940], a complete application must be accompanied by a complete specification: Patents Act 1990 (Cth), s 29(4). The complete specification forms the basis for the grant of a patent. The Patents Act 1990, s 40(2), as amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) provides that a complete specification must: (a)

disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art;

(b)

disclose the best method known to the applicant of performing the invention; and

(c)

where it relates to an application for a standard patent – end with a claim or claims defining the invention.

The specification of a complete application must include a precise technical statement of what is claimed to be the invention and be sufficient for a person who knows the technology involved to put into practical effect. If the complete specification does not comply with these requirements, for example if it fails to disclose to those who might wish to make the product after the patent expires how the product should be constructed, then if a patent is granted it will be invalid and may be revoked.

Claims in a complete specification [30.1980] The object of the claims in a patent specification is to define the exact scope of the protection sought by the patent, if granted, and the field from which the patent will seek to exclude others. The claim or claims in the complete specification must be clear and succinct and supported by matter disclosed in the specification: Patents Act 1990 (Cth), s 40(3). 31 The claim or claims must relate to one invention only: s 40(4). A patent will only protect what is claimed in the complete specification.

Priority dates [30.1990] The purpose of a provisional application and provisional specification is to establish a priority date for the claims made subsequently in a complete specification. One of the important features of the 31

Prior to amendment by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth), the Patents Act 1990 (Cth), s 40(3) required that the claims must be “fairly based” on the matter described in the specification.

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Patents Act 1990 (Cth) is the notion of priority dates since the rights of the patentee, if the patent is granted, will operate from this date and, for example, give the patentee priority over any later application. The general position is that the priority date of a claim of a complete specification is the date of filing the complete specification in the Patent Office. However, following amendment by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) where a provisional specification discloses the invention in the claim in a manner that is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art, the priority date of the claim in the complete specification will be the date of making the provisional application: Patents Act 1990 (Cth), s 43(2)(b). Thus, where a provisional application for a patent is made, the provisional specification should contain a clear description of the main essentials of the invention since the priority date of claims in the complete specification depends on whether there is sufficient disclosure of the invention in the provisional specification. The Patents Act 1990 provides that a patent is not invalid, so far as the invention is claimed in any claim, merely because of the publication or use of the invention on or after the priority date of the claim, or the grant of another patent which claims the invention in a claim of the same or a later priority date: s 23.

Examination [30.2000] An examination of a patent request relating to a complete application with its accompanying complete specification must be conducted by a patent examiner before a standard patent may be granted. There is no automatic examination of patent applications and such examination will only be conducted at the request of the applicant: Patents Act 1990 (Cth), s 44(1). The basic position is that an application will lapse if a request for examination is not made within five years from the filing date of the complete application, or within two months after notice of direction to request such examination by the Commissioner of Patents: ss 44(2), 142(2); Patents Regulations 1991 (Cth), regs 3.15, 3.16. Where a request for examination is made, the patent request and complete specification are referred to a patent examiner. The examiner will report, inter alia, on whether the specification complies with the requirements of the Patents Act 1990 (Cth) and whether it satisfies the criteria of a patentable invention (that is, whether it is a manner of manufacture, is novel, involves an inventive step and is useful under s 18(1)(a), (b) and (c)): s 45. Broadly, one of the principal functions of the patent examiner is to report on whether the patent application and specification has, in essence, been anticipated by the prior art, for example lacks novelty or an inventive step in the light of earlier patent specifications. The examiner will conduct a search of such material. Should the examiner report adversely to the patent application the applicant may seek leave from the Commissioner of Patents to make amendments to overcome the examiner’s objections: s 104. When an examiner is satisfied that there are no further objections and has issued a clear report, the application is ready for acceptance.

Acceptance and publication [30.2010] The Commissioner must accept a patent request and complete specification if the Commissioner is satisfied, on the balance of probabilities, that the specification complies with the requirements of the Patents Act 1990 (Cth) (see [30.1970]); satisfies the criteria of a patentable invention (namely, that it is a manner of manufacture, is novel, involves an inventive step and is useful under s 18(1)(a), (b) and (c)) and complies with any other matters that may be prescribed by the regulations: s 49(1). This does not mean that the patent is then automatically granted; it simply means that the Commissioner is prepared, in the absence of objections from interested persons, to grant a patent.

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Once the patent request and complete specification are accepted, the applicant is notified of such, and a notice of the acceptance is published in the Australian Official Journal of Patents, Trade Marks and Designs. If the patent request and complete specification have not already become open to public inspection, the notice must include a statement to the effect that the patent request and complete specification are open to public inspection: s 49(5), (6)(b). The general public is thereby notified that the Commissioner is ready to grant the patent unless the grant of the patent is opposed. The patent documents may have become open to public inspection at an earlier date. Thus, the complete specification normally becomes open to public inspection 18 months after the date of the filing of the specification, or 18 months from the earliest provisional application associated with the complete specification: s 54(3); Patents Regulations 1991 (Cth), reg 4.2(3). An applicant may also request that the patent documents become open to public inspection at an earlier date: Patents Act 1990 (Cth), s 54(1); Patents Regulations 1991 (Cth), reg 4.2(2).

Grounds of opposition to the grant of a standard patent [30.2020] Once the application for a standard patent becomes open to public inspection, it is likely to be scrutinised by competitors who may decide to oppose the grant of the patent. Thus, a person may oppose the grant of a standard patent by giving notice of opposition within three months of publication in the Official Journal of the Commissioner’s notice of acceptance of the patent request and complete specification: Patents Act 1990 (Cth), s 59; Patents Regulations 1991 (Cth), reg 5.4(1). Section 59 of the Patents Act 1990 (Cth) provides that the only grounds on which a patent may be opposed are: (a)

that the nominated person is either: (i)

not entitled to a grant of a patent for the invention; or

(ii)

entitled to a grant of a patent for the invention but only in conjunction with some other person;

(b)

that the invention is not a patentable invention; or

(c)

the complete specification does not comply with the requirements of s 40(2), (3): see [30.1970]-[30.1980].

The parties will argue the matter before the Commissioner: s 60. If the Commissioner is satisfied, on the balance of probabilities, that a ground of opposition to the grant of the standard patent exists, the Commissioner may refuse the application: s 60(3A). An appeal lies to the Federal Court against a decision of the Commissioner: s 60(4); Bradken Resources Pty Ltd v Lynx Engineering Consultants Pty Ltd (2012) 210 FCR 21. The Patents Regulations 1991 (Cth) contain detailed provisions regarding the procedural requirements in respect of opposition proceedings: regs 5.5 – 5.26.

Re-examination [30.2030] The Patents Act 1990 (Cth) provides for the re-examination of a patent in certain circumstances. If, after acceptance of an application, the Commissioner becomes aware of information which may affect the validity of the patent were it to be granted, the Commissioner may re-examine the complete specification: s 97(1). Furthermore, even where a patent has been granted the Commissioner may re-examine the complete specification and must do so if asked by the patentee or any other person: s 97(2). Where the validity of a patent is disputed in court proceedings, the court may direct the Commissioner to re-examine the complete specification: s 97(3). The re-examination must be carried out in accordance with the regulations: s 97(3A). On re-examining a complete specification, the Commissioner must ascertain and

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report on whether the complete specification complies with the requirements of s 40(2), (3) (see [30.1970]-[30.1980]) and whether to the best of his or her knowledge, the invention, so far as claimed, satisfies the criteria mentioned in s 18(1)(a), (b) and (c) (namely, that it is a manner of manufacture, novel, involves an inventive step and is useful): s 98. The Commissioner may refuse to grant a patent if the Commissioner: (a)

makes an adverse report on a re-examination of the relevant specification under s 97(1) (that is, after acceptance of an application); and

(b)

is satisfied, on the balance of probabilities, that there is a lawful ground of objection to the specification: s 100A(1).

Further, the Commissioner may, by notice in writing, revoke a patent, either wholly or so far as it relates to a particular claim, if the Commissioner: (a)

makes an adverse report on a re-examination of the relevant specification under s 97(2) (that is, after a patent has been granted); and

(b)

is satisfied, on the balance of probabilities, that there is a lawful ground of objection to the relevant specification: s 101(1).

An appeal lies to the Federal Court against a decision of the Commissioner under these provisions.

Grant, date, and term of a standard patent [30.2040] If there is no opposition to the grant of the patent, or such opposition is unsuccessful, the Commissioner must grant a standard patent for the invention by sealing a standard patent in the approved form. A standard patent is to be granted within three to six months of publication of notice of acceptance of the patent request and complete specification in the Official Journal in the absence of opposition or court proceedings: Patents Regulations 1991 (Cth), reg 6.2. The term of a standard patent is 20 years from the date of the filing of the complete specification: Patents Act 1990 (Cth), ss 65, 67. The Patents Act 1990 contains provisions enabling a five-year extension for a standard patent of a pharmaceutical substance per se for human use: ss 70 – 79; Alphapharm Pty Ltd v H Lundbeck A/S (2014) 254 CLR 247. An extension may be opposed on the ground that a requirement for the extension was not satisfied (s 75(1)); an appeal lies to the Federal Court by an applicant and any opponent against a decision of the Commissioner (s 75(4)): Spirit Pharmaceuticals Pty Ltd v Mundipharma Pty Ltd (2013) 216 FCR 344. 32

Innovation patent [30.2050] The discussion so far has centred on the application and grant of a standard patent. However, as previously mentioned, an application can be made for either a standard patent or for an innovation patent. The innovation patent was introduced on 24 May 2001 following the enactment of the Patents Amendment (Innovation Patents) Act 2000 (Cth). The innovation patent is intended to provide local

32

C Lawson, “How are Pharmaceutical Patent Term Extensions Justified? Australia’s Evolving Scheme” (2013) 21 Journal of Law and Medicine 379.

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industry, particularly small to medium size businesses and individuals, with a relatively cheap patent right that is quick and easy to obtain for minor or lower-level inventions. 33

Principal differences between an innovation patent and a standard patent 1. No substantive examination prior to grant [30.2060] Basically, an application (that is, a patent request and complete specification) for an innovation patent will be accepted and an innovation patent granted provided that the formalities of the application have been complied with: Patents Act 1990 (Cth), s 52. That is, there is no substantive examination of the application before the innovation patent is granted.

2. Certification necessary to bring an action for infringement [30.2070] For an innovation patent owner to be able to enforce their rights under the innovation patent, certification of the patent is necessary: Patents Act 1990 (Cth), s 120(1A). This will require examination of the innovation patent. That is, the patentee may request examination if they intend to enforce their rights against a potential infringer. Examination of the innovation patent will also occur where requested by the Commissioner of Patents or a third party: s 101A. In examining an innovation patent the Commissioner is to report on whether, inter alia, the specification complies with the general provisions as to specifications in s 40(2)-(4) (see [13.1970]–[13.980]) and the requirements of an innovation patent (see [30.2080]): s 101B. If the Commissioner decides in writing that he or she is satisfied on the balance of probabilities that the patent complies with these requirements, the Commissioner must: (a)

notify the patentee that the patent has been examined and that a certificate of examination is to be issued;

(b)

publish a notice of the examination in the Official Journal;

(c)

issue a certificate of examination to the patentee; and

(d)

register the issue of the certificate: s 101E.

If these requirements are found on examination not to have been complied with the Commissioner must revoke the innovation patent: s 101F. Provision is made for the re-examination of an innovation patent (s 101G) and for its revocation in the event of an adverse report where the Commissioner is satisfied, on the balance of probabilities, that there is a ground of revocation: s 101J. Any person can oppose, in accordance with the regulations, an innovation patent that has been certified and seek its revocation on the grounds that the patentee is not entitled to the patent or only entitled to it in conjunction with some other person; that the complete specification does not comply with the general provisions as to specifications in s 40(2) – (3) (see [13.1970]–[13.980]); or does not comply with the requirements of an innovation patent (see [30.2080]): s 101M.

3. Requirements of an innovation patent [30.2080] The basic requirements for an invention to be patentable as an innovation patent are essentially the same as those in respect of standard patents, including that the invention is a manner of manufacture, novel, useful and not secretly used before the priority date of the claim: Patents Act 1990 33

For discussion of the recommendations of the Advisory Council on Intellectual Property (ACIP) in its Review of the Innovation Patent System – Final Report (May, 2014), see M Davison, “The innovation patent system: Lessons for Australia in the IP reform process” (2015) 26 Australian Intellectual Property Journal 64.

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(Cth), s 18(1A)(a), (b) and (c). However, there is one important difference. For a claim of a standard patent to be valid it must involve an inventive step (s 18(1)(b)(ii), see [30.1900]). The corresponding requirement in the case of an innovation patent is that the claim must involve an innovative step: s 18(1A)(b)(ii). An innovative step requires a substantial contribution to the working of the invention: s 7(4). This is a lower inventive threshold than that of an inventive step required for a standard patent. The prior art base against which an innovative step is judged is essentially the same as for a standard patent (see [30.1880]). The presence or absence of a substantial contribution when the invention as claimed in each claim is compared with a prior disclosure involves a finding of fact: Dura-Post (Australia) Pty Ltd v Delnorth Pty Ltd (2009) 177 FCR 239. There are additional restrictions in respect of an innovation patent. Thus, an innovation patent cannot be obtained for plants and animals and the biological processes for the generation of plants and animals: s 18(3). This restriction does not apply to microbiological processes or the products of such processes: s 18(4). An application for an innovation patent must have one and no more than five claims: s 40(2)(c). In contrast, there is no limit to the number of claims that may be made in a standard patent.

4. Term of an innovation patent [30.2090] The maximum term of an innovation patent is eight years (compared with the usual 20 years for a standard patent): Patents Act 1990 (Cth), s 68.

Exclusive rights given by a patent [30.2100] A patent gives the patentee the exclusive right, during the term of the patent, to exploit the invention: Patents Act 1990 (Cth), s 13(1). The term “exploit” is defined in the Dictionary in Sch 1 of the Act as including: (a)

where the invention is a product – make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or

(b)

where the invention is a method or process – use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.

Furthermore, the Patents Act 1990 has extended the grounds of infringement to include, in certain circumstances, the supply of a product, the use of which would infringe the patent: s 117; Northern Territory of Australia v Collins (2008) 235 CLR 619; cf Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd (2013) 88 ALJR 261. The exclusive rights of a patentee are personal property and are capable of assignment and of devolution by law: s 13(2). As personal property, patent rights can be dealt with in the same way as any other chose in action, that is, they can be sold, leased, mortgaged or bequeathed in a will. An assignment of a patent must be in writing signed by or on behalf of the assignor and assignee, and a patent may be assigned for a place in or part of Australia: s 14. An inventor may benefit from their patented invention in any of the following ways, namely: (a)

exploit the rights under the patent personally;

(b)

sell or assign the patent or the rights to the patent outright; or

(c)

grant licences either exclusively to one person, or non-exclusively to several, in consideration of the payment of royalties.

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Provision is made for the court to make an order requiring the patentee to grant an applicant a compulsory licence to work the patented invention, where the court is satisfied that the reasonable requirements of the public have not been satisfied and the patentee has given no satisfactory reason for failing to exploit the patent: ss 133 – 136.

Infringement of a patent [30.2110] A patent will be infringed where a person does something in relation to the invention which falls within the scope of the patentee’s exclusive rights (as outlined in the previous section) without the patentee’s consent. An alleged infringement must be assessed against a claim or claims for the patented invention. To establish an infringement of a patent, it must be shown that each of the essential integers, that is, features or elements, of the patent claim in issue has been taken by the alleged infringer in, for example, making their product or used in their process. Conversely, there will be no infringement if one or more of the essential elements in the claim is omitted or substituted by something different, that is, by something which does not fall within the description used by the claim: Populin v HB Nominees Pty Ltd (1982) 41 ALR 471; MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1998) 43 IPR 287. An essential element in an infringement action is the construction of the relevant claim or claims in the specification. The modern trend is to adopt what is referred to as a purposive construction, that is, regard is to be given to the purpose of the particular words used in a claim, rather than merely applying a purely literal construction: Catnic Components Ltd v Hill & Smith Ltd [1982] RPC 183 (HL); Nesbit Evans Group Australia Pty Ltd v Impro Ltd (1997) 39 IPR 56. In Kimberly-Clark Australia Pty Ltd v Multigate Medical Products Pty Ltd (2011) 92 IPR 21, the Full Federal Court held that the claims of the appellant’s patent specification for a “sterilization wrap” (used for sterilising surgical instruments) comprised of two fabric sheets joined together was not infringed by the respondent’s sterilisation wrap consisting of a single sheet folded over to give two layers.

Exemptions from infringement [30.2115] The Patents Act 1990 (Cth) was amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) to provide a new exemption from infringement where a patent is used for experimental purposes. A person may undertake an act without infringing a patent if it was for experimental purposes relating to the subject matter of the invention: s 119C(1). “Experimental purposes” include, but are not limited to: (a)

determining the properties of the invention;

(b)

determining the scope of a claim relating to the invention;

(c)

improving or modifying the invention;

(d)

determining the validity of the patent or of a claim relating to the invention; and

(e)

determining whether the patent for the invention would be, or has been, infringed by the doing of an act: s 119C(2).

The provision applies to acts done on or after 15 April 2012 in relation to patents granted before or after that date. A further exemption has been introduced with respect to acts undertaken for regulatory approval. A person may do an act without infringing a patent if it was solely for: (a)

purposes connected with obtaining an approval required by law to exploit a product, method or process; or

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(b)

purposes connected with obtaining a similar approval under a law of another country: s 119B.

The provision does not apply in relation to a pharmaceutical patent which already had, and will continue to have, a similar exemption under s 119A.

Remedies for infringement [30.2120] Proceedings for infringement may be brought either by the patentee or an exclusive licensee, although where proceedings are brought by an exclusive licensee, the patentee must be joined as a party to the proceedings either as a co-plaintiff or as a defendant: Patents Act 1990 (Cth), s 120. The relief which a court may grant for infringement of a patent includes an injunction and, at the option of the plaintiff, either damages or an account of profits: s 122(1). 34 A court may refuse to award damages, or to make an order for an account of profits, if the defendant satisfies the court that at the date of the infringement the defendant was not aware, and had no reason to believe, that a patent for the invention existed. However, if patented products, marked so as to indicate that they are patented in Australia, were sold or used to a substantial extent before the date of the infringement, the defendant is to be taken to have been aware of the existence of the patent unless the contrary is established: s 123. Broadly, damages or an account of profits for infringement of a patent can be awarded back to the time when the patent became open to public inspection but proceedings for infringement cannot be instituted until the patent is granted: s 57. The High Court has stated that the purpose of the remedy of an account of profits is to prevent the unjust enrichment of the defendant: Dart Industries Inc v Decor Corp Pty Ltd (1993) 179 CLR 101. The court held in the latter case that a proportion of general overhead costs is allowable as a deduction in determining the profits made by the defendant from their infringement of the plaintiff’s patent. An interlocutory injunction may be granted in a case of a threatened infringement to restrain the importation and/or sale of goods alleged to infringe the plaintiff’s patent before the trial of the action. When determining whether to grant an interlocutory injunction, the court considers whether there is a prima facie case of infringement and the balance of convenience, that is, whether the inconvenience or injury that the plaintiff would be likely to suffer if an injunction was refused, outweighs or is outweighed by the injury which the defendant would suffer if an injunction was granted: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618.

case [30.2125] Apple succeeded at first instance in obtaining an interlocutory injunction restraining Samsung from launching its tablet computer, the Galaxy Tab 10.1, into the Australian market just prior to Christmas 2011: Apple contended that the Samsung tablet computer infringed its patents in the Apple iPad computer. The Full Federal Court discharged (that is, set aside) the interlocutory injunction on appeal by Samsung: Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238.

34

See G Adkins, “Decisions, Decisions: Damages or an Account of Profits for Patent Infringement?” (2011) 22 Australian Intellectual Property Journal 10.

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Revocation of a patent [30.2130] It is important to appreciate that even where a patent is granted, this does not make the patent immune from further challenge. In other words, the grant of a patent is no guarantee of its validity. This is made clear by the Patents Act 1990 (Cth) which provides that nothing done under the Act guarantees that a patent is valid: s 20(1). Thus, a patent, once granted, may be subsequently revoked on certain specified grounds. A person may apply to the court for the revocation of a patent, either wholly or so far as it relates to a particular claim or claims, on one or more of the following grounds: (a)

that the patentee is not entitled to the patent;

(b)

that the invention is not a patentable invention (that is, under s 18, see [30.1800]);

(c)

that the patentee has contravened a condition in the patent;

(d)

that the patent was obtained by fraud, false suggestion or misrepresentation;

(e)

that an amendment of the patent request or the complete specification was made or obtained by fraud, false suggestion or misrepresentation;

(f)

that the specification does not comply with s 40(2) or (3) (that is, the requirements as to specifications, see [30.1970]-[30.1980]): s 138.

Furthermore, a defendant who is sued for infringement of the patent may counterclaim in the proceedings for revocation of the patent on one or more of the above grounds: s 121.

Register of Patents [30.2140] The Patents Act 1990 (Cth) provides for a Register of Patents in which are recorded particulars of patents in force; particulars of an entitlement as mortgagee, licensee or otherwise to an interest in a patent; and particulars of a transfer of an entitlement to a patent or licence, or to a share in a patent or licence: ss 186 – 187; Patent Regulations 1991 (Cth), reg 19.1. On the other hand, notice of any kind of trust relating to a patent or licence is not receivable by the Commissioner and must not be registered: Patents Act 1990 (Cth), s 188. The Register can be inspected by any person during office hours at the Patent Office: s 190.

Employee inventions [30.2150] The Patents Act 1990 (Cth) does not explicitly deal with an employer’s rights to inventions made by employees. The Act simply lists in s 15(1) those to whom a patent may be granted which includes, under s 15(1)(b), those who would, on the grant of a patent, be entitled to an assignment of the patent. This would include, in an appropriate case, an employer. The question of the ownership of employee inventions will, in essence, turn on the contractual relationship between an employer and employee. In the absence of an express contractual provision dealing with the subject of ownership of inventions, the question will be determined by the terms implied by law in a contract of employment. The general principle is that where an employee in the course of their employment makes an invention which it was part of their duty to make, the law implies into the contract of employment a term that the invention is the property of the employer: Sterling Engineering Co Ltd v Patchett [1955] AC 534; Triplex Safety Glass Co Ltd v Scorah (1938) 55 RPC 21. On the other hand, where the invention falls outside the scope of the employee’s normal duties, the invention will belong to the employee. For example, the Federal Court held that an invention had not been

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produced by an employee in the course of his employment but during his own time and therefore the employee was entitled to the benefit of the invention as against his former employer: Spencer Industries Pty Ltd v Collins (2003) 58 IPR 425. Usually, the rights of an employer to inventions made by their employee would be specifically dealt with in the contract of employment. Most large employers have a standard clause to be included in the service agreement of any employee who is likely to have an opportunity to make inventions connected with their work. Furthermore, professional employees owe their employers fiduciary obligations not to profit from their position at the expense of their employer and to avoid conflicts of interest and duty: Victoria University of Technology v Wilson (2004) 60 IPR 392 at [149]. In the latter case it was held that two university academics had breached this duty in respect of an invention and associated software they had devised and for which they sought patent protection: they were ordered to account to the university for the benefits they had derived from their inventions. The general position of academics in universities who devise inventions in the course of their employment in the absence of specific contractual provision was considered by the Full Court of the Federal Court in University of Western Australia v Gray (2009) 179 FCR 346:

case

[30.2160] Dr Gray was appointed professor of surgery by the University of Western Australia (UWA). He was required to teach and to conduct and stimulate research. Dr Gray discovered an innovative way of treating liver cancer by developing a range of microspheres which could be injected into the liver’s blood supply and carried different anti-cancer agents to tumour sites. He was also a director and shareholder of a publicly listed company which was floated to commercialise and market the microspheres. UWA commenced proceedings against Dr Gray and the company claiming an interest in certain technologies UWA claimed were developed by Dr Gray while he was employed by the university. UWA alleged that Dr Gray had breached his contract of employment by failing to comply with disclosure and associated obligations imposed by its Patents Regulations; however, it was found that these had not been effectively promulgated. UWA further argued that it was an implied term of Dr Gray’s contract of employment that intellectual property developed in the course of his employment belonged to the university. However, this contention was rejected at first instance in the Federal Court by French J who said: “Absent express agreement to the contrary, rights in relation to inventions made by academic staff in the course of research and whether or not they are using university resources, will ordinarily belong to the academic staff as the inventors under the [Patents Act 1990 (Cth)]. The position is different if staff have a contractual duty to try to produce inventions. But a duty to research does not carry with it a duty to invent” (University of Western Australia v Gray (No 20) (2008) 246 ALR 603 at [12]). French J considered that the “only secure way” for UWA to acquire property rights from its academic staff in respect of intellectual property developed by them in the course of research was by express provision in their contracts of employment: at [12], [14]. UWA appealed to the Full Federal Court. However, the latter unanimously upheld the decision of French J and dismissed UWA’s appeal. In particular, the Full Federal Court agreed with the analysis of French J in rejecting UWA’s contention that there was an implied term in Dr Gray’s contract of employment with the university that inventions developed in the course of his research belonged to

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the university: University of Western Australia v Gray (2009) 179 FCR 346. The High Court refused special leave to appeal against the decision of the Full Federal Court.

Foreign patents [30.2170] A patent granted in one country only receives protection in that country. To extend such protection to other countries separate applications must be made in the countries concerned. Practically all the major countries of the world are parties to the International Convention for the Protection of Industrial Property (the Paris Convention) dating from 1883, which provides, inter alia, for certain priorities to be given to patent applications in member countries. For example, a foreign applicant for an Australian patent is enabled to claim priority for the application based on the date of their application made in another country that is a party to the Convention, provided the Australian application is made within 12 months of the application in the other Convention country. The Patent Co-operation Treaty 1970 to which Australia became a party in 1979 is aimed at simplifying the procedures for obtaining patents in other countries but the scope of that treaty and of the European Patent Conventions lie outside the scope of the present work.

Trade marks Nature of a trade mark [30.2180] A trade mark is a distinctive symbol which when applied to the goods or services of a particular trader distinguishes the trader’s goods or services from those of other persons. The function or essential characteristic of a trade mark is to indicate the commercial or trade origin of the goods or services to which it is applied: EJ Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144 at [42]-[43]. The Trade Marks Act 1995 (Cth) provides for the registration of trade marks and remedies for their infringement by those who use the same or similar trade mark.

Definition of a trade mark [30.2190] The Trade Marks Act 1995 (Cth) defines a trade mark as follows: A “trade mark” is a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person: s 17. It will be observed that central to that definition is the concept of a trade mark as a sign. A sign is in turn defined as including the following (or any combination): Any letter, word, name, signature, numeral, device, brand, heading, label, ticket, aspect of packaging, shape, colour, sound or scent: s 6. The inclusion of any aspect of packaging, shape, colour, sound or scent significantly broadens the range of features or signs which are registrable under the present Trade Marks Act 1995 compared with the position under the former Trade Marks Act 1955 (Cth). For example, it was held by the House of Lords in Coca-Cola Trade Marks [1986] 1 WLR 695 that the well-known shape of the Coke bottle could not be registered as a trade mark; such would be registrable under the present legislation. Furthermore, sounds and smells are now registrable as trade marks.

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Rights given by registration of a trade mark [30.2200] The registered owner of a trade mark has the exclusive rights to: (a)

use the trade mark;

(b)

authorise other persons to use the trade mark in relation to the goods and/or services in respect of which the trade mark is registered; and

(c)

obtain relief under the Trade Marks Act 1995 (Cth) if the trade mark has been infringed: s 20.

Infringement of a registered trade mark is discussed at [30.2380]. The Trade Marks Act 1995 provides that a registered trade mark is personal property: s 21.

Application for registration of a trade mark [30.2210] A trade mark may be registered in respect of goods or services, or both goods and services: Trade Marks Act 1995 (Cth), s 19. A person may apply for the registration of a trade mark in respect of goods and/or services if: (a)

the person claims to be the owner of the trade mark; and

(b)

one of the following applies: (i)

the person is using or intends to use the trade mark;

(ii)

the person has authorised or intends to authorise another person to use the trade mark;

(iii)

the person intends to assign the trade mark to a body corporate that is about to be constituted: s 27(1).

The application must be in accordance with the Regulations and be filed at the Trade Marks Office in Canberra or at one of the sub-offices in the State capital cities. Trade marks are divided into 34 classes for goods and eight classes for services: Trade Marks Regulations 1995 (Cth), Sch 1. An application for registration of the trade mark may be made in respect of goods and services of one or more of these classes: Trade Marks Act 1995 (Cth), s 27(5). Registration of a trade mark may be in respect of goods or services of more than one class: s 19(2). The application will be examined to determine whether it is in accordance with the Act and whether there are grounds for rejecting it: s 31. Depending on the examination, the Registrar of Trade Marks will either accept or reject the application but may not reject an application without giving the applicant the opportunity of being heard: s 33. The Registrar must notify the applicant in writing of the decision to accept or reject the application and advertise the decision in the Official Journal: s 34. The applicant may appeal to the Federal Court against a decision of the Registrar to reject the application or to accept it subject to conditions or limitations: s 35.

Grounds for rejecting an application for registration [30.2220] The Trade Marks Act 1995 (Cth) contains a number of grounds on which the Registrar may reject an application for the registration of a trade mark.

Trade mark cannot be represented graphically [30.2230] An application for the registration of a trade mark must be rejected if the trade mark cannot be represented graphically: Trade Marks Act 1995 (Cth), s 40.

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Trade mark does not distinguish the applicant's goods or services [30.2240] An application for the registration of a trade mark must be rejected if the trade mark is not capable of distinguishing the applicant’s goods or services in respect of which the trade mark is sought to be registered from the goods or services of other persons: Trade Marks Act 1995 (Cth), s 41(1). 35 A trade mark is taken not to be capable of distinguishing the designated goods or services from those of other persons only if either s 41(3) or (4) (discussed below) applies to the trade mark: s 41(2). In deciding whether or not a trade mark is capable of distinguishing the designated goods or services from those of other persons, the Registrar is first to take into account the extent to which the trade mark is inherently adapted to distinguish the applicant’s goods or services from those of others: s 41(3). Trade marks that are not inherently adapted to distinguish goods or services are mostly trade marks that consist of a sign that is ordinarily used to indicate the kind, quality, quantity, intended purpose, value, geographical origin, or some other characteristic, of goods or services. If the Registrar is unable to decide whether the trade mark is capable of distinguishing the applicant’s goods or services, then the following provisions apply. If the Registrar finds that the trade mark is to some extent inherently adapted to distinguish the applicant’s goods or services, then the Registrar is to consider whether that fact combined with the use, or intended use, of the trade mark by the applicant, together with any other circumstances, are sufficient to conclude that the trade mark does or will distinguish the applicant’s goods or services from those of others: s 41(4). If the Registrar finds that the trade mark is not inherently adapted to distinguish the applicant’s goods or services from those of others but the applicant establishes that, because of the extent to which the applicant has used the trade mark before filing the application, it does distinguish the applicant’s goods or services, then the trade mark is taken to be capable of distinguishing the designated goods or services from those of other persons and is therefore registrable: Trade Marks Act 1995 (Cth), s 41(3).

case [30.2245] In Cantarella Bros Pty Ltd v Modena Trading Pty Ltd (2014) 254 CLR 337 the appellant, Cantarella, owned registered trade marks for “ORO” and “CINQUE STELLE” (the Italian words for “gold” and “five stars”) in relation to coffee and related products. Cantarella alleged that the respondent, Modena, had infringed its trade marks by importing into Australia Italian coffee products in packaging containing the words. Modena cross-claimed, seeking cancellation of Cantarella’s registered trade marks on the basis that they were not capable of distinguishing Cantarella’s goods from those of other persons. 36 The High Court held by a majority (French CJ, Hayne, Crennan and Kiefel JJ, Gageler J dissenting), reversing the decision of the Full Federal Court, that Cantarella’s registered trade marks were “inherently adapted” (that is, distinctive) to distinguish the goods for which they were registered from the goods of others. In a joint judgment, the majority of the Court said that the inherent adaptability of a trade mark consisting of a word (including a foreign word) is to be tested by checking what that word ordinarily means or signifies to anyone ordinarily purchasing, consuming or trading in the relevant goods: a word having “direct reference” to the character or quality of the goods is prima facie not registrable. Once the ordinary meaning of a word is established, an inquiry 35

It is important to note that s 41 above is a reworded section replacing the former s 41 of the Trade Marks Act 1995 (Cth) under the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth), Sch 6, Item 113. The new s 41 came into operation on 15 April 2013.

36

That is, within the meaning of the former s 41 of the Trade Marks Act 1995 (Cth) (see the first footnote in [30.2240]).

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can then be made into whether other traders might legitimately want to use the word in respect of the same or similar goods: if so, the word or words would not be registrable as trade marks. By contrast, on the particular facts, the words (at [73]): “‘ORO’ and ‘CINQUE STELLE’ were not shown to convey a meaning or idea sufficiently tangible to anyone in Australia concerned with coffee goods as to be words having a direct reference to the character or quality of the goods.” Further, the majority of the Court were of the view that the evidence led by Modena failed to demonstrate that honest traders might legitimately wish to use the words to directly describe, or indicate, the character or quality of their goods. Accordingly, Modena had not established that the words “ORO” and “CINQUE STELLE” should not be registered as trade marks.

Trade mark likely to deceive or cause confusion [30.2250] An application for the registration of a trade mark in respect of particular goods or services must be rejected if the use of the trade mark in relation to those goods or services would be likely to deceive or cause confusion: Trade Marks Act 1995 (Cth), s 43.

Substantially identical trade marks [30.2260] An application for the registration of a trade mark in respect of goods must be rejected if the applicant’s trade mark is substantially identical with or deceptively similar to a trade mark registered by another person in respect of similar goods or closely related services, or to a trade mark being sought in respect of similar goods or services by another person, unless the priority date for the registration of the applicant’s trade mark is earlier. There is a similar provision in respect of an application for the registration of a trade mark relating to services: Trade Marks Act 1995 (Cth), s 44(1), (2). However, the above discussion is subject to the honest concurrent use provisions of the Act. Thus, sometimes traders may adopt the same or a similar mark for their goods and services in good faith and quite independently of each other. To deal with this situation, the Trade Marks Act 1995 provides that if the Registrar is satisfied that there has been an honest concurrent use of the two trade marks, or that because of other circumstances it is proper to do so, the Registrar may accept the application for the registration of the applicant’s trade mark subject to any conditions or limitations that the Registrar thinks fit to impose. If the applicant’s trade mark has been used only in a particular area, the limitations may include that the use of the trade mark is to be restricted to that particular area: s 44(3). Furthermore, if the Registrar is satisfied that the applicant, or her or his predecessor in title, have used the trade mark in respect of similar goods or closely related services for a period before the priority date for the registration of the other trade mark up to the priority date for the registration of the applicant’s trade mark, the Registrar is not to reject the application because of the existence of the other trade mark: s 44(4).

Other grounds for rejection [30.2270] An application for the registration of a trade mark must be rejected if: (a)

the trade mark contains or consists of scandalous matter; or

(b)

its use would be contrary to law: Trade Marks Act 1995 (Cth), s 42.

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An application must also be rejected if the trade mark contains a sign that, under the regulations, is not to be used as a trade mark: s 39. This includes, for example, the words Patent, Patented, By Royal Letters Patent; or a representation of the Arms, flag or seal, of the Commonwealth, a State or Territory: Trade Marks Regulations 1995 (Cth), reg 4.15.

Opposition to registration [30.2280] Where the Registrar has accepted an application for the registration of a trade mark, a person may oppose the registration by filing a notice of opposition within three months from the day on which the acceptance of the application is advertised in the Official Journal: Trade Marks Act 1995 (Cth), s 52; Trade Mark Regulations 1995 (Cth), reg 5.1. After hearing both the applicant and the opponent, the Registrar must decide whether to refuse to register the trade mark, or register the trade mark (with or without conditions or limitations) in respect of the goods and/or services specified in the application: Trade Marks Act 1995 (Cth), ss 54, 55. The applicant or opponent may appeal to the Federal Court from a decision of the Registrar: s 56.

Grounds for opposing registration [30.2290] The registration of a trade mark may be opposed on any of the grounds on which an application for the registration of a trade mark may be rejected (see previous section), except the ground that the trade mark cannot be represented graphically: Trade Marks Act 1995 (Cth), s 58. Further grounds of opposition set down in the Trade Marks Act 1995 are as follows:

Applicant not the owner of the trade mark [30.2300] The registration of a trade mark may be opposed on the ground that the applicant is not the owner of the trade mark: Trade Marks Act 1995 (Cth), s 58.

Applicant not intending to use the mark [30.2310] A further ground of opposition is that the applicant does not intend: (a)

to use, or authorise the use of, the trade mark in Australia; or

(b)

to assign the trade mark to a body corporate for use in Australia: Trade Marks Act 1995 (Cth), s 59.

Trade mark similar to a trade mark that has acquired a reputation in Australia [30.2320] The registration of a trade mark in respect of particular goods and services may be opposed on the ground that: (a)

it is substantially identical with, or deceptively similar to, a trade mark that had already acquired a reputation in Australia; and

(b)

because of that reputation, the use of the applicant’s trade mark would be likely to deceive or cause confusion: Trade Marks Act 1995 (Cth), s 60.

case [30.2325] The Federal Court upheld the opposition of the registered owner of a number of registered trade marks comprising the word “BOTOX” to an application for registration of the trade mark “No-Tox” in relation to facial care products on the ground that the use of the “No-Tox” mark would be likely to deceive or cause confusion within the meaning of s 60: Allergan Inc v Di Giacomo (2011) 199 FCR 126.

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Trade mark contains a false geographical indication [30.2330] The registration of a trade mark in respect of particular goods may be opposed on the ground that the trade mark contains or consists of a sign that is a geographical indication for goods originating in a country, or in a region or locality in a country, other than that in which the goods actually originated: Trade Marks Act 1995 (Cth), s 61.

Application defective [30.2340] A further ground of opposition to registration is that the Registrar accepted the application on the basis of evidence or representations that were false: Trade Marks Act 1995 (Cth), s 62.

Application made in bad faith [30.2345] The registration of a trade mark may be opposed on the ground that the application was made in bad faith: Trade Marks Act 1995 (Cth), s 62A. The issue to be decided is whether the applicant’s knowledge, in all the circumstances, was such that “persons adopting proper standards would regard the decision to register as in bad faith, or that reasonable and experienced persons in the field would view such conduct as falling short of acceptable commercial behaviour”: Fry Consulting Pty Ltd v Sports Warehouse Inc (No 2) (2012) 201 FCR 565 at [174] per Dodds-Sreeton J; cf DC Comics v Cheqout Pty Ltd (2013) 212 FCR 194.

Registration and term of registration [30.2350] When a trade mark has been registered, the Registrar must advertise the registration in the Official Journal, and give the registered owner of the trade mark a certificate of registration: Trade Marks Act 1995 (Cth), s 71. The registration of a trade mark expires after 10 years and may be renewed indefinitely for further periods of 10 years on payment of prescribed fees: ss 72(3), 77. The registration of a trade mark ceases if the trade mark is removed from the Register because of non-renewal or for non-use, or because the registration of the trade mark is cancelled: s 73.

Rectification of the register and cancellation [30.2360] On the application of an aggrieved person (that is, a person with a trading interest to protect) the court may order that the Register of Trade Marks be rectified by: (a)

entering in the Register particulars that were wrongly omitted from it; or

(b)

correcting any error in an entry: Trade Marks Act 1995 (Cth), s 85.

More significantly, the court, on the application of an “aggrieved person”, may order that the Register be rectified by: (a)

cancelling the registration of a trade mark;

(b)

removing or amending an entry wrongly made or remaining on the Register; or

(c)

entering any condition or limitation affecting the registration of a trade mark that ought to be entered: Trade Marks Act 1995 (Cth), s 88(1).

The High Court has held that the expression “aggrieved person” is to be liberally construed and that it is sufficient that the applicant and the proprietor of the mark both trade in the class of goods in respect of which the challenged mark is registered: Health World Ltd v Sin-Shun Australia Pty Ltd (2010) 240 CLR 590.

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The grounds on which an application for rectification may be made include: (a)

any of the grounds on which the registration of the trade mark could have been opposed (see [30.2290]-[30.2340]);

(b)

where an amendment of the application for registration was obtained as a result of fraud, false suggestion or misrepresentation;

(c)

where, because of the circumstances applying at the time when the application for rectification is filed, the use of the trade mark is likely to deceive or cause confusion for a reason other than one for which the application for registration could have been rejected (see [30.2220]-[30.2270]) or opposed (see [30.2290]-[30.2340]); and

(d)

where the entry on the Register was made, or had previously been amended, as a result of fraud, false suggestion or misrepresentation: Trade Marks Act 1995 (Cth), s 88(2).

case [30.2362] The respondent, a United States corporation, had manufactured and sold “Winnebago” recreational vehicles in the United States since 1959 and later exported them but not to Australia. From 1978, the appellant began manufacturing and selling recreational vehicles in Australia using the Winnebago name without the respondent’s knowledge or permission: subsequently, the appellant registered the name as a trade mark. The respondent first became aware of the appellant’s activities in 1985 but delayed legal proceedings until 2010 when it sought, inter alia, cancellation of the appellant’s trade mark pursuant to s 88(1) of the Trade Marks Act 1995 (Cth) on the ground that the use of the mark was likely to deceive or cause confusion under s 88(2)(c) (see above). The Full Federal Court upheld the decision of the primary judge that the Trade Marks Register should be rectified by the cancellation and removal of the appellant’s trade mark. The respondent had also sought injunctive relief for the appellant’s use of their name. The Court said that the respondent had sufficient reputation in Australia in 1978 to sustain its action as there were a substantial number of people in Australia who were aware of the respondent’s products and therefore were potential customers. However, in view of the respondent’s extraordinary delay in bringing proceedings and that the appellant had used the Winnebago name concurrently for over 30 years, during which time it had built a significant business and developed an Australian reputation, injunctive relief should be limited to providing the minimum necessary for consumer protection. Accordingly, the appellant was not required to cease using the name provided that a clear distinction between the parties was made on the vehicles themselves and on documents dealing with them: Knott Investments Pty Ltd v Winnebago Industries Inc (2013) 211 FCR 449.

case [30.2365] TiVo Inc registered the trade mark “TiVo” in respect of audio-visual products in 2000. Vivo International Corpn Pty Ltd obtained registration of its trade mark “Vivo” in 2009 for similar audio-visual products. The Full Federal Court held that the “Vivo” trade mark was deceptively similar to the “TiVo” mark because of the “strong phonetic similarity” between the two marks. An order was made for the cancellation of the “Vivo” trade mark and an injunction granted restraining further use of the mark: Vivo International Corpn Pty Ltd v TiVo Inc (2012) 294 ALR 661.

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[30.2367] If the ground for the application for rectification is that the trade mark is liable to deceive or confuse, the court may decide not to grant the application if the registered owner of the trade mark satisfies the court that this did not arise through any act or fault on her or his part: s 89.

Removal of a trade mark for non-use [30.2370] A trade mark is defined as a sign used or intended to be used to distinguish a person’s goods or services in the course of trade from those of any other person: Trade Marks Act 1995 (Cth), s 17. In other words, a basic requirement of a registered trade mark is that the owner is using it, or at least has a definite intention to use it. Accordingly, the Trade Marks Act 1995 contains provision for the removal of a registered trade mark for non-use: s 92. The latter section provides that a person aggrieved may apply to the Registrar for a trade mark to be removed from the Register for non-use. That is, a non-use application may be made to the Registrar for a trade mark to be removed from the Register on the grounds that: (a)

the applicant had no intention in good faith of using, authorising the use of, or assigning the trade mark to a body corporate for use in Australia, at the time the application for registration of the trade mark was filed, and the registered owner has not used the trade mark, or not used it in good faith, in Australia up to a month before the non-use application was filed (s 92(4)(a)); or

(b)

the trade mark has remained registered for a continuous period of three years up to a month before the non-use application was filed, and the registered owner has not used it, or not used it in good faith, in Australia at any time during that period. A non-use application on this ground may not be made before the expiry of five years from the filing of the application for the registration of the trade mark: ss 92(4)(b), 93(2); EJ Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144.

Any person may oppose an application to the Registrar for removal of a trade mark for non-use: s 96. If the Registrar is of the opinion that the application for the removal of the trade mark should be determined by the court, the Registrar can refer the matter to the court: s 94.

Infringement of trade marks and remedies for infringement [30.2380] A registered trade mark is infringed by a person who uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered: Trade Marks Act 1995 (Cth), s 120(1). To be liable for infringement, the defendant must have used the trade mark as a trade mark. Accordingly, merely to produce and deal in goods having the shape (being a functional shape) of something depicted by a trade mark is not to engage in a use of the mark:

case [30.2390] In Koninklijke Philips Electronics NV v Remington Products Australia Pty Ltd (2000) 100 FCR 90, the Full Federal Court held that the manufacture and sale of a rotary shaver with three shaving heads by Remington did not infringe the registered trade mark of Philips depicting three shaving heads forming an equilateral triangle. [30.2400] A person also infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to:

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(a)

goods of the same description as that of goods (registered goods) in respect of which the trade mark is registered; or

(b)

services that are closely related to registered goods; or

(c)

services of the same description as that of services (registered services) in respect of which the trade mark is registered; or

(d)

goods that are closely related to registered services.

However, the person is not taken to have infringed the trade mark if the person establishes that using the sign as the person did is not likely to deceive or cause confusion: Trade Marks Act 1995 (Cth), s 120(2). Furthermore, a person infringes a registered trade mark if: (a)

the trade mark is well known in Australia; and

(b)

the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to: (i)

goods (unrelated goods) that are not of the same description as that of the goods in respect of which the trade mark is registered (registered goods) or are not closely related to services in respect of which the trade mark is registered (registered services); or

(ii)

services (unrelated services) that are not of the same description as that of the registered services or are not closely related to registered goods; and

(c)

because the trade mark is well known, the sign would be likely to be taken as indicating a connection between the unrelated goods or services and the registered owner of the trade mark; and

(d)

for that reason, the interests of the registered owner are likely to be adversely affected [emphasis added]: s 120(3).

In determining whether trade marks are substantially identical they are compared side by side, their similarities and differences assessed having regard to their essential features as identified by the court’s own judgment and by the evidence. If they differ only in non-essential respects, then they will be held to be substantially identical. As regards the issue of deceptive similarity, the Act provides that a trade mark is taken to be deceptively similar to another trade mark if it so nearly resembles that other trade mark that it is likely to deceive or cause confusion: s 10. Accordingly, it is a matter of comparing the impression that persons of ordinary intelligence would have of the plaintiff’s mark, as based on their recollection of it, and the impression created by use of the defendant’s mark: Shell Co of Australia Ltd v Esso Standard Oil (Aust) Ltd (1963) 109 CLR 407; Berlei Hestia Industries Ltd v Bali Co Inc (1973) 129 CLR 353. The Federal Court recently held that certain types of sports shoes (but not others) bearing four stripes marketed by the respondent were deceptively similar to the applicant’s registered trade marks of three stripes for sports shoes since: “[T]here is a real, tangible danger of confusion occurring, beyond a mere possibility, and a number of persons will be caused to wonder whether it might not be the case that the two products come from the same source”: Adidas AG v Pacific Brands Footwear Pty Ltd (No 3) (2013) 103 IPR 521. By contrast, the Federal Court held that the mark “DIGITAL POST AUSTRALIA” was not deceptively similar to the mark “AUSTRALIA POST”: Australian Postal Corporation v Digital Post Australia Pty Ltd (No 2) (2012) 96 IPR 532.

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Statutory defences [30.2410] The Trade Marks Act 1995 (Cth) provides that, notwithstanding the factors constituting infringement set out at [30.2380] and [30.400], a person does not infringe a registered trade mark, inter alia, when the person: (a)

uses in good faith, her or his name, or the name of her or his place of business, or the name of her or his predecessor in business;

(b)

uses a sign in good faith to indicate the kind, quality, quantity, intended purpose, value, geographical origin, or some other characteristic of goods or services;

(c)

uses the trade mark in good faith to indicate the intended purpose of the goods (in particular as accessories or spare parts) or services;

(d)

uses the trade mark for the purposes of comparative advertising;

(e)

exercises a right to use a trade mark given to the person under the Act; or

(f)

the court is of the opinion that the person would obtain registration of the trade mark in her or his name if the person were to apply for it: s 122.

The Act also provides that a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if it has been applied to the goods by, or with the consent of, the registered owner of the trade mark; there is a similar provision in respect of the use of a trade mark in relation to services: s 123. 37

case [30.2420] A trade mark had been applied overseas to tyres by the Australian registered owner of the trade mark. The Full Federal Court held that s 123 of the Trade Marks Act 1995 (Cth) provided a defence to the importer (that is, parallel importer) of the tyres into Australia: Transport Tyre Sales Pty Ltd v Montana Tyres Rims and Tubes Pty Ltd (1999) 93 FCR 421.

case [30.2423] The appellants claimed that the respondent company had infringed their Australian registered trade marks by parallel importing brands of cigars manufactured by the appellants overseas; removing the original packaging with the trade marks; repackaging the cigars to comply with Australia’s tobacco plain packaging laws; and re-applying the word marks, for example, HENRI WINTERMANS to the new packaging. The Full Federal Court held that s 123 provided a defence to the appellants’ infringement action against the respondent importer because at the time of the original packaging, the trade marks had been applied to, or in relation to the cigars by, or with the consent of, the registered owner of the trade marks: Scandinavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd [2016] FCAFC 91. [30.2425] However, the Full Federal Court has held that the defence in s 123 does not apply to an importer where the registered owner consents to another person applying the registered mark on condition that the goods must not be supplied outside a designated territory, for example, India. In such a case the registered owner would not usually be regarded as having consented to the application of the mark to 37

See generally, M Rothnie, “Trade marks and parallel imports” (2014) 22 Competition & Consumer Law Journal 39.

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goods which the licensee knows at the time he or she applies the mark are to be supplied by him or her outside the designated territory: Paul’s Retail Pty Ltd v Sports Leisure Pty Ltd (2012) 95 IPR 151. [30.2430] A person does not infringe a registered trade mark by using an unregistered trade mark that is substantially identical with, or deceptively similar to, the registered mark in relation to similar goods or services, if the person and her or his predecessor in title, have continuously used the unregistered trade mark in the course of trade from a time before the date of registration of the registered trade mark, or first use of the trade mark by the registered owner, or a predecessor in title: Trade Marks Act 1995 (Cth), s 124.

Remedies for infringement [30.2450] The remedies for infringement of a trade mark include an injunction and, at the option of the plaintiff, either damages or an account of profits: Trade Marks Act 1995 (Cth), s 126(1). Section 126 was amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Cth) to give a court the discretion to award additional damages if the court considers it appropriate to do so having regard, inter alia, to: (a)

the flagrancy of the infringement;

(b)

the need to deter similar infringements of registered trade marks; and

(c)

any benefit shown to have accrued to the infringer because of the infringement: Trade Marks Act 1995 (Cth), s 126(2).

case [30.2455] The respondent was found to have breached the applicant’s trade mark which was a food label indicating the food was “halal”, that is, slaughtered in accordance with Islamic rites. The respondent had provided a false certificate each time a kebab shop asked for one. Substantial additional damages were awarded to “operate as a sufficient deterrent to ensure that the conduct will not occur again”: Halal Certification Authority Pty Ltd v Scadilone Pty Ltd (2014) 107 IPR 23 at [111] per Perram J. [30.2457] Damages or an account of profits are not to be awarded in respect of an infringement by the defendant if the latter has applied to the court for an order directing the Registrar to remove the trade mark from the Register for non-use (under s 92(4), see [30.2370]), and the court finds that there are grounds for so removing the trade mark because it had not been used in good faith by the registered owner: s 127.

Authorised users [30.2460] A person is an authorised user of a trade mark if the person uses the trade mark in relation to goods or services under the control of the owner of the trade mark. Where the owner of a trade mark exercises quality control over the goods and services provided by the user of the trade mark, or exercises financial control over the trading activities of the user, then such person is taken to use the trade mark in relation to the goods and services under the control of the owner of the trade mark: Trade Marks Act 1995 (Cth), s 8. The authorised user of a trade mark may do any of the following (subject to any agreement between the registered owner and the authorised user): (a)

use the trade mark in relation to the goods and/or services in respect of which the trade mark is registered;

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(b)

bring an action for infringement of the trade mark if the registered owner refuses or neglects to do so within the prescribed period;

(c)

cause to be displayed on goods in respect of which the trade mark is registered a notice prohibiting certain acts, for example, altering, partially removing or obliterating the trade mark, or applying another trade mark to the goods;

(d)

give the Comptroller-General of Customs a notice (under s 132) objecting to the importation of goods that infringe the trade mark, or revoke such notice;

(e)

give permission to any person to alter, deface or remove the trade mark; and

(f)

give permission to any person to apply the trade mark in relation to goods, or in relation to goods or services in respect of which the trade mark is registered: s 26(1).

If the authorised user brings an action for infringement of the trade mark, the registered owner must be made a defendant to the action. However, the registered owner is not liable for costs if he or she does not take part in the proceedings: s 26(2).

Collective, certification and defensive trade marks [30.2470] The Trade Marks Act 1995 (Cth) makes provision for the registration of collective, certification and defensive trade marks.

Collective trade marks [30.2480] A collective trade mark is a sign used, or intended to be used, in relation to goods or services dealt with or provided in the course of trade by members of an association to distinguish those goods or services from goods or services provided by persons who are not members of the association: Trade Marks Act 1995 (Cth), s 162. An application for registration of a collective trade mark must be made by the association to which the mark belongs: s 164. A collective trade mark may not be assigned: s 166. In an action by an association in whose name a collective trade mark is registered seeking relief for infringement of the collective trade mark, the association may take into account in claiming damages, any damage or loss of profits incurred by members of the association as a result of the infringement: s 167.

Certification trade marks [30.2490] A certification trade mark is a sign used to distinguish goods or services certified by the owner of the certification trade mark, in relation to quality, accuracy or some other characteristic, including (in the case of goods) origin, material or mode of manufacture, from other goods or services which are not so certified: Trade Marks Act 1995 (Cth), s 169. A person who has filed an application for the registration of a certification trade mark must also file a copy of the rules governing the use of the certification mark: s 173. Where the Registrar is satisfied that there are no grounds for rejecting the application, he or she must send a copy of the application to the Australian Competition and Consumer Commission for consideration as to whether the applicant is competent to certify the goods and/or services in respect of which the certification trade mark is to be registered, and that the rules governing the use of the certification mark would not be to the detriment of the public: ss 174, 175. A registered certification mark may be assigned only with the consent of the Commission: s 180. An example of certification trade marks are the trade marks owned by the Australian Standards Association.

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Defensive trade marks [30.2500] The Trade Marks Act 1995 (Cth) provides further protection for well known registered trade marks by enabling their registration as defensive trade marks to prevent them from being used by others in relation to goods or services. Thus, if because of the extent to which a registered trade mark has been used in relation to all or any of the goods or services in respect of which it is registered, it is likely that its use in relation to other goods or services will be taken to indicate that there is a connection between those other goods or services and the registered owner of the trade mark, then on the application of the registered owner, the trade mark may be registered as a defensive trade mark in respect of any or all of those other goods or services. A trade mark may be registered as a defensive trade mark in respect of particular goods or services even if the registered owner does not use or intend to use the trade mark in relation to those goods or services: s 185. For example, the trade mark Ford is so well known in respect of motor vehicles that its use by some other person on motor vehicle batteries would be likely to indicate a connection between the batteries and the Ford Motor Company. Accordingly, such use could be prevented by registration of Ford for motor vehicle batteries as a defensive trade mark.

Assignment of trade marks [30.2510] A registered trade mark, or a trade mark whose registration is being sought, may be assigned. The assignment may be partial, that is, it may apply to some only of the goods and/or services in respect of which registration is sought or the trade mark is registered. The assignment may be with or without the goodwill of the business concerned in the relevant goods and/or services: Trade Marks Act 1995 (Cth), s 106. Where a registered trade mark is assigned, the person registered as the owner of the trade mark, or the person to whom the trade mark has been assigned, must apply to the Registrar for the assignment to be entered in the Register of Trade Marks: s 109.

Voluntary recording of claims to interests in trade marks [30.2520] The Trade Marks Act 1995 (Cth) makes provision for the recording of interests in registered trade marks in the Register of Trade Marks. Thus, if a person (other than the registered owner of the trade mark) claims to have an interest in a registered trade mark, that person and the registered owner of the trade mark may together apply to the Registrar to have particulars of the claim recorded in the Register: s 113. There is a similar provision where a person has applied for the registration of a trade mark: s 117. These provisions allow, for example, a bank to record a security interest (for example, a mortgage) in a trade mark. The voluntary recording scheme may also be utilised by a licensee who wishes to put third parties on notice that the registered owner has licensed the use of the trade mark to the licensee.

Importation of goods infringing Australian trade marks [30.2530] The Trade Marks Act 1995 (Cth) contains detailed provisions allowing the ComptrollerGeneral of Customs to seize and deal with goods that are imported into Australia if the importation infringes, or appears to infringe, a registered trade mark: ss 131 – 143.

Offences [30.2540] The Trade Marks Act 1995 (Cth) contains a number of offences in relation to trade marks. For example, it is an offence for a person:

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(a)

to intentionally or recklessly falsify (for example, alter, deface or obliterate) or unlawfully remove a registered trade mark that has been applied to goods or services (s 145);

(b)

to intentionally or recklessly falsely apply a registered trade mark to goods or services (s 146); or

(c)

to intentionally sell or import goods knowing that a falsified registered trade mark is applied to them, or has been unlawfully removed from them: s 148.

A person guilty of these offences is punishable on conviction by a fine not exceeding 500 penalty units ($90,000), or imprisonment for a period not exceeding two years, or by both a fine and imprisonment: s 149.

International trade mark registration [30.2550] Australia has acceded to the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (the Madrid Protocol), the instrument of accession coming into force on 11 July 2001. The effect of acceding to the Madrid Protocol is to make it easier and less expensive for Australian trade mark owners to seek protection for their trade marks overseas. Formerly, it was necessary to apply separately for trade marks in each of the countries where registration was sought in the language and currency of that country. In contrast, trade mark owners will now only need to file a single application in English through IP Australia’s Trade Marks Office to seek protection in any one or more of the countries which are parties to the Madrid Protocol.

Passing off Nature of the action of passing off [30.2560] Passing off occurs where a person falsely represents their goods or services as those of the plaintiff, or that their business is associated with the plaintiff, so as to cause damage or likely damage to the plaintiff’s goodwill or reputation. The basic characteristics of an action for passing off were described by Lord Diplock in Erven Warnink v J Townend & Sons (Hull) Ltd [1979] AC 731 at 742 as follows: “(1) a misrepresentation (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or … will probably do so.” The principal elements of a passing off action outlined in that passage and as subsequently developed by the courts are: (a)

the existence of some reputation or goodwill in the plaintiff’s name, mark, or the get-up (for example, the packaging) of her or his goods;

(b)

deceptive conduct on the part of the defendant by the use of the same or deceptively similar name, mark, or get-up; and

(c)

either actual damage or the threat of damage to the plaintiff’s business reputation or goodwill as a result of the defendant’s conduct (that is, the passing off).

The scope of the tort of passing off has been steadily expanded by a process of judicial development over the years and adapted to meet new circumstances involving the deceptive or confusing use of names, descriptive terms or other indicia to persuade purchasers or customers to believe that goods or services have

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an association, quality or indorsement which belongs to goods or services of, or is associated with, another person or business: Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 445-446. Examples of the action of passing off:

case [30.2570] The applicants imported for sale in Australia a carbonated energy drink known as “Red Bull” which was widely advertised. The drink was sold in a drink can of distinctive appearance. The respondents imported for sale cans of an energy drink under the trade mark “LiveWire”. It was held that the applicants’ claim for passing off had been made out since, notwithstanding the obvious difference in the trade marks of the two products, the packaging get-up of “LiveWire” was so deceptively similar to “Red Bull” as to have enabled the respondents to appropriate part of the applicants’ goodwill in the marketplace for energy drinks: Red Bull Australia Pty Ltd v Sydneywide Distributors Pty Ltd (2001) 53 IPR 481.

case [30.2580] In contrast, the plaintiffs were the manufacturers of a tangy lemon drink called “Solo” which was sold in a yellow can with a medallion design. The defendants marketed a similar drink called “Pub Squash” which was also marketed in a yellow can with a medallion design. It was held that the claim in passing off failed, since it was found that consumers would not be deceived into inferring a connection between the respective drinks or their producers: Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd [1980] 2 NSWLR 851 (PC).

case [30.2590] The plaintiff manufactured and marketed frozen food products in the US under the brand name “Healthy Choice”. The defendant was a manufacturer of frozen foods in Australia. The defendant adopted the name “Healthy Choice” and the same form of packaging for its new line of frozen food products as that developed by the plaintiff in the US. The plaintiff’s action for, inter alia, passing off was dismissed by the Full Court of the Federal Court since the plaintiff failed to establish a reputation in Australia in respect of its products. The court stated that it is not a requirement for a plaintiff to carry on business in Australia or have a physical presence here. “It is sufficient if his goods have a reputation in this country among persons here … of a sufficient degree to establish that there is a likelihood of deception among consumers and potential consumers and of damage to his reputation.” The requisite reputation may be proved by a variety of means including, for example, advertisements in the various forms of media and the exposure of people in this country to the goods of the overseas owner. However, the evidence failed to show that the plaintiff enjoyed a reputation for its products in Australia: ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302.

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Character merchandising [30.2600] The action of passing off has also been utilised in recent years in relation to the increasing practice of “character merchandising”, that is, the marketing of goods and services by taking advantage of an association with some real or fictitious person, character, group or film. “All manufacturers, traders and consumers are familiar with marketing practices involving ‘character merchandising’. Many purchasers are prepared to pay more for goods simply because they bear the name of, or some symbol or drawing associated with, a popular character (who may be real or fictitious) or a well known institution or event.” 38 The representation of, for example, a popular fictional character on toys, T-shirts, posters and other forms of merchandise is common and the licensing of the use of such representation by others is often a valuable right for the creator or owner of the character. An action for passing off will lie in an appropriate case to protect the unauthorised use of such representation as the following cases illustrate.

case [30.2610] The first plaintiff was the maker of the television program “Sesame Street” and the second plaintiff was the owner of copyright in the Muppet characters appearing on the television program. The plaintiffs had licensed a large range of products for sale, including plush toys, which reproduced the essential characteristics of the Muppet characters and were made under strict quality control. The first defendant began selling in their retail stores in New South Wales a number of plush toys made in Korea which were alleged to be copies of those sold under licence from the plaintiffs. In granting the interlocutory injunction sought by the plaintiffs restraining the sale of the toys by the defendants, Helsham J found that the public knew the first plaintiff made the television program and associated the Muppet characters with them; that it was well known that the creators of this type of fictional character license others to manufacture or deal in products which are representations of those characters; that the evidence established that the public believed that the plush toys being sold in Australia were sold under licence under some sort of arrangement with the producers of the television show, that is, the plaintiffs; and that the toys sold by the defendants were all intended to be representations of the television characters and could pass as such: Childrens Television Workshop Inc v Woolworths (NSW) Ltd [1981] 1 NSWLR 273.

case [30.2620] The appellant produced a television advertisement for its shoes which was easily recognisable as being a parody of the famous “knife scene” from the film Crocodile Dundee starring the respondent, actor Paul Hogan. In an action for, inter alia, passing off, the Full Court of the Federal Court upheld the trial judge’s finding that a significant section of those seeing the advertisement would be misled into believing that the actor had given his approval for the use of the film’s characters and images under some commercial arrangement with the appellant: Pacific Dunlop Ltd v Hogan (1989) 23 FCR 553; see similarly, Hogan v Koala Dundee Pty Ltd (1988) 20 FCR 314.

38

Industrial Property Advisory Committee, The Legal Protection of Character Merchandising in Australia (March 1988), p 2.

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case [30.2630] The plaintiffs were the producers of the cartoon series “The Simpsons”. They had adopted “Duff Beer” as the name of an imaginary beer associated with a leading character of the series, Homer Simpson. The defendant, a South Australian brewer, promoted a new beer entitled “Duff Beer”. The plaintiffs succeeded in their claim that the defendant’s use of the name “Duff Beer” constituted misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law 39), and amounted to passing off the defendant’s product as being associated with “The Simpsons”: Twentieth Century Fox Film Corp v South Australian Brewing Co Ltd (1996) 66 FCR 451; 34 IPR 247. [30.2640] An action for passing off has similarly been used to restrain a trader from misrepresenting that a well-known person has a connection with the trader’s product or business:

case [30.2650] The plaintiffs were two well-known professional ballroom dancers. The defendants put out a record of ballroom dancing music showing a photograph of the plaintiffs on the cover without their consent. The New South Wales Full Supreme Court upheld the plaintiffs’ claim in passing off since their potential to exploit the goodwill in their names and reputation had been damaged by the defendants’ conduct: Henderson v Radio Corp Pty Ltd (1960) 60 SR (NSW) 576. [30.2660] In contrast, an action for passing off did not succeed in the following case:

case [30.2670] An action photograph of the applicant, a well-known champion athlete, was used on a poster produced by Australian Airlines to promote sport, the poster bearing the name of the Airline and logo in small print. The photograph was later used with the Airline’s permission on the front cover of a book and magazine published by a religious organisation. The applicant’s permission had not been sought in either case. The applicant’s action for, inter alia, passing off failed since it was held that he was unable to establish that “a reasonably significant number of persons seeing the poster, the magazine or the book, would draw or be likely to draw from them the message that the applicant was giving his indorsement to Australian Airlines or to [the religious organisation]”: Honey v Australian Airlines Ltd (1989) 14 IPR 264 at 283 per Northrop J.

Remedies [30.2680] The principal remedy sought in passing off actions is an injunction to restrain the defendant from engaging, or continuing to engage, in the conduct complained of. In an appropriate case, the plaintiff may also recover damages or an account of profits: Apand Pty Ltd v Kettle Chip Co Pty Ltd (No 2) (1999) 88 FCR 568. 39

The Australian Consumer Law is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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Other remedies [30.2690] Where the passing off in question concerns a registered trade mark, then it may be more appropriate to seek a remedy under the Trade Marks Act 1995 (Cth) rather than by way of the common law action for passing off. In many instances, the conduct in question may also involve contravention of the Australian Consumer Law, 40 in particular, contravention of s 18 proscribing a person (including a corporation) in trade or commerce from engaging in misleading or deceptive conduct, or conduct which is likely to mislead or deceive, and a remedy sought under that legislation as an alternative to an action for passing off.

Confidential information Nature of the action for breach of confidence [30.2700] Where one person imparts information to another in confidence and the latter uses that information for their own purposes or discloses it to third parties without permission, then an action for breach of confidence may be available to the person who provided the information. In contrast to, for example, patent protection, there are no disclosure or registration requirements to be complied with before legal proceedings for breach of confidence may be instituted. In certain circumstances, protection is provided which may not otherwise be available, for example, ideas of commercial significance which are imparted to another in confidence may be protected from unauthorised disclosure or use by the recipient. Commercial, industrial or scientific information confidential to a business (usually referred to as “trade secrets”) may be protected by an action for breach of confidence, for example, engineering drawings and manuals (Warman International v Envirotech Australia Pty Ltd (1986) 11 FCR 478), techniques, processes, formulae and customer lists. However, the action is not limited to such matters and the type of information which may be protected is diverse and extends, for example, to information contained in confidential government documents or information of a personal nature: Argyll v Argyll [1967] 1 Ch 302. An action for breach of confidence has also been used to limit the dissemination of Aboriginal tribal secrets disclosed to an anthropologist (Foster v Mountford and Rigby Ltd (1977) 14 ALR 71), and to recover damages for the unauthorised use of the concept for a television program divulged in confidence: Talbot v General Television Corp Pty Ltd [1980] VR 224.

case [30.2710] The plaintiffs were the members of a pop group who developed an idea for a television series based on the experiences of the group. The series was to emphasise the unusual feature of a rock group of three girls, each of whom was an established actress, and was to be part fact and part fiction. One of the plaintiffs orally communicated the idea in confidence to one of the defendants, a scriptwriter, who expressed interest in the idea. Protracted negotiations with the other defendants, a producer and a television company, eventually broke down. Subsequently, the television company screened 12 episodes of a series in which the plaintiffs’ idea was put into effect without their agreement.

40

The Australian Consumer Law is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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It was held that the defendants had breached their obligation not to use the plaintiffs’ idea, which had been communicated in confidence, for their own benefit. The judge said: “This of course does not mean that every stray mention of an idea by one person to another is protected. To succeed in his claim the plaintiff must establish not only that the occasion of communication was confidential, but also that the content of the idea was clearly identifiable, original, of potential commercial attractiveness and capable of being realised in actuality”: Fraser v Thames Television [1984] 1 QB 44 at 66 per Hirst J. [30.2720] To succeed in an action for breach of confidence the following elements need to be satisfied: 1.

The information must have the necessary quality of confidence about it, that is, it must be confidential or secret in nature and not public property or public knowledge. For a concept to be protected as a “trade secret” it must have some quality of novelty or originality which makes it recognisable as potentially valuable, be capable of precise statement and not merely speculative: Secton Pty Ltd (t/a BWN Industries) v Delawood Pty Ltd (1991) 21 IPR 136. If the plaintiff makes the information known to the public, or a relevant section of it, then the information is no longer confidential and no action will lie, for example, the publication of a patent specification precludes a claim of confidentiality in respect of the information contained in it: O Mustard & Son v Dosen [1964] 1 WLR 109.

2.

The information must be imparted in circumstances where the recipient knows, or ought reasonably to know, that the information is confidential. “It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence”: Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 48 per Megarry J.

3.

There must be an unauthorised use of the information imparted. Thus, there will be no breach of confidence if the information in question has been derived independently. A third party who receives confidential information as a result of another’s breach of confidence may be restrained from using or disclosing the information once they have actual or constructive notice of the breach: Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37.

In addition to the equitable action for breach of confidence, a contract may expressly or by implication impose an obligation of confidence upon the other contracting party in respect of confidential information to be supplied under the contract. For example, when parties commence negotiations in respect of the possible commercialisation of an invention they may enter into a confidentiality agreement to treat information about the invention as confidential. However, if the terms of such an agreement are drawn too widely, for example by seeking to preserve the obligation of confidentiality forever, they may be held to be invalid and unenforceable by the application of the doctrine of restraint of trade: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181.

Public interest defence [30.2730] In certain circumstances, a defendant may rely on the defence of disclosure of the confidential information in the public interest. However, the scope of this defence is limited and it has been said that it does not extend beyond disclosure of matters in breach of the country’s security, or in breach of law, including statutory duty, fraud, or otherwise destructive of the country or its people, including matters

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medically dangerous to the public; and doubtless other misdeeds of similar gravity: Beloff v Pressdram Ltd [1973] 1 All ER 241 at 260 per Ungoed-Thomas J; compare Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39.

Remedies [30.2740] The remedies available in an action for breach of confidence are an injunction to restrain disclosure or use of the information, damages (Talbot v General Television Corp Pty Ltd [1980] VR 224), or an account of profits for improper use of the confidential information: Peter Pan Manufacturing Corp v Corsets Silhouette Ltd [1964] 1 WLR 96; RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125.

Employee obligations [30.2750] Issues concerning breach of confidence often arise in the relationship of employer and employee. The general principles discussed at [30.2700] regarding breach of confidence apply to employees. In addition, an obligation of confidence may arise from the express or implied terms of the employee’s contract of employment as regards confidential information of the employer. It is common for contracts of employment to contain a provision to the effect that the employee will not disclose trade secrets acquired in the course of the employee’s employment. However, the position is further complicated in that during the employment relationship the employee is subject to a duty of fidelity to their employer not to use confidential information except for the purposes of their employment: Angus & Coote Pty Ltd v Render (1989) 16 IPR 387. Disputes often arise as to the extent to which an employer is entitled to protect confidential information acquired by an employee during the period of employment after the employee has left their employment. Determination of the issue will depend on the nature of the information acquired by the employee and the particular provisions of the contract of employment: Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317. In the absence of contractual restraints restricting the employee’s post-employment freedom (which are subject to the common law doctrine of restraint of trade proscribing undue interference with trade, see [8.360]), the question will be whether use or disclosure of the information by the employee is actionable as a breach of confidence, or whether it has become part of the former employee’s skill and know-how which they are entitled to use for their own or a future employer’s benefit.

case [30.2760] As part of her employment an employee had compiled an address book of her employer’s customers, which was confidential information. After her employment was terminated, the employee retained this address book. The Full Court of the South Australian Supreme Court held that the employee’s equitable obligation of confidence required her to return the address book. The court pointed out that it was a breach of confidence if an employee surreptitiously makes a list of customers for use after leaving their employment. The same principles applied where the list of customers was legitimately compiled as part of the employee’s work for their former employer: NP Generations Pty Ltd v Feneley (2001) 80 SASR 151.

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Franchising Nature of franchising [30.2770] Franchising is not a separate category of intellectual property. However, intellectual property rights are often a significant feature of franchise agreements. The increasing importance of the franchising industry in Australia requires some discussion of its basic features. Basically, franchising is a particular business arrangement by which individuals (called franchisees) distribute or sell a product, or run a business developed by another (called the franchisor) utilising the trade marks, trade names, product, know-how or confidential information of the franchisor. The franchisor normally provides ongoing support services in the form, for example, of training, marketing strategies and group advertising. Broadly, commercial franchising in Australia comprises three types of business arrangement, namely: (a)

product franchises, where the franchisee acts as the distributor of a particular product (for example, the retailing of motor vehicles or petrol);

(b)

system franchises, where a franchisor develops a unique or individual manner of doing business and permits the franchisee to use that system in a controlled way in the operation of the franchisee’s business (for example, fast food outlets, laundries and dry cleaners); and

(c)

processing or manufacturing franchises where the franchisor provides an essential ingredient or know-how to a processor or manufacturer (as, for example, in the soft drink industry).

The most significant of these various forms of franchising is system franchising or, as it is now more commonly referred to, business format franchising. The latter has developed rapidly in Australia in recent years and the discussion which follows is essentially directed to this form of franchising. Basically, business format franchising is a method of marketing goods and services utilising an already established successful business format under a trade name or brand. The franchisor sells to the franchisee the right to use the business format including, for example, the name or trade mark of the business, product or service. The franchisee normally also pays a fee, usually based on a percentage of turnover, to the franchisor for advertising and other support services. The benefits of a franchise from the franchisee’s point of view are that: (a)

the franchisee benefits from the name, reputation and goodwill already gained by the franchisor;

(b)

the franchisee is assisted by technical, marketing and other support systems provided by the franchisor which are not available to the sole trader;

(c)

the risk of failure tends to be reduced since the franchisee is usually buying into a successful business; and

(d)

generally, less capital is required to enter a franchise than to try to establish a new business.

The advantage to the franchisor is the ability to expand rapidly utilising capital provided by the franchisees. On the other hand, the disadvantages of a franchise include misrepresentation by the franchisor of the opportunities offered by the franchise, for example, profit projections may be unrealistic, and the promise of continued interest and support services may not be fulfilled because of the franchisor’s subsequent inability or unwillingness to supply them. Furthermore, on expiry or termination of the agreement the franchisee has no right to continue operating the business and no right, in the absence of a

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specific provision in the agreement, to any goodwill that may have accrued to the franchise while it was operated by the franchisee: Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251. 41

Franchise agreement [30.2780] There will normally be a written franchise agreement between the franchisor and the franchisee governing the legal aspects of their relationship. The agreement will deal with the nature and extent of the rights granted by the franchisor to the franchisee including the formal granting of rights to use the franchisor’s trade marks, trade names, copyright materials and the franchisor’s business system and know-how. The franchise agreement will usually specify the nature and extent of the services to be provided by the franchisor to the franchisee both initially and on a continuing basis, for example training and supply of equipment. The franchisee will undertake to comply with the operating, accounting and other administrative systems of the franchise which will be detailed in the franchisor’s operations manual. The franchise agreement will usually specify the period of its duration and allow the franchisee a right of renewal. Other typical provisions will include the procedure to be adopted in the event of the franchisee wishing to sell the business; provision for the termination of the agreement in the event of default by the franchisee; and a procedure for the resolution of disputes, for example, arbitration or some other method of alternative dispute resolution.

Franchising Code of Conduct [30.2790] A national Franchising Code of Conduct first came into effect on 1 July 1998 and was amended a number of times. Significantly, a new Franchising Code of Conduct came into effect from 1 January 2015. 42 The purpose of the Code is to regulate the conduct of participants in franchising by, for example, requiring comprehensive disclosure requirements with the object of assisting franchisees and franchisors to make an informed decision prior to entering into a franchise agreement; prescribing minimum standards in franchise agreements; and providing for the resolution of disputes between franchisors and franchisees. The Code is a prescribed mandatory industry code under Pt IVB of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)), the effect of which is that the remedies provided by the latter Act will apply to contraventions of the provisions of the Code. The principal requirements under the new Franchising Code of Conduct include the following: 1.

Obligation to act in good faith. The new Code introduces an obligation on the parties to a franchise agreement to act in good faith (Sch 1, cl 6). The obligation applies both to franchisors and franchisees in respect of any matter arising under or in relation to the franchise agreement or the Code. The meaning of “good faith” under the Code is the same as at common law. While “good faith” is not defined, the Code provides that the court in determining whether a party has contravened the obligation may have regard to: (a) whether the party acted honestly and not arbitrarily; and (b) whether the party cooperated to achieve the purposes of the agreement. The obligation to act in good faith cannot be limited or excluded by the franchise agreement.

41

See further, J Buchan, “Franchising: A Honey Pot in a Bear Trap” (2013) 34 Adelaide Law Review 283; A Terry and J Huan, “Liability for Franchisee Conduct” (2014) 39 Monash University Law Review 388.

42

The new Franchising Code of Conduct is contained in Sch 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth). In general, the new Code applies to conduct occurring on or after 1 January 2015 in relation to a franchise agreement entered into on or after 1 October 1998 (see further, Sch 1, cl 3 ).

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2.

Disclosure by the franchisor. The franchisor must provide a disclosure document to a prospective franchisee (or a franchisee proposing to renew or extend a franchise) together with a copy of the Code at least 14 days before the franchise agreement is entered into (Sch 1, cll 8 and 9). The disclosure document must contain the comprehensive information set down in Annexure 1 of the Code including: the names and qualifications of the franchisor’s directors; a summary of the franchisor’s business experience; details of criminal or civil proceedings against the franchisor; the number of existing franchises and details of their franchisees; and the number of franchises terminated or not renewed over the past three years. Information about the franchise itself is to include: details of the territory of the franchise and whether the franchisor may grant other franchises in the area; requirements as to the purchase of goods and services from the franchisor and restrictions on the purchase of goods or services by the franchisee from other sources; disclosure in relation to the respective rights and obligations of the parties to conduct and benefit from online trading activities; details of any central marketing or advertising fund to which the franchisee has to contribute; and details as to the establishment costs to start operating the business. Financial information as to the profitability of the franchisor must also be provided. The disclosure document must be updated annually. The purpose of a disclosure document is to give to a prospective franchisee, or a franchisee proposing to renew or extend a franchise agreement, information from the franchisor to help the franchisee to make a reasonably informed decision about the franchise.

3.

Information statement. A franchisor must give a copy of the short information statement about franchising set out in Annexure 2 of the Code to a prospective franchisee as soon as practicable after the latter applies or expresses an interest in acquiring a franchised business (Sch 1, cl 11). The information statement covers issues such as due diligence, what is involved in a franchising relationship, unexpected expenses, the risks of franchising and where to find more information.

4.

Cooling off period. A franchisee may terminate an agreement within seven days of entering into the agreement (Sch 1, cl 26). A franchisee who exercises this right is to be refunded, within 14 days, all moneys paid under the agreement less the reasonable expenses of the franchisor specified in the agreement.

5.

Dispute resolution. The Franchising Code contains provisions for resolving disputes between the parties to a franchise agreement (Sch 1, cll 34–45). A franchise agreement must provide for a complaint-handling procedure which complies with the Code. The procedure essentially involves the party who has a dispute setting out the nature of the dispute in writing and stating what action the complainant thinks will settle the dispute. The parties should then try to agree about how the dispute is to be resolved. If the parties cannot reach an agreement within three weeks, then either party may refer the matter to a mediator. In the event of the parties not agreeing about who should be the mediator, either party can ask the mediation adviser (appointed for this purpose by the Minister) to appoint a mediator. The mediator can determine the time and place for mediation and the parties are required to attend the mediation to try to resolve the dispute. This procedure does not affect the right of a party to take legal proceedings under the franchise agreement.

Non-compliance with the requirements of the Code does not have the effect of the franchise agreement being illegal and unenforceable: Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101. However, non-compliance will amount to a contravention for which remedies are available under the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth), Pt VI (see further at [18.680])). For example, the Full Federal Court set aside a franchise agreement when the franchisors breached the Franchising Code of Conduct by not providing a current disclosure document; the franchisees would not have entered into the franchise agreement had they known the true financial position of the

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franchisor: Spar Licensing Pty Ltd v Mis Qld Pty Ltd (2014) 314 ALR 35 (FCAFC); see also, Rafferty v Madgwicks (2012) 203 FCR 1 (FCAFC); Workplace Safety Australia Pty Ltd v Simple OHS Solutions Pty Ltd (2015) 89 NSWLR 594 (NSWCA). The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the provisions of the Code and, accordingly, may take action against a franchisor for non-compliance with the Code. The new Franchising Code of Conduct prescribes a civil penalty of 300 penalty units (currently $54,000) for non-compliance with many of the requirements of the Code discussed above. 43 The ACCC is now empowered to issue an infringement notice where it has reasonable grounds to believe that a person has contravened a civil penalty provision of the Code. 44 The amount of the penalty is 50 penalty units ($9,000) for a body corporate and 10 penalty units ($1,800) for a person. Where a person who has been issued with an infringement notice pays the amount of the penalty, no proceedings may be started or continued against the person by or on behalf of the Commonwealth in relation to the alleged contravention of the civil penalty provision.

Other provisions of the Competition and Consumer Act 2010 relevant to franchisees [30.2800] Prior to the advent of the Franchising Code of Conduct, the principal avenue of redress for franchisees who had been induced to enter into a franchise agreement as a result of misrepresentations by franchisors was to bring proceedings for misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian Consumer Law 45). For example, the Federal Court awarded damages to a franchisee who had suffered substantial financial loss in a retail franchise business which had been represented by the franchisor as a completely proven concept and where there had been misrepresentations as to anticipated turnover and profitability, risk and site suitability: Bateman v Slatyer (1987) 71 ALR 553; see similarly Cut Price Deli Pty Ltd v Jacques (1994) 49 FCR 397; Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] ATPR 42-473; [2014] FCA 487; cf Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 (see further as to s 18 of the Australian Consumer Law, [17.40]). The unconscionable conduct provision of s 22 of the Australian Consumer Law may also be apposite to a franchisee in an appropriate case: see [17.270].

Further reading C Bodkin, Patent Law in Australia (2nd ed, Thomson Reuters, Sydney, 2014). K Bowrey, M Handler, D Nicol and K Weatherall, Australian Intellectual Property (2nd ed, Oxford University Press, Melbourne, 2015). R Burrell and M Handler, Australian Trade Mark Law (2nd ed, Oxford University Press, Melbourne, 2016). MJ Davison, AL Monotti and L Wiseman, Australian Intellectual Property Law (3rd ed, Cambridge University Press, Melbourne, 2015). 43 44 45

The civil pecuniary penalties may be imposed by a court under the Competition and Consumer Act 2010 (Cth), s 76 as amended by the Competition and Consumer Amendment (Industry Code Penalties) Act 2014 (Cth), ss 6–8. The Competition and Consumer Act 2010 (Cth), ss 51ACC–51ACJ as amended by the Competition and Consumer Amendment (Industry Code Penalties) Act 2014 (Cth), s 3. The Australian Consumer Law is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17.

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A Fitzgerald and D Eliades, Introduction to Intellectual Property (Thomson Reuters, Sydney, 2015). S Ricketson and C Cresswell, The Law of Intellectual Property: Copyright, Designs and Confidential Information (subscription service, Thomson Reuters, Sydney). A Stewart, P Griffith, J Bannister and A Liberman, Intellectual Property in Australia (5th ed, LexisNexis Butterworths, Sydney, 2014). W van Caenegem, Intellectual and Industrial Property (LexisNexis Butterworths, Sydney 2014).

Internet sites Australasian Legal Information Institute (AustLII) http://www.austlii.edu.au (decisions of courts, Designs Office, Patents Office, Trade Marks Office, Copyright Tribunal) Australian Copyright Council http://www.copyright.org.au (information on copyright issues) IP Australia http://www.ipaustralia.gov.au (extensive materials concerning patents, trade marks and designs) Franchise Council of Australia http://www.franchise.org.au

Journals Australian Intellectual Property Journal Australian Intellectual Property Law Bulletin Copyright Reporter

chapter 31

Bankruptcy [31.30] Administration of the Act............................................................................................................................ 929 [31.140] Scope of the Act ............................................................................................................................................ 931 [31.190] Bankruptcy proceedings – petitions for bankruptcy.................................................................. 932 [31.200] Acts of bankruptcy....................................................................................................................................... 933 [31.350] Administration of the property of the bankrupt ........................................................................... 942 [31.580] Distribution of property and priority of debts ................................................................................ 957 [31.620] Discharge from bankruptcy .................................................................................................................... 960 [31.670] Arrangements with creditors outside bankruptcy ..................................................................... 962

Introduction [31.10] The purpose of the law of bankruptcy has been explained as follows: “It is now generally accepted in the Australian community that, when a person is unable to pay his or her debts and is in a hopeless financial position, the law should enable proceedings to be taken, either by the debtor or by a creditor, so that most kinds of the debtor's property can be taken and used to pay the creditors in proportion to the amounts owed to each of them. It is generally accepted too that, unless the debtor has been guilty of some dishonesty, extravagance or other improper conduct in financial matters, the law should enable the debtor to be freed from the burden of accumulated debts so that the debtor can make a fresh start. It is the modern law of bankruptcy that gives effect to these generally accepted principles.” 1 The law of bankruptcy is contained primarily in the Bankruptcy Act 1966 (Cth). This chapter will outline the more important features of the Act to enable the reader to obtain an overview of the subject as a whole. [31.20] Overview of the bankruptcy legislation The law of bankruptcy is designed to meet the case of an individual who has no reasonable prospect of being able to pay their debts. Its aim is threefold: first, to distribute the debtor's property among her or his creditors in the most expeditious and economical manner; secondly, to investigate the conduct and affairs of the debtor; and thirdly, to give the debtor a new start in life freed from the demands of their creditors when the debtor has not been guilty of certain serious offences. In essence, bankruptcy may be regarded as the method by which the normal rights of a creditor are withheld in the interests of the debtor and the creditors as a whole and by which the law of debt is modified to effect a compromise beneficial to all parties. The field covered by the Bankruptcy Act 1966 (Cth) may be conveniently divided into two parts whereby, on the one hand, provision is made for the conversion of the status of a debtor into that 1

D Rose, Lewis' Australian Bankruptcy Law (11th ed, LBC Information Services, Sydney, 1999), p 1.

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of a bankrupt and, on the other, the status of the debtor is preserved as such, there being provision made for agreements between the debtor and their creditors without the debtor being made a bankrupt. This latter type of administration will be considered separately at [31.670]. The sections which immediately follow will deal with the way in which a person becomes a bankrupt and the effect of the making of a sequestration order (the order by which the court declares a person to be bankrupt).

chapter 31 Bankruptcy

Administration of the Act General administration [31.30] Ministerial responsibility for the administration of the Bankruptcy Act 1966 (Cth) is vested in the Commonwealth Attorney-General, the Minister for Justice and the Minister for Consumer Affairs.

Inspector-General in Bankruptcy [31.40] The Inspector-General in Bankruptcy is appointed by the Minister: Bankruptcy Act 1966 (Cth), s 16. The duties of the Inspector-General are to make such inquiries and investigations as the Minister may direct, or as the Inspector-General thinks fit with respect to the administration of, or the conduct of a trustee in relation to a bankruptcy, personal insolvency agreement or administration under the Act. The Inspector-General has wide powers of investigation to carry out these duties: s 12.

Official Trustee and Official Receivers [31.50] The Official Trustee in Bankruptcy is a body corporate: Bankruptcy Act 1966 (Cth), s 18(1). When a person becomes a bankrupt, their property vests, for administrative purposes, in the Official Trustee unless and until a registered trustee is appointed in which event the bankrupt’s estate will vest in the registered trustee: s 58(1). 2 The main function of an Official Receiver is to act for and on behalf of the Official Trustee. An Official Receiver may exercise the powers, and perform the functions, of the Official Trustee in the name and on behalf of the Official Trustee: s 18(8), (8AA).

Registered trustees [31.60] Upon becoming a bankrupt a person’s property vests forthwith in the registered trustee who has consented to act as such for the purposes of the petition on which the bankruptcy took place: Bankruptcy Act 1966 (Cth), s 156A(3). If there is no registered trustee the bankrupt’s property vests in the Official Trustee: s 58(1). The trustee is the representative of the creditors and has the duty to administer the estate in their interests subject to the provisions of the Bankruptcy Act 1966, directions of the court and meetings of creditors. A person (other than the Official Trustee) cannot act as a trustee in bankruptcy unless registered under the Act. An individual may apply to the Inspector-General to be registered as a trustee: Sch 2 s 20-5(1). The Inspector-General will convene a committee to consider the application: Sch 2 s 2010(1). The committee must reach a decision within 45 business days of the interview: Sch 2 s 20-20(3). The applicant may apply to the Administrative Appeals Tribunal for review of a decision of the committee: Sch 2 s 96-1(a). The duties of a registered trustee are enumerated in s 19(1).

2

An exception is made in respect of property of the debtor which is subject to an order made under proceeds of crime legislation: s 58A (see Proceeds of Crime Act 2002 (Cth)).

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Common Investment Fund [31.70] Moneys held by the Official Trustee comprise what is termed the Common Investment Fund. The Official Trustee must keep accounts showing the amount (if any) in the fund standing to the credit of each estate of a bankrupt or debtor: Bankruptcy Act 1966 (Cth), s 20F.

Courts exercising bankruptcy jurisdiction [31.80] The Federal Court and the Federal Circuit Court have concurrent jurisdiction in bankruptcy. This jurisdiction is exclusive of all other courts except the High Court: Bankruptcy Act 1966 (Cth), s 27(1). 3 However, this provision “does not … confer jurisdiction in a criminal matter”: Bankruptcy Act 1966 (Cth), s 27(2).

Application of the Act [31.90] The Bankruptcy Act 1966 (Cth) applies to all debtors, including persons who are not Australian citizens and members of Parliament. However, a sequestration order is not to be made against, nor a debtor’s petition presented by: (a)

a corporation; or

(b)

a partnership or association registered under a law of the Commonwealth or of a State or Territory which provides for winding up: s 7.

This means, for example, that a limited company could not be made bankrupt under the Bankruptcy Act 1966 since the Corporations Act 2001 (Cth) under which the company was formed provides the necessary machinery for its liquidation: see Chapter 27. Other cases requiring special mention are minors, persons of unsound mind, persons in prison, and partnerships.

Minors [31.100] The Bankruptcy Act 1966 (Cth) applies to debtors whether or not they have attained the age of 18 years: s 7(1A). However, a minor can only be declared bankrupt in respect of debts which are legally enforceable against the minor: see Chapter 6.

Persons of unsound mind [31.110] A person of unsound mind may be made bankrupt as regards debts contracted when of sound mind. In such circumstances they act through a person authorised or empowered by law to act for them: Bankruptcy Act 1966 (Cth), s 308(c).

Persons in prison [31.120] A person in prison has no protection against bankruptcy.

Partnerships [31.130] A creditor of a partnership may present a petition against the whole partnership if the creditor is entitled to present a petition against any one of the members of the partnership in respect of a partnership 3

See M Sheldon, “No One Likes to be Excluded – Rethinking the Federal Court’s Exclusive Jurisdiction under the Bankruptcy Act” (2012) 20 Insolvency Law Journal 87.

chapter 31 Bankruptcy

debt. Any creditor who is entitled to present a petition against a partnership may present a petition against any member or members of the partnership without including the others: Bankruptcy Act 1966 (Cth), s 45. A debtor’s petition against a partnership may be presented by all the partners or by a majority of the partners who are resident in Australia: s 56A. A member of a partnership who has executed a personal insolvency agreement must not join in presenting a petition against the partnership unless the agreement has been set aside or terminated or all the obligations under the agreement have been discharged or the court has given the member permission to present the petition: s 56A(3). The petition must be presented to the Official Receiver: s 56B. Where the petition against the partnership was presented by some but not all of the partners, the Official Receiver must refer the petition to the court for a direction whether to accept or reject it: s 56C. When the Official Receiver accepts the petition, and notes the fact of acceptance on it, each member of the partnership becomes a bankrupt: s 56E.

Scope of the Act [31.140] The Bankruptcy Act 1966 (Cth) prescribes the following courses as the means by which proceedings may be initiated to administer a debtor’s property under the provisions of the Act.

Bankruptcy on creditor's petition [31.150] This is initiated by one or more creditors on a petition to the court. It is the proceeding usually adopted when the creditors take the initiative, particularly when the debtor is recalcitrant or fraudulent or the amount at stake is large. The petition is considered by the court which, if it thinks fit, will make a sequestration order against the estate of the debtor, whereupon the debtor becomes a bankrupt: Bankruptcy Act 1966 (Cth), s 43(2).

Bankruptcy on debtor's petition [31.160] This is a proceeding whereby an insolvent debtor may present a debtor’s petition together with a statement of affairs verified by affidavit to the Official Receiver. On acceptance of the debtor’s petition by the Official Receiver, the debtor automatically becomes a bankrupt: Bankruptcy Act 1966 (Cth), s 55. A debtor who has executed a personal insolvency agreement is not, except with the leave of the court, entitled to present a petition against themselves unless the agreement has been set aside or terminated or all obligations under the agreement have been discharged: s 55(6). If at the time when a debtor’s petition is presented, a creditor’s petition against a group of debtors that includes the debtor is already pending against the debtor, the Official Receiver must refer the debtor’s petition to the court for a direction to accept or reject it: s 55(3B). A debtor intending to present a debtor’s petition may (but is not required to) present to the Official Receiver a declaration of that intention in the prescribed form: s 54A. This declaration must be accompanied by a statement of the debtor’s affairs: s 54A(2). Before accepting such a declaration the Official Trustee must give the debtor information prescribed by the Bankruptcy Regulations 1996 (Cth): Bankruptcy Act 1966 (Cth), s 54D. Subject to this requirement, the Official Receiver must accept the declaration if it appears that the debtor is entitled to present it and if it is in the prescribed form. If the declaration is accepted, the Official Receiver must indorse it and sign a copy of it: s 54C. If the Official Receiver accepts the declaration, the Official Receiver must notify the creditors of that acceptance: s 54C(2). Where a sealed copy is produced to a creditor, the latter cannot apply during the “stay period” for the issue of any enforcement process, or enforce any remedy against the debtor’s person or property in

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respect of the debt: s 54E. Broadly, the “stay period” is the period beginning on the day of acceptance of the declaration and ending on the twenty first day after the day of acceptance or, inter alia, the presentation of a creditor’s petition or debtor’s petition against the debtor, whichever is the earliest: s 5(1). The provisions do not affect a secured creditor’s right to realise or deal with the security: s 54L.

Administration in bankruptcy of estates of deceased debtors [31.170] The Bankruptcy Act 1966 (Cth) provides for bankruptcy proceedings against the estate of a deceased debtor and enables her or his assets to be administered under the rules of bankruptcy: Pt XI. Such proceedings may be initiated by a creditor or by any person in whom the administration of the estate of a deceased debtor is vested. In contrast to petitions by creditors against living debtors, no act of bankruptcy by the deceased debtor or her or his personal representative need be shown.

Arrangements with creditors outside bankruptcy [31.180] A debtor may take the initiative and offer to come to some arrangement with creditors to pay off her or his debts and the creditors in turn may be willing to accept such arrangement and refrain from making the debtor bankrupt. The Bankruptcy Act 1966 (Cth) contains provision for a simple form of insolvency administration for low-income debtors outside bankruptcy known as “debt agreements” in Pt IX: see [31.680]. Furthermore, Pt X provides for personal insolvency agreements: see [31.690].

Bankruptcy proceedings – petitions for bankruptcy [31.190] The bankruptcy of a debtor may be brought about by the debtor presenting a petition to the Official Receiver. On acceptance of the debtor’s petition by the Official Receiver, the debtor automatically becomes a bankrupt: Bankruptcy Act 1966 (Cth), s 55. The Official Receiver may reject a debtor’s petition if: (a)

it appears that, if the debtor did not become a bankrupt, the debtor would be likely (either immediately or within a reasonable time) to be able to pay all the debts specified in the statement of affairs; and

(b)

at least one of the following applies: (i)

it appears that the debtor is unwilling to pay one or more debts to creditors, or is unwilling to pay creditors in general; or

(ii)

before the current petition was presented, the debtor previously became a bankrupt on a debtor’s petition at least three times, or at least once in the period of five years before presentation of the current petition: s 55(3AA).

More usually, a creditor will initiate bankruptcy proceedings against the debtor. The creditor does this by presenting a petition by which the creditor asks the court to make a sequestration order against the estate of the debtor. If the court makes the sequestration order, the debtor thereupon becomes a bankrupt: s 43(2). However, a creditor (or several creditors acting jointly) can only present a bankruptcy petition where all the following conditions are satisfied: (a)

the debt owing by the debtor to the creditor (or joint petitioning creditors) amounts to at least $5,000 and such debt is a liquidated sum (that is, of a fixed or certain amount);

(b)

the debtor committed an act of bankruptcy (as defined in s 40 discussed at [31.200]) within six months before the presentation of the petition; and

chapter 31 Bankruptcy

(c)

at the time when the act of bankruptcy was committed, the debtor had a connection with Australia of a residential or business kind, namely: (i)

was personally present or ordinarily resident in Australia;

(ii)

had a dwelling-house or place of business in Australia;

(iii)

was carrying on business in Australia, either personally or by means of an agent or manager; or

(iv)

was a member of a firm or partnership carrying on business in Australia by means of a partner or agent or manager: ss 43(1), 44.

Acts of bankruptcy [31.200] In order for a creditor to present a petition for a sequestration order, the creditor must also show that the debtor committed an act of bankruptcy within six months before the presentation of the petition. Section 40(1) of the Bankruptcy Act 1966 (Cth) specifies that a debtor commits an act of bankruptcy in each of the following cases: (a)

if in Australia or elsewhere he or she makes a conveyance or assignment of his or her property for the benefit of his or her creditors generally…

The conveyance or assignment must be of the whole or substantially the whole of the debtor’s property. (b)

if in Australia or elsewhere – (i)

he or she makes a conveyance, transfer, settlement or other disposition of his or her property or of any part of his or her property;

(ii)

he or she creates a charge on his or her property or on any part of his or her property;

(iii)

he or she makes a payment; or

(iv)

he or she incurs an obligation, that would, if he or she became a bankrupt, be void as against the trustee: s 40(1)

Dealings by a debtor that would be void against the trustee of the debtor’s estate if he or she became a bankrupt are: (a)

certain “undervalued transactions” (s 120);

(b)

transfers to defeat creditors (s 121); and

(c)

dealings by debtors having the effect of giving some creditors a preference over others: s 122.

The general effect of making such dispositions or payments an act of bankruptcy is to give a creditor a right to petition for a sequestration order where the creditor discovers that the debtor is disposing of property to family or friends, etc, or paying other creditors in preference to her or him. (c)

if, with intent to defeat or delay his or her creditors: (i)

he or she departs or remains out of Australia;

(ii)

he or she departs from his or her dwelling-house or usual place of business;

(iii)

he or she otherwise absents himself or herself; or

(iv)

he or she begins to keep house; … [that is, shutting oneself away to avoid creditors]: s 40(1).

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case [31.210] B, a company director, left Australia suddenly by air for Paraguay without having made any prior reservation, providing a forwarding address, or giving any notice to the officers of a number of companies of which he was a director. Two months later, an income tax assessment notice was issued under which a substantial sum of tax became payable. Over 12 months later, B had still not returned to Australia. An order was made for the sequestration of the debtor’s estate. The act of bankruptcy relied on was that B had departed or remained out of Australia with an intent to defeat or delay his creditors, although a further reason for his departure may also have been the fear of criminal prosecution. The High Court held that the departure from Australia constituted an act of bankruptcy under s 40(1)(c)(i): Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370 at 374–377.

case [31.215] A creditor met the debtor at the debtor’s place of business. The debtor claimed that he did not know his home address. The debtor suddenly left his place of business during the meeting and did not return: at [78]-[81]. The debtor did not return calls to his mobile phone and failed to respond to messages: at [149]. The Full Federal Court held that the debtor had absented himself under s 40(1)(c)(ii): Puels v Exelerate Funding Pty Ltd (2005) 214 ALR 616 at [188]-[190]. [31.220] (d)

if: (i)

execution has been issued against him or her under process of a court and any of his property has, in consequence, either been sold by the sheriff or held by the sheriff for 21 days; or

(ii)

execution has been issued against him or her under process of a court and has been returned unsatisfied;

(daa) if the debtor presents a debtor’s petition under this Act; (da)

if the debtor presents to the Official Receiver a declaration under s 54A: s 40(1).

Section 54A of the Bankruptcy Act 1966 (Cth) concerns a declaration of intention to present a debtor’s petition: see [31.160]. (e)

if, at a meeting of any of his or her creditors: (i)

he or she consents to present a debtor’s petition under the Act and does not, within seven days from the date on which he or she so consented, present the petition; or

(ii)

he or she consents to sign an authority under s 188 and does not, within seven days from the date on which he or she so consented, sign such an authority and inform the chair of the meeting, in writing, of the name of the person in whose favour the authority has been signed: s 40(1).

Under s 188, the debtor may authorise the trustee or solicitor to be the controlling trustee. (f)

if, at a meeting of any of his or her creditors, he or she admits that he or she is in insolvent circumstances and, having been requested by a resolution of the creditors to bring his or her affairs under the provisions of this Act, he or she does not, within seven days from the date of the meeting, either: (i)

present a debtor’s petition; or

chapter 31 Bankruptcy

(ii)

sign an authority under s 188 and inform the chair of the meeting, in writing, of the name of the person in whose favour the authority has been signed: s 40(1).

As to s 188, see comment to (e) above. (g)

if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the court, elsewhere, a bankruptcy notice under this Act and the debtor does not: (i)

where the notice was served in Australia – within the time specified in the notice; or

(ii)

where the notice was served elsewhere – within the time fixed for the purpose by the order giving leave to effect the service, comply with the requirements of the notice or satisfy the court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained: s 40(1). Failure to comply with a bankruptcy notice is by far the most commonly used “act of bankruptcy”. It is discussed separately at [31.240] under the heading “Bankruptcy Notice”. (h)

if he or she gives notice to any of his or her creditors that he or she has suspended, or that he or she is about to suspend, payment of his or her debts;

(ha)

if the debtor gives the Official Receiver a debt agreement proposal;

(hb)

if a debt agreement proposal given by the debtor to the Official Receiver is accepted by the debtor’s creditors;

(hc)

if the debtor breaches a debt agreement;

(hd)

if a debt agreement to which the debtor was a party (as a debtor) is terminated under section 185P, 185Q or 185QA: s 40(1).

The above acts of bankruptcy arise out of a simple form of insolvency administration known as “debt agreements”: see [31.680]. (i)

if he or she signs an authority under section 188: s 40(1).

As to s 188, see comment to (e) above. (j)

if a meeting of his or her creditors is called in pursuance of such an authority;

(k)

if, without sufficient cause, he or she fails to attend a meeting of his or her creditors called in pursuance of such an authority;

(l)

if, having been required by a special resolution of a meeting of his or her creditors so called to execute a personal insolvency agreement or to present a debtor’s petition, he or she fails, without sufficient cause –

(m)

(i)

to comply with the requirements of the Act as to the execution of the agreement by him or her; or

(ii)

to present a debtor’s petition within the time specified in the resolution, as the case may be;

if a personal insolvency agreement executed by him or her under Part X is: (i)

is set aside by the Court; or

(ii)

terminated: s 40(1).

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As to personal insolvency agreements, see [31.690]. (n)

if a composition or scheme of arrangement accepted by the debtor’s creditors under Div 6 of Pt IV is set aside by the court or terminated [see [31.320]]

(o)

if the debtor becomes insolvent as a result of one or more transfers of property in accordance with: (i)

a financial agreement (within the meaning of the Family Law Act 1975); or

(ii)

a Part VIIIAB financial agreement (within the meaning of the Family Law Act 1975); to which the debtor is a party: s 40(1).

In para (o), transfer of property includes a payment of money. Furthermore, a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person: Bankruptcy Act 1966 (Cth), s 40(7).

Bankruptcy notice [31.230] The most commonly used “act of bankruptcy” to found a creditor’s petition is failure by the debtor to comply with a bankruptcy notice. The procedure is for a creditor, who has obtained a final judgment or order for the amount owing to the creditor by the debtor, to apply to the Official Receiver for the issue of a bankruptcy notice. The bankruptcy notice is then served on the judgment debtor and requires the debtor to pay, or secure payment of, the amount owing under the judgment debt within the time stipulated in the notice (normally 28 days). 4 A failure by the debtor to comply with the notice constitutes an act of bankruptcy which can be used to found a petition by any creditor, not just the creditor who issued the bankruptcy notice. A bankruptcy notice should strictly comply with the requirements of the Bankruptcy Act 1966 (Cth): s 41. Failure to do so may well result in the notice subsequently being held invalid by the court and thus ineffective to ground an act of bankruptcy: Re Wong; Ex parte Kitson (1979) 38 FLR 207 at 217. A formal defect will not invalidate proceedings unless the court considers that “substantial injustice” has been caused by the defect which cannot be cured by a court order: s 306(1). However, a substantive defect cannot be cured under this provision. For example, the failure to attach a copy of the final judgment or order will render the bankruptcy notice invalid as the omission could mislead the debtor: Curtis v Singtel Optus Pty Ltd (2014) 225 FCR 458 at [59], [61], [65]. A bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives notice to the creditor (under s 41(5)) within the time allowed for payment that he or she disputes the validity of the notice on the ground of the misstatement.

case [31.240] Judgment was obtained against a debtor in default of the latter’s appearance for a sum which included collection fees which in the particular circumstances the debtor was under no obligation to pay, and a bankruptcy notice was issued for the total amount of the judgment debt. The debtor gave notice (pursuant to Bankruptcy Act 1966 (Cth), s 41(5)) disputing the validity of the

4

See S Kiel-Chisholm, “Catch Me If You Can: The Effective Service of Bankruptcy Documents in a Changing World” (2010) 18 Insolvency Law Journal 197.

chapter 31 Bankruptcy

bankruptcy notice. The Federal Court held that the bankruptcy notice was invalid because it overstated the amount actually due by the debtor: Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 555. [31.250] The court has power to extend time for compliance with Bankruptcy Act 1966 (Cth), s 41(5): Re Wilhelmsen; Ex parte Gould (1986) 11 FCR 107 at 108. In Re Clubb; Ex parte Clubb v Westpac Banking Corp (1990) 93 ALR 123, the court exercised its discretion in favour of an applicant where the requisite notice had been given three days late because of an oversight by the applicant’s solicitor: at 125–126. It was also held that the bankruptcy notice was invalid and must be set aside where it stipulated an excessive amount of interest because no allowance had been made for the fact that the relevant period included a leap year: at 129–130. However, a bankruptcy notice which requires the judgment debtor to pay a sum which is in fact due at the date of the issue of the bankruptcy notice is valid, notwithstanding that by the time of its service on the debtor the amount due under the judgment has been reduced by payments made after the issue of the notice but before its service. Such payments must be taken into account in determining whether there has been compliance by the debtor with the requirements of the notice (under s 40(1)(g)) but the bankruptcy notice itself is valid: Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 340. The Full Federal Court has held that on an application to set aside a bankruptcy notice the court should not go behind the judgment on which the bankruptcy notice was based, notwithstanding the amount of the judgment debt exceeded the balance actually owing, if the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt should be reduced and would not support a finding that there was in truth no debt at all: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 589.

Hearing of creditor's petition [31.260] The next stage is for the court to hear the creditor’s petition. At the hearing, the court requires proof of: (a)

the matters stated in the petition;

(b)

service of the petition; and

(c)

the fact that the debt or debts on which the petitioning creditor relies is or are still owing.

If it is satisfied with the proof of those matters, it may make a sequestration order against the estate of the debtor: Bankruptcy Act 1966 (Cth), s 52(1). On the other hand, if the court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a)

that he or she is able to pay her or his debts; or

(b)

that for other sufficient cause a sequestration order ought not to be made, it may dismiss the petition: s 52(2).

The court must be satisfied as to the existence of the petitioning creditor’s debt. The High Court has held that where there are substantial reasons for questioning whether, despite the judgment debt, there was in reality a debt due to the petitioning creditor, the court must go behind the judgment debt to determine the existence or otherwise of the alleged debt: Wren v Mahony (1972) 126 CLR 212 at 225, 232, 238. Furthermore, it has been held by the High Court that a debt is not “still owing” (since it is substituted for a right of proof against the bankrupt’s estate) and therefore a sequestration order cannot be made on a

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creditor’s petition where, subsequent to its presentation, the debtor has become a bankrupt by virtue of the Official Receiver’s acceptance of the debtor’s own petition for bankruptcy (under s 55). However, where presentation of the debtor’s own petition in such circumstances constitutes an abuse of process, the court may annul the bankruptcy thereby resulting, and accordingly enable a sequestration order to be made on the creditor’s petition: Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 598; see also Compton v Ramsay Health Care Australia Pty Ltd [2016] FCAFC 106 at [53]–[67].

Effect of a sequestration order [31.270] Where, after hearing the creditor’s petition, the court makes a sequestration order against the debtor’s estate, the effect of such order is as follows: (a)

the debtor becomes a bankrupt and continues a bankrupt until he or she is discharged or the sequestration order is annulled (Bankruptcy Act 1966 (Cth), s 43(2));

(b)

(i) the property of the bankrupt (not being after-acquired property) 5 vests forthwith in the Official Trustee in Bankruptcy or, if a registered trustee has consented to act as trustee of the bankrupt’s estate, the property vests in the registered trustee; and (ii) after-acquired property of the bankrupt vests, as soon as it is acquired by or devolves on the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the bankrupt’s estate, in that registered trustee (s 58(1)); and

(c)

no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy can enforce any remedy against the person or property of the bankrupt, nor commence any legal proceeding in respect of the debt without the leave of the court: s 58(3). A creditor that seeks to set-off a debt provable in bankruptcy does not enforce a remedy under s 58(3) unless the set-off exceeds the debtor’s claim: Piccone v Suncorp Metway Insurance Ltd (2005) 148 FCR 437 at [29]. Leave is not required to commence a legal proceeding where the bankruptcy has been annulled by the acceptance of a composition by the creditors: Hudson v Sigalla (2015) 235 FCR 122 at [3], [27], [30].

However, as we shall see at [31.380], these provisions do not affect the right of a secured creditor to realise or otherwise deal with their security: s 58(5). Furthermore, they do not prevent a creditor from enforcing any remedy against a bankrupt, or against any property of a bankrupt that is not vested in the trustee of the bankrupt, in respect of any liability of the bankrupt under a maintenance agreement or maintenance order: s 58(5A).

Proceedings after a sequestration order Statement of affairs [31.280] As soon as a debtor becomes a bankrupt the debtor’s property vests forthwith in the registered trustee who has given consent to act as trustee of the debtor’s estate or, if there is no such registered trustee, vests in the Official Trustee in Bankruptcy: Bankruptcy Act 1966 (Cth), ss 58, 156A(3), 160. The expression “trustee” in what follows means the trustee of the bankrupt’s estate, whether such trustee is a registered trustee or the Official Trustee in Bankruptcy. A debtor against whose estate a sequestration order is made is required within 14 days from the date on which he or she is notified of the bankruptcy to: 5

“After-acquired property” in relation to a bankrupt is defined as property that is acquired by, or devolves on, the bankrupt on or after the date of bankruptcy, being property that is divisible amongst the creditors of the bankrupt: Bankruptcy Act 1966 (Cth), s 58(6).

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(a)

file with the Official Receiver a statement of her or his affairs; and

(b)

furnish a copy of the statement to the trustee: s 54(1).

In addition, a joint statement of affairs is required from joint debtors who are made bankrupt: s 54(2). Non-compliance with these requirements is an offence of strict liability: s 54(3). A bankrupt against whom a sequestration order has been made may inspect or obtain a copy of their statement of affairs: s 54(5). If particular information in the statement is not to be made available to the public, the Official Receiver must ensure that it is not made available to any person other than the bankrupt: s 54(6). However, information may be made available where required by law: s 54(6A). The Official Receiver may refuse to allow a person access to particular information in a statement on the ground that access would jeopardise the safety of any person: s 54(7). Where a debtor presented a bankruptcy petition against themselves to the Official Receiver, such petition must have been accompanied by a statement of her or his affairs in the prescribed form: s 55. A bankrupt, unless excused by the trustee or prevented by illness or other sufficient cause, is required forthwith after becoming a bankrupt to give the trustee all books that are in the bankrupt’s possession and relate to her or his examinable affairs, together with their passport. The bankrupt must also give such information about any of her or his conduct and examinable affairs as the trustee requires: s 77.

Meetings of creditors [31.290] The trustee is to convene a meeting of the creditors of a bankrupt: (a)

whenever the creditors so direct by resolution;

(b)

whenever so requested in writing by at least one-quarter in value of the creditors; and

(c)

whenever so requested in writing by more than one-tenth but less than one-quarter in value of the creditors, and sufficient security for the cost of holding the meeting has been lodged: Sch 2 s 75-15(1).

Furthermore, the trustee may convene a meeting of the creditors of a bankrupt at any time: Sch 2 s 75-10. The trustee need not attend a meeting of creditors personally but may appoint a person in writing to represent the trustee: Sch 2 s 75-25(1). The Act contains detailed provisions regarding notices, agendas and procedures at such meetings: Sch 2 ss 75-10 – 75-50. The purpose of a meeting of creditors is primarily to consider how to deal with the bankrupt’s property. The bankrupt has a duty to attend a meeting of creditors whenever the trustee requires and to give such information about any of her or his conduct and examinable affairs as requested at the meeting: s 77(1)(c), (1)(d).

Discovery of the bankrupt's property and examination [31.300] The Federal Court, the Federal Circuit Court or the Registrars of those courts are empowered, on application by a creditor who has proved their debt, or by the trustee or the Official Receiver, to summon the bankrupt, or any “examinable person” in relation to the bankrupt, to give evidence concerning the bankrupt and their “examinable affairs”, and to produce any books (including books of an associated entity of the bankrupt) that are in the possession of the examinee and relate to the bankrupt’s examinable affairs: Bankruptcy Act 1966 (Cth), s 81. 6 6

See AR Keay, “Bankruptcy Examinations under Section 81 of the Bankruptcy Act” (1992) 17 University of Queensland Law Journal 35.

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An “examinable person” includes a person who is known or suspected to be in possession of property of the bankrupt, a person who is believed to be indebted to the bankrupt, and a person or an “associated entity” of the bankrupt who may be able to give information about the bankrupt’s examinable affairs, or who is in possession of books that may relate to the bankrupt’s examinable affairs: s 5(1). The “examinable affairs” of a person means the person’s dealings, transactions, property and affairs, and the financial affairs of an associated entity of the person, in so far as they are relevant to the person, their conduct, dealings, transactions, property or affairs: s 5(1). An “associated entity” means a natural person, private company, partnership or trust that is associated with the debtor: s 5(1). An examination under this provision is conducted in public. The trustee or a creditor may take part in the examination. Subject to any contrary direction, the bankrupt is not excused from answering a question merely because to do so may incriminate her or him: s 81(11AA).

Duties of a bankrupt [31.310] The Bankruptcy Act 1966 (Cth) imposes considerable obligations on a bankrupt in relation to the realisation of her or his estate. Section 77 provides as follows: A bankrupt shall, unless excused by the trustee or prevented by illness or other sufficient cause – (a)

forthwith after becoming a bankrupt, give to the trustee: (i)

all books (including books of an associated entity of the bankrupt) that are in the possession of the bankrupt and relate to any of his or her examinable affairs; and

(ii)

the bankrupt’s passport, if any; and

(b)

attend the trustee whenever the trustee reasonably requires; and

(ba)

give such information about any of the bankrupt’s conduct and examinable affairs as the trustees requires; and

(bb)

as soon as practicable after becoming a bankrupt, advise the trustee of any material change that occurred between the time the bankrupt lodged his or her statement of affairs and the time the bankrupt became a bankrupt; and

(bc)

if a material change occurred later, advise the trustee of that change as soon as practicable after the change occurs; and

(c)

attend a meeting of creditors whenever the trustee requires; and

(d)

at each meeting of creditors at which the bankrupt is present, give such information about any of the bankrupt’s conduct and examinable affairs as the meeting requires; and

(e)

execute such instrument and generally do all such acts and things in relation to his or her property and its realisation as are required by this Act or by the trustee or as are ordered by the court upon the application of the trustee; and

(f)

disclose to the trustee, as soon as practicable, property that is acquired by him or her, or devolves on him or her, before his or her discharge, being property divisible amongst his or her creditors; and

(g)

aid to the utmost of his power in the administration of his estate.

Failure to comply with any of these obligations may result in the arrest of the bankrupt and her or his committal to prison: s 78(1)(f). “Material change” means a change in the particulars contained in the statement of affairs, which could reasonably be expected to be relevant to the administration of the bankrupt’s estate: s 77(2).

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The Official Receiver or an officer acting with the written authority of the Official Receiver (for example, the trustee) is entitled at all reasonable times to full and free access to all premises and books for any purpose of the Act and may make copies of, or take extracts from, any such book. The occupier of the premises must give all reasonable assistance to the Official Receiver or authorised officer in the exercise of this power: s 77AA. The Official Receiver, by written notice given to any person may require the person to give information relevant to the performance of the functions of the Official Receiver or a trustee under the Act. The Official Receiver may also require such person to attend before the Official Receiver or other authorised officer and give evidence and produce all relevant books in the person’s possession: s 77C. The Official Receiver may require the bankrupt to provide a statement of affairs: s 77CA. If the Official Receiver has reason to believe that information relevant to the examinable affairs of a bankrupt is known by a person outside Australia or recorded in a book outside Australia, the Official Receiver may issue an “offshore information notice” to any person, requesting any such information or books. Where the notice is not complied with, the requested material is not admissible in subsequent legal proceedings relating to the bankrupt, unless the person to whom the notice was directed proves that the material was not in their possession and that there were no reasonable steps which they could have taken to obtain it: ss 81A – 81G.

Compositions and schemes by bankrupts [31.320] A debtor who has become a bankrupt may make a proposal to creditors for: (a)

a composition in satisfaction of her or his debts; or

(b)

a scheme of arrangement: Bankruptcy Act 1966 (Cth), Pt IV, Div 6, ss 73 – 76.

The decision whether to accept the debtor’s proposal rests with the creditors who are not bound to accept any arrangement and may insist that the estate be administered in bankruptcy.

Procedure [31.330] The following are the successive steps in making a composition or offering a scheme of arrangement by a bankrupt: (a)

the bankrupt lodges with the trustee a proposal in writing with full particulars: s 73(1);

(b)

the creditors may accept it by passing a special resolution (to be defined in the Insolvency Practice Rules: Sch 2 s 75-50(2)(k)); and

(c)

if the creditors accept the composition or scheme of arrangement, the bankruptcy is automatically annulled on the date on which the special resolution is passed: Bankruptcy Act 1966 (Cth), s 74(5).

Effect of composition or scheme [31.340] A composition or scheme of arrangement accepted by the creditors is binding on all the creditors of the bankrupt so far as it relates to provable debts due to them: Bankruptcy Act 1966 (Cth), s 75(1). The composition or scheme does not release the bankrupt from a provable debt that would not be released by the bankrupt’s discharge from bankruptcy, except with the consent of the creditor to whom the debt is due. It does not release any other person from any liability from which they would not be released by the discharge of the bankrupt (for example, a guarantor): s 75(2). The composition or scheme may be enforced by the court on application by a person interested and disobedience of an order of the court made on the application is punishable as a contempt of court: s 75(3). The court may set aside or terminate a composition or scheme: s 76B.

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Administration of the property of the bankrupt [31.350] The matters next requiring attention are: (a)

the type of debts which are provable;

(b)

what property of the bankrupt is, and is not, available for payment of debts; and

(c)

what general provisions are made for the distribution of property.

Proof of debts [31.360] It is necessary for the creditors of the bankrupt to formally establish their respective debts to the satisfaction of the trustee before being entitled to share in the distribution of the estate. The procedure is for a creditor to lodge a proof of debt in accordance with the form prescribed by the Act, setting out particulars of the debt: Bankruptcy Act 1966 (Cth), s 84. All debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which the bankrupt may become subject before her or his discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in bankruptcy: s 82(1). This includes a debt that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy. Only debts that arose before the bankruptcy are provable in bankruptcy: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [10], [65], [67]. Demands in the nature of unliquidated damages arising other than by reason of a contract, promise, or breach of trust are not provable in bankruptcy: s 82(2). Where misrepresentation by the bankrupt induces a party to contract with the bankrupt, the demand for unliquidated damages arises by reason of a contract, so is provable in bankruptcy. However, where misrepresentation by the bankrupt induces a party to contract with a third party, the demand for unliquidated damages does not arise from a contract, so is not provable: Coventry v Charter Pacific Corporation (2005) 227 CLR 234 at [50], [71]. Interest on a provable debt after the commencement of the bankruptcy is not provable in bankruptcy: s 82(3B). Penalties or fines imposed by a court for an offence against a law, whether of the Commonwealth or not, are not provable in bankruptcy: s 82(3), (3A). 7 Higher education support debts, student start-up loan debts and trade support loan debts are not provable in bankruptcy: s 82(3AB). The trustee is to make an estimate of the value of a debt or liability provable in the bankruptcy which by reason of its being subject to a contingency or for any other reason does not bear a certain value. A person aggrieved by any estimate so made by the trustee may appeal to the court: s 82(4), (5).

Mutual credit and set-off [31.370] Where there have been mutual dealings between a bankrupt and her or his creditors, the right of set-off is applied: Bankruptcy Act 1966 (Cth), s 86. For example, if the bankrupt owes the creditor $750 and the creditor owes the bankrupt $500, the creditor will be shown as ranking for the balance of $250. Should the reverse happen, the balance owing by the creditor to the bankrupt would be treated as part of the assets of the bankrupt. The rationale for the provision has been explained by the High Court as follows: “Where there are genuine mutual debts, credits or other dealings, it would be unjust if the trustee in bankruptcy could insist upon having 100 cents in the dollar upon the whole of the debt owed to the bankrupt but at the same time insist that the bankrupt’s debtor must be satisfied with a 7

See P Sise, “An Alternative Approach to the Treatment of Penalties and Fines in Bankruptcy” (2016) 16(2) QUT Law Review 82.

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dividend of some few cents in the dollar on the whole of the debt owed by the bankrupt to him. It was to prevent such injustice that the ‘mutual credits’ and ‘mutual debts’, and later ‘mutual dealings’, provisions were introduced into bankruptcy legislation”: Gye v McIntyre (1991) 171 CLR 609 at 618-619. It should be noted that for the section to come into operation, the character of mutuality must always be present and the application of the section to a particular matter is sometimes difficult on this account: see, for example, Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85 at 98-99; Gye v McIntyre (1991) 171 CLR 609 at 623. The benefit of this privilege of set-off will not be available where the person dealing with the bankrupt had notice of an available act of bankruptcy at the time they gave credit to or received credit from the bankrupt: s 86(2).

Secured creditors [31.380] As indicated at [31.270], a secured creditor is still entitled to realise their security notwithstanding the bankruptcy of the debtor. Alternatively, such creditor may surrender the security and prove their debt along with the other unsecured creditors in the debtor’s bankruptcy. The courses open to a secured creditor are as follows: (a)

a secured creditor may rely entirely on security and not lodge a proof of debt at all;

(b)

a secured creditor may realise their security and prove for any balance due to them after deducting the net income realised, unless the trustee is not satisfied that the realisation has been effected in good faith and in a proper manner;

(c)

a secured creditor may surrender their security to the trustee for the benefit of the creditors generally and prove for the whole of their debt as an unsecured creditor; or

(d)

if a secured creditor has not realised their security, they may estimate its value and prove for the balance due to them after deducting the value so estimated: Bankruptcy Act 1966 (Cth), s 90.

Property available to creditors [31.390] Subject to the exceptions discussed at [31.560], the property available for distribution among the creditors of the bankrupt comprises the following: (a)

all property that belonged to, or was vested in, the bankrupt at the commencement of the bankruptcy;

(b)

all property that is acquired by or devolves on the bankrupt after the commencement of the bankruptcy and before its discharge;

(c)

the capacity to exercise, and to take proceedings for exercising, all such powers over property as might have been exercised by the bankrupt for their own benefit at the commencement of the bankruptcy or before its discharge (Bankruptcy Act 1966 (Cth), s 116(1)); and

(d)

property or money vested in the trustee by an order of the court (pursuant to ss 139D, 139DA, 139E and 139EA) where such property was held by a company, trust, or partnership controlled by the bankrupt, and the property was derived from personal services provided by the bankrupt for which he or she received either no remuneration, or remuneration at substantially lower than the market value of the services provided: s 116(1).

Paragraph (d) stems from the provisions of the Act (ss 139A – 139H) aimed at preventing a bankrupt from sheltering behind, for example, a private company or family trust, and enabling the court to order that the

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assets of such entities be transferred to the trustee for distribution to the bankrupt’s creditors, where such assets were essentially the product of personal services provided by the bankrupt and controlled essentially for her or his benefit.

Commencement of the bankruptcy and the doctrine of relation back On creditor's petition [31.400] The property available for distribution to the creditors includes “all property that belonged to … a bankrupt at the commencement of the bankruptcy”: Bankruptcy Act 1966 (Cth), s 116(1). Accordingly, the question arises as to the meaning of the expression “at the commencement of the bankruptcy”. If a person becomes a bankrupt on a creditor’s petition the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy within the six months immediately before the date on which the creditor’s petition was presented: s 115(1). When: (a)

a person becomes a bankrupt on a creditor’s petition that was based on breach of a bankruptcy notice; and

(b)

the time for compliance with the notice was extended; and

(c)

the court considers that the application for extension was frivolous or vexatious;

then the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy within the six months immediately before the date on which the creditor’s petition was presented: s 115(1A). If a person becomes a bankrupt because of a sequestration order made under Div 6, Pt IV (Composition or Arrangement with Creditors) or Pt X (Personal Insolvency Agreements), the bankruptcy is taken to have relation back to, and to have commenced at, the time of the commission of the earliest act of bankruptcy committed by the person within the period of six months immediately before the date on which the application for the sequestration order was made: s 115(1B). The effect is that if the bankrupt, within six months before the presentation of the petition on which the sequestration order is made, has committed another act of bankruptcy (that is, other than the one on which the petition is presented), the bankruptcy is treated as having taken place at the moment of that earlier act of bankruptcy. The purpose of this rule, known as the doctrine of relation back, is to ensure that property, which may have been disposed of to friends, relatives, or a pressing creditor, is brought back into the hands of the trustee for the benefit of the creditors generally. The effect of the doctrine of relation back has been explained as follows: “From the time of the commencement of the bankruptcy all the property of the bankrupt in theory belongs to … [the registered trustee (if any) or the Official Trustee]. Every payment of money, every transfer of property made by the bankrupt is an alienation of property that belongs, not to him, but to his trustee. Every such transaction is, therefore, liable, when the debtor becomes a bankrupt, to be set aside”: Re KB Docker (1938) 10 ABC 198 at 245. Accordingly, money or other property transferred or disposed of by the bankrupt even before a petition was presented, may fall into the bankrupt’s estate where such transfer or disposition took place after an act

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of bankruptcy (occurring within the six months immediately preceding presentation of the petition) which subsequently proves to be the time at which the bankruptcy commenced.

On debtor's petition [31.410] The bankruptcy of a person as a result of the acceptance of a debtor’s petition is taken to have relation back to the time indicated in Figure 31.1 (Bankruptcy Act 1966 (Cth), s 115(2)): Figure 31.1: Debtor's Petition Bankruptcy – Time to which Bankruptcy has Relation Back and Time Bankruptcy Commences Circumstances in which debtor’s petition was presented or accepted 1 Petition accepted by the Official Receiver under a direction of the Court 2 Petition presented when at least one creditor’s petition was pending against the petitioning debtor (whether alone, as a member of a partnership or as a joint debtor), and accepted by the Official Receiver without a direction from the Court 3 Petition presented when no creditor’s petitions were pending but the debtor had committed at least one act of bankruptcy in the past 6 months, and accepted by the Official Receiver without a direction from the Court 4 Petition presented when no creditor’s petitions were pending and the debtor had not committed any act of bankruptcy in the past 6 months, and accepted by the Official Receiver without a direction from the Court

Time to which bankruptcy has relation back and time of commencement of bankruptcy Time specified by the Court as the commencement of the bankruptcy Time of the commission of the earliest act of bankruptcy on which any of the creditor’s petitions was based

Time of commission of the earliest act of bankruptcy within the 6 months before the petition was presented

Time of presentation of the petition

Limitations on the doctrine of relation back [31.420] The operation of the doctrine of relation back is limited by provisions which protect bona fide transactions entered into with a debtor prior to bankruptcy. Thus, s 123(1) of the Bankruptcy Act 1966 (Cth) provides that (subject to certain provisions mentioned later) nothing in the Act invalidates, in any case where a debtor becomes a bankrupt: (a)

a payment by the debtor to any of his or her creditors;

(b)

a conveyance, transfer or assignment by the debtor for market value;

(c)

a contract, dealing or other transaction by or with the debtor for market value; or

(d)

any transaction to the extent of a present advance made by an existing creditor, if –

(e)

the transaction took place before the day on which the debtor became a bankrupt;

(f)

the person, other than the debtor, with whom it took place, did not, at the time of the transaction, have notice of the presentation of a petition against the debtor; and

(g)

the transaction was in good faith and in the ordinary course of business.

The burden of proving these matters is on the person relying on the validity of the transaction. The mere fact that the person dealing with the debtor had notice of an act of bankruptcy by the debtor is not in itself enough to rebut evidence that the transaction was “in good faith and in the ordinary course of business” and thereby protected by s 123: s 123(3). In practice, however, a person with knowledge of an act of bankruptcy may find it difficult to establish that they acted in good faith in the transaction with the debtor.

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Also exempted from the doctrine of relation back are payment by the debtor of court fines or penalties and payments or dispositions under a maintenance agreement or order: s 123(4), (6). The protection afforded by s 123 is expressed to be subject to certain other provisions of the Act. These are the sections relating to execution against the debtor’s property (ss 118 – 119A); undervalued transactions (s 120); transfers to defeat creditors (s 121); avoidance of preferences (s 121); superannuation contributions made to defeat creditors: ss 128B – 128C. In other words, transactions falling within the aforementioned provisions are not protected by s 123: see [31.450]. The operation of the doctrine of relation back is also qualified by s 124 which protects payments of money and the delivery of property to a person who becomes a bankrupt. Thus, such a payment or delivery where made before the day on which the debtor became a bankrupt operates as a good discharge to the person paying the money or delivering the property, if it was made in good faith and in the ordinary course of business: s 124(1)(a).

After-acquired property [31.430] All property that is acquired or devolves on the bankrupt after the commencement of the bankruptcy and before the discharge vests in the trustee of the bankrupt’s estate: Bankruptcy Act 1966 (Cth), s 116(1)(a). This includes the rights of the bankrupt as a beneficiary under a will: Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 at 314; Silvia v Thomson (1989) 87 ALR 695 at 696-697. To this general rule there are certain exceptions. For example, a transaction by a bankrupt with a person dealing with the bankrupt in good faith and for valuable consideration in respect of property acquired by the bankrupt on or after the day of bankruptcy is valid against the trustee if completed before any intervention by the trustee. The lodging of a caveat by the trustee having the effect of forbidding the registration of an instrument affecting any land is deemed to be a sufficient intervention for the purposes of this provision: s 126. Protection is also given to payments of money and the delivery of property to a person who has become a bankrupt. Thus, such a payment or delivery where made on or after the day of bankruptcy operates as a good discharge to the person paying the money or delivering the property, if it was made in good faith, in the ordinary course of business and without negligence: s 124(1)(b).

Contributions from income of bankrupt [31.440] The Bankruptcy Act 1966 (Cth) contains provisions concerning the liability of a bankrupt to make contributions to the trustee from income earned by the bankrupt during their bankruptcy. The provisions are contained in Div 4B in Pt VI of the Act. The objects of this Division are: (a)

to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt’s estate; and

(b)

to enable the recovery of certain money and property for the benefit of the bankrupt’s estate: s 139J.

Assessment of the bankrupt’s income, and thus the amount of contribution payable by the bankrupt, is made by the trustee in the bankruptcy: s 139W. An assessment may be made at any time, including after the end of the contribution assessment period or after the bankrupt is discharged: s 139WA. In making an assessment the trustee may have regard to any information provided by the bankrupt or any other information in the trustee’s possession: s 139X. “Income” is defined widely to include not only any amount that is income according to ordinary concepts but also: (i)

an annuity or pension paid to the bankrupt from a provident, benefit, superannuation, retirement or approved deposit fund;

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(ia)

an annuity or pension paid to the bankrupt from a retirement savings account;

(ii)

a payment to the bankrupt in consequence of a termination of any office or employment;

(iii)

an amount received by the bankrupt under a policy of life insurance or endowment insurance;

(iv)

an amount received by the bankrupt as a beneficiary under a trust to the extent that the amount was paid out of income of the trust;

(v)

the value of a benefit that is provided in any circumstances by any person to the bankrupt; and is a benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 (Cth);

(vi)

the value of a loan made to a bankrupt by an associated entity of the bankrupt, including a loan under which the loan money is not paid to the bankrupt but is paid or applied at the bankrupt’s direction, and a loan unenforceable at law or in equity;

(vii)

the amount of any money, or the value of any other consideration, received by a person other than the bankrupt from another person as a result of work done or services performed by the bankrupt, less any expenses (other than expenses of a capital nature) necessarily incurred by the firstmentioned person in connection with the work or services: s 139L(a).

Certain payments are excluded from the definition of “income” including: (i)

a child support or child maintenance payment for the maintenance of children of whom the bankrupt has custody; or

(ii)

a payment to the bankrupt under a legal aid scheme; or

(iii)

payments excluded under the Bankruptcy Regulations 1996 (Cth): Bankruptcy Act 1966 (Cth), s 139L(b).

If the bankrupt engages in employment or other work, and does not receive any remuneration or receives less than reasonable remuneration, then the trustee, for the purposes of making an assessment, may determine that the bankrupt received reasonable remuneration. The trustee is similarly entitled where the bankrupt enters into a transaction that might reasonably be expected to produce income but where the bankrupt derives no income or less than the income that might reasonably be expected: s 139Y. Income is taken to be derived by a bankrupt even though: (a)

an amount is deducted from it under federal or State law;

(b)

it is reinvested, accumulated or capitalised; or

(c)

it is dealt with on behalf of the bankrupt or as the bankrupt directs: s 139M.

However, the income derived by a bankrupt is taken to be reduced by any amounts paid by way of income tax, or child support: s 139N. The bankrupt is only liable to pay a contribution to the trustee if the income that the bankrupt is likely to derive during a “contribution assessment period”, as assessed by the trustee, exceeds the “actual income threshold amount” applicable in relation to the bankrupt when that assessment is made: s 139P. The “actual income threshold amount” is derived from a formula based on the amount payable to a married pensioner under the Social Security Act 1991 (Cth). If the bankrupt is liable to pay a contribution, that contribution is calculated as half of the amount by which the assessed income of the bankrupt exceeds the actual income threshold amount: Bankruptcy Act 1966 (Cth), s 139S. There is provision for the Official Receiver to vary the contribution payable if the bankrupt makes written application demonstrating that the bankrupt will suffer hardship due to one or more of several prescribed grounds. The grounds for such application are limited and include medical need, the provision of childcare, renting in the private rental market, the cost of commuting to work, and changes in household income owing to illness or unemployment: s 139T.

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If a bankrupt is liable to pay the trustee a contribution, the Official Receiver by written notice may require a person from whom any money is due to a bankrupt, to make payment to the trustee towards the discharge of the liability of the bankrupt to make the contribution: ss 139ZK, 139ZL. An amount payable by such person to the trustee in accordance with a notice is recoverable by the trustee as a debt: s 139ZL. A failure to comply with such a notice is an offence rendering the recipient of the notice liable upon conviction to imprisonment for a period not exceeding six months: s 139ZO. If a person wishes to contest liability under the notice and have it set aside, the onus is cast upon them to satisfy the court that the relevant provisions of the Act do not apply to them on the basis of the alleged facts and circumstances set out in the notice: s 139ZM(1). An application to set aside a notice must be made within 60 days of the date when the notice was given to the applicant: s 139ZM(1A). The Bankruptcy and Family Law Legislation Amendment Act 2004 (Cth) introduced a supervised account regime for certain bankrupts. In this subdivision “bankrupt” includes a person who has been discharged from bankruptcy: s 139ZIB. All monetary income is to be deposited into the supervised account: s 139ZIF. The regime was introduced to improve contributions from self-employed bankrupts.

Other property available to creditors [31.450] Property belonging to the bankrupt at the commencement of the bankruptcy, and property acquired after the commencement of the bankruptcy and before discharge, is available for distribution among the bankrupt’s creditors. In addition, certain other property may become available for the benefit of the bankrupt’s creditors in consequence of the effect of the bankruptcy upon antecedent transactions. Such additional property may result from: (a)

execution against the debtor’s property prior to her or his bankruptcy (Bankruptcy Act 1966 (Cth), ss 118 – 119A);

(b)

undervalued transactions (s 120);

(c)

transfers to defeat creditors (s 121); and

(d)

preferences: s 122.

Execution against the debtor's property [31.460] A creditor who has received moneys within six months before the presentation of a petition against a debtor or after the presentation of a petition, as a result of execution against and sale of the debtor’s property, is required to pay such moneys (less costs of execution) in the event of the debtor’s subsequent bankruptcy to the trustee of the bankrupt’s estate. This also applies to moneys paid to the creditor to avoid seizure or sale pursuant to proceedings for execution against the debtor’s property: Bankruptcy Act 1966 (Cth), s 118(1). 8 An exception is made regarding moneys so received in respect of the liability of the debtor under a maintenance agreement or order: s 118(2). Once the creditor has paid over such moneys to the trustee for the benefit of the creditors generally, the creditor can prove as an unsecured creditor in the bankruptcy: s 118(3). The sheriff must hand over the property seized under a warrant of execution, or pay the proceeds of the sale of property which has already been sold, or moneys paid to avoid seizure or sale, to the trustee in 8

It should be noted here that the trustee is required to hand over to the bankrupt such of the amounts received under these provisions as represents the proceeds of an execution levied against property of the debtor exempted by the Bankruptcy Act 1966 (Cth) from distribution amongst the debtor’s creditors: s 118(4). As to such exemptions, see [31.560].

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bankruptcy. Where the property or moneys handed over to the trustee were in respect of a process of execution arising from the liability of the bankrupt under a maintenance agreement or order, the trustee is to deliver the property or pay the moneys to the creditor so entitled: ss 119, 119A.

Undervalued transactions [31.470] The transfer of property by a person who later becomes bankrupt is void against the trustee if the transfer took place less than five years before the commencement of the bankruptcy, and the transferee either gave no consideration, or a consideration less than the market value of the property: Bankruptcy Act 1966 (Cth), s 120(1). 10 In Vale v Sutherland (2009) 237 CLR 638 the High Court approved Federal Court authority which had held that “s 120(1) requires the Court to be satisfied only that the value of the consideration was less than the market value at the date of transfer; it does not require the Court to assign any particular value to the consideration”. The High Court also agreed that “the policy underlying s 120 is to enable the trustee in bankruptcy to recapture the amount of the ‘shortfall in consideration’; not to go further by, in effect, requiring the transferee to pay more for the property than its market value at the time of the transfer”: at [6]. However, there are certain exceptions to s 120(1). A transfer to a related entity of the transferor will not be void if it took place more than four years before the commencement of the bankruptcy, and the transferee proves that, at the time of the transfer, the transferor was solvent. In all other cases, a transfer will not be void if it took place more than two years before the commencement of the bankruptcy, and the transferee proves that, at the time of the transfer, the transferor was solvent: s 120(3). A person is “solvent” only if they are able to pay all their debts as and when they become due and payable; a person who is not solvent is “insolvent”: s 5(2), (3). A rebuttable presumption arises that the transferor was insolvent at the time of the transfer if it is established that the transferor had not kept or preserved such books and accounts as are usual and proper in relation to their business and as sufficiently disclose the transferor’s business transactions and financial position: s 120(3A). Exemptions from the application of the section include: (a)

a payment of tax under federal or State law;

(b)

a transfer under a maintenance agreement or order;

(c)

a transfer of property under a “debt agreement” (see [31.680]); and

(d)

a transfer exempted by the Bankruptcy Regulations 1996 (Cth): Bankruptcy Act 1966 (Cth), s 120(2).

Where a transfer of property is void under s 120(1), the trustee must pay the transferee the value of any consideration given by the transferee: s 120(4). The section does not affect the rights of a person who acquired property from the transferee in good faith for a consideration that was at least as valuable as the market value of the property: s 120(6). It is provided that the following have no value as consideration: the fact that the transferee is related to the transferor; the transferee’s promise to marry or to become the de facto partner of the transferor; the transferee’s love and affection for the transferor; or the grant to a spouse, former spouse or former de facto partner transferor of a right to live at the transferred property, unless it is a transfer or settlement of property or agreement under the Family Law Act 1975 (Cth): Bankruptcy Act 1966 (Cth), s 120(5). A “transfer of property” includes a payment of money: s 120(7)(a). The “market value” of property transferred is its market value at the time of the transfer: s 120(7)(c). 9 10

There are corresponding provisions in this situation to those discussed in the previous footnote: Bankruptcy Act 1966 (Cth), s 119A(5). See P Carruthers, “Bringing the High Flyers Back to Earth? Sections 120 and 121 of the Bankruptcy Act” (1995) 25 University of Western Australia Law Review 88.

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Transfers to defeat creditors [31.480] Section 121(1) of the Bankruptcy Act 1966 (Cth) provides that the transfer of property by a person who later becomes bankrupt is void against the trustee if: (a)

the property would probably have become part of the bankrupt’s estate or would probably have been available to creditors if the property had not been transferred; and

(b)

the transferor’s main purpose in making the transfer was: (i)

to prevent the property from becoming divisible among her or his creditors; or

(ii)

to hinder or delay the process of making property available for division among the creditors.

case [31.490] In Peldan v Anderson (2006) 227 CLR 471 a debtor and his wife owned their house as joint tenants. The debtor executed a unilateral severance of the joint tenancy. Section 121(9)(b) of the Bankruptcy Act 1966 (Cth) provides that a debtor who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person. After the unilateral severance the wife became the owner of property that did not previously exist, so s 121(9)(b) applied: at [30]. However, s 121(1)(a) did not apply to the wife’s interest in the house. Bankruptcy severs a joint tenancy and a tenancy in common is created in its place. Only the husband’s interest as a tenant in common became part of the bankrupt’s estate: at [48]. [31.500] The “main purpose” requirement in Bankruptcy Act 1966 (Cth), s 121(1)(b) is taken to be satisfied if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent, that is, unable to pay all their debts as and when they became due: ss 121(2), 5(2), (3). This does not limit other ways of establishing the transferor’s “main purpose” in making a transfer: s 121(2). In Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278, the court held that the circumstances must give “rise to a reasonable and definite inference, not merely to conflicting inferences of equal degree of probability” that the transferor had the “main purpose” of preventing the property from becoming divisible among creditors or to hinder or delay the process of making the property available for division among the creditors: at [34]. However, a transfer of property is not void against the trustee if the transferee: (a)

gave consideration that was at least as valuable as the market value of the property; and

(b)

did not know, and could not reasonably have inferred, that the transferor’s main purpose was the purpose in (b) above; and

(c)

could not reasonably have inferred at the time of the transfer, that the transferor was, or was about to become, insolvent: s 121(4).

Where a transfer of property is void under s 121(1), the trustee must pay the transferee the value of any consideration given by the transferee: s 121(5). The section does not affect the rights of a person who acquired property from the transferee in good faith and for a consideration that was at least as valuable as the market value of the property: s 121(8). Furthermore, the section does not apply to a transfer of property under a “debt agreement” (see [31.680]): s 121(7). It is provided that the following have no value as consideration: the fact that the

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transferee is related to the transferor; the transferee’s promise to marry or to become the de facto partner of the transferor; the transferee’s love and affection for the transferor; or the grant to a spouse, former spouse or former de facto partner transferor of a right to live at the transferred property, unless it is a transfer or settlement of property or agreement under the Family Law Act 1975 (Cth): Bankruptcy Act 1966 (Cth), s 121(6). A “transfer of property” includes a payment of money: s 121(9)(a). The mortgage of property constitutes a “transfer of property” under s 121(1): Frost v Sheehan (2012) 11 ABC (NS) 1; [2012] FCAFC 46 at [69]–[70]. The “market value” of property transferred is its market value at the time of the transfer: s 121(9)(c). The Act regulates transactions through which consideration is given to a third party. The provision applies if the transferee gives some or all of the consideration for the transfer to a third party other than the transferor. Sections 120 and 121 apply as if the giving of the consideration was a transfer of the property constituting the consideration. If the giving of the consideration to the third party is void against the trustee in the transferor’s bankruptcy under ss 120 or 121, the trustee has the same rights to recover the property as the trustee would have if the giving of the consideration had actually been a transfer of the property: s 121A. Superannuation contributions that have been made to defeat creditors are recoverable, whether they are made by the debtor (s 128B) or by another person on their behalf: s 128C. Such transfers are recoverable if they were made for the purpose of preventing the transferred property from becoming divisible among creditors or to hinder or delay the process of making property available for division among creditors: ss 128B(1)(c), 128C(1)(e).

Avoidance of preferences [31.510] Further property recoverable by a trustee in bankruptcy for the benefit of the bankrupt’s creditors generally is where a payment or other disposition of property made by the bankrupt to one of her or his creditors constitutes what is referred to as a preference. This will occur where a debtor who is insolvent makes payments or transfers property to a creditor with the effect of giving that creditor a preference or advantage over the debtor’s other creditors. Such payment or property can be recovered by the trustee from the preferred creditor. Section 122(1) of the Bankruptcy Act 1966 (Cth) provides that: A transfer of property by a person who is insolvent (the “debtor”) in favour of a creditor is void against the trustee in the debtor’s bankruptcy if the transfer: (a) had the effect of giving the creditor a preference, priority or advantage over other creditors; and (b)

was made in the period that relates to the debtor, as indicated in the following table. Figure 31.2: Periods During Which Transfers of Property May Be Void

Description of petition leading to debtor’s bankruptcy 1 Creditor’s petition

2 Debtor’s petition presented when at least one creditor’s petition was pending against a petitioning debtor or a member of a partnership against which the debtor’s petition was presented

Period during which the transfer was made Period beginning six months before the presentation of the petition and ending immediately before the date of the bankruptcy of the debtor Period beginning on the commencement of the debtor’s bankruptcy and ending immediately before the date of the bankruptcy of the debtor

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Description of petition leading to debtor’s bankruptcy Period during which the transfer was made 3 Debtor’s petition presented in any other circumstances Period beginning six months before the presentation of the petition and ending immediately before the date of the bankruptcy of the debtor

The effect of s 122(1) is that a transfer of property by a debtor to a creditor will be void against the debtor’s trustee in bankruptcy where: (a)

the debtor was insolvent;

(b)

the transfer of property was in favour of a creditor of the debtor;

(c)

the transfer of property “had the effect of giving the creditor a preference, priority or advantage over other creditors”; and

(d)

where, for example, a creditor’s petition was presented, the transfer of property was made in the period beginning six months before the presentation of the petition and ending immediately before the date of the bankruptcy of the debtor.

A “transfer of property” includes a payment of money: s 122(8). Accordingly, a creditor who received a payment of money or other transfer of property from a debtor in the circumstances set out above is liable to hand it over to the debtor’s trustee in bankruptcy. A transfer of property is taken to have been made in favour of a creditor if it is made in favour of a person in trust for the creditor: s 122(4)(a). There are a number of important exceptions to the operation of s 122(1). The provision does not affect the rights of a purchaser of property or payee in the ordinary course of business who acted “in good faith and who gave consideration at least as valuable as the market value of the property”: s 122(2)(a). The “market value” of property transferred is its market value at the time of the transfer: s 122(8)(c). The section also does not affect the rights of a person who can show that he or she obtained their title to the property through a creditor of the debtor in good faith and gave consideration at least as valuable as the market value of the property. The section does not apply to a conveyance of property or the payment of money under a maintenance agreement or maintenance order, or the transfer of property under a debt agreement: s 122(2)(b) – (d). A number of the expressions used in the previous discussion require further explanation.

Debtor was “insolvent” [31.520] For a payment or transfer to be attacked as a preference under Bankruptcy Act 1966 (Cth), s 122(1), the debtor must have been “insolvent”, that is, unable to pay her or his debts as and when they become due and payable: s 5(2), (3). In effect the debtor must have been insolvent at the time he or she made the payment or transferred the property to the creditor. Merely because a person or business has temporary liquidity problems is insufficient to establish insolvency. Thus, one has to have regard not simply to the question of cash in hand but also to “moneys which [the debtor] can procure by realisation by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor”: Sandell v Porter (1966) 115 CLR 666 at 670 per Barwick CJ; see also Francis v Eggleston Mitchell Lawyers Pty Ltd (2014) 12 ABC (NS) 25; [2014] FCAFC 18 at [36].

“Had the effect of giving the creditor a preference” [31.530] Such payment or transfer must have “had the effect of giving the creditor a preference, priority or advantage over other creditors”. If the transaction had such effect, it may be avoided by the trustee whether or not the intention of the debtor was to give such preference or advantage.

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No particular difficulty arises where the payment made was simply a repayment of the whole or part of a specified debt – such repayment would obviously constitute a preference in favour of that particular creditor. On the other hand, where payments are made by a debtor under a “running account” with a creditor to ensure, for example, further supplies of goods on credit terms, such payments would not constitute preferences and thus could not be recovered by the trustee in the event of the debtor’s subsequent bankruptcy: Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 at 133. In such a case only the amount by which the sum originally owing by the debtor is reduced by the subsequent payments is recoverable by the trustee, not each payment made by the debtor during the relevant period: Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 285-286, 290. Section 122 of the Bankruptcy Act 1966 (Cth) only applies where the payment or other transfer of property has been made by the debtor to a person who is already a creditor of the debtor. Thus, it cannot be used by a trustee in bankruptcy to attack a security given by a debtor to secure a new loan, or to attack payments made for cash purchases from someone to whom the debtor is not already indebted.

“Good faith” [31.540] Even where the payment or transfer to a creditor constitutes a preference, the creditor will still be protected if the creditor can establish that he or she was a payee or purchaser “in the ordinary course of business who acted in good faith and who gave consideration at least as valuable as the market value of the property”: Bankruptcy Act 1966 (Cth), s 122(2)(a). The expression “good faith” is defined for the purposes of this provision: s 122(4)(c). Thus, a creditor is deemed not to be a payee or purchaser in good faith if the payment or transfer was made: under such circumstances as to lead to the inference that the creditor knew, or had reason to suspect: (i)

that the debtor was unable to pay his or her debts as they became due from his or her own money; and

(ii)

that the effect of the transfer would be to give him or her a preference, priority or advantage over other creditors.

For example, where a creditor takes securities from a company known to be insolvent in the sense of being unable to pay its debts as they fall due out of its own money including money it could raise by sale or pledge within a reasonable time, the creditor will be deemed not to be a purchaser in good faith under s 122(4)(c): Re Pacific Projects Pty Ltd (in liq) [1990] 2 Qd R 541 at 547, 549. However, it would appear that for a creditor to be held not to have acted in “good faith” by virtue of these provisions, the creditor must have known or had reason to suspect that the debtor was in fact insolvent. Mere suspicion that the debtor might be insolvent is not enough. Accordingly, it has been held that the fact that previous cheques paid by a retailer were dishonoured, does not necessarily give rise to the inference that the supplier of goods to the retailer had reason to suspect that the retailer was insolvent. It may simply indicate a temporary lack of liquidity and therefore subsequent payments by the retailer to the supplier may still be regarded as having been received by the supplier in “good faith”: Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 293, 296–297. If a transfer of property is set aside by the trustee in bankruptcy under s 122, the creditor to whom the property was transferred may prove in the bankruptcy as if the transfer had not been made: s 122(5).

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Recovery of moneys or property from party to a void transaction [31.550] The Official Receiver, by written notice, may require a person who has received any money or property as a result of a transaction that is void against the trustee to pay the trustee an amount equal to the money or the value of the property received. The amount payable by the recipient of the notice to the trustee is recoverable by the trustee as a debt. If the notice is given in respect of property, the property is charged with the liability of the recipient of the notice. A recipient of the notice who fails to comply with it commits an offence punishable on conviction by imprisonment for up to six months. A person who wishes to contest their liability may apply to the court which, if satisfied that the relevant provisions of the Bankruptcy Act 1966 (Cth) do not apply to the person on the basis of the alleged facts and circumstances, may set the notice aside: ss 139ZQ – 139ZT.

Property not available to creditors [31.560] The following classes of property are not available for distribution among the creditors of the bankrupt (Bankruptcy Act 1966 (Cth), s 116(2)): (a)

property held by the bankrupt in trust for another person;

(b)

the bankrupt’s household property that is:

(ba)

(c)

11

12 13

(i)

of a kind prescribed by the regulations; 11 or

(ii)

identified by a resolution passed by the creditors before the trustee realises the property;

personal property of the bankrupt that: (i)

has sentimental value for the bankrupt; and

(ii)

is of a kind prescribed by the regulations; and

(iii)

is identified by a special resolution passed by the creditors before the trustee realises the property;

the bankrupt’s property that is for use by the bankrupt in earning income by personal exertion and: (i)

does not exceed the value prescribed by the regulations; 12 or

(ii)

is identified by a resolution passed by the creditors; or

(iii)

is identified by an order made by the court on an application by the bankrupt;

(ca)

property used by the bankrupt primarily as a means of transport, the value of which does not exceed the amount prescribed by the regulations 13 or, if before the trustee realises the property the creditors determine by resolution a greater amount, then that greater amount.

(d)

subject to ss 128B, 128C and 139ZU (superannuation contributions made to defeat creditors):

The Bankruptcy Regulations 1996 (Cth), reg 6.03 contains a detailed list of items including, for example, kitchen, heating and cooling equipment; bedding and linen; sufficient household furniture and beds for the members of the household; educational, sporting or recreational items (including books) that are wholly or mainly for the use of children or students; one of each of the following – stereo equipment, radio, washing machine, clothes dryer, refrigerator, freezer, telephone, television and video recorder. The Bankruptcy Regulations 1996 (Cth), reg 6.03B(1), (2) provide that the amount is $2,600 increased annually in accordance with the CPI rate and rounded down to the nearest multiple of $50. The Bankruptcy Regulations 1996 (Cth), reg 6.03B(3), (4) provide that the amount is $5,000 increased annually in accordance with the CPI rate and rounded down to the nearest multiple of $50.

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policies of life assurance or endowment assurance in respect of the life of the bankrupt or the spouse of the bankrupt;

(ii)

the proceeds of such policies received on or after the date of the bankruptcy;

(iii)

the interest of the bankrupt in: (A)

a regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993); or

(B)

an approved deposit fund (within the meaning of the latter Act); or

(C)

an exempt public sector superannuation scheme (within the meaning of the latter Act);

(iv)

a payment to the bankrupt from such a fund received on or after the date of the bankruptcy, if the payment is not a pension within the meaning of the Superannuation Industry (Supervision) Act 1993;

(iva)

a payment to the bankrupt under a payment split 14 where: (A)

the eligible superannuation plan involved is a regulated superannuation fund, an approved deposit fund or an exempt superannuation scheme; and

(B)

the splittable payment involved is not a pension under the Superannuation Industry (Supervision) Act 1993.

(v)

the amount of money a bankrupt holds in a retirement savings account as defined in the Retirement Savings Accounts Act 1997 and a payment to the bankrupt from such account after the date of the bankruptcy;

(vi)

a payment to a bankrupt from a retirement savings account received on or after the date of the bankruptcy;

(vii)

a payment to the bankrupt under a payment split where: (A)

the eligible superannuation plan involved is a retirement savings account; and

(B)

the splittable payment involved is not a pension or annuity. Retirement savings account, pension and annuity are defined in the Retirement Savings Accounts Act 1997.

(e)

any right of action of the bankrupt to recover damages or compensation for personal injuries or wrongs to herself or himself, her or his spouse or family, or for damages or compensation in respect of the death of a spouse or member of the family: similarly exempt are any such damages or compensation actually recovered by the bankrupt, whether before or after the date of the bankruptcy;

(g)

any right of the bankrupt to recover damages or compensation:

(q)

14

(i)

(i)

for personal injury or wrong done to the bankrupt, the spouse of the bankrupt or a member of the family of the bankrupt; or

(ii)

in respect of the death of the spouse of the bankrupt or a member of the family of the bankrupt; and any damages or compensation recovered by the bankrupt (whether before or after he or she became a bankrupt) in respect of such an injury or wrong or the death of such a person; …

any property that, under an order under Part VIII of the Family Law Act 1975, the trustee is required to transfer to the spouse or a former spouse of the bankrupt;

Payment splitting is covered by the Family Law Act 1975 (Cth), Pt VIIIB.

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(r)

any property that, under an order under Part VIIIAB of the Family Law Act 1975, the trustee is required to transfer to a former de facto partner of the bankrupt.

Property that is not listed in s 116(2) (such as shares) is distributable among creditors: Di Cioccio v Official Trustee in Bankruptcy (2015) 229 FCR 1 at [34]. In the event of property ceasing to be property divisible among creditors because of a determination by the creditors or by the court under (b), (c) or (ca) above, the property revests in the bankrupt: s 116(2B). Where property used by the bankrupt primarily for transport (such as a motor vehicle) vests in the trustee because its value exceeds the prescribed value under (ca) above, the trustee is required to pay the latter amount to the bankrupt out of the proceeds of realising the vehicle, provided there is no other vehicle (or other property used as a form of transport) remaining vested in the bankrupt by virtue of the provisions in (ca) above: s 116(2C). Furthermore, property purchased with the proceeds of assurance policies, damages or compensation, loans or grants referred to in (d), (e) and (f) above is not available for distribution among the creditors. Where property was partly purchased by such moneys, the trustee is to pay the bankrupt so much of the proceeds of realising the property as can be fairly attributed to such moneys: s 116(3), (4). The proceeds from third party insurance policies indemnifying the bankrupt against liability to third parties are to be paid by the trustee to the insured third parties and cannot be used for distribution amongst the bankrupt’s creditors generally: s 117. Property mortgaged or charged to secure repayment of a debt is not available for distribution among the bankrupt’s creditors generally: see [31.380].

Possession and realisation of property by trustee [31.570] On a debtor becoming a bankrupt the debtor’s property vests “forthwith” in the Official Trustee in bankruptcy or, if a registered trustee has consented to act as trustee of the debtor’s estate in the event of the debtor becoming a bankrupt, in such registered trustee: Bankruptcy Act 1966 (Cth), ss 58(1), 156A(3), 160. The basic functions of a trustee are to get in, realise, and distribute the bankrupt’s estate. The trustee is required to take possession forthwith of all the property of the bankrupt, including all deeds, books and documents of the bankrupt. The court may enforce possession accordingly on the application of the trustee: s 129. The general powers conferred on a trustee by the Bankruptcy Act 1966 which are exercisable at the trustee’s discretion include the power to: (a)

sell all or any part of the bankrupt’s property;

(aa)

accept, with or without terms or conditions, a sum of money payable at a future time as consideration for the sale of any property of the bankrupt;

(ab)

lease any property of the bankrupt;

(ac)

divide among the creditors, in its existing form and according to its estimated value, property that, by reason of its peculiar nature or other special circumstances, cannot readily or advantageously be sold;

(b)

carry on a business of the bankrupt so far as is necessary to dispose of it or wind it up;

(c)

postpone the winding up of the estate;

(d)

prove in respect of any debt due to the bankrupt;

(da)

mortgage or charge any of the property of the bankrupt for the purpose of raising money for the payment of the debts provable in bankruptcy;

(e)

compromise any debt claimed to be due to the bankrupt or any claim by the bankrupt;

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(f)

make a compromise with a creditor in respect of a debt provable in the bankruptcy;

(g)

make a compromise in respect of any claim arising out of the administration of the estate of the bankrupt, whether the claim is made by or against the trustee;

(h)

deal with property to which the bankrupt is beneficially entitled as tenant in tail in the same manner as the bankrupt could deal with it if he or she were not a bankrupt;

(i)

obtain such advice or assistance as the trustee considers desirable relating to the administration of the estate or to the conduct or affairs of the bankrupt;

(ia)

refer any dispute to arbitration;

(j)

bring, institute or defend any action or other legal proceeding relating to the administration of the estate;

(k)

execute powers of attorney, deeds or other instruments for the purpose of carrying the provisions of the Act into effect; and

(m)

employ the bankrupt: (i)

to superintend the management of the whole, or a part, of the property of the bankrupt;

(ii)

to carry on the bankrupt’s trade or business for the benefit of the bankrupt’s creditors; or

(iii)

to assist in any other way in administering the property of the bankrupt; and, in consideration of the bankrupt’s services, make such allowance to the bankrupt out of the estate as the trustee considers reasonable;

(ma)

such allowance out of the estate as the trustee thinks just to the bankrupt, the spouse of the bankrupt or the family of the bankrupt;

(n)

superintend the management of the whole, or a part, of the property of the bankrupt; and

(o)

administer the property of the bankrupt in any other way: s 134(1).

Subject to the provisions of the Act, the trustee may use her or his own discretion in the administration of the estate: s 134(3). A trustee may disclaim onerous property (that is, property having too many liabilities or restrictions attached to it, and unprofitable contracts (s 133)), and pay off mortgages over the bankrupt’s property: s 136.

Distribution of property and priority of debts [31.580] The main duty of a trustee in bankruptcy is to distribute the bankrupt’s property among her or his creditors in the order of priority prescribed by the Bankruptcy Act 1966 (Cth). The general principle is that all debts proved in a bankruptcy rank equally, except as otherwise provided by the Act. Where the proceeds of the bankrupt’s property are insufficient to meet the debts in full they are paid proportionately: s 108. However, certain debts and liabilities have priority, that is, are to be preferred over the others and are to be paid in advance of the general body of unsecured creditors. Should there be insufficient moneys to pay such preferred creditors, the general body of unsecured creditors will receive nothing by way of dividend. The provisions concerning the priority or order of payments by the trustee are primarily contained in s 109(1) of the Act. However, the order of payment prescribed by s 109(1) is also made subject to the Child Support (Registration and Collection) Act 1988 (Cth), s 50. The latter section provides that the trustee of a bankrupt employer’s property must pay any amount outstanding by way of unremitted child support to the Child Support Registrar, after paying the costs and expenses of the administration and taking remuneration but before making a distribution of dividends to other creditors.

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The order of payment of debts prescribed by Bankruptcy Act 1966 (Cth), s 109(1) is as follows: 1.

Payment of the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee. Where the assets of the estate are not sufficient to pay all these amounts, then they must be paid in the order prescribed by the Bankruptcy Regulations 1996 (Cth): reg 6.01 and Sch 3.

2.

In the case of a bankrupt who had signed an authority under Bankruptcy Act 1966 (Cth), s 188 (under which the debtor may authorise a trustee or solicitor to be controlling trustee) before the date of bankruptcy, payment of: (a)

the remuneration of the controlling trustee (appointed under s 188); and

(b)

the costs, charges and expenses properly and reasonably incurred by the controlling trustee while the authority was in force.

3.

In the case of a bankruptcy that occurs within two months after a personal insolvency agreement executed by the bankrupt, or a composition or scheme of arrangement accepted by the bankrupt’s creditors, has been set aside or terminated, in payment of liabilities, commitments and expenses incurred in good faith, and such proportionate part of the unpaid remuneration of the trustee as the creditors determine by resolution.

4.

Payment of proper funeral and testamentary expenses in the case of a deceased debtor whose estate is being administered under Pt XI of the Act, which deals with the administration of the estates of deceased persons in bankruptcy.

5.

Payment of amounts (including amounts payable by way of allowance or reimbursement under a contract of employment or under an industrial instrument, but not including amounts in respect of long service leave, extended leave, annual leave, recreation leave or sick leave), not exceeding in the case of any one employee $3,100 increased annually in accordance with the CPI (Bankruptcy Regulations 1996 (Cth), reg 6.02) due to an employee of the bankrupt, whether remunerated by salary, wages, commission or otherwise, in respect of services rendered to or for the bankrupt before the date of the bankruptcy.

6.

Payment of all amounts due in respect of workers compensation where liability for the payment of such compensation accrued before the date of the bankruptcy. There is no priority under this provision to the extent that the bankrupt is indemnified under a contract of insurance: Bankruptcy Act 1966 (Cth), s 109(5). In such a case the employee would be entitled to payment of the compensation out of the insurance moneys: s 117.

7.

Payment of all amounts due to any employee of the bankrupt, whether remunerated by salary, wages, commission or otherwise, in respect of long service leave, extended leave, annual leave, recreation leave or sick leave in relation to a period before the date of the bankruptcy.

8.

In payment of any sum payable under s 113 (that section enables an apprentice or articled clerk of the bankrupt to elect, by notice to the trustee, that their indenture or articles of clerkship shall be treated as discharged by the bankrupt. If he or she does so, and has paid a fee or premium to the bankrupt for the apprenticeship or articles, the trustee may pay her or him such sum as the trustee considers reasonable in all the circumstances. It is payment of these sums that has priority under this provision).

9.

Payment of: (a)

such preferences, priorities or advantages in favour of any creditor or group of creditors as regards any other creditor or group of creditors; and

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(b)

such costs, charges and expenses incurred in the interests of creditors before the date of the bankruptcy, as a meeting of the creditors, by special resolution, resolves.

Loans made to an employer, who later becomes bankrupt, for the purpose of paying wages or other entitlements of employees referred to in 5. and 7. above, and so applied by the employer, are entitled to the same priority as the employee would have had: s 109(2), (3). The creditors in each of the classes stated above are paid in full before those in the succeeding class are paid anything. If the estate is not sufficient to pay in full all the creditors in one of the preferential classes, each receives a proportion of the amount due: s 109(11). The remaining debts, other than the “deferred” debts listed at [31.590], rank equally and if the estate is insufficient to pay them in full they are paid proportionately: s 108. The effect of proceeds of crime orders is regulated by ss 114A – 114C.

Deferred claims [31.590] The following claims are deferred or postponed until all other creditors have been paid in full: claims by an entity (for example, a company, trust or partnership) the property of which, in essence, was gained by personal services provided by the bankrupt and controlled for her or his benefit, and which the court has ordered to be paid to the trustee in bankruptcy: Bankruptcy Act 1966 (Cth), s 139H.

Dividends [31.600] Once the trustee has determined the list of creditors, noting those with preferential rights, the trustee, if there is sufficient cash available, may make a distribution to the creditors, first by way of settling the preferential claims; and secondly by declaring a dividend of so much in the dollar payable to the remaining unsecured creditors. Assuming that the trustee has realised more than sufficient to pay the debts having priority, then the dividend payable would depend upon the surplus available after payment of such preferential claims. The trustee is required to distribute the moneys obtained from time to time, although the trustee must always retain sufficient cash to meet the costs of administration. Where the dividend owing to a creditor is less than $25 the trustee need not pay the dividend: Bankruptcy Act 1966 (Cth), s 140; Bankruptcy Regulations 1996 (Cth), reg 6.21. The process of distribution continues until, in due course, the trustee declares a final dividend and completes the distribution of the estate: Bankruptcy Act 1966 (Cth), s 145. In those rare cases where there are sufficient assets to pay the bankrupt’s creditors in full, the bankruptcy is annulled and the remainder of the property of the former bankrupt still vested in the trustee reverts to the bankrupt: ss 153A, 154.

Partners and joint debtors [31.610] The Bankruptcy Act 1966 (Cth) provides, in essence, that in distributing the bankrupt estate of a member of a firm, the member’s separate creditors have priority over creditors of the firm: s 141. Accordingly, the firm’s creditors should have recourse to the solvent partners, if there are any. If all the partners or other joint debtors have become bankrupt, the general principles to be applied are that their separate property is applied first in payment of their separate debts and their joint property is first applied to their joint debts. If there is any surplus in their separate estates, it is then applied to their joint debts, and a surplus in their joint estates is applied to their separate debts in proportion to their respective interests in the joint estate: s 110.

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Discharge from bankruptcy Automatic discharge and objections to discharge [31.620] The general position is that a bankrupt is automatically discharged from bankruptcy after three years from the date on which the bankrupt filed her or his statement of affairs: Bankruptcy Act 1966 (Cth), s 149. However, where a notice of objection to the discharge of the bankrupt has been filed by the trustee with the Official Receiver, the discharge period is extended to either five or eight years depending upon the nature of the objection: ss 149A, 149B. The grounds of objection are as follows (s 149D): (a)

the bankrupt has, whether before, on or after the date of the bankruptcy, left Australia and has not returned;

(aa)

any transfer is void against the trustee in the bankruptcy because of ss 120 or 122;

(ab)

any transfer is void against the trustee in the bankruptcy because of s 121;

(ac)

any transfer is void against the trustee in the bankruptcy because of s 128B;

(ad)

any transfer is void against the trustee in the bankruptcy because of s 128C;

(b)

after the date of bankruptcy the bankrupt managed a corporation after disqualification from doing so (see Corporations Act 2001 (Cth), s 206A);

(c)

after the date of bankruptcy the bankrupt engaged in misleading conduct in relation to a person in respect of an amount or amounts which exceeded $3,000 (indexed to the CPI under Bankruptcy Act 1966 (Cth), s 304A);

(d)

the bankrupt failed to comply with a request in writing by the trustee to provide written information about the bankrupt’s property, income or expected income;

(da)

after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the trustee;

(e)

the bankrupt failed to disclose any particulars of income or expected income as required by the Act (see [31.440]);

(f)

the bankrupt failed to pay the trustee the contribution from income he or she was liable to pay (see [31.440]);

(g)

at any time during the period of five years immediately before the commencement of the bankruptcy, or at any time during the bankruptcy, the bankrupt: (i)

spent money but failed to explain adequately to the trustee the purpose for which the money was spent; or

(ii)

disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal, or what was done with the money received as a result of the disposal;

(h)

while the bankrupt was absent from Australia, he or she was requested by the trustee to return by a particular date but failed to do so;

(ha)

the bankrupt intentionally failed to disclose to the trustee a liability of the bankrupt that existed at the date of the bankruptcy;

(i)

the bankrupt has failed, whether intentionally or not, to disclose to the trustee a liability that existed at the date of the bankruptcy;

(ia)

the bankrupt failed to comply with s 77(1)(a)(ii);

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(j)

the bankrupt failed to: (i)

advise the trustee as soon as practicable of any material change that occurred between the lodging of the statement of affairs and the time of bankruptcy (s 77(1)(bb));

(ii)

advise the trustee as soon as practicable after any later change occurs (s 77(1)(bc)) or

(iii)

notify the trustee of a change in name or other particulars as required by the Act (s 80(1)) (non-compliance is an offence of strict liability: s 80(1A));

(k)

the bankrupt refused or failed to sign a document after being lawfully required by the trustee to do so;

(l)

the bankrupt failed to attend a meeting of her or his creditors without having first obtained written approval of the trustee not to attend, or without having given the trustee a reasonable explanation for the failure;

(m)

the bankrupt failed to attend an interview or examination for the purposes of the Act without having given a reasonable explanation to the trustee for the failure;

(ma)

the bankrupt intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property; and

(n)

the bankrupt failed, whether intentionally or not, to disclose to the trustee the bankrupt’s beneficial interest in any property.

If the objection is made on a ground referred to in (a)-(h) above, then the automatic discharge period will be extended to eight years. Otherwise, the automatic discharge period will be extended to five years. A notice of objection must set out each ground of objection; refer to the evidence or other material that, in the opinion of the trustee, establishes the ground; and state the reasons of the trustee for objecting to the discharge on that ground: s 149C. Where a trustee withdraws an objection to the discharge of the bankrupt, the trustee must give a copy of the withdrawal notice to the Official Receiver and the bankrupt.

Effect of discharge [31.630] Where a bankrupt is discharged from a bankruptcy, the discharge releases her or him from all provable debts (including secured debts) except: (a)

a debt under a recognisance, or under a bail bond, in respect of a person prosecuted under a federal or State law;

(aa)

liability to pay the trustee a contribution from income;

(b)

a debt incurred by fraud or a fraudulent breach of trust to which the bankrupt was a party, or a debt of which he or she has obtained forbearance by fraud; or

(c)

liability under a maintenance agreement or maintenance order, except to such extent and subject to such conditions as the court orders: Bankruptcy Act 1966 (Cth), s 153.

Discharge does not affect the right of a secured creditor, or anyone claiming through or under the secured creditor from realising or otherwise dealing with their security in order to obtain payment of any debt or part of a debt for which they have not proved in the bankruptcy: s 153(3). A discharged bankrupt remains liable under any pecuniary penalty order under the proceeds of crime legislation, since such liabilities are not provable in bankruptcy: s 82(3A). Furthermore, discharge of a bankrupt does not in itself release a partner, co-trustee, joint contractor, or a surety for the bankrupt from any liability: s 153(4).

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Annulment of bankruptcy [31.640] If the trustee is satisfied that all the bankrupt’s debts have been paid in full, the bankruptcy is automatically annulled on the date on which the last such payment was made. The term “bankrupt’s debts” means all debts that have been proved in the bankruptcy and includes interest payable on such of those debts as bear interest, and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee: Bankruptcy Act 1966 (Cth), s 153A. The court has power to annul a bankruptcy where it is satisfied that: (a)

the sequestration order ought not to have been made; or

(b)

the debtor’s petition ought not to have been presented or that it ought not to have been accepted by the Official Receiver: s 153B.

In the case of a debtor’s petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented: s 153B(2).

case [31.650] A debtor presented his own petition for bankruptcy after a creditor’s petition, in order to prevent the making of a sequestration order and thereby shortening the period of relation back with the possible consequence of placing beyond the reach of the trustee property which would otherwise have vested in him. The High Court held that the debtor’s action constituted an abuse of the process of a debtor’s petition and entitled the court to annul the ensuing bankruptcy resulting from the Registrar’s acceptance of the debtor’s petition: Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 598-600. The result in such a case would be to enable the creditor’s petition for a sequestration order to take effect. [31.660] Where a bankruptcy is annulled, all sales and dispositions of property and payments duly made, and all acts done by the trustee before the annulment, are taken to have been validly made or done. The trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee. The remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt: Bankruptcy Act 1966 (Cth), s 154.

Arrangements with creditors outside bankruptcy [31.670] A debtor may enter into certain arrangements with her or his creditors outside bankruptcy, and thus avoid some of the consequences of bankruptcy. These arrangements outside bankruptcy are: (a)

a Debt Agreement under Pt IX of the Bankruptcy Act 1966 (Cth); and

(b)

a Personal Insolvency Agreement under Pt X.

(a) Debt agreements [31.680] Part IX of the Bankruptcy Act 1966 (Cth) provides for a form of insolvency administration outside bankruptcy that can be utilised by persons with low levels of debt, few assets and low incomes who cannot afford to enter into Pt X arrangements and who do not wish to become bankrupt. 15 Under Pt IX 15

See generally M Wyburn, “Debt Agreements under Australian Bankruptcy Law: A Successful Experiment?” (2012) 20 Insolvency Law Journal 158.

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debtors with liabilities not exceeding a “threshold amount” may put forward a “debt agreement proposal” to creditors via the Official Receiver. The proposal could suggest, for example, the payment of less than the full amount of all or any of the debtor’s debts, a moratorium on payment, or periodic payments out of income. The procedure is initiated by a debtor giving the Official Receiver a written proposal for a debt agreement. A debt agreement proposal must: (aa)

be in the approved form; and

(a)

identify the debtor’s property that is to be dealt with under the agreement; and

(b)

specify how the property is to be dealt with; and

(c)

authorise a specified person to deal with the identified property in the way specified; and

(d)

provide that all provable debts under the agreement rank equally and if the total amount paid by the debtor is insufficient to fully meet those debts, the debts are to be paid proportionately; and

(e)

provide that a creditor is not entitled to receive more than the amount of the debt; and

(f)

provide that the amount of the debt is to be ascertained as at the time when acceptance of the proposal is recorded on the National Personal Insolvency Index; and

(g)

if a creditor is a secured creditor – provide that, if the creditor does not realise the security while the agreement is in force, the creditor is taken to be a creditor only to the extent by which the debt exceeds the value of the security; and

(h)

if a creditor is a secured creditor – provide that, if the creditor realises the security while the agreement is in force, the creditor is taken to be a creditor only to the extent of any balance due after deducting the amount realised; and

(i)

be signed by the debtor; and

(j)

specify the date on which the debtor signed: Bankruptcy Act 1966 (Cth), s 185C(2).

A debt agreement proposal must not provide for the transfer of property (other than money) to a creditor: s 185C(2). A debt agreement proposal must not be given jointly by two or more debtors: s 185C(2E). However, a debtor cannot make a proposal for a debt agreement if: (a)

the debtor at any time in the previous ten years has been a bankrupt (unless annulled under s 153B), a party to a debt agreement, or given an authority under s 188 (under which the debtor may authorise a trustee or solicitor to be controlling trustee);

(b)

the debtor’s unsecured debts total more than the “threshold amount”, 16 or any greater amount prescribed by the Bankruptcy Regulations 1996 (Cth); or

(c)

the debtor’s income (as calculated under Bankruptcy Act 1966 (Cth), s 139L) in any of the three years prior to the making of the proposal was more than the “threshold amount” at the time of the proposal; or

(d)

the debtor’s after tax income in the year beginning at the proposal time is likely to exceed three-quarters of the threshold amount: s 185C(4), (4A).

A debtor must give the Official Receiver a statement of affairs together with the debt agreement proposal: s 185D. If the Official Receiver accepts the proposal for processing (under s 185E), the acceptance will be recorded in the National Personal Insolvency Index (NPII). This will have the effect of preventing a creditor from enforcing a remedy in respect of a debt against the debtor. That will be the situation unless and until: 16

“[I]n relation to a particular time, [‘threshold amount’] means seven times the amount that, at that time, is specified in column 3, item 2, Table B, point 1064-B1, Pension rate Calculator A, in the Social Security Act 1991”: Bankruptcy Act 1966 (Cth), s 185C(5).

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(a)

the arrival of the deadline without acceptance of the proposal;

(b)

entry of the debt agreement onto the National Personal Insolvency Index – where an accepted proposal is not expressed to be subject to the occurrence of a specified event;

(c)

entry of the debt agreement onto the National Personal Insolvency Index – where an accepted proposal is expressed to be subject to the occurrence of a specified event and the event occurs within the time period expressed;

(d)

the end of the period within which a specified event must occur – where an accepted proposal is expressed to be subject to the occurrence of a specified event but that event does not occur within that period;

(e)

the cancellation of the acceptance – where the Official Receiver cancels the acceptance of the proposal for processing;

(f)

the lapse of the proposal – where the proposal lapses: s 185F.

If the Official Receiver is required to process a proposal, the Official Receiver must write to each of the creditors asking whether the proposal should be accepted: s 185EA. The proposal is accepted if a majority in value of the creditors accept the proposal: s 185EC(1). A debt agreement proposal will lapse if: (a)

the Official Receiver writes to affected creditors about the proposal but receives no replies before the applicable deadline; or

(b)

the debtor dies after giving the proposal to the Official Receiver but before a debt agreement is made on the basis of the proposal: s 185G.

A debt agreement proposal may be unconditional or conditional. An unconditional proposal is made as follows. If an accepted debt agreement proposal is not expressed to be subject to the occurrence of a specified event, the Official Receiver must enter the agreement onto the National Personal Insolvency Index, and the agreement is made by virtue of that entry. A conditional proposal is made in the following manner. If an accepted debt agreement proposal is expressed to be subject to the occurrence of a specified event and the event occurs within the set period, the Official Receiver must enter the agreement onto the Index, and the agreement is made by virtue of that entry: s 185H. A debt agreement is terminated if the debtor becomes a bankrupt: s 185R. While a debt agreement is in force and details of it entered on the NPII, a creditor cannot: (a)

present a creditor’s petition;

(b)

proceed further with an earlier creditor’s petition;

(c)

enforce a remedy against the debtor; or

(d)

take a fresh step in legal proceedings in respect of a provable debt, except in relation to a maintenance agreement or order or liability under a proceeds of crime law: s 185K.

Provision is made for the variation of a debt agreement on acceptance by the majority in value of the creditors of a written proposal for variation: ss 185M, 185MC. A debt agreement ends when all the obligations that it created have been discharged, unless it has been terminated earlier: s 185N. When the debt agreement ends the debtor is released from provable debts from which the debtor would have been released if the debtor had been discharged from bankruptcy immediately after the acceptance of the debt agreement proposal for processing was recorded on the National Personal Insolvency Index: s 185NA(1). The release does not release the liability of a guarantor of the debtor’s debt or that of a person who has a joint debt with the debtor: s 185NA(3).

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A debt agreement may be terminated if a majority in value of the creditors under the agreement accept a proposal for termination: s 185PC. If there is a six-month arrears in payment under the agreement, the Official Receiver must terminate the agreement: s 185QA. The debtor, a creditor or the Official Receiver may apply to the court for an order declaring that a debt agreement is void on the ground that: (a)

there is doubt on a specific ground that the debt agreement did not comply with the statutory provisions; or

(b)

the statement of affairs lodged with the debt agreement was deficient because it omitted, or was incorrect in, a material particular.

A creditor may include an application for a sequestration order in an application for an order declaring all or part of a debt agreement void: s 185T. If the court makes an order declaring a debt agreement void, the court may also make a sequestration order if a creditor applied for the sequestration order: s 185U. The duties of an administrator of a debt agreement include dealing with the debtor’s property in the manner specified in the agreement and giving information about the administration to the debtor or a creditor under the agreement in response to a reasonable request for information: s 185LA. The administrator of the debt agreement must notify creditors if the debtor is three months in arrears of payment: s 185LB. An arrears in payment of six months must be notified to the Official Receiver: s 185LC. The Act provides for the registration of debt agreement administrators: ss 186B – 186D. Administrators may be remunerated: s 185Z.

(b) Personal insolvency agreements [31.690] Part X of the Bankruptcy Act 1966 (Cth) also operates as an alternative to bankruptcy. Part X agreements are normally entered into by high income earners and take the form of an arrangement between a debtor and her or his creditors, so that the creditors’ debts are satisfied without the debtor having to go into bankruptcy. A debtor who is unable to pay her or his debts appoints a controlling trustee to whom the debtor gives control of her or his property. The debtor provides the controlling trustee with a statement of the debtor’s financial affairs and a Part X proposal setting out how the debtor intends to pay her or his creditors. There is a single form of agreement known as a personal insolvency agreement. A personal insolvency agreement must: (a)

identify the debtor’s property (whether or not already owned by the debtor when the agreement is executed) that is to be available to pay creditors’ claims;

(b)

specify how the property is to be dealt with;

(c)

identify the debtor’s income (whether or not already derived by the debtor when the agreement is executed) that is to be available to pay creditors’ claims;

(d)

specify how the income is to be dealt with;

(e)

specify the extent (if any) to which the debtor is to be released from their provable debts;

(f)

specify the conditions (if any) for the agreement to come into operation;

(g)

specify the circumstances in which the agreement terminates;

(h)

specify the order in which proceeds of realising the property are to be distributed among creditors;

(i)

specify the order in which income is to be distributed among creditors;

(j)

specify whether or not the antecedent transactions provisions of the Act apply to the debtor;

(k)

make provision for a person to be trustee of the agreement; and

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(l)

provide that the debtor will execute such instruments and generally do all such acts and things in relation to their property and income as is required by the agreement: s 188A(2).

A personal insolvency agreement may be varied by the trustee or by a special resolution passed at a meeting of creditors. The variation requires the written consent of the debtor: s 221A. The court may set aside or terminate a personal insolvency agreement: ss 222, 222C. The trustee or the creditors may terminate the personal insolvency agreement if the debtor is in default: ss 222A, 222B. A personal insolvency agreement binds all creditors and operates to release a debtor from a provable debt if the agreement so provides: ss 229, 230. A number of the general provisions of the Act are made applicable to a personal insolvency agreement (see s 231), including the provisions relating to the property of the bankrupt and the doctrine of relation back: ss 82 – 118.

Procedure [31.700] The procedure whereby a debtor’s affairs may be made the subject of an arrangement under Pt X of the Bankruptcy Act 1966 (Cth) is commenced by the debtor signing an authority in the prescribed form, either authorising a registered trustee to call a meeting of the debtor’s creditors and take control of her or his property, or authorising a solicitor or the Official Trustee to call a meeting of the debtor’s creditors. For the authority to be effective, the trustee or solicitor named in the authority must have consented in writing. When the authority becomes effective, the person authorised by it becomes the “controlling trustee”: s 188(6). Where a debtor has given an effective authority, the debtor’s property becomes subject to control under Pt X and charged with the debtor’s unsecured debts, and any amount by which the debtor’s secured debts exceeded the value of the property secured, at the time the debtor signed the authority: ss 189, 189AB. Where a registered trustee consents to exercise the powers conferred by an authority under s 188, the trustee is empowered to: (a)

take immediate control of the debtor’s property and affairs;

(b)

make such inquiries and investigations in connection with the debtor’s property and examinable affairs as the trustee considers necessary;

(c)

carry on a business of the debtor if, in the opinion of the trustee, it will be in the interests of the creditors to do so; and

(d)

deal with the debtor’s property in any way that will, in the opinion of the trustee, be in the interests of the creditors: s 190(2).

For the purpose of exercising these powers, the trustee may obtain such advice or assistance as the trustee considers desirable with the consent in writing of the debtor: s 190(3A). The court may give directions regarding the payment of money and securities held by the trustee: Sch 2 s 65-45(1). An application for such directions “may be made by a person with a financial interest in the administration of the … debtor’s estate”: Sch 2 s 65-45(5).

Meeting of creditors [31.710] The controlling trustee in whose favour the authority has been given by the debtor is required to call a meeting of creditors in accordance with the provisions of the Bankruptcy Act 1966 (Cth): s 190(1). Only one meeting of creditors may be called pursuant to an authority given under s 188 for the purpose of considering, for example, a composition proposed by a debtor, although such meeting may be adjourned: Pretorius v Daltons Carpet Tiles Pty Ltd (1984) 1 FCR 346 at 352. Thus, the debtor cannot call meeting after meeting in the hope that he or she will eventually achieve acceptance of the proposal.

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The creditors may by special resolution: (a)

resolve that the debtor’s property be no longer subject to control;

(b)

require the debtor to execute a personal insolvency agreement; or

(d)

require the debtor to present a debtor’s petition within seven days from the day on which the resolution was passed: s 204.

A special resolution requiring the debtor to execute a personal insolvency agreement must specify the provisions to be included in the agreement: s 204(2). If a special resolution requiring the debtor to execute a personal insolvency agreement has been passed, the creditors must, by resolution, nominate a trustee for the agreement: s 204(3). A personal insolvency agreement must be executed by the debtor and the trustee within 21 days from the day on which the special resolution requiring the debtor to execute the agreement was passed: s 216. Within 21 days after the execution of a personal insolvency agreement, the trustee must file a copy of the agreement in the office of the Official Receiver: s 218(1). It is an offence not to comply with this filing obligation: s 218(2). The court may release a debtor’s property from control under the provisions of Pt X if: (a)

an interested person applies to the court for such an order; and

(b)

the court is satisfied that special circumstances justify it making the order: s 208.

Procedures under Pt X and acts of bankruptcy [31.720] Certain of the procedural steps under Pt X of the Bankruptcy Act 1966 (Cth) also constitute acts of bankruptcy: see [31.200]. Thus, the signature by the debtor of an authority under s 188 to a controlling trustee to call a meeting of creditors under Pt X is an act of bankruptcy, as is the calling of a meeting in pursuance of such an authority: s 40(1)(i), (j). Accordingly, a creditor could present a petition for a sequestration order based on one of these (or any other) act of bankruptcy. However, it is important in this context to bear in mind s 206. That section provides that where a meeting of creditors has passed a special resolution requiring a debtor to execute a personal insolvency agreement, and a creditor’s petition was presented against the debtor before the passing of the resolution, or is presented against her or him after the passing of the resolution but before the proposed agreement is duly executed, the court may adjourn the hearing of the petition for such period as it considers necessary to allow the agreement to be executed and, if the agreement is duly executed, dismiss the petition. In deciding whether to adjourn the hearing of the petition under this provision, it must appear to the court that it would be for the advantage of the creditors that the debtor’s affairs be administered under the agreement. The application to the court may be made by the debtor, a creditor or a person nominated as a trustee of the proposed agreement. On the other hand, the court is empowered to make a sequestration order against a debtor in certain circumstances. Thus, on the application of the Inspector-General, a creditor or the controlling trustee the court, if it thinks fit, may make a sequestration order forthwith against the estate of the debtor where: (a)

the debtor has failed, without sufficient cause, to attend a meeting of creditors called under an authority signed by her or him under s 188;

(aa)

the debtor has removed or disposed of property without the consent of the controlling trustee, or failed to provide the trustee with such information as to her or his examinable affairs as required, or to comply with a direction with respect to her or his property or affairs, in contravention of s 189(2);

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(b)

the debtor, having been required by a special resolution of a meeting of creditors called in pursuance of such an authority to execute a personal insolvency agreement, has failed without sufficient cause to execute the agreement within the time prescribed by the Act; or

(c)

a meeting of creditors called in pursuance of such an authority has not, within four months from the date for which the meeting was called, passed one of the special resolutions referred to at [31.710]: s 221.

An application under these provisions, subject to certain reservations, is deemed equivalent to the presentation of a creditor’s petition against the debtor: s 221(3). The circumstances specified in (a) and (b) above constitute acts of bankruptcy: s 40(1)(k), (l).

Duties of sheriff in relation to executions [31.730] Where a sheriff is given notice in writing of certain procedural steps, namely, the signing by a debtor of an authority, the calling of a meeting of creditors of the debtor, or of the passing of a special resolution requiring a debtor to execute a personal insolvency agreement or present a debtor’s petition, the sheriff is to refrain from taking any action to: (a)

sell property of the debtor in pursuance of any process of execution issued by or on behalf of a creditor, and

(b)

attach a debt due to the debtor.

Furthermore, the sheriff is not to pay to any creditor the proceeds of any execution levied by the sheriff or any moneys received as a result of the attachment of the debt due to the debtor: Bankruptcy Act 1966 (Cth), s 205.

Offences [31.740] The Bankruptcy Act 1966 (Cth) contains numerous provisions whereby certain conduct by debtors, bankrupts, trustees and others is punishable as offences: see Pt XIV, ss 263 – 277A. For example, failure by a bankrupt to: (a)

fully disclose to the trustee all their property;

(b)

fully disclose to the trustee particulars of any disposition made by the bankrupt within two years immediately preceding the date on which he or she became a bankrupt;

(c)

refuse or fail to comply with a direction by the trustee to deliver to the trustee property belonging to the bankrupt and which is in their possession;

(d)

fully disclose to the trustee such information about any of the bankrupt’s conduct and examinable affairs as the trustee requires; or

(e)

refuse or fail to tell the trustee where the books relating to the bankrupt’s examinable affairs may be found (including the books of an associated entity, for example a private company, partnership or trust) or deliver up to the trustee such books in the possession of the bankrupt, renders the bankrupt liable to imprisonment for one year: s 265(1).

A bankrupt is taken to have complied with paragraphs (a), (b) and (d) above, if he or she has fully and truly disclosed the facts to the best of their knowledge and belief: s 265(1A). The same term of imprisonment is prescribed for a person who after the presentation of a petition by virtue of which he or she becomes a bankrupt, either alone or jointly with another person: (a)

conceals, removes, disposes of or deals with any part of her or his property to the value of $20 or more;

chapter 31 Bankruptcy

(b)

conceals a debt due to or by her or him;

(c)

conceals, parts with, destroys, mutilates, falsifies, alters or makes a false entry in, or omits a material particular from, a book or document relating to her or his trade dealings, property or affairs: s 265(4).

A person who after the presentation of a petition by virtue of which they become a bankrupt: (a)

obtains property by fraud; or

(b)

incurs any debt or liability by fraud,

is punishable on conviction by imprisonment for a period not exceeding five years: s 265(5). The same term of imprisonment is prescribed for a bankrupt who disposes of any property with intent to defraud her or his creditors: s 266. Of particular importance are the provisions making it an offence, punishable by imprisonment for three years, for an undischarged bankrupt or a debtor who is a party to a debt agreement, either alone or jointly with another person, to obtain credit to the extent of $3,000 (indexed to the CPI under s 304A) or more from a person, without informing that person that he or she is an undischarged bankrupt. The prohibition similarly extends to: (a)

paying for goods and services by bill of exchange, cheque or promissory note;

(b)

entering into a hire-purchase or leasing agreement for goods;

(c)

obtaining or supplying goods or services by promising to pay such amount; and

(d)

carrying on business under an assumed name or in partnership under a firm name without disclosing to every person with whom he or she or the firm deals the true name and the fact that he or she is an undischarged bankrupt: s 269.

It might also be noted that where a person who has become a bankrupt contracted a debt provable in the bankruptcy of an amount of $500 or upwards within two years before they became a bankrupt, without having at the time of contracting the debt any reasonable or provable ground of expectation of paying it after taking into consideration their other liabilities, they are liable on conviction to one year’s imprisonment: s 265(8). A number of offences are prescribed in relation to the conduct of a person who has been requested to supply information to, or to attend before, the Official Receiver or trustee. For example, a refusal or failure to comply with a request for information; the provision of false or misleading information; failure to attend before the Official Receiver; refusal to be sworn or to give evidence; and evasion in the course of giving evidence, are all offences giving rise to a maximum liability ranging from six to 12 months’ imprisonment: ss 267B – 267G. The Act also requires a bankrupt to keep and maintain during the period of the bankruptcy books that record and explain any income derived by the bankrupt, record the particulars of any employment of the bankrupt, and record and explain any other dealings, transactions or other financial or business affairs of the bankrupt. Failure by the bankrupt to maintain such books, unless with the written dispensation of the trustee or Official Receiver, is an offence punishable by six months’ imprisonment: s 277A. The Bankruptcy Regulations 1996 (Cth) may provide for the issuance of infringement notices as an alternative to prosecution for certain offences. Infringement notices would impose monetary penalties: Bankruptcy Act 1966 (Cth), s 277B.

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Further reading P McQuade and M Gronow, McDonald, Henry & Meek: Australian Bankruptcy Law and Practice (subscription service, Thomson Reuters, Sydney). P McQuade, Bankruptcy in Australia: A Guidebook (subscription service, Thomson Reuters, Sydney). M Murray and J Harris, Keay's Insolvency: Personal and Corporate Law and Practice (9th ed, Thomson Reuters, Sydney, 2016). CF Symes and J Duns, Australian Insolvency Law (3rd ed, LexisNexis Butterworths, Sydney, 2015). B Weule, The Bankruptcy Handbook (2nd ed, Federation Press, Sydney, 2007).

Internet site Australian Financial Security Authority https://www.afsa.gov.au.

Journal Insolvency Law Journal

chapter 32

Criminal Law [32.20] The concept of crime...................................................................................................................................... 972 [32.30] Differences between criminal law and civil law .............................................................................. 972 [32.100] Aims of the criminal law ........................................................................................................................... 974 [32.160] Sources of criminal law in Australia................................................................................................... 975 [32.210] Classification of criminal law.................................................................................................................. 977 [32.240] Criminal procedure ...................................................................................................................................... 978 [32.320] Role of the jury in criminal trials........................................................................................................... 981 [32.340] Elements of crime ........................................................................................................................................ 983 [32.420] Criminal capacity .......................................................................................................................................... 986 [32.490] Crime and business..................................................................................................................................... 989

Introduction [32.10] Criminal law differs from the other categories of law (collectively known as civil law) which have been considered in this work. Criminal law sets out the rules, procedures and consequences that are applied to misconduct that is considered harmful to the victim and society as a whole. This is why behaviour that violates one of these criminal rules is called an offence – it offends against all of society. Criminal law focuses on the type of wrong-doing that warrants punishment. It employs its own specific and distinctive rules of procedure, most notably the use of juries. Criminal law permeates every aspect of life, including business and commercial dealings and for that reason is relevant in any study of commercial law.

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The concept of crime [32.20] Lord Atkin once pointed out that the concept of crime relates to the prohibition and punishment of conduct: “[C]riminal jurisprudence can only be ascertained by examining what acts at any particular period are declared by the state to be crimes, and the only common nature they will be found to possess is that they are prohibited by the State and those who commit them are punished”: Proprietary Articles Trade Association v Attorney General for Canada [1931] AC 310 at 324. What is a crime will therefore vary according to place and time but all societies have developed criminal laws to deal with conduct that society considers harmful. Some acts are universally treated as crimes, such as murder, manslaughter, rape and theft. Other acts are considered to be crimes only in particular cultures. Charging interest on commercial loans is a crime in some Islamic countries but not in Australia. Adultery is a criminal offence in South Korea but not in Australia. What is treated as criminal conduct can also change over time in accordance with the evolving values of society. In Australia, homosexual acts between consenting adults once constituted the criminal offence of sodomy. Now all States of Australia have repealed such laws for persons over 18 years of age. At common law there was a rule that a man could not be convicted of raping his wife as the act of marriage meant that a wife gave irrevocable consent to sexual intercourse with her husband. This rule is no longer part of Australian common law: PGA v The Queen (2012) 245 CLR 355 at [16], [18]. 1 New offences may also be introduced. In Australia recently created offences include stalking, making a bomb hoax, performing female genital mutilation, and drink-spiking. While criminal law is primarily aimed at acts that cause harm to other people or their property, it also includes some offences which may not be considered harmful in this manner. This category of offences has been described as “victimless” crimes. This term is given to acts which are illegal but do not directly harm other people. Examples of commonly accepted victimless crimes include gambling, prostitution, drug use, public drunkenness, bigamy and euthanasia. One reason why these have become criminal offences is that the state sees them as crimes against all members of society to the extent that each of us can be indirectly harmed by them. It has also been argued that the criminal law should protect people from harming themselves.

Differences between criminal law and civil law [32.30] In some cases, the same conduct can give rise to civil or criminal liability. An example is assault.

1. Involvement of the state [32.40] As criminal offences are regarded as offences against all of society, it is the state, not the victim, who brings the charge against the accused person (known as the defendant). The state also gathers the evidence and conducts the trial. By contrast, in civil matters it is the person who believes their legal right has been infringed by the acts or omission of another who brings the case to court. Each party to a civil case collects and presents their evidence to the court. 1

See K Toole, “Marital Rape: Retrospectivity and the Common Law” (2015) 39 Criminal Law Journal 286.

chapter 32 Criminal Law

The role of the state in criminal matters is reflected in the title of criminal cases. It is the Crown, represented as the Queen who brings the case against the defendant. The letter R in the name of criminal cases is an abbreviation for the reigning Queen, Regina, or the reigning King, Rex. In civil cases, the name of the case comprises the names of both parties. The state prosecutor makes many important decisions regarding the trial process including the arguments to be put, the witnesses to be called and even whether the victim will give evidence. One consequence of this decision-making process is that many victims have felt alienated from the trial process. Victims’ Rights Groups have argued that victims should play a greater role in criminal trials. For this reason, Victim Impact Statements have been introduced into the sentencing process. These are statements written by the victim, but usually edited by the prosecutor, which are read out in court at the time of sentencing. They describe the impact that the defendant’s acts have had on the victims’ lives, particularly the pain and suffering caused by the crime. 2

2. Consequences of conviction [32.50] A convicted wrongdoer can be imprisoned, which is not a possible outcome of civil proceedings. Punishments for criminal offences include imprisonment, fines, community service and probation. A conviction for a criminal offence is permanently recorded and a criminal record may need to be disclosed in a range of situations. By contrast, the consequence of a civil case is generally compensation for the wrong done to an injured party. Criminal compensation may be paid by the state from public moneys and is restricted to the amounts payable under the relevant legislation.

3. Proceedings [32.60] In criminal proceedings the victim, as the injured party, is represented in court by a government legal officer, the prosecutor. This is paid for by the state. The defendant may choose to be represented by a lawyer and will meet these costs personally unless they are entitled to legal aid. In civil cases both parties obtain their own legal representation and meet their own costs although the losing party may be required to pay the legal costs of the winning side. Payment of the costs of the other side does not usually occur in criminal proceedings except in a small number of summary cases where a magistrate has discretion to award costs when it is just and reasonable to do so.

4. Onus and standard of proof [32.70] Under the criminal law it is presumed that a defendant is innocent until proven guilty. This is one of the most basic principles in criminal law but has no relevance to civil cases. This presumption is reflected in the different onus and higher standard of proof required in criminal trials.

Onus of proof [32.80] It is the task of the prosecution in a criminal trial to prove that the defendant is guilty of the offence with which they are charged. The prosecution has the onus (responsibility) of persuading the arbiter of fact (the jury in a criminal trial, the magistrate in summary proceedings) that the offence has been committed. A straightforward statement of the law on this point is contained in Woolmington v Director of Public Prosecutions [1935] AC 462 at 481: 2

See T Kirchengast, “Recent Developments in Victim Agency in the New South Wales Justice System: The Case of Victim Impact Statements” (2016) 13 James Cook University Law Review 125; S Garkawe, “Victim Impact Statements and Sentencing” (2007) 33 James Cook University Law Review 90; T Booth, “Penalty, Harm and the Community: What Role Now for Victim Impact Statements in Sentencing Homicide Offenders in NSW?” (2007) 30 University of New South Wales Law Journal 664.

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“Throughout the web of the English Criminal Law, one golden thread is always to be seen, that it is the duty of the prosecution to prove the prisoner’s guilt subject to … the defence of insanity and subject also to any statutory exception.” 3 However, this fundamental presumption of innocence can be reversed in some statutes where the person is presumed to be guilty and it is up to them to prove their innocence. One example is that if a driver is breath-tested and it is found their blood alcohol level is above a prescribed limit, the driver is presumed to have been driving whilst under the influence of alcohol. 4

Standard of proof [32.90] It is not necessary for the prosecution to prove conclusively that the defendant is guilty. The actual standard of proof is proof “beyond reasonable doubt”. 5 If there remains a reasonable doubt, the defendant is entitled to be acquitted. A famous Australian judge, Sir Owen Dixon, said it was a mistake to depart from this “time-honoured formula”. He considered that it was used by ordinary people and understood well enough by the average person in the community: Dawson v R (1961) 106 CLR 1 at 18. In the special instances where the onus of proof is on the defendant, such as the defence of insanity, the standard of proof is usually less onerous. The defendant need only prove insanity “on the balance of probabilities” – which is the standard of proof that applies to civil cases.

Aims of the criminal law [32.100] As long as we have rules, there will be those who will break them. The accepted way of stopping or reducing criminal offences from being committed is through the application of punishment. The theoretical justifications for punishment include deterrence, retribution, prevention, denunciation and rehabilitation.

Deterrence [32.110] This operates is two ways. There is specific deterrence which says that individual offenders must be punished so they personally learn not to commit further offences. There is also general deterrence which operates as a warning to others so that they may be deterred from committing a similar offence. However, deterrence fails to account for offences that are committed on the “spur of the moment” by people who have never offended before and are unlikely to offend again.

Retribution [32.120] This is the “eye for an eye, tooth for a tooth” approach to punishment. It is seen as morally right for society to punish offenders directly and proportionately for the hurt they have caused to others. It is often manifested in the saying that “the punishment should fit the crime”.

Prevention [32.130] Society can best be protected by preventing offenders from re-offending. In some cases, this can be achieved by keeping offenders in prison for long periods. Other examples are preventive measures such 3 4 5

See PA Fairall, “Unravelling the Golden Thread – Woolmington in the High Court of Australia” (1993) 5 Bond Law Review 229. See KC Ong, “Statutory Reversals of Proof: Justifying Reversals and the Impact of Human Rights” (2013) 32 University of Tasmania Law Review 247. See R Eggleston, “Beyond Reasonable Doubt” (1977) 4 Monash University Law Review 1.

chapter 32 Criminal Law

as good surveillance and increased security. For instance, a preventive approach against graffiti offences includes the use of graffiti resistant materials and paints, restrictions on the sale of spray paints, making non-water soluble marker pens illegal and maintaining lighting and surveillance cameras over public areas such as train stations.

Denunciation [32.140] According to this theory imposing punishment is one of the most effective ways to denounce unacceptable behaviour. It is a way of educating the community as to what is appropriate behaviour and publicly shaming the individual offender. Punishment reinforces the wrongfulness of certain acts.

Rehabilitation [32.150] The aim of rehabilitation of criminals through treatment, therapy or education is to change the offender’s behaviour so that they will not re-offend and can return to normal life in the community. Rehabilitation can take place while the offender is in prison or detention, or through community-based orders, such as community service.

Sources of criminal law in Australia [32.160] The criminal law of Australia is contained in Commonwealth, State and Territory laws.

Commonwealth criminal law [32.170] There are over 400 Commonwealth statutes which contain criminal offences including the Customs Act 1901 (Cth) and the Competition and Consumer Act 2010 (Cth). While the power to enact criminal law was not expressly given to the Commonwealth, the federal Parliament is able to enact criminal laws that are incidental to an express head of power: Constitution, s 51(xxxix). This was the basis on which the High Court recognised the validity of the Crimes Act 1914 (Cth): R v Kidman (1915) 20 CLR 425 at 434, 441, 449-450, 459-460. The external affairs power allows the Commonwealth Parliament to enact laws implementing the terms of international treaties. Examples include the Crimes (Aviation) Act 1991 (Cth) and the anti-slavery provisions in the Criminal Code Act 1995 (Cth), Sch Div 270. The combination of the external affairs power, trade and commerce and incidental powers have allowed the Commonwealth to legislate against drug trafficking and drug importation. All federal drug offences are now contained in the Criminal Code Act 1995 (Cth), Sch Pt 9.1, entitled Serious Drug Offences. 6 If there is an inconsistency between the law of the Commonwealth and the law of a State, s 109 of the Constitution gives supremacy to the federal law over the State law. Inconsistency can arise from a direct inconsistency between the laws or where the federal law was intended to cover the field: McWaters v Day (1989) 168 CLR 289 at 296. A State conspiracy offence was held to be inconsistent with a Commonwealth conspiracy offence where the State law had closed an “area of liberty” that had been deliberately left open by the Commonwealth law: Dickson v The Queen (2010) 241 CLR 491 at [26]; see also Momcilovic v The Queen (2011) 245 CLR 1 at [106], [276], [479], [660]. The Crimes Act 1914 (Cth) and the Criminal Code Act 1995 (Cth) contain criminal offences that relate to matters over which the Commonwealth has exclusive jurisdiction – including Commonwealth property. 6

The main categories under the Criminal Code Act 1995 (Cth) are: trafficking; commercial cultivation; selling; commercial manufacture; possession; and the import and export of controlled drugs.

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This means that offences such as theft contained in the Criminal Code Act 1995 (Cth) can only apply to theft of Commonwealth-owned property or to theft that takes place on Commonwealth property. In all other situations, theft will be dealt with under the relevant State or Territory law.

The States: common law jurisdictions [32.180] Common law has been retained as a major source of criminal law in the States of New South Wales, Victoria and South Australia. Whilst the common law has been supplemented by legislation 7 enacted by the respective State parliaments, the legislation is to be interpreted in the light of common law principles unless these have been excluded by Parliament either expressly or by necessary implication. The legislation enacted in these States includes statutory restatements and modifications of the common law as well as new criminal offences.

The States: Code jurisdictions [32.190] Queensland, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory 8 have Criminal Codes that were designed to incorporate all the criminal law existing at the time in one statute. 9 Sir James Fitzjames Stephen, drafter of a proposed British Criminal Code, wrote that codification would: “… reduce to writing the whole of the law upon a given subject, in such a manner that, when the Code becomes law, every legal question which can arise upon the subject with which it deals will be provided for by its express language.” 10 The result is that common law principles have little application in Code jurisdictions. The provisions of the Code are to be interpreted according to their ordinary meaning; recourse to the common law is possible only when a word is ambiguous or has acquired a technical meaning 11 at common law.

The Model Criminal Code: harmonisation of Australian criminal laws [32.200] The differences and inconsistencies between the States and Territories with regard to criminal law and procedure have been an issue of concern. In 1990 drafting of a national Model Criminal Code began. Although it was anticipated that all States and Territories would implement the Model Criminal Code, this did not occur except in the Australian Capital Territory and the Northern Territory where some parts of the Model Code were enacted. 12 The Committee 13 working on this Code has issued a series of

7 8 9

10 11 12 13

Crimes Act 1900 (NSW); Criminal Law Consolidation Act 1935 (SA); Crimes Act 1958 (Vic). Criminal Code 1899 (Qld); Criminal Code 1913 (WA); Criminal Code Act 1924 (Tas); Criminal Code 1983 (NT); Criminal Code 2002 (ACT). A Hemming, “Why the Queensland, Western Australian and Tasmanian Criminal Codes are Anachronisms” (2012) 31 University of Tasmania Law Review 1; S Tarrant, “Building Bridges in Australian Criminal Law: Codification and the Common Law” (2013) 39 Monash University Law Review 838. JF Stephen, A History of the Criminal Law of England (Cambridge University Press, Cambridge, 1883, repr 2014), III: 349. The term “wounding” is not defined in the Criminal Code 1899 (Qld) but has been held to have its common law meaning: Vallance v R (1961) 108 CLR 56 at 77. Criminal Code 2002 (ACT); Criminal Code 1983 (NT). The reports and discussion papers of the Model Criminal Code Officers Committee (MCCOC) can be accessed on the Commonwealth Attorney-General’s Department website: http://www.ag.gov.au/Publications/Pages/default.aspx.

chapter 32 Criminal Law 14

reports and discussion papers relating to substantive areas of criminal law. The majority of the recommendations contained in the Committee’s first report on criminal liability have largely been adopted in the Criminal Code Act 1995 (Cth).

Classification of criminal law [32.210] There are some differences in classification of criminal offences between the Australian jurisdictions.

Felonies, crimes and misdemeanours [32.220] The common law of England classified criminal offences according to the penalty that could be imposed. Felonies were capital offences, which meant that the death penalty could be imposed and all property was forfeited to the Crown. Misdemeanours were less serious crimes where imprisonment or a fine could be imposed. As the death penalty has been abolished the distinction now has little relevance. New South Wales was the last State to abolish the distinction between felony and misdemeanour so felonies remain of historical interest only, although the term “felon” is still in popular usage. In New South Wales, what was previously a felony is now a “serious indictable offence” and a misdemeanour is “a minor indictable offence”. 15 The term “crime” has replaced “felony” in all jurisdictions. However, Queensland and Western Australia retain the crime and misdemeanour distinction, while offences triable summarily are called “simple offences” and “regulatory offences”. 16 The old classification of crime, misdemeanour and simple offence was relevant for issues of procedure, especially powers of arrest. However, as the laws dealing with arrest are now contained in specific legislation, 17 this old distinction had little relevance.

Indictable and summary offences [32.230] All Australian jurisdictions use the classification scheme of distinguishing between indictable and summary/simple offences. 18 An indictable offence is tried before a jury as the determiner of fact. The indictment, also known as an information in South Australia, 19 is the written document containing the charge against the defendant for trial in the District or Supreme Courts. There can only be one indictment for a trial but it may contain more than one count and apply to more than one accused. A summary/simple offence is to be tried before a magistrate, without a jury. The magistrate is the tribunal of both fact and law. If certain conditions are met, some indictable offences (for example, stealing, damage to property, assault, or unlawful use of a motor vehicle) can be heard summarily by a magistrate. There may also be requirements for the accused and the prosecutor to consent, and for the court to agree that a summary hearing is appropriate. 20 The magistrate is empowered to give a lesser sentence than if the case was heard on indictment. However, offences classified as simple or summary cannot be tried by a jury. 14 15 16 17 18 19 20

For example, reports on Identity Crime (March 2008) and Drink and Food Spiking (July 2007) can be accessed through the Attorney-General’s website: http://www.ag.gov.au/Publications/Pages/default.aspx. Crimes Act 1900 (NSW), s 580E: Abolition of distinction between felony and misdemeanour. Criminal Code 1899 (Qld), s 3; Interpretation Act 1984 (WA), s 67(1) (“Offences are of 2 kinds: indictable offences and simple offences”); s 67(1a) (“An offence designated as a crime or as a misdemeanour is an indictable offence”). Police Powers and Responsibilities Act 2000 (Qld), Ch 14; Criminal Investigation Act 2006 (WA), Pt 12. I Freckelton and K Cockroft, Indictable Offences in Victoria (6th ed, Lawbook Co, Sydney, 2015). Criminal Law Consolidation Act 1935 (SA), s 274(2). For example, the Criminal Procedure Act 1986 (NSW), s 260(1) requires certain offences to be dealt with summarily unless the prosecutor or defendant elects to have the offence dealt with on indictment and s 260(2) provides that certain offences can be dealt with summarily unless the prosecutor elects to have the offence dealt with on indictment. The Criminal Code

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The significance of this classification scheme is mainly procedural. It indicates the level of seriousness of an offence, the type of punishment, the mode of trial and court in which it is to be heard, time limits, the entitlement to legal aid and the presence of the defendant in court (for a trial on indictment).

Criminal procedure [32.240] One of the most significant ways in which the criminal law differs from civil law is in the area of procedure. There are two ways by which criminal proceedings are commenced: arrest and summons. Arrest is used mainly for the more serious offences. A summons to appear in court is the more commonly used process.

Summons [32.250] A summons orders a person to appear at a certain court at a particular time and date where a specified offence will be heard. The issue of a summons means that a person is not arrested. A summons is considered the better option when the offender is likely to voluntarily appear in court.

Arrest [32.260] Today police officers make arrests so that the persons can be lawfully charged and brought before the appropriate court. In making an arrest the police must use clear words (such as, “I arrest you”) and may touch the person being arrested to indicate control. The officer should state the reason for the arrest although a specific criminal offence need not be identified. The police may use such force as “is reasonably necessary” to overcome any resistance to arrest or to prevent escape. Deadly or injurious force can only be used where the person escaping or resisting is accused of an offence with life imprisonment. A warning must also be given that such force will be used. After arrest, a person must be charged and brought before a court “forthwith” or as soon as is “reasonably practicable”. If it is not reasonably practicable to bring the person before the court “forthwith”, bail would normally be granted by the police officer or watchhouse keeper. If the police detain a person without authority, they may be sued for false imprisonment. The High Court of Australia has held that both phrases mean essentially the same thing. Detention is not to be prolonged merely to assist the questioning of the suspect. What is “reasonably practicable” will vary with the circumstances: Williams v R (1986) 161 CLR 278 at 283-285, 297, 313. If it is not reasonably practicable to bring the person before a court “forthwith”, bail is normally granted by the police. Where a person was not brought before a court within this “reasonably practical” time frame and was not released on bail, the detention becomes unlawful. An arrest can be made with or without a warrant. A warrant is an official document issued by a Justice of the Peace or judge directed to a particular police officer to arrest a named person and to bring them before a court to face the charge named in the warrant. In certain situations, for example when a person is found committing an offence, an arrest without warrant can be made by police officers or private citizens.

1899 (Qld), s 552A requires certain offences to be dealt with summarily on prosecution election and s 552B allows certain offences to be dealt with summarily unless the defendant elects trial by jury. See also Summary Procedure Act 1921 (SA), ss 5(3)(a), 107(3)(b)(ii) (minor indictable offences dealt with summarily unless the defendant elects trial by jury).

chapter 32 Criminal Law

Bail [32.270] Bail is a procedure by which a person charged with a criminal offence can be released from police custody on the condition that the defendant will return to the court at a specified time and place. 21 There is a prima facie right for a defendant to be given bail unless there is an “unacceptable risk” that the defendant will fail to appear at the court hearing, commit another offence, endanger the safety or welfare of the public, or interfere with witnesses. The factors to be taken into account when assessing “unacceptable risk” are: the seriousness of the offence with which the person is charged; the character, personal history and previous criminal history of the accused; and the strength of the evidence. If bail is granted, the defendant usually signs an undertaking promising to appear in court on the appointed date. An undertaking may be subject to conditions such as reporting, surrender of a passport, not contacting witnesses and deposit of a sum of money. Cash bail is often granted for minor offences such as obscene language in a public place. Cash bail is a deposit of a sum of money with no written undertaking. If the person does not appear in court on the specified date, the money is forfeited to the Crown and no further action is taken by the police.

Committal hearing [32.280] A committal hearing (also known as a preliminary examination) takes place in the Magistrates Court. 22 The committal is designed to test whether the evidence against the defendant is strong enough for the matter to proceed before a judge and jury in the District or Supreme Court. The magistrate does not decide whether the defendant is guilty or innocent. The task of the magistrate is to decide if the police evidence is sufficient for a jury to convict the defendant (a prima facie case). Committals have several benefits. They eliminate weak cases, enable the defendant to know the case against them and allow a guilty plea early in the process. However, committals lengthen the trial process and mean that witnesses may have to give evidence twice, once at committal and again at trial. The defence is made aware of the Crown case but the defence does not have to make its case known. The defendant is usually advised by the lawyer to formally state: “I plead not guilty and reserve my defence”. If, at the end of the committal, the magistrate rules that there is no case to answer, the charge against the defendant is dismissed. If the magistrate finds that there is a prima facie case, the magistrate commits the defendant for trial before a judge and jury. The evidence before the Magistrates Court is known as the depositions of the hearing. These depositions are forwarded to the Crown law officers who decide whether to present an indictment against the defendant. If they decide not to proceed, they present a No True Bill, which discharges the defendant.

Ex-officio indictments [32.290] An alternative to a committal hearing lies in the discretion given to the State’s senior law officer to present to the court an indictment ex-officio, that is, by virtue of their office. This indictment can be presented irrespective of whether there has been a committal proceeding. The courts have inherent jurisdiction to ensure that ex officio indictments are not an abuse of process and scrutinise such indictments to ensure that they are not unfair to the accused. Ex-officio indictments reduce the waiting time for trial. 21

See Bail Act 2013 (NSW); Bail Act 1977 (Vic); Bail Act 1980 (Qld); Bail Act 1985 (SA); Bail Act 1982 (WA); Bail Act 1994 (Tas); Bail Act 1992 (ACT); Bail Act 1982 (NT). See generally P Shrestha, “Two Steps Back: The Presumption of Innocence and Changes to the Bail Act 2013” (2015) 37 Sydney Law Review 147.

22

See generally, A Flynn, “A Committal Waste of Time? Reforming Victoria’s Pre-trial Process: Lessons from Other Jurisdictions” (2013) 37 Criminal Law Journal 175.

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The trial [32.300] The trial commences with the Crown prosecutor reading out the indictment, following which the judge’s associate formally reads the charges to the defendant. The defendant is required to plead guilty or not guilty. The prosecutor opens the case for the Crown. In the opening address to the jury the prosecutor outlines what evidence is to be given by the witnesses for the Crown. This is followed by examination-in-chief of each Crown witness by the Crown prosecutor. Each witness is then cross-examined by defence counsel. The Crown prosecutor may re-examine on any points arising from the cross-examination. At the end of the Crown case, defence counsel may make a submission that the defendant has no case to answer. If such an application is made the jury leaves while the argument takes place. The trial judge rules on the application. If the judge finds that there is no case to answer the defendant is discharged. If the judge is satisfied that there is a case to answer, the defendant is asked whether evidence will be presented in defence. If the defendant does call evidence, the defence counsel makes an opening address. Defence witnesses are called for examination-in-chief, cross-examination and re-examination. The opposing counsel then deliver their closing addresses. The judge sums up the case for the jury, directing it as to the points of law involved and summarising the evidence presented. The jury then retires to consider its verdict. When the jury returns, the foreperson (the nominated spokesperson for the jurors) is asked by the judge if the jury has reached a verdict and is invited to announce the verdict. The jury must be satisfied beyond reasonable doubt before rendering a guilty verdict. If the verdict is not guilty, the defendant is discharged. If the verdict is guilty, the defendant will be sentenced by the judge.

Sentencing [32.310] The prosecutor reads out the defendant’s antecedents, that is, personal details that may be relevant to sentencing. These factors include age and previous criminal convictions. The defence barrister then has the opportunity to present mitigating factors which may reduce the sentence. These can include remorse and the effect that a jail sentence would have upon the defendant’s family or employment. 23

Appeals [32.315] A person convicted of a criminal offence may appeal against conviction or against the severity of the sentence. The Crown may also appeal against an accused person’s sentence being too light. The Crown cannot appeal an acquittal. 24 Once a judge or jury finds a person not guilty, he or she is acquitted of that offence and could never be tried, or put in jeopardy of a conviction, for the same offence. This principle is known as the rule against double jeopardy. It has been modified in New South Wales, Victoria, Queensland, South Australia, Western Australia, Tasmania and the Australian Capital Territory to allow a subsequent trial for the most serious of offences, such as murder, if granted by the relevant appellate court.

23 24

See A Freiberg, Fox and Freiberg’s Sentencing: State and Federal Law in Victoria (3rd ed, Lawbook Co, Sydney, 2014); M Bagaric and R Edney, Sentencing in Australia (3rd ed, Lawbook Co, Sydney, 2015). In Western Australia the Crown may seek leave to appeal against, for example, an acquittal by a judge sitting alone. See State v Rayney (2013) 46 WAR 1 at [315], [325]-[326].

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This is done in the interests of justice where there is fresh and compelling new evidence earlier acquittal was tainted, for example by perjured evidence or jury tampering. 26

25

or when the

Role of the jury in criminal trials [32.320] The High Court has stated that “the genius of the jury system is that it allows for the ordinary experiences of ordinary people to be brought to bear in the determination of factual matters”: Doney v R (1990) 171 CLR 207 at 214. Juries are regarded as impartial finders of fact because they are randomly selected and represent a cross-section of the community. Jurors are selected from a panel chosen at random from the electoral roll. Before a prospective juror is sworn in, the Crown and the defence can make a peremptory challenge to the potential juror, which means that they do not have to give any reason for rejecting that person. The numbers of jurors that can be challenged without cause varies between the various jurisdictions. 27 Both sides can also challenge for cause if there are grounds of bias or ineligibility. The High Court has held that s 80 of the Commonwealth Constitution requires unanimous verdicts in trials of indictable offences against the laws of the Commonwealth: Cheattle v R (1993) 177 CLR 541 at 562. With the exception of the Australian Capital Territory, most States and Territories now allow for majority jury verdicts in certain criminal trials. 28 However, there are differences of detail between the jurisdictions. For example, in Victoria, New South Wales and Queensland only one dissenting vote is permitted, whereas in the other jurisdictions a majority of 10 is accepted. The minimum number of hours of deliberation required for a majority verdict also varies, from two hours in Tasmania to six hours in Victoria to eight hours in New South Wales and Queensland. Murder cases are exempt from the majority verdict rule in Victoria, Tasmania, South Australia, Queensland and Western Australia. In New South Wales and the Northern Territory majority verdicts operate in relation to all criminal cases. Jury deliberations are kept secret 29 but any communication between the jury and the judge should be in open court and recorded in the transcript of the trial. A jury may be discharged, or a conviction quashed, if there is inappropriate conduct by jurors: for example, an unauthorised visit by jurors to a crime scene, or a juror accessing facts about the accused on the internet that may be prejudicial. In R v K (2003) 59 NSWLR 431 several jurors had conducted internet searches and knew that the appellant had been accused of murdering his second wife and that the trial was a retrial of a charge of that K had murdered his first wife: at [52]. 25

26

27

28 29

Crimes (Appeal and Review) Act 2001 (NSW), s 100; Criminal Procedure Act 2009 (Vic), s 327M; Criminal Code 1899 (Qld), s 678B; Criminal Law Consolidation Act 1935 (SA), s 337; Criminal Appeals Act 2004 (WA), s 46I; Criminal Code 1924 (Tas), s 394; Supreme Court Act 1933 (ACT), s 68M. See M Edgely, “Truth or Justice? Double Jeopardy Reform for Queensland: Rights in Jeopardy” (2007) 7 Queensland University of Technology Law and Justice Journal 108; M McMahon, “Retrials of Persons Acquitted of Indictable Offences in England and Australia: Exceptions to the Rule against Double Jeopardy” (2014) 38 Criminal Law Journal 159. Crimes (Appeal and Review) Act 2001 (NSW), s 101; Criminal Procedure Act 2009 (Vic), s 327L; Criminal Code 1899 (Qld), s 678C; Criminal Law Consolidation Act 1935 (SA), s 336; Criminal Appeals Act 2004 (WA), s 46J; Supreme Court Act 1933 (Tas), s 393; Supreme Court Act 1933 (ACT), s 68N. In New South Wales, the Crown and the accused are entitled to three peremptory challenges with an additional challenge if the court orders additional jurors: Jury Act 1977 (NSW), s 42. In Queensland, the Crown and the accused are entitled to eight peremptory challenges: Jury Act 1995 (Qld), s 42. In Victoria, the Crown and accused are allowed six peremptory challenges if only one person is arraigned: Juries Act 2000 (Vic), s 39. See J Horan and J Goodman-Delahunty, “Challenging the Peremptory Challenge System in Australia” (2010) 34 Criminal Law Journal 167. Jury Act 1977 (NSW), s 55F; Juries Act 2000 (Vic), s 46; Jury Act 1995 (Qld), s 59A; Juries Act 1927 (SA), s 57; Criminal Procedure Act 2004 (WA), s 114; Juries Act 2003 (Tas), s 43; Criminal Code 1983 (NT), s 368. M Gleeson, “The Secrecy of Jury Deliberations” (1996) 1, 2 Newcastle Law Review 1.

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The jury system has its supporters and critics. Among the arguments for abolishing juries are the following: (a)

many jurors do not fully understand complex scientific or technical evidence;

(b)

jurors cannot question the witnesses and can feel that they are making decisions without having all the facts;

(c)

jury trials are lengthy and expensive;

(d)

jury service interrupts jurors’ personal and working lives;

(e)

juries often acquit even where the evidence of guilt is overwhelming;

(f)

jurors are too influenced by media publicity before and during the trial; and

(g)

a clever barrister who plays on the emotions too easily persuades jurors.

The arguments for retaining the jury system include the following: (a)

as there are 12 persons, juries have collective wisdom and experience;

(b)

decisions of fact, such as what a reasonable person would do, are best decided by community standards;

(c)

the system allows ordinary people to be involved in the administration of justice which keeps the system fair, accountable and less prone to corruption;

(d)

surveys show that the majority of Australians want the system to be retained;

(e)

the right to trial by jury, like the right to vote, is an inseparable part of our democratic system; and

(f)

trial by jury is a safeguard against oppressive conduct by the state in the application of the law.

In several States including Queensland, New South Wales and South Australia an accused person may apply for a no-jury order which, if granted, means that his or her trial will be heard and a verdict given by a judge alone. 30

Legal representation in a criminal trial [32.325] Accused persons have always had the right to be represented by a lawyer. However, the financing of the representation has been the individual’s responsibility, not that of the state. This was explained by Barwick CJ in McInnis v R (1979) 143 CLR 575 at 579: “an accused does not have a right to be provided with counsel at public expense. He has, of course, a right to be represented by counsel at his own or someone else’s expense.”

case [32.327] Dietrich was convicted on a charge of importing heroin contrary to s 233B(1) of the Customs Act 1901 (Cth). He appeared before a Victorian County Court. He applied for legal aid and was refused unless he pleaded guilty to the charge. At his trial lasting 40 days, Dietrich was legally unrepresented. After conviction he appealed to the Victorian Court of Criminal Appeal on the ground that by not having legal representation there had been a miscarriage of justice. He was unsuccessful and appealed to the High Court of Australia. The High Court found there was “no absolute right” to legal representation through “the provision of legal counsel at public expense”: at 309, 330, 356. However, the court held that in criminal trials for serious offences, where the judge felt an accused 30

Criminal Procedure Act 1986 (NSW), s 132; Criminal Code 1899 (Qld), ss 614–615E; Juries Act 1927 (SA), s 7; Criminal Procedure Act 2004 (WA), ss 117-120; Supreme Court Act 1933 (ACT), s 68B. J O’Leary, “Twelve Angry Peers or One Angry Judge: An Analysis of Judge Alone Trials in Australia” (2011) 35 Criminal Law Journal 154.

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could not get a fair trial due to lack of a legal counsel, the judge could stay (stop) the trial until legal representation could be obtained: at 311, 315, 356-357, 374-375. The majority (5:2) quashed his conviction and ordered that there be a new trial: Dietrich v R (1992) 177 CLR 292 at 314, 338, 361-362, 377. 31

Summary hearings [32.330] The hearing and determination of simple offences in the Magistrates Court is called a summary hearing. The Magistrate sits alone without a jury and determines questions of both fact and law. Some indictable offences can be heard summarily where the accused person has so elected.

Elements of crime [32.340] All criminal offences are made up of elements, each of which has to be proved by the prosecution. With the common law offence of theft, the elements to be proved include: (a)

the taking or converting;

(b)

of property belonging to another; and

(c)

with the intention to permanently deprive the owner of that property.

If all three elements are established beyond reasonable doubt the offence of theft has been made out against the defendant. The first two of these elements are physical requirements and the third is a mental requirement. In the common law there are mental and physical elements that have to be proved before there can be a conviction. The physical or external elements are the “actus reus”. The state of mind of the defendant forms the fault element known as “mens rea”.

Mens rea [32.350] Mens rea means a guilty mind. This concept expresses a belief that people should be punished only when they have acted in a way that makes them morally blameworthy. Thus, a person cannot be convicted of a criminal offence unless the wrongful conduct was accompanied by a guilty state of mind. In focusing on the mental state of the defendant, proof of a positive state of mind such as intention, knowledge, recklessness or wilful blindness will be required. An illustration of mens rea would be the difference between hurting someone (a) deliberately or (b) accidentally – in the first case, the mens rea, the intention to hurt, is present; but is not present in the second situation. In common law jurisdictions statutes may expressly refer to the required state of mind, using words such as recklessly, fraudulently, knowingly. However, where they do not, there is a presumption that mens rea will be incorporated. It is held to be an essential ingredient of every offence which can only be displaced by clear words of a statute or by necessary implication. In the Code jurisdictions, the doctrine of mens rea does not apply. In these jurisdictions the element of fault and moral blameworthiness has to be expressed in the clear words of the Code provision. In R v 31

See PA Fairall, “The Right not to be Tried Unfairly without Counsel: Dietrich v The Queen” (1992) 22 University of Western Australia Law Review 396; S Kift, “The Dietrich Dilemma” (1997) 13 Queensland University of Technology Law Journal 211.

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English (1993) 10 WAR 355 it was stated that “[o]ne of the most fundamental distinctions between the common law and the provisions of the Griffith Code is that under the latter mens rea is not required”: at 367. In Code jurisdictions mens rea is replaced by the concept of criminal responsibility which reflects the guilty mind precepts of the common law. The Criminal Code (Cth) states that the fault element “may be intention, recklessness, knowledge or negligence”: s 5.1(1). In the State Codes these mental concepts are expressly incorporated into offence sections and there is a chapter that contains general provisions that apply to any person charged with a criminal offence. To illustrate, under the Criminal Code 1899 (Qld) the definition of murder in s 302(1)(a) requires that “the offender intends to cause the death of the person killed … or … intends to do the person killed … some grievous bodily harm”. This means that the act that caused death must have been accompanied by the required mental state of either an intention to kill or an intention to cause grievous bodily harm. The general provisions of Ch 5 of the Code operate to relieve the defendant of criminal responsibility in a range of situations such as insanity, accident or compulsion.

Actus reus [32.360] Actus reus refers to the collective action (or inaction, in the case of omissions where there is a duty to act) which, in combination with mens rea, produces criminal liability. It refers to the external or physical components of a crime over which the defendant exercised control. In a case of murder, the actus reus is typically the physical actions which caused the death of the victim such as aiming the gun and then pulling the trigger. An example of an omission to act would be where a parent or teacher fails to save a drowning child who cannot swim. A person who has care of a child has a duty to take action that is reasonable to remove that child from danger. Any omission also has to be accompanied by a guilty mind, such as intention or reckless indifference to the child’s survival. The actus reus must be a voluntary act or omission, that is, the defendant must have had control over what they were doing. An act that causes death or serious injury will not result in a conviction if it occurred independently of the person’s will or without their conscious control. An act can be involuntary for many reasons. A reflex action, such as pulling the trigger on a gun as a result of being bumped while holding one’s finger on the trigger, is an example. Involuntary acts may also occur because a person does not have conscious control over what they are doing, for example, when sleepwalking or when in a dissociative mental state. The concept of dissociative mental state was explored in R v Falconer (1990) 171 CLR 30:

case

[32.370] Mrs Falconer killed her husband and was convicted of his murder. On appeal, she was acquitted as the shooting was found to have been an involuntary act. The husband had a history of violence towards his wife and sexual assault against their two daughters. On the day of his death he had taunted his wife about these crimes. He said that a court would not believe them. He told his wife of other sexual dealings with a young girl in her custody. He reached out to grab his wife by the hair. The next thing she remembered, she found herself on the floor with her shot gun beside her and her husband dead on the floor nearby: at 35. She argued that she had no recollection of any shooting, and that the shooting was not a willed act as she did not have conscious control over her actions. She was in a dissociative state brought on by the severe psychological trauma caused by her husband’s taunts and behaviour. The High Court

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agreed that the shooting was an involuntary act. The joint judgment of Mason CJ, Brennan and McHugh JJ held that voluntariness or will “imports a consciousness in the actor of the nature of the act and a choice to do an act of that nature”: R v Falconer (1990) 171 CLR 30 at 39. 32

Causation [32.380] The actus reus of some crimes requires a causal connection between the accused’s voluntary act or omission and the result of that act. That result may be the death, grievous bodily harm or wound received by the victim. In many cases, direct causation makes this connection easy to establish. If the accused voluntarily stabbed the victim to death it is clear that the act of stabbing was the direct and sole cause of the death. However, when the victim is taken to hospital and dies during surgery, the question becomes which act – the stabbing or the operation – was the real cause of death. The test currently favoured by the courts determines what was the substantial and operating cause of the death. This is often decided by applying a “but for” test. For example: “but for” the stabbing, would the victim have died from the surgery? If the answer is “no”, then the substantial and operating cause of death was the stabbing. However, if the surgery was performed with gross negligence, the surgery would be the substantial and operating cause. Other common law tests, such as reasonable foreseeability and intervening act, and the provisions of the various Criminal Codes, also play a role in determining causation.

Strict liability [32.390] There are a number of criminal offences that, because of express statutory provisions, do not require proof of a mens rea or a specific mental element. The offence is completed by the physical act or omission. The justification for strict and absolute liability is that the act of itself is unacceptable irrespective of the state of mind of the offender. For example, in many States selling alcohol to a minor is an offence regardless of the seller’s state of mind. Liability for many traffic offences arises irrespective of the driver’s state of mind. Some examples include: (a)

owning a dog that was dangerous and not properly controlled (R v Bezzina [1994] 1 WLR 1057 at 1061);

(b)

driving an overweight vehicle (Lee v Haxton Haulage Pty Ltd (1994) 21 MVR 339 at 344);

(c)

failing to renew registration as a nurse and therefore practising without a licence (Clough v Rosevear (1997) 69 SASR 67 at 71–72); and

(d)

fishing in the Australian fishing zone: Chiou Yaou Fa v Morris (1987) 46 NTR 1 at 25.

A corporation may be criminally liable where there is strict liability, for example under environmental protection legislation. In strict liability offences, a defendant can argue that they made an honest and reasonable mistake of fact and therefore they should be excused from criminal liability.

32

See B McSherry, “The Queen v Falconer” (1991) 18 Melbourne University Law Review 476; MH Yeo, “Power of Self-Control in Provocation and Automatism” (1992) 14 Sydney Law Review 3.

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case [32.400] Ms Proudman was convicted of permitting an unlicensed driver to drive her car on the road. She appealed her conviction on the ground that she honestly believed that the driver in question held a licence and that she had reasonable grounds for her belief. The High Court found that she could not have held that belief as she did not make any inquiries as to whether or not the driver had a licence: Proudman v Dayman (1941) 67 CLR 536 at 538. [32.410] If the excuse of mistake has been excluded it becomes an offence of absolute liability. The Criminal Code (Cth) provides that if absolute liability applies to an offence, a defence of mistake of fact is unavailable: s 6.2(1). An example of an offence of absolute liability is dealing in drugs onboard an Australian aircraft: Crimes (Traffic in Narcotic Drugs and Psychotropic Substances) Act 1990 (Cth), s 10.

Criminal capacity [32.420] This brings us to the question of which groups are recognised by the law as having the capacity to commit crimes.

Children [32.430] The common law developed a doctrine known as “doli incapax” (incapable of crime). A child under the age of seven years was deemed incapable of committing a criminal offence. This was an irrebuttable presumption of law which could not be rebutted by any evidence. This presumption applies in all States and Territories and in Commonwealth legislation. However, the age has been raised to under 10 years in all Australian jurisdictions. 33 At common law it was also presumed that a child under the age of 14 years could not be criminally responsible for an act or omission unless it was proved beyond reasonable that the child knew what they were doing was morally wrong. This meant that the presumption was rebuttable. Evidence of the child’s education and upbringing, the child’s admission that they knew it was wrong and attempts to conceal the act could establish that the child knew the act was wrong. This presumption also applies in all Australian jurisdictions. 34 The maximum age for treatment as a child for determining criminal responsibility is 17 years in all jurisdictions except Queensland where the maximum age is 16 years.

Corporations [32.440] A corporation may be charged, tried, convicted and punished for committing certain criminal offences. The New South Wales Law Reform Commission has summarised that State’s law regarding corporate criminal liability: “a corporation can generally be convicted of the same offences as a natural person such as offences involving fraud or theft, some drug offences, offences that pervert the course of justice, and contempt of court. Corporations can attract criminal liability as accessories to a crime as well as principals, and as parties to a conspiracy. It is open to question whether a corporation can be 33 34

Children (Criminal Proceedings) Act 1987 (NSW), s 5; Criminal Code 1899 (Qld), s 29(1); Criminal Code 1913 (WA), s 29; Criminal Code 1924 (Tas), s 18(1); Criminal Code 1983 (NT), s 38(1); Criminal Code 2002 (ACT), s 25. Criminal Code 1899 (Qld), s 29(2); Criminal Code 1913 (WA), s 29; Criminal Code 1924 (Tas), s 18(2); Criminal Code 1983 (NT), s 38(2); Criminal Code 2002 (ACT), s 26.

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convicted of murder, at least in New South Wales, or manslaughter. Some commentators have suggested that corporations cannot be convicted of certain crimes, that inherently require an act by a natural person, such as perjury or a sexual offence. Others have disputed this claim, arguing that, in this context corporate liability should arise where the criminal acts were committed by a manager or employee of the corporation, in accordance with general principles of corporate liability.” 35 A corporation can act only through its officers and employees. To determine whether the corporation or the individual will be liable for the criminal act or omission, it has to be determined whether the state of mind was that of the corporation as an entity, or that of an individual who merely happened to be employed by the company. A famous statement by Lord Denning explains how corporate criminal liability arises: “A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such”: HL Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 at 172. The Criminal Code (Cth) uses the concept of “corporate culture” as a means for establishing a required mental element such as intention, knowledge or recklessness. A corporate culture is defined in s 12.3(6) as “an attitude, policy, rule, course of conduct or practice existing within the body corporate”. If the prosecution can prove there was a corporate culture that encouraged, tolerated or led to non-compliance with the relevant law, then the mental fault requirement is made out. The corporation must be represented in court by a representative of the company. Although there is no restriction on offences for which corporations can be held to be criminally responsible, sentencing is problematic when imprisonment is the only sentencing option, for example, cases such as murder, rape and manslaughter. Hence the crime of industrial manslaughter was enacted in the Australian Capital Territory 36 whilst the Crimes Act 1914 (Cth), s 4B allows a fine to be imposed on a corporation where the only punishment provided for is imprisonment.

Mentally impaired persons [32.450] In all jurisdictions there is a presumption that persons are not mentally impaired or incompetent. 37 If the defence can prove on the balance of probabilities that the defendant suffered from an impairment to the extent that he or she did not have the capacity to control his or her actions, or to know the nature and quality of the act done or that it was wrong, the defendant will be found not guilty of the offence but will be detained in a psychiatric facility.

35 36 37

New South Wales Law Reform Commission, Issues Paper 20. Sentencing: Corporate Offenders (2001), para 2.2. Crimes Act 1900 (ACT), ss 49C – 49D. See M Ricketts and H Avolio, “Corporate Liability For Manslaughter: The Need For Further Reform” (2010) 13 Southern Cross University Law Review 57 at 77–78. The legislative terminology in the Commonwealth, Australian Capital Territory and Victoria is “mental impairment”; in New South Wales “mental illness”; in Queensland, the Northern Territory, Tasmania and Western Australia “insanity”; and in South Australia “mental incompetence”.

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Public officers [32.460] Persons holding public office (for example, judges, Members of Parliament and public servants) can be prosecuted for criminal offences. In some cases, if the offence occurs in the course of their official work they may be liable to a greater penalty because of the trust the community must have in its public officials. 38 This was highlighted in the case of Gordon Nuttall, a Minister in the Queensland government, who was convicted of 36 counts of receiving a secret commission. On the issue of whether public officials should incur the maximum penalty, the Queensland Court of Appeal said: “[T]he maximum penalty was called for … The appellant’s conduct in corruptly receiving payments whilst he was a Minister was a gross abuse of his position and it necessarily called for a severe and deterrent sentence. The trial judge’s statement that the appellant had committed one of the gravest examples of this offence was entirely justified by the considerations that he was a Minister when he received the payments and that the particular circumstances of the offending revealed its seriousness: the appellant received the payments with the seriously corrupt state of mind identified earlier, he was the instigator of the payments, the offending occurred over a substantial part of the period during which the appellant was a Minister, and he did not disclose any of those payments despite the well known requirements for disclosure in a Queensland Cabinet Handbook, a Ministerial Handbook, and a Code of Ethical Standards adopted by the Legislative Assembly”: R v Nuttall [2011] 1 Qd R 270 at [49]. The facts of the case were as follows:

case [32.470] Between 1996 and 2006 Nuttall was a member of the Queensland Parliament. In 2001 he became a Minister in the Queensland government. Several years later, the State’s Crime and Misconduct Commission began an investigation into a series of suspicious monthly payments of $8333 that Nuttall had received over a three year period (2002-2005) from a Queensland mining magnate. These amounted in total to $300,000. There was also an investigation into a “secret commission” of $60,000 which he had received, and not declared from another businessman in the mining sector. In January 2007 Nuttall was charged with 34 counts of receiving a secret commission as an agent (in the case of the monthly payments) and a further count for the one-off payment of $60,000. The offence of receiving or soliciting a secret commission is defined by s 442B of the Criminal Code 1899 (Qld) as follows: Any agent who corruptly receives or solicits from any person for himself or herself or for any other person any valuable consideration – … (b) the receipt or any expectation of which would in any way tend to influence the agent to show, or to forbear to show, favour or disfavour to any person in relation to his or her principal’s affairs or business; commits a crime. “Agent” is defined in s 442A as including a Minister of the Crown and “principal” is defined as including the Crown. At Nuttall’s trial in 2009, the trial judge told the jury that Nuttall’s guilt or innocence hinged on what he believed the two men wanted when they gave Nuttall the $360,000 between 2002 and 2005. 38

For a common law offence, see D Lusty, “Revival of the Common Law Offence of Misconduct in Public Office” (2014) 38 Criminal Law Journal 337.

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Nuttall would have acted corruptly if he received the money believing the mining executives wanted him to influence government decisions. There was evidence that the Minister had given approvals to the mining magnate’s company and had committed government funding for infrastructure projects which directly benefited the company. The jury found Nuttall guilty on all 36 counts. He was sentenced to seven years imprisonment. His appeal against conviction was unanimously dismissed and his application for leave to appeal against sentence unanimously refused: R v Nuttall [2011] 1 Qd R 270. In July 2010, under the Criminal Proceeds Confiscation Act 2002 (Qld), Nuttall was ordered to repay $454,000, deemed to be “proceeds of crime”, to the State together with the government’s legal costs of $42,000. In May 2013 the Queensland Parliament fined him $82,000 for the payments he had received but had not declared in the Register of Interests. The individuals who made the payments to the Minister were separately charged with the offence of making corrupt payments. 39

Whistleblowers [32.480] One of the difficulties in tackling corruption and fraud within government departments, agencies and corporations, is an unwillingness for people to come forward with information on the “wrong-doing” of others. Individuals with such information are concerned that reprisal could be taken against them in the workplace; that “dobbing” is un-Australian; that they may be seen as disloyal; or that there may be legal consequences in terms of defamation or breach of confidentiality clauses. With extensive media reporting of corrupt practices and several high profile inquiries into public corruption 40 the desire to tackle the problem intensified. Part of the strategy was for legislation to be enacted around Australia to protect employees who made a complaint disclosing fraud, corruption, illegality, negligence or maladministration. All States now have laws to treat what are known as “public interest disclosures” 41 to ensure confidentially, provide support and protect whistleblowers from reprisals. At the federal level, Pt 9.4AAA was inserted into the Corporations Act 2001 (Cth) to give immunity and protection from retaliation for any company employee or subcontractor who reports suspected wrong-doing under Act. Currently no scheme has been implemented at a federal level to provide protection for whistleblowers in Commonwealth departments and agencies, or to protect public disclosures to third parties including the media.

Crime and business [32.490] Recent advances in technology have posed many difficulties for the criminal law as it struggles to respond effectively to criminal acts committed in an electronic medium. These difficulties arise for several reasons. 39 40 41

Under the Criminal Code 1899 (Qld), s 87. One of the mining executives was convicted and sentenced to 15 months’ imprisonment. The other died in a plane crash, resulting in the charges against him being dropped. Notably the Fitzgerald Inquiry (1987–1989) into police corruption in Queensland. Public Interest Disclosures Act 1994 (NSW); Protected Disclosure Act 2012 (Vic); Public Interest Disclosure Act 2010 (Qld); Whistleblowers Protection Act 1993 (SA); Public Interest Disclosure Act 2003 (WA); Public Interest Disclosures Act 2002 (Tas); Public Interest Disclosure Act 2012 (ACT); Public Interest Disclosure Act 2008 (NT).

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First, the laws that were developed to deal with theft and dishonesty were based upon property which could be dealt with in a physical way. Electronic money, intellectual property rights, electricity and computer data are intangible items that do not neatly fit into the categories and concepts devised in past centuries. Although all jurisdictions now treat intangible items as things that are capable of being stolen, this is an uncomfortable fit when these forms of property have to be “taken away” or “converted”, which suggests physical movement. Whether clicking “the mouse on the computer” is a new form of physical taking is open to debate. The question facing legislators has been whether existing offences such as theft and fraud should be broadened to encompass the new ways of committing offences or whether distinct new offences should be enacted. Secondly, the technological complexity involved in much modern commercial fraud and theft poses enormous difficulties for law enforcement. There are concerns that juries are unable to understand the nature of such transactions and so cannot fairly evaluate the criminal complicity of the defendant. The result is lengthy trials and a high proportion of acquittals. Thirdly, the electronic means by which much commercial crime is committed challenges our traditional notions of jurisdiction. Criminals may exploit jurisdictional differences by basing their activities in locations with the weakest laws and means of detection and enforcement. The report of the MCCOC noted: “The substantive law in areas such as theft, fraud, secret commissions and bribery is fragmented and complex. The nine jurisdictions operate under nine sets of laws which adopt fundamentally different criteria.” 42 The report also stated: “Whether a person gets convicted of theft, forgery or bribery or a related offence should not depend on those offences having different elements on one side of the River Tweed from the other. Justice and efficiency demand consistent if not uniform offence provisions.” 43 This is not simply a national problem, as electronic crime often crosses national borders. The more common commercial criminal offences include: (a)

credit card fraud – unauthorised use of a credit card to obtain goods or services;

(b)

identity fraud – where identities are stolen or fictitious identities are created;

(c)

bankruptcy fraud – where individuals or corporations conceal and misstate assets to mislead creditors;

(d)

insurance fraud – false or inflated claims and fraudulent inducements to issue policies;

(e)

securities fraud – manipulation of the securities market and theft from securities accounts;

(f)

money laundering – concealing of income of illegal origin to evade detection and seizure;

(g)

environmental crimes – causing harm to the environment through air or water pollution, illegal dumping of toxic waste;

(h)

breach of trust – where a person who has been entrusted with money or property appropriates it for their own use and benefit;

(i)

insider trading – those who have confidential information about important events take advantage of that knowledge to reap profits or avoid losses on the stock market to the detriment of other investors who buy or sell without that information;

(j)

public corruption – breach of public trust or abuse of position by government officials;

(k)

bribery – receiving or offering of an undue reward by or to any person in a public office in order to influence that person’s behaviour in that office;

42

Model Criminal Code Officers Committee (MCCOC), General Principles of Criminal Responsibility (1992), p 5.

43

Model Criminal Code Officers Committee (MCCOC), General Principles of Criminal Responsibility (1992), p vi.

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(l)

receiving illegal “kick-backs” – return of a certain amount of money from a seller to the buyer as a result of a collusive arrangement;

(m)

stealing of trade secrets – misappropriation or theft of proprietary economic information for personal gain;

(n)

anti-competitive practices – price fixing and collusion contrary to the Competition and Consumer Act 2010 (Cth);

(o)

tax evasion – filing false tax returns, or not filing tax returns at all;

(p)

welfare fraud – making false claims for payments under Social Security Law; and

(q)

Austudy, Medicare and nursing home fraud – initiating wrongful payments under the relevant Commonwealth legislation.

White-collar crime [32.500] The term white-collar crime is a label given to certain offences of a commercial nature where these are committed by persons of relatively high social or economic status. They are not separate offences applying only to people in business but are offences that business and professional people are more likely to commit than other people in the community. The term generally encompasses a variety of non-violent crimes committed in commercial situations for financial gain. White-collar crimes are especially difficult to detect and to prosecute because the perpetrators are frequently people in senior or middle-management positions. Perpetrators are able to hide their activities through routine commercial activities or by a series of complex transactions that are difficult to trace. When sentencing white-collar criminals, the courts consider not only the amounts of money involved but the period of time over which the offences were committed, the degree of pre-meditation and planning and whether the offender was in a position of trust: R v Hawkins (1989) 45 A Crim R 430:

case [32.510] In R v Hawkins (1989) 45 A Crim R 430 Hawkins, a solicitor, was in a position of trust when he defrauded, forged and fraudulently misappropriated over $6.6 million ($2.4 million from his own clients) over a period of four years. The Court of Criminal Appeal increased his sentence from 10 to 15 years because this was “no dipping into the till” but a consistent and persistent demonstration of criminality through fraud over a considerable period: at 435.

Fraud [32.520] Fraud includes on-line requests for donations to fictitious charities, selling goods of little value at inflated prices, chain letters and pyramid schemes. As payments can be made on-line and goods ordered, the potential exists for on-line fraud. Fraudsters can unlawfully gain access to personal information such as tax file numbers and credit card details and use them to acquire money or goods. Despite the development of the electronic signature and various encryption methods, cyber fraud is a growing challenge for our criminal justice system. Fraud or deception is an offence in Queensland (Criminal Code 1899 (Qld), s 408C), Western Australia (Criminal Code 1913 (WA), s 409) and South Australia (Criminal Law Consolidation Act 1935 (SA), s 139). In New South Wales, Victoria, the Australian Capital Territory and the Northern Territory there are

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a range of offences that contain fraud or deception as an element. Examples include obtaining property by deception and obtaining financial advantage by deception (Crimes Act 1958 (Vic), ss 81 and 82). The MCCOC suggested that a basic fraud offence contains the following elements: 1.

By any deception

2.

Dishonestly

3.

Obtains

4.

Property

5.

Belonging to another

6.

Intent to permanently deprive.

All offences dealing with fraud hinge on dishonest and deceptive conduct. Fraud has traditionally involved two aspects, that is, the conduct which is dishonest by community standards, and conduct that the person knew was dishonest. The current test for dishonesty was formulated by the High Court in Peters v R (1998) 192 CLR 493. In that case a solicitor helped a client to launder money through several false mortgage transactions. He was charged and convicted of conspiracy to defraud. On appeal, Toohey and Gaudron JJ stated: “Necessarily, the test to be applied in deciding whether the act done is properly characterised as dishonest will differ depending on whether the question is whether it was dishonest according to ordinary notions or dishonest in some special sense. If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people”: at 504. Fraud remains one of the most prevalent crimes in Australia. It impacts upon individuals as much as it does on businesses. During 2014-2015 the Australian Bureau of Statistics found that:  1.6 million Australians aged 15 years and over were a victim of at least one incident of personal fraud in the previous 12 months. This amounted to an estimated loss of $3 billion.  Identity theft had an estimated 126,300 Australian victims.  There were 1.1 million victims of credit card fraud.  An estimated 10.4 million Australians (56% of the Australian population aged 15 years and over) were exposed to a scam with 449,100 responding to the scam. The more common forms of scams were lotteries, pyramid schemes and requests to send personal details to fake institutions, banks and businesses. 44 The commencement of civil action to obtain civil remedies such as damages can be used as an alternative, or in addition to, criminal prosecution. The advantage of a civil action over criminal prosecution is the lower standard of proof required (proof on the balance of probabilities, rather than proof beyond reasonable doubt).

Theft [32.530] The offence of “theft” in the Australian Capital Territory, Victoria, the Northern Territory and South Australia is known as “larceny” in New South Wales. The offence is called “stealing” in Queensland, Western Australia and Tasmania. Each of these offences was derived from the common law of larceny and so share the same basic elements. There are variations between the different jurisdictions. In Victoria, s 72(1) of the Crimes Act 1958 (Vic) provides: 44

Australian Bureau of Statistics, Personal Fraud, Australia 2014-2015: 4528.0.

chapter 32 Criminal Law

A person steals if he dishonestly appropriates property belonging to another with the intention of permanently depriving another of it. The New South Wales legislation continues to employ the common law definition of larceny but sets a statutory penalty (Crimes Act 1900 (NSW), s 117). In the Code States of Queensland (Criminal Code 1899 (Qld), s 391(2)) and Western Australia (Criminal Code 1913 (WA), s 371(2)) the offence of stealing is committed by: [a] person who takes anything capable of being stolen or converts any property is deemed to do so fraudulently if he does so with any of the following intents, that is to say: (a) an intent to permanently deprive the owner of the thing or property of it or any part of it. The section lists six fraudulent intents and special situations. In all jurisdictions, the physical elements are the taking, converting or appropriation of property belonging to another. Appropriation is any assumption by the person of the rights of an owner. 45 Conversion is dealing with goods in a manner that is inconsistent with the rights of the true owner. The physical act must be accompanied by the fault element of doing the act dishonestly or fraudulently and with the intention to permanently deprive the owner of the property or to put that property at risk of not being returned and/or not being returned in the same condition. Dishonesty is a key fault element in the offence of theft. Intent to permanently deprive the owner of something without the consent of the owner will generally be strongly indicative of dishonesty. This is not always the case, for example, where a defendant mistakenly believes that they had a legal entitlement to take the thing (claim of right).

Cybercrime [32.540] Cybercrime is the name given to any crime that occurs on-line or through the use of computer technology. The problem of cybercrime is considered further at [16.460].

Terrorism as crime [32.550] The Commonwealth government has always had criminal laws dealing with national security. However, the events of 11 September 2001 and the subsequent acts of terrorism around the world have resulted in the Commonwealth government enacting a comprehensive anti-terrorism package. These laws are designed to prevent terrorist attacks occurring in Australia. In addition to increasing law enforcement powers, Pt 5.3 of the Criminal Code (Cth) has created a suite of terrorism offences which include engaging in terrorist acts; providing or receiving training connected with terrorist acts; possessing things connected with terrorist acts; collecting and making documents to facilitate terrorist acts or in other ways preparing or planning for such acts. Terrorist acts are defined as “an action or threat of action” done with the “intention of advancing a political, religious or ideological cause” to coerce, influence or intimidate the government or the public of Australia. 46 The Code also defines and lists terrorist organisations then makes membership of, associating with, financing, recruiting for, funding or providing support to such organisations, criminal offences. The laws have been controversial because they have been seen as intruding on rights of persons and organisations to associate freely and may also unfairly target members of minority groups, especially those of the Islamic faith. There are complementary State provisions and other federal laws that are relevant to national security and prevention of terrorism, such as the National Security Information (Criminal and Civil Proceedings) Act 2004 (Cth) and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). 45

Crimes Act 1958 (Vic), s 73(4).

46

Criminal Code Act 1995 (Cth), Sch s 100.1.

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Since the enactment of prevention of terrorism legislation there have been a series of high profile trials resulting in convictions with sentences of up to 28 years for conspiring to commit terrorist acts.

Further reading All Jurisdictions M Bagaric, Ross on Crime (7th ed, Lawbook Co, Sydney, 2016). S Bronitt and B McSherry, Principles of Criminal Law (3rd ed, Thomson Reuters, Sydney, 2010). PA Fairall and S Yeo, Criminal Defences in Australia (4th ed, Sydney, LexisNexis Butterworths, Sydney, 2005). Commonwealth Criminal Law T Anderson, Commonwealth Criminal Law (Federation Press, Sydney, 2014). S Odgers, Principles of Federal Criminal Law (2nd ed, Thomson Reuters, Sydney, 2010). Common Law Jurisdictions J Anderson and M Heath, Criminal Law Guidebook: New South Wales, South Australia, Victoria (Oxford University Press, Melbourne, 2010). KJ Arenson, M Bagaric, and P Gillies, Australian Criminal Law in the Common Law Jurisdictions: Cases and Materials (4th ed, Oxford University Press, Melbourne, 2015). D Spears, J Quilter and C Harfield, Criminal Law for Common Law States (LexisNexis Butterworths, Sydney, 2011). Code Jurisdictions K Burton, T Crofts and S Tarrant, Principles of Criminal Law in Queensland and Western Australia (2nd ed, Lawbook Co, Sydney, 2015). E Colvin, J McKechnie and J O’Leary, Criminal Law in Queensland and Western Australia: Cases and Commentary (7th ed, LexisNexis Butterworths, Sydney, 2015). J Devereux and M Blake, Kenny Criminal Law in Queensland and Western Australia (8th ed, LexisNexis Butterworths, Sydney, 2013). A Schloenhardt, Queensland Criminal Law (Oxford University Press, South Melbourne, 2015).

Internet sites Australian Institute of Criminology http://www.aic.gov.au Model Criminal Code http://www.pcc.gov.au/uniform/crime (composite-2007)-website.pdf

Journals Criminal Law Journal Current Issues in Criminal Justice

chapter 33

Business Ethics [33.20] Ethical issues in business ........................................................................................................................... 997 [33.30] Ethical aspects of general commercial law principles ................................................................. 999 [33.40] Benefits of business ethics ........................................................................................................................ 999 [33.50] Ethical duties of business ........................................................................................................................ 1000 [33.60] International standards ............................................................................................................................ 1002 [33.100] Corporate ethics codes........................................................................................................................... 1005 [33.110] Industry codes ............................................................................................................................................ 1006 [33.120] Regulatory responses ............................................................................................................................ 1007 [33.130] Socially responsible investing ............................................................................................................ 1010

Introduction [33.10] Business ethics is sometimes cynically referred to as an oxymoron, that is, a contradiction in terms. 1 This chapter does not attempt to assess the extent to which business ethics are observed in practice. Rather, it seeks to identify the content of these principles and to suggest that their observance represents good business practice. In the wake of the recent spate of corporate collapses in which management had engaged in questionable or illegal practices, business ethics have again become a subject of intense public interest. The Royal Commissioner for the HIH Inquiry emphasised the importance of ethics for business life, along with the need for the education system to promote an awareness of business ethics. He wrote: “[A]ll those who participate in the direction and management of public companies, as well as their professional advisers, need to identify and examine what they regard as the basic moral underpinning of their system of values. They must then apply those tenets in the decision-making process. The education system – particularly at tertiary level – should take seriously the responsibility it has to inculcate in students a sense of ethical method”. 2 This chapter takes a practical rather than a theoretical approach to this subject. In doing so, it deals with the following issues:

1 2

(a)

examples of ethical issues in business;

(b)

ethical aspects of general commercial law principles;

(c)

the benefits to business of observing business ethics;

Many articles have been written in response to that statement. See, for example, M Zetlin, “Is Business Ethics Really an Oxymoron?” (June 1990) 76(6) Management Review 49. HIH Royal Commission, The Failure of HIH Insurance (Commonwealth of Australia, Canberra, 2003), Vol 1, p lxiii.

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(d)

the ethical duties of business;

(e)

international standards;

(f)

corporate ethics codes;

(g)

industry codes;

(h)

regulatory responses to ethical breaches; and

(i)

the emergence of socially responsible investment.

chapter 33 Business Ethics

Ethical issues in business [33.20] Business ethics must of course begin with obedience to the law. However, they cannot stop there. They must also incorporate a substantive moral content beyond what is required by the law. As the HIH Royal Commissioner wrote: “In an ideal world the protagonists would begin the process by asking: is this right? That would be the first question, rather than: how far can the prescriptive dictates be stretched? The end of the process must, of course, be in accord with the prescriptive dictates, but it will have been informed by a consideration of whether it is morally right. In corporate decision making, as elsewhere, we should at least aim for an ideal world”. 3 Judges have often complained about the lack of ethics of those appearing before them in cases of business misconduct. In proceedings regarding a failed property investment group, a Federal Court judge stated that some of the evidence suggested “a ruthless disregard … of the interests of investors and other creditors in the way in which funds invested and assets of companies within the Group have been dealt with”. 4 In another case, the Federal Court imposed pecuniary penalties totalling $38 million for price fixing and market sharing. The judge commented that “[t]he Visy Trade Practices Compliance Manual might have been written in Sanskrit for all the notice anybody took of it”. 5 Serious ethical issues may arise in relation to corporate governance, human rights, environmental protection and corruption. Major failures of corporate governance have become common. In recent years there has been a wave of huge corporate failures in which key participants had engaged in illegal or questionable business conduct. These practices have included accounting fraud, extravagant spending, 6 and the payment of large bonuses to senior personnel as insolvency neared. Through their failures these businesses acquired a dubious fame. Enron, World.com, HIH and Parmalat became household names throughout the world, not for their successes but for the manner of their demise. 7 James Hardie was the subject of considerable negative publicity for its substantial under-funding of a compensation foundation for those injured by its asbestos products despite its claims that the foundation was fully funded. Soon afterwards, the chief executive officer departed from the company with a payout of nearly $9 million. 8 Goldman Sachs sold an Australian hedge fund collateralised debt obligations that a Goldman internal email described as an excremental deal. 9 The Wall Street investment firm of Bernard Madoff defrauded investors of billions of dollars. 10 Numerous Australian investors lost heavily after a financial adviser at the Commonwealth Bank recommended that his clients invest in high risk financial 3

HIH Royal Commission, The Failure of HIH Insurance (Commonwealth of Australia, Canberra, 2003), Vol 1, p lxiii.

4 5

Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577 at [4]. Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 at [319].

6 7

“Williams Faces HIH Royal Commission”, Business Breakfast, 8 August 2002, http://www.abc.net.au/businessbreakfast. A Main, Other People’s Money (Harper Collins, Sydney, 2003); M Westfield, HIH: The Inside Story of Australia’s Biggest Corporate Collapse (John Wiley, Milton, 2003). G Haigh, Asbestos House: The Secret History of James Hardie Industries (Scribe Publications, Melbourne, 2006); Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199. “One Shitty Deal”, Four Corners, 14 June 2010, http://www.abc.net.au/4corners.

8 9 10

“The Madoff Affair”, Frontline, 12 May 2009, http://www.pbs.org/wgbh/pages/frontline/madoff; Fairfield Sentry Ltd (in Liq) v Migani [2014] UKPC 9 at [1]-[3]. For the perpetrator of another Ponzi scheme, see Ross v The Queen [2014] NZCA 272.

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products for which he would be paid substantial commissions. 11 Some executives have artificially inflated profits to raise the stock market value of the shares to which their remuneration was tied. 12 The actions or omissions of businesses may sometimes violate the human rights of their workers or those in the broader community. In Australia thousands of deaths from mesothelioma were the consequence of the extensive use of asbestos as a building material. 13 In 1984 an industrial accident in Bhopal, India resulted in the deaths of thousands of people. 14 The labour conditions under which products are manufactured may be abusive or exploitative. 15 For example, it was reported that children were employed by the suppliers of a footwear manufacturer in breach of the manufacturer’s own corporate code. 16 There are numerous examples of the potential impact of business upon environmental protection. 17 In 2010 the leak of oil from an offshore drill site in Louisiana caused massive environmental damage. Timber which has been illegally logged may end up in products sold in developed countries, depleting forests in developing nations. 18 Media reports have suggested that some waste-producing industries have sought to shift responsibility for waste management from the producer to the consumer. 19 Lapses of business ethics may have serious economic and social effects. The extensive granting of “sub-prime” mortgages to persons with meagre incomes in the US has caused huge financial losses across the world including a staggering US$700 billion bailout by Congress. 20 Accounting misconduct undermines business confidence because investment decisions are made on the assumption that the reported figures are accurate. 21 Extreme disparities between executive salaries and those paid to other employees undermine public respect for the business sector. 22 The contrast is stark: “The phrase ‘internationally competitive’ has taken on conspicuously opposite meanings where top and bottom of the salary scale are concerned: while workers are enjoined to price their labour to compete with the cheapest rival, CEOs seek convergence with the highest common denominator”. 23 Bribery of public officials increases the operating costs of business, reduces investment and economic growth, offsets the benefits of competition since purchasing decisions which are not merit-based result in a misallocation of government expenditure and undermines the legitimacy of governments. 24 11 12 13 14 15 16 17 18 19 20 21 22

23 24

Banking Bad, 4 Corners, 6 May 2014, http://www.abc.net.au/4corners. P Krugman, The Great Unravelling (Allen Lane, London, 2003), pp 107-108, 125-127. M Peacock, Killer Company (ABC Books, Sydney, 2009). Clouds of Injustice: Bhopal Disaster 20 Years On ASA 20/015/2004 (Amnesty International, London, 2004). “Corporate Social Responsibility”, Law Report, 5 February 2008, http://www.abc.net.au/radionational/programs/lawreport. “GAP Nike–No Sweat?”, Panorama, 15 October 2000, http://www.bbc.co.uk/panorama. See also “Globalising Justice”, Law Report, 1 December 2009, http://www.abc.net.au/radionational/programs/lawreport. “The Timber Mafia”, Four Corners, 2 August 2002, http://www.abc.net.au/4corners. “The Waste Club”, Four Corners, 8 September 2003, http://www.abc.net.au/4corners. “Mortgage Meltdown”, Four Corners, 17 September 2007, http://www.abc.net.au/4corners; “Narvik: The Tip of the Iceberg”, Dateline, 14 May 2008, http://www.sbs.com.au/news/dateline. RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 39. Executive Remuneration. Position Paper (Business Council of Australia, Melbourne, 2004), pp 6, 13, http://www.bca.com.au; “Outrage over Extravagant Executive Salaries”, Lateline, 27 February 2009, http://www.abc.net.au/lateline; J Corkery and S Medarevic, “Executive Remuneration Under Scrutiny: The Cutting Edge of the ‘Shareholder Spring’” [2013] Corporate Governance eJournal http://epublications.bond.edu.au/cgej. G Haigh, Bad Company: The Cult of the CEO (Black Inc, Melbourne, 2003), p 14. Joint Standing Committee on Treaties, OECD Convention on Combating Bribery and Draft Implementing Legislation. 16th Report (Commonwealth of Australia, Canberra, 1998), para 2.7; C Pacini et al, “The Role of the OECD and EU Conventions in Combating Bribery of Foreign Public Officials” (2002) 37 Journal of Business Ethics 385 at 385, 388-389.

chapter 33 Business Ethics

Ethical aspects of general commercial law principles [33.30] Throughout this book many legal rules which have ethical characteristics have been discussed. Much of the law relating to contractual assent has an ethical character: mistake, misrepresentation, duress, undue influence and unconscionable contracts: see Chapter 7. Good faith has become an important issue in contract law: see [9.80]. 25 The consumer protection provisions of the Australian Consumer Law 26 proscribe various unethical business practices. The legislation prohibits unfair contractual terms, unconscionable conduct, misleading and deceptive conduct, various false representations, bait advertising, coercion and harassment, pyramid selling, and asserting a right to payment for unsolicited goods: see Chapter 17. In a notable recent example, a painkiller was marketed in four different packages, each declaring that it had been formulated to treat a specific type of pain (such as period pain or back pain). The active ingredient was the same as that in the company’s regular painkiller, but the “specialist” packages were double the price. After the trial commenced the company admitted that it had engaged in misleading or deceptive conduct. 27 The Federal Court imposed a pecuniary penalty of $1.7 million for misleading conduct regarding the nature or manufacturing process of goods. 28 The restrictive trade practices provisions of the Competition and Consumer Act 2010 (Cth) also have ethical characteristics. Examples include the law relating to price fixing and misuse of market power: see Chapter 18. 29 The provisions of the National Consumer Credit Protection Act 2009 (Cth) regulating payday loans are also motivated by ethical considerations: see [19.45]. 30 The Corporations Act 2001 (Cth) imposes upon companies and directors certain obligations which have an ethical dimension. A director’s duties include the duty to act in good faith, the duty not to make improper use of information and the duty to make disclosure of personal interests. Other provisions relate to disclosure documents, oppressive or unfair conduct, misleading or deceptive conduct, misstatements in prospectuses, and insider trading: see Chapter 27.

Benefits of business ethics [33.40] It is now widely believed that over the long term ethical business methods are more profitable than unethical methods. A company which observes ethical business practices is likely to achieve an enhanced business reputation. Ronald Francis well expressed the benefits of an ethical approach: “It takes many years to build up a good reputation, and is of enormous financial benefit to the companies that continue to maintain their good name. Although individual transactions may be foregone, other customers will continue to use such companies because they know that if a poor

25 26 27 28 29 30

See, for example, E Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths, Sydney, 2003); M Rofail, Good Faith in the Making and Performance of Contracts (PhD thesis, University of Queensland, Brisbane, 2003). The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 17. Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408 at [3]. Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) [2016] FCA 424 at [98]. For a criticism of the use of market power by the major supermarkets, see M Knox, Supermarket Monsters: The Price of Coles and Woolworths’ Dominance (Black Inc, Melbourne, 2015). See Game of Loans, 4 Corners, 30 March 2015, http://www.abc.net.au/4corners.

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purchase has been made it is easy to exchange or get a refund. The basic issue here is whether or not one wishes to foster a continuing relationship; it would be as well to behave as if one had such a relationship in mind.” 31 What is beyond dispute is that poor business ethics are often very poor business. The single greatest cost of unethical behaviour remains a loss of confidence in an organisation and customer desertion is sure to follow widespread media exposure. The adverse publicity generated by poor quality products can be very damaging. For example, every year the Australian consumer magazine Choice presents “Shonky Awards” for especially bad products. 32 A company may also incur negative publicity if it is ordered to publish corrective advertisements to remedy prior misleading advertising. 33 An organisation of Australian parents also presents annual “Hall of Shame” awards for the marketing of “junk food” to children. 34 Furthermore, the poor business ethics of individual companies are injurious to the interests of the business sector as a whole. Unethical business conduct is likely to lead to more stringent government regulation. 35 For example, unethical conduct in the US financial sector prompted greater regulation of the sector. 36

Ethical duties of business [33.50] Scepticism about the ethics of business is not new. One of Charles Dickens’ characters said: “Here’s the rule for bargains – ‘Do other men, for they would do you.’ That’s the true business precept. All others are counterfeits”. 37 Today such views are unlikely to be publicly advanced by any business leader. The content and state of business ethics have become a constant topic for the media and academics alike. Businesses are well aware of the damage wrought by ethical lapses when publicly exposed. Ronald Francis defines ethics as “a highly explicit codified form of behaviour designed to produce particular ends and act[ion] in accordance with particular values”. 38 Business ethics concerns the application of ethical concepts to business. There are many theories regarding the content of business ethics. Two prominent theories which have found their way into popular discourse will be discussed here. Milton Friedman famously argued that the only social responsibility of a corporation was to maximise returns to shareholders. One of his essays was entitled, “The Social Responsibility of Business is to Increase its Profits”. He wrote: “[T]here is one and

31 32

33 34 35 36 37 38

RD Francis, Ethics and Corporate Governance (UNSW Press, Sydney, 2000), p 9. “Consumer Group Names Shonky Products”, PM, 19 October 2006, http//www.abc.net.au/pm; “Shonky Awards Target Retail Christmas Season”, World Today, 4 December 2007; “The Shonky Awards”, World Today, 25 November 2008; “And the Shonky goes to ...”, World Today, 25 October 2011, http://www.abc.net.au/worldtoday; “From Tim-Tam sham to Thermomix fix at the awards no-one wants to win”, 7.30, 14 October 2014, http://www.abc.net.au/7.30; “Shonky consumer goods recognised at annual awards ceremony”, PM, 7 October 2015, http://www.abc.net.au/pm. The Federal Court has commented that this “award is not a badge of honour”: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 7) [2016] FCA 424 at [74]. “Coca-Cola Ordered to Correct Record in New Ads”, World Today, 3 April 2009, http://www.abc.net.au/worldtoday. See http://parentsvoice.org.au/campaigns/hall-shame. D Grace and S Cohen, Business Ethics: Australian Problems and Cases (2nd ed, Oxford University Press, Melbourne, 1998), pp 119, xiii, 54. Pub L 111-203, Dodd-Frank Wall Street Reform and Consumer Protection Act (21 July 2010), 124 Stat 1376. C Dickens, The Life and Adventures of Martin Chuzzlewit (Oxford University Press, London, 1951), p 181 (Ch 11). RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 7.

chapter 33 Business Ethics

only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”. 39 However, Friedman conceded that it was acceptable for managers to take into account environmental, social and other ethical considerations where doing so would protect the interests of shareholders. 40 For example, managers should seek to minimise pollution if that would avoid damaging adverse publicity or reduce the prospects of litigation. A contrasting view is taken by those who promote “corporate social responsibility”. The European Commission has defined corporate social responsibility as “the responsibility of enterprises for their impacts on society”. 41 Under this concept legal requirements are a minimum not a maximum level of corporate responsibility and corporations should strive to observe a higher level of behaviour. 42 Supporters of this concept argue that corporations bear social obligations in return for limited liability and the right to operate a business. The “triple bottom line” is another phrase which frequently arises in discussions of business ethics. These three “bottom lines” are financial, social and environmental. This concept emphasises that a corporation should consider not only the financial outcome of its activities but also the social and environmental consequences. Supporters argue that the financial bottom line is dependent upon social and environmental sustainability. 43 The influence of the notion of corporate social responsibility is apparent in the United Kingdom Companies Act 2006 (UK). That Act provides that company directors shall have regard to “the impact of the company’s operations on the community and the environment” and “the desirability of the company maintaining a reputation for high standards of business conduct”: s 172(1)(d) – (e). Of course, there have been many companies which have loudly proclaimed their adherence to ethical principles but which have fallen short of their declared ideals. 44 Such hypocrisy is not an argument against the desirability of business ethics but for closer monitoring of their observance.

39 40 41

42 43 44

M Friedman, “The Social Responsibility of Business is to Increase its Profits”, New York Times Magazine, 13 September 1970, p 124. MM Jennings and J Entine, “Business with a Soul: A Re-examination of what Counts in Business Ethics” (1998) 20 Hamline Journal of Public Law and Policy 1 at 26-27. Communication from the Commission: A Renewed EU Strategy 2011-14 for Corporate Social Responsibility, COM(2011) 681 final at [3.1]. See generally B Horrigan, Corporate Social Responsibility in the 21st Century (Edward Elgar, Cheltenham, 2010). R Sarre, “Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?” (2002) 7(1) Deakin Law Review 1 at 7-8. R Sarre, “Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?” (2002) 7(1) Deakin Law Review 1 at 12. MM Jennings and J Entine, “Business with a Soul: A Re-examination of what Counts in Business Ethics” (1998) 20 Hamline Journal of Public Law and Policy 1 at 60.

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International standards United Nations Convention Against Corruption [33.60] The most comprehensive international response to corruption is the United Nations Convention Against Corruption. 45 Australia ratified this treaty on 7 December 2005. The Commonwealth AttorneyGeneral’s Department indicated that Australia’s obligations under the Convention would be implemented under existing legislation such as the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). 46 Several provisions of the Convention relate specifically to corruption in the private sector. Parties to this treaty are obligated to take measures to enhance accounting and auditing standards in the private sector, including the imposition of appropriate penalties for breaches of these standards: United Nations Convention Against Corruption, Art 12(1). These measures may include the development of codes of conduct designed to prevent conflicts of interest. They may also include measures which ensure that private enterprises have sufficient internal auditing controls to assist in preventing and detecting acts of corruption: Art 12(2)(b), (f). Parties must prohibit off-the-books accounts and transactions, recording of non-existent expenditure, incorrect identification of liabilities, use of false documents, and destruction of bookkeeping documents: Art 12(3). Parties to this treaty are to consider adopting legislation or other measures prohibiting bribery and embezzlement of property in the private sector: Arts 21 – 22.

United Nations Guiding Principles [33.65] In recent times international bodies have given increased attention to the human rights practices of business. 47 In July 2011 the United Nations Human Rights Council endorsed the Guiding Principles on Business and Human Rights. 48 National governments have a duty to protect against human rights abuses by non-state actors including businesses: para 1. Governments should clearly state their expectation that businesses of their nationality should respect human rights in their activities in other countries: para 2. Governments should enforce existing laws that require observance of human rights standards by business, such as anti-discrimination, labour and privacy laws: para 3. States should also oversee the privatised delivery of services that may have an impact upon human rights: para 5. Governments must ensure that those subject to human rights abuses by business have access to an effective remedy for that abuse: para 25. 45

United Nations Convention Against Corruption (New York, 31 October 2003, 2349 UNTS 41, 43 ILM 37). See generally AK Weilert, “United Nations Convention against Corruption (UNCAC) – After Ten Years of Being in Force” (2016) 19 Max Planck Yearbook of United Nations Law 216.

46 47

Joint Standing Committee on Treaties, Report 66 (Commonwealth of Australia, Canberra, 2005), pp 14-15. Negotiations for a United Nations Code of Conduct on Transnational Corporations took place between 1975 and 1993. The proposed Code was ultimately abandoned. See KP Sauvant, “The Negotiations of the United Nations Code of Conduct on Transnational Corporations: Experience and Lessons Learned” (2015) 16 Journal of World Investment and Trade 11 at 19-20, fn 25, 55. The draft text as of May 1983 and a progress report about outstanding issues are reproduced in 23 ILM 602, 626. See generally N Jägers, “UN Guiding Principles on Business and Human Rights: Making Headway Towards Real Corporate Accountability” (2011) 29 Netherlands Quarterly of Human Rights 159; RC Blitt, “Beyond Ruggie’s Guiding Principles on Business and Human Rights: Charting an Embracive Approach to Corporate Human Rights Compliance” (2012) 48 Texas International Law Journal 33; MK Addo, “The Reality of the United Nations Guiding Principles on Business and Human Rights” (2014) 14 Human Rights Law Review 133; LC Backer, “Moving Forward the UN Guiding Principles for Business and Human Rights: Between Enterprise Social Norm, State Domestic Legal Orders, and the Treaty Law That Might Bind Them All” (2015) 38 Fordham International Law Journal 457.

48

chapter 33 Business Ethics

Businesses “should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved”: para 11. The responsibility of business to respect human rights applies to businesses of any size: para 14. Businesses should publicly issue a policy commitment to respect human rights: para 16. They should conduct human rights “due diligence” to identify and address human rights issues: para 17. Businesses should comply with international human rights standards: para 23.

United Nations Global Compact [33.70] The United Nations Global Compact is another international initiative regarding business. While the norms referred to in the previous section have a highly specific content, the Compact consists of more generalised undertakings. Corporations and business organisations can commit to observing the principles embodied in this agreement. The Compact consists of nine principles relating to human rights, labour and the environment. The text of these principles appears below. Figure 33.1: United Nations Global Compact Human Rights Principle #1: Business are asked to support and respect the protection of international human rights within their sphere of influence; and Principle #2: make sure their own corporations are not complicit in human rights abuses. Labour Principle #3: Businesses are asked to uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle #4: the elimination of all forms of forced and compulsory labour; Principle #5: the effective abolition of child labour; and Principle #6: the elimination of discrimination in respect of employment and occupation. Environment Principle #7: Businesses are asked to support a precautionary approach to environmental challenges; Principle #8: undertake initiatives to promote greater environmental responsibility; and Principle #9: encourage the development and diffusion of environmentally friendly technologies.

The Compact is not legally binding upon participating businesses. 49 Corporations are expected to detail in their annual report how they have given effect to these principles. Businesses are also expected to publicly advocate the Compact. Companies are required to report their progress in implementation to the United Nations every year. If a company does not report for two consecutive years, it may be listed as an “inactive” participant.

49

J Nolan, “The United Nations’ Compact with Business: Hindering or Helping the Protection of Human Rights?” (2005) 24 University of Queensland Law Journal 445 at 447, 452. See generally S Prakash Sethi and DH Schepers, “United Nations Global Compact: The Promise–Performance Gap” (2014) 122 Journal of Business Ethics 193.

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OECD Guidelines [33.80] Some international instruments concerning business practice relate specifically to multinational business operations. 50 The Organisation for Economic Co-operation and Development has adopted a series of Guidelines for Multinational Enterprises. 51 The Guidelines are “standards of good practice” and are not legally binding: OECD Guidelines for Multinational Enterprises, Preface para (1). The Guidelines are quite numerous and only a selection can be dealt with here. Multinational enterprises are subject to the laws of the host state. The Guidelines emphasise that “[o]beying domestic law is the first obligation of enterprises”: para I(2). Enterprises should not seek or accept exemptions from human rights, environmental, health, safety, labour and taxation laws that are not provided for by those laws: para II(5). They should not engage in “improper involvement” in the political life of the host state: para II(15). The Guidelines include human rights standards. Enterprises should “Respect human rights, which means they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved”: para IV(1). Enterprises are required to observe labour standards. Employers should respect the right of their employees to unionise and bargain collectively: paras V(1)(a), V(8). Enterprises should employ local workers “to the greatest extent practicable”: para V(5). When bargaining with employees, enterprises should not threaten to withdraw from the host state: para V(7). Environmental standards are also included. Enterprises should provide environmental impact assessments for business activities that have significant environmental costs: para VI(3). Companies should not use the lack of complete scientific certainty about a possible environmental hazard as an excuse to avoid taking cost-effective actions that will avert or reduce that risk: para VI(4). Companies should seek to develop products and services that do not have “undue environmental impacts”: para VI(6)(b). Consumer protection is another goal of the Guidelines. Products and services should satisfy the requirements of consumer health and safety laws: para VIII(1). Enterprises should not make deceptive, misleading or fraudulent representations to consumers: para VIII(4). The Guidelines express a strong disapproval of restrictive trade practices. Businesses should not enter into anti-competitive arrangements with their competitors, including price fixing, collusive tendering, restriction of supply, or dividing markets: para X(2). Finally, multinational enterprises must observe the “letter and spirit” of the taxation laws of the host state, and transfer pricing must observe the arm’s length principle: para XI(1). As of June 2016, 46 nations had adhered to these OECD principles. The implementation of the Guidelines is regulated by a decision taken by the OECD Council in June 2000. Each nation must set up a National Contact Point that will promote the observance of the Guidelines, answer questions regarding their application and undertake discussions with parties that consider that the Guidelines have been

50

See also Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (as amended at Geneva, March 2006). In March 2017 the ILO Governing Body will consider whether the Declaration should be further amended. See http://www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm.

51

OECD Guidelines for Multinational Enterprises (as revised at Paris, 25 May 2011). See generally, http:// mneguidelines.oecd.org; A Santer, “A Soft Law Mechanism for Corporate Responsibility: How the Updated OECD Guidelines for Multinational Enterprises Promote Business for the Future” (2011) 43 George Washington International Law Review 375; S Robinson, “International Obligations, State Responsibility and Judicial Review Under the OECD Guidelines for Multinational Enterprises Regime” (2014) 30 Utrecht Journal of International and European Law 68.

chapter 33 Business Ethics 52

infringed: para I(1). The interpretation of the Guidelines is undertaken by the Investment Committee, though it has no power to “reach conclusions on the conduct of individual enterprises”: para II(4).

Other international conventions concerning business practices [33.90] Some human rights treaties also contain provisions that are relevant to business practice both domestically and internationally. For example, several treaties obligate ratifying nations to prohibit discrimination by private persons. 53 These treaties are implemented by anti-discrimination legislation. Another treaty provides that children have the right to be protected from performing any work that is likely to interfere with their education. 54 Other treaties prohibit the employment of children in harmful forms of work. 55 These treaty rights should influence the conduct of corporations which are engaged in manufacturing in developing countries.

Corporate ethics codes [33.100] Many individual companies have ethics codes. 56 An ethics code may be defined as a “written, distinct, and formal document which consists of moral standards used to guide employee or corporate behaviour”. 57 An ethics code may adopt an aspirational or prescriptive approach. An aspirational code sets out ideals of best practice but is generally unenforceable. A prescriptive code is much more specific and breaches are subject to punishment. 58 An aspirational code may be criticised as an exercise in symbolism over substance. A prescriptive code may be criticised for encouraging employees and management to observe the letter of the code while breaching its spirit. Ronald Francis has set out a useful list of principles which may be appropriate for inclusion in a corporate ethics code. In summary, these principles include: (a)

observance of the law;

(b)

companies should consider the effect that their actions may have upon others;

52

53

54

55

56

57 58

The website of the Australian National Contact Point is at http://www.ausncp.gov.au. The website of the UK National Contact Point is at http://www.bis.gov.uk/nationalcontactpoint. See generally JC Ochoa Sanchez, “The Roles and Powers of the OECD National Contact Points Regarding Complaints on an Alleged Breach of the OECD Guidelines for Multinational Enterprises by a Transnational Corporation” (2015) 84 Nordic Journal of International Law 89. International Convention on the Elimination of All Forms of Racial Discrimination, Art 2(e) (New York, 7 March 1966, 660 UNTS 195); Convention on the Elimination of All Forms of Discrimination Against Women, Art 2(e) (New York, 18 December 1979, 1249 UNTS 13). Convention on the Rights of the Child, Art 32(1) (New York, 20 November 1989, 1577 UNTS 3). The Committee on the Rights of the Child has also adopted a General Comment regarding the human rights impacts of business activities. See General Comment No 16 (2013) on State obligations regarding the impact of the business sector on children’s rights (CRC/C/GC/16); P Gerber, J Kyriakakis, and K O’Byrne, “General Comment 16 on State Obligations Regarding the Impact of the Business Sector on Children’s Rights: What is its Standing, Meaning and Effect?” (2013) 14 Melbourne Journal of International Law 93. International Covenant on Economic, Social and Cultural Rights, Art 10(3) (New York, 19 December 1966, 993 UNTS 3); ILO Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour (No 182) (Geneva, 17 June 1999, 2133 UNTS 161, 38 ILM 1207). Some groups of companies have also adopted ethics codes. See V Lee, “Enforcing the Equator Principles: An NGO’s Principled Effort to Stop the Financing of a Paper Pulp Mill in Uruguay” (2008) 6 Northwestern Journal of International Human Rights 354 at 358. M Schwarz, “The Nature of the Relationship between Corporate Codes of Ethics and Behaviour” (2001) 32 Journal of Business Ethics 247, 248. RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 13.

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(c)

accounts should follow conventional procedures so as to provide an accurate reflection of the financial position of the company;

(d)

respect for personal privacy;

(e)

non-discrimination against employees on grounds such as race, gender or marital status;

(f)

employees should not be subject to arbitrary dismissal;

(g)

employees must not use the employer’s time for personal gain;

(h)

staff and management should declare potential conflicts of interest;

(i)

companies must not exploit the disadvantaged;

(j)

companies should not engage in bribery;

(k)

staff should not engage in misrepresentation or other deceptive conduct;

(l)

staff should not employ high-pressure sales techniques;

(m)

companies should not enter into anti-competitive contracts;

(n)

respect for intellectual property rights;

(o)

bills should be paid promptly;

(p)

cost savings from tax changes should be passed on to consumers;

(q)

companies should strive to minimise pollution; and

(r)

unnecessary cruelty to animals should be avoided. 59

Some studies have suggested that codes have little direct influence upon the behaviour of employees and management. 60 Moreover, a code is no more than “window dressing” if it is not observed in practice. The failed energy corporation, Enron, had a strong ethics code – on paper. The lofty ideals of the code provided endless material for comedians following that firm’s accounting fraud. The code came to nothing because the board simply waived compliance when making a key decision.

Industry codes [33.110] Under Pt IVB of the Competition and Consumer Act 2010 (Cth), industry codes of conduct may be prescribed and enforced under the Act. 61 These codes regulate the conduct of industry participants towards consumers or other industry participants. Adherence to such codes may be mandatory or voluntary. The Code of Banking Practice is applicable to banking by individuals and certain small business customers: cl 1.1. Banks which subscribe to the Code are obliged to act fairly and reasonably toward their customers in a consistent and ethical manner: cl 3.2. Prospective guarantors are to be informed of the risks and obligations prior to entering into a guarantee. They are also entitled to be informed of certain matters relating to the debtor’s recent credit history: cl 31.4. Prospective borrowers are to be informed of the risks associated with foreign currency loans: cl 23.2. Other provisions concern disclosure and modification of fees and charges: cll 12.4, 20.3, 20.5. 62 59 60 61 62

RD Francis, Ethics and Corporate Governance (UNSW Press, Sydney, 2000), pp 155-174. M Schwarz, “The Nature of the Relationship between Corporate Codes of Ethics and Behaviour” (2001) 32 Journal of Business Ethics 247 at 253. See [18.680], [25.1240], [30.2790]. For Code texts, see http://www.asic.gov.au/for-consumers/codes-of-practice. The text of the Code is available at http://www.bankers.asn.au/industry-standards/ABAs-code-of-banking-practice. The Code was revised in 2013.

chapter 33 Business Ethics

Regulatory responses [33.120] It has been well observed that in business today: “[E]thics is not an option. If a company or industry cares nothing for ethical requirements, it may expect from government a policy and legislative response which imposes standards and practices”. 63 Laws are frequently enacted in response to, rather than in anticipation of, ethical breaches or problems. 64 Regulatory responses may include criminal punishment or civil remedies. The use of the criminal law to enforce ethical standards may be illustrated by the law prohibiting the bribery of foreign public officials, contained in the Criminal Code Act 1995 (Cth), Sch Div 70. A person commits an offence if he or she provides a benefit to a foreign public official which is not legitimately due, with the intention of influencing the official in the exercise of their duties, in order to obtain business or a business advantage that is not legitimately due. In determining whether a benefit or business advantage is not legitimately due, the following factors are to be disregarded: the fact that the benefit or advantage is customary, necessary or required in the situation; the value of the benefit or advantage; and official tolerance of the benefit or advantage: Sch s 70.2(2), (3). It is not necessary that the briber intended to influence a specific foreign official. It is also not necessary for the prosecution to prove that business or a business advantage was obtained: Sch s 70.2(1A). It is a defence that the conduct is lawful in the foreign official’s country: Sch s 70.3. It is also a defence that the benefit was of minor value and was provided for the purpose of expediting or securing the performance of a minor and routine government action. (Such payments are known as “facilitation payments”.) The provider of the benefit must keep a record of the payment: Sch s 70.4(1). To be punishable, the bribery must have taken place within Australia or, if it occurred outside Australia, the offender must be an Australian citizen, resident or corporation: Sch s 70.5(1). The issue of bribery of foreign public officials is not a theoretical one: the Australian Wheat Board made extensive corrupt payments to the former Iraqi regime. 65 In 2012 the OECD expressed its disappointment at the Australian government’s record of enforcement of the foreign bribery offences: “That Australia has only one case that has led to foreign bribery prosecutions since it enacted its foreign bribery offence in 1999 is of serious concern … This level of enforcement is not commensurate with the size of its economy and the risk profile of Australian companies.” 66 An alternative regulatory response is to apply civil penalties for corporate breaches of legislative proscriptions of particular business practices. The Competition and Consumer Act 2010 (Cth) imposes civil penalties for breach of the restrictive trade practices provisions. 67 The Corporate Code of Conduct Bill 2000 (Cth) proposed to apply environmental, labour, non-discrimination, consumer protection and restrictive trade practices standards to Australian corporations operating in other countries: cll 7 – 13. Civil penalties were to be imposed for breach of these standards: cl 16. This Senate Bill was not enacted. 63

D Grace and S Cohen, Business Ethics: Australian Problems and Cases (2nd ed, Oxford University Press, Melbourne, 1998), p xiii.

64 65

RT DeGeorge, Competing with Integrity in International Business (Oxford University Press, New York, 1993), p 26. J Tomaras, International Trade Integrity Bill 2007 (Bills Digest No 12, 2007-08, Commonwealth Parliamentary Library, Canberra, 2007), pp 5-6; C Overington, Kick Back: Inside the Australian Wheat Board Scandal (Allen and Unwin, Sydney, 2007). For another allegation, see “Dirty Money”, Four Corners, 24 May 2010, http//www.abc.net.au/4corners. OECD Working Group on Bribery, Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Australia (2012), p 19. As of 2012 over half of the parties to the OECD Convention had never prosecuted one of their citizens for a foreign bribery offence. See R Brewster, “The Domestic and International Enforcement of the OECD Anti-Bribery Convention” (2014) 15 Chicago Journal of International Law 84 at 87. See Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Paris, 17 December 1997, 37 ILM 1. See [18.520].

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A recent ethical issue illustrates another regulatory response. In the famous “cash for comment” controversy, several talkback radio presenters had blurred the line between advertising and the editorial content of their programs by making favourable remarks about commercial sponsors without disclosing the existence of the sponsorship arrangement. 68 A former member of the Australian Broadcasting Authority Board expressed the ethical problem for both advertisers and broadcasters as follows: “[I]s the listener or the audience to be played for a mug? The audience is entitled to know whether what they are hearing is actually the opinion of someone they trust or whether that is actually material placed by a third party for money and being spoken by someone they trust”. 69 In the wake of this controversy, the Broadcasting Services (Commercial Radio Current Affairs Disclosure) Standard 2012 70 provides that sponsorship arrangements with presenters which may affect the content of a commercial radio current affairs program must be disclosed during the program: cl 7. The Federal Court imposed a penalty of $360,000 for 13 breaches of the disclosure obligation by a prominent talkback radio presenter. The presenter resented the disclosure obligation and the breaches were neither careless nor an oversight. 71 In television factual programming there has also been a blurring of the line between advertising and content. The Commercial Television Industry Code of Practice requires that current affairs or documentary programmes must disclose the existence of any commercial arrangement with a party whose products or services are featured in the program: cl 4.1.1, 4.1.3. 72 Advertisements should be clearly presented as such rather than as program material. Under the Broadcasting Services (Commercial Radio Advertising) Standard 2012, advertisements broadcast on commercial radio “must be presented in such a manner that the reasonable listener is able to distinguish them, at the time of broadcast, from other program material”: cl 7. Sometimes the regulatory response is outright prohibition of a particular commercial activity. For example, it is illegal to broadcast or publish a tobacco advertisement: Tobacco Advertising Prohibition Act 1992 (Cth), ss 13, 15. The government justified the ban on the ground that tobacco advertising had encouraged children to smoke: “removing tobacco advertising is primarily a prevention activity intended to reduce the number of children taking up smoking”. 73 The content of tobacco packaging has also been strictly regulated. Cigarettes may be sold only in generic packaging: Tobacco Plain Packaging Act 2011 (Cth). Similarly, federal legislation prohibits the advertising of prescription drugs to the public. 74 Some pharmaceutical companies have sought to circumvent this prohibition by persuading the media to run news stories that indirectly advertise their products. 75 68 69 70

71 72 73 74 75

See Australian Broadcasting Authority, Commercial Radio Inquiry. Report of the Hearing into Radio 2UE Sydney Pty Limited (Australian Broadcasting Authority, Sydney, 2000), http://www.acma.gov.au. K Henderson in “Laws, Jones Feud Boils Over”, Lateline, 28 April 2004, http://www.abc.net.au/lateline. The Standard was adopted by the Australian Communications and Media Authority under the Broadcasting Services Act 1992 (Cth), s 125. The background to the adoption of the 2012 Standard is discussed in Harbour Radio Pty Ltd v Australian Communications and Media Authority (2012) 202 FCR 525 at [10]-[23]. Australian Communications and Media Authority v Radio 2UE Sydney Pty Ltd (2009) 178 FCR 199 at [141]-[142], [185]. The text of the Code is available at http://www.freetv.com.au. House of Representatives Hansard, 16 December 1992, p 3884. A television station that broadcasts a tobacco advertisement breaches a condition of its broadcasting licence: Broadcasting Services Act 1992 (Cth), Sch 2 cl 7(1)(a). Therapeutic Goods Act 1989 (Cth), s 42DL(1)(f); Medicines Australia Code of Conduct (Edition 18), s 13.3, available at http://medicinesaustralia.com.au. “Gilding the Lily”, Media Watch, 19 May 2008, http://www.abc.net.au/mediawatch; “Spinning “Ageing Stress””, Media Watch, 23 June 2008.

chapter 33 Business Ethics

There have also been proposals for the prohibition of advertisements for “junk food” during children’s television programs. 76 A large proportion of advertising for unhealthy foods appears to be targeted at children. 77 The Code for Advertising and Marketing Communications to Children adopted by the Australian Association of National Advertisers (AANA) provides that advertisements must not “promote an inactive lifestyle or unhealthy eating or drinking habits”: cl 2.14(a). 78 However, the Code does not proscribe “junk food” advertisements directed at children. The Sydney Principles adopted by the International Obesity Taskforce argue that legislation prohibiting targeted marketing to children of unhealthy foods is necessary, since self-regulation is not designed to discourage the consumption of such foods by children: cl 3. 79 Television advertisers also often use popular fictional characters to promote their products to children. The Children’s Television Standards 2009 prohibit advertisements in which a product or service is promoted by a film or television character or popular celebrity: CTS 35(1). 80 However, the effectiveness of this prohibition may be questioned because it applies only to advertising during programs that carry the C (children’s) or P (preschool) classifications. Most children watch programs that carry different classifications, especially G (general) and PG (parental guidance). 81 Advertising techniques can also raise ethical issues. The use of subliminal advertising formerly appeared to contravene the Commercial Television Industry Code of Practice. The 2010 version of the Code prohibited the use of “any technique which attempts to convey information to the viewer by transmitting messages below or near the threshold of normal awareness”: cl 1.9.4. 82 However, this provision has disappeared from the current version of the Code (as revised in 2015). Product placement is a form of disguised advertising within the storylines of fictional movies or television programs without any clear disclosure of the commercial purpose for its inclusion. 83 The acceptability of the message promoted by some advertisements may also be very important. The ABAC Responsible Alcohol Marketing Code provides that alcohol advertisements must not suggest that alcohol consumption contributes “to the achievement of personal, business, social, sporting, sexual or other success”: cl 3(c)(ii). 84 Television viewers are well aware that advertisements are frequently much louder than the remainder of the programs in which they appear. The US Federal Communications Commission requires that digital 76

78

“SA Moves to Ban Junk Food Advertising”, PM, 8 February 2008, http://www.abc.net.au/pm; Senate Hansard, 4 September 2008, pp 4501-4503; A Magnus et al, “The Cost-Effectiveness of Removing Television Advertising of High-Fat and/or High-Sugar Food and Beverages to Australian Children” (2009) 33 International Journal of Obesity 1094; Senate Hansard, 21 November 2011, p 9013. K Chapman, P Nicholas and R Supramaniam, “How much Food Advertising is there on Australian Television?” (2006) 21 Health Promotion International 172; J Lumley, J Martin and N Antonopoulos, Exposing the Charade – The Failure to Protect Children from Unhealthy Food Advertising (Obesity Policy Coalition, Melbourne, 2012), pp 9-14, 26-31. For a trenchant criticism of the marketing of “junk food” to children, see M Spurlock, Don’t Eat this Book (Penguin, Camberwell, 2005), pp 147-170. The Code is available at http://aana.com.au/self-regulation/codes/.

79 80 81

The Principles are available at http://www.worldobesity.org/iotf/obesity/childhoodobesity/sydneyprinciples. The Standards are available at http://www.legislation.gov.au/Browse/ByTitle/LegislativeInstruments. C Hughes, “We’re Getting Only Weasel Words on Junk Food Ads”, Sydney Morning Herald, 5 September 2008, p 17.

82

For an example of its use, see “Flash Dance”, Media Watch, 5 November 2007, Flash Dance – Part 2, 13 October 2008, http://www.abc.net.au/mediawatch; Australian Communications and Media Authority, Investigations 1958, 1959, 1960 and 1961, http://www.acma.gov.au. S Clifford, “Product Placements Acquire a Life of their Own on Shows”, New York Times, 14 July 2008, p C1. Images of products may even be digitally inserted into completed programs: “Branding Entertainment”, Media Watch, 18 June 2012, http://www.abc.net.au/mediawatch.

77

83

84

The Code is available at http://adstandards.com.au.

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television and cable broadcasters observe a technical standard that is designed to ensure that advertisements are no louder than the surrounding programme content. 85 Advertising directed towards children requires especially careful regard for ethical considerations. 86 Some of these concerns are addressed by the AANA Code. For example, the Code provides that advertisements must not encourage children to pester their parents to purchase the product: Code for Advertising and Marketing Communications to Children, cl 2.7(b). Advertisements must not imply that children who own the product are better than other children: cl 2.7(c).

Socially responsible investing [33.130] Socially responsible investing is a recent investment trend where investment funds have regard to political, social, economic and environmental considerations when deciding what investments they will make. 87 Investment funds that follow this approach must adopt a method for screening possible investments for compatibility with ethical considerations. There are three basic types of screening method. First, some funds adopt a negative screening approach, so that companies are excluded from the investment portfolio because they are engaged in particular activities which are regarded as unethical. Secondly, some funds adopt a positive screening approach, so that companies are included within the investment portfolio due to their superior record in environmental, labour or human rights concerns. Thirdly, some funds adopt a best-of-sector approach, favouring the most ethical companies within each sector. In some sectors these companies may be viewed as “least worst”. Such an approach may be criticised because it is likely to include companies from controversial sectors such as alcohol, tobacco and gambling. 88 In Australia, the market for this type of investment is currently small. However, Commonwealth law has given statutory recognition to socially responsible investment through the introduction of disclosure requirements. 89 Under the disclosure requirements of the Corporations Act 2001 (Cth), a Product Disclosure Statement for superannuation, managed investment or investment life insurance products must state “the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection, retention or realisation of the investment”: s 1013D(1)(l). The legislative history of these requirements provides an insight into the perspectives differing political philosophies bring to the concept of business ethics. The compulsory disclosure requirements originated as a proposal by an Opposition party in the Senate, the Australian Democrats. The Democrats emphasised that their proposal did not require that investments satisfy environmental, social or ethical criteria but would only impose a disclosure obligation. 90 The Liberal/National Party Government initially opposed the compulsory disclosure requirement. The Government argued that “market forces will deliver consumers the most transparent disclosure of socially

85 86

87 88 89 90

47 Code of Federal Regulations, ss 73.682 and 76.607; 77 Federal Register 40276 at [1] (2012). See SG Thomas, Buy, Buy Baby: How Big Business Captures the Ultimate Consumer – Your Baby or Toddler (Harper Collins, London, 2007); S Beder et al, This Little Kiddy Went to Market: The Corporate Capture of Childhood (UNSW Press, Sydney, 2009). Allen Consulting Group, Socially Responsible Investment in Australia (Allen Consulting Group, Melbourne, 2000), p 1. Allen Consulting Group, Socially Responsible Investment in Australia (Allen Consulting Group, Melbourne, 2000), pp 2-3. See generally, BJ Richardson, “Ethical Investment and the Commonwealth’s Financial Services Reform Act 2001” (2002) 2 National Environmental Law Review 47. Parliamentary Joint Statutory Committee on Corporations and Securities, Report on the Financial Services Reform Bill 2001 (Commonwealth of Australia, Canberra, 2001), p 118 (Supplementary Report).

chapter 33 Business Ethics 91

responsible investment strategies by companies with a genuine commitment to applying them”. Ultimately, the Government agreed to the Democrats’ proposal, acknowledging that the proposal was consistent with its own objective of requiring broader disclosure to potential investors. Advocates of socially responsible investment argue that it offers superior returns to the more traditional approach under which such matters were not considered. This claim remains unverified since there is no long-term experience of this investment method. There is more evidence for the proposition that very unethical companies tend to be risky investments. Whether such investment methods lead to superior returns has been questioned. Critics have argued that returns to investors will be reduced if investment funds avoid profitable but socially or environmentally harmful investments. Critics have also argued that the disclosure regime will impose costly compliance requirements. While many consumers have regard to corporate social responsibility in making purchasing decisions, they give priority to functional considerations. 92

Further reading RD Francis, Ethics and Corporate Governance (UNSW Press, Sydney, 2000). D Grace and S Cohen, Business Ethics (5th ed, Oxford University Press, Melbourne, 2013). J Harrison, Ethics for Australian Business (Prentice-Hall, Sydney, 2001). A Lagan and B Moran, 3D Ethics: Implementing Workplace Values: Personal, Organisational and Social Dimensions of Business Ethics (eContent Management, Sydney, 2006).

Internet sites Codes of Ethics Online http://ethics.iit.edu/ecodes (full texts of corporate codes, bibliography) United Nations Global Compact http://www.unglobalcompact.org (detailed analysis of Compact) Business and Human Rights Resource Centre http://www.business-humanrights.org (large database of materials arranged by country and region) Principles for Responsible Investment http://www.unpri.org/ Foreign Bribery http://www.ag.gov.au/CrimeAndCorruption/Foreignbribery/Pages/default.aspx

Journals Business and Human Rights Journal http://journals.cambridge.org/action/displayJournal?jid= BHJ Journal of Business Ethics http://link.springer.com/journal/10551 91 92

Parliamentary Joint Statutory Committee on Corporations and Securities, Report on the Financial Services Reform Bill 2001 (Commonwealth of Australia, Canberra, 2001), p 94 (Majority Report). T Devinney et al, “The Other CSR” (2006) 4, 3 Stanford Social Innovation Review 30 at 35.

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The Law of Employment [34.20] Employment relations law....................................................................................................................... 1014 [34.370] Workplace health and safety and workers compensation................................................. 1032

Introduction [34.10] This chapter provides an overview of the law regulating the employment relationship. The chapter touches on five key areas: 1.

Sources of rights and obligations in the employment relationship;

2.

Defining characteristics of the “employee” compared with an independent contractor;

3.

Termination of employment;

4.

Workplace health and safety; and

5.

Registered industrial associations.

The chapter is an introductory analysis of the most salient legal aspects of the employment relationship between the major parties, namely the employer and the employee. The employment relationship is a complex but necessary part of any modern society, and raises up a number of important legal challenges and, subsequently, solutions. The relationship involves a number of parties, both internal and external to the workplace. Amongst the external parties, the government is particularly significant in determining how the employment relationship plays out, but amongst the macroeconomic and social factors influencing the roles of the employer and the employee there is one particularly influential new factor that the law is forced to take into account: technology. For example, the increasing use of email within work environments opens up new avenues for employee and employer misbehaviour, while at the same time providing a trail of evidence that can make the likelihood of legal intervention greater.

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Employment relations law [34.20] Employment relations law involves the study of employees and employers, their respective representative organisations, and government – how they interact with each other and how they operate within the framework imposed by the law. It is also sometimes known as workplace law and was formerly known as industrial law. Employment law exists within a framework of competing interests. Managers need to ensure a level of control and leadership within the corporate context to ensure profitability, while taking account of employee rights and obligations. This balance is properly the field of employment relations law, which in turn falls under a complex umbrella of common law, federal and State legislation, and statutory instruments such as awards and enterprise agreements. While the interplay of federal and State law is complex, it is worth noting that the Commonwealth parliament can only make laws within a range allowed by the Constitution. This range was dramatically broadened by High Court decisions, notably: New South Wales v Commonwealth (Work Choices Case) (2006) 229 CLR 1 (see [34.50]). As discussed in Chapter 1, s 109 of the Constitution states that on occasions when a valid Commonwealth and State law conflict, the Commonwealth law will prevail – but only to the extent that the State law contravenes federal law. State governments are free to legislate in areas where the Constitution does not provide the federal government with the power to do so (residual powers). The State governments may also legislate in overlapping fields (concurrent powers), such as discrimination law, but need to take this restriction into account when drafting legislation. In relation to Employment law, the overlap between the jurisdictions has been dramatically reduced since the introduction of the Workplace Relations Act 1996 (Cth) (WRA), which was upheld by the High Court in the Work Choices Case. Amongst other major changes, the High Court’s decision confirmed the federal government’s right to “cover the field” and constrict the individual States’ ability to make laws with regard to numerous industrial matters and a large number of employees formerly covered by the State systems, primarily those employed by constitutional corporations. The Work Choices decision left the State governments with control over very few private sector employees, such as those working for partnerships, sole traders, some charities and trusts. Therefore, as of 1 January 2010, with the exception of Western Australia and Victoria, all State governments referred the power to legislate with regard to private sector employment matters to the federal government. Western Australia continues to regulate the employment relationship of non-corporate private sector entities as outlined above. Victoria referred its power to the federal government a decade earlier. As a result of its referral of all employers and employees to the federal government in 1996, all Victorian employers and employees, including those working for the Victorian State and local governments, are covered by the national employment system. Similarly, all Territory employers and employees are now covered by the national system. All other State and local governments continue to regulate the working conditions of their own employees.

Australian industrial history [34.30] Australian history is peppered with famous conflicts between employers or the government on the one hand, and workers and their unions on the other. It is believed that the first industrial action in Australia occurred in 1791, with convicts striking to demand that rations be issued daily, rather than weekly, and in 1830, a formal Australian shipwrights union was established. The golden era of Australian union development coincided with the explosion in immigrant population associated with the gold rush of 1851, and the ending of transportation of convicts in 1853. Craft unions appeared in considerable number, usually focused initially on a single trade such as stonemasonry, before diversifying. The stonemasons, in

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fact, were the first to formally begin the 8-Hour Day Movement in 1856, a process which sparked a move to formal co-operative alliances between multiple unions that resulted in Trades and Labour Councils being formed in the 1860s and 1870s. During the 1880s trade unions continued to grow but with the economic depression and drought of the 1890s employers cut wages and working conditions and insisted on freedom to contract directly with the workers without union involvement. This led to the great strikes of the 1890s – the Maritime strike and the Shearers’ strike – which ended in defeat for the unions. As a result, the Australian Labor Party was established to obtain legal recognition for unions; to give unions’ political representation; to lobby for conciliation and arbitration of industrial disputes; and to promote the enforcement of minimum working conditions, which in time became the award system. The gradual enactment of these reforms and the growth of conciliation and arbitration over the next century led to the revival of unionism and eventually to the formation of the powerful amalgamation known today as the Australian Council of Trade Unions (ACTU). The ACTU represents the Australian union movement at an international level and acts as a conduit for information transfer, a co-ordinator of national and international union action, and a research body. The ACTU also negotiates major workplace issues at a national and political level. Funded by contributions from member unions, the ACTU is headed by a powerful President and Secretary, with the leadership of the ACTU traditionally seen as a pathway into federal politics. For instance, former president of the ACTU, Bob Hawke won a Federal seat in Parliament, became leader of the Australian Labor Party and ultimately Prime Minister of Australia in a three-year period in the early 1980s. At a national level, employers also have arranged themselves into powerful coalitions. Unlike unions who group under the banner of the ACTU, there are multiple employer coalitions with the Australian Industry Group (AIG), the Australian Chamber of Commerce and Industry (ACCI), the Business Council of Australia (BCA), the Australian Mines and Metals Association (AMMA), the Australian Medical Association (AMA) and the National Farmers Federation being particularly prominent and powerful. Their political alliances with the conservative parties are less direct, with employer bodies often forging relationships with both sides of politics. These peak organisations or peak bodies as they are known, generally act on behalf of members in the process of applying pressure on governments in relation to developing policy, or in interpreting government policy and law for their members. By using group strength they provide services for members that would otherwise be too expensive and inaccessible to individual companies. Additionally, these peak bodies provide support to companies and allow an ability to discuss common difficulties without necessarily risking contravention of Australian competition and consumer law which prohibits collusion between entities that might operate as competitors in the marketplace. The third main actor in the workplace is, of course, the government. The Australian system of government operates at three levels – local, State and federal – but while local government can make delegated legislation, from a law-making perspective, only the federal and State levels play an influential role in employment relations. Although to some extent originally constrained by the Australian Constitution, the federal government and associated bodies such as the courts and the Fair Work Commission (FWC) continue to play an important role in the employment context. More generally, the government provides a framework and a moderating influence for an effective and fair operation of the market economy, as well as providing both the legislative and, in some senses, the physical infrastructure required for the functioning of a modern society. In a civil society such as Australia, the government provides the context for an independent and professional bureaucracy, charged with offering advice to Ministers and the government, as well as an independent judiciary, which reviews (supposedly at arm’s length, owing to the separation of powers) the laws that the governments make. Section 51(xxxv) of the Constitution specifically allows the Commonwealth to make laws relating to the “conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the

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limits of one State”. In pursuit of this aim, the Commonwealth has established various courts, tribunals and commissions to implement its various policies, with each of these bodies attracting their share of legal controversy, and notable cases being the subject of appeal to the High Court. These cases sought to demarcate Commonwealth power. As noted however at [34.50], as a result of the Work Choices decision, s 51(xx) of the Constitution (the corporations power) is now most commonly used to underpin federal (national) employment legislation in Australia.

The modern employment environment [34.40] Changes to the WRA by the Workplace Relations Amendment (Work Choices) Act 2005 (Cth) (the Work Choices Act) dramatically transformed employment regulation in Australia. The Work Choices Act itself was subsequently superseded by the Fair Work Act 2009 (Cth) (the Fair Work Act). The chapter discusses the Work Choices amendments in some detail owing to their continuing relevance to the field of employment law, as well as the fact they gave rise to the most significant case in the field in recent decades. The Work Choices Act was assented to on 14 December 2005, and came into force in March the following year. It marked the first occasion on which the corporations power residing in s 51(xx) of the Constitution provided general authority for the federal government to control employment matters that did not transcend State borders. It has allowed the federal government to control the working conditions of most Australian employers – and their employees. Some States chose to challenge this use of the corporations power to abolish and supersede the majority of State powers over employees. The States argued that the Work Choices provisions discriminated against States in their attempt to carry out their functions and violated the essence of the Constitution in its attempt to apply laws of general application. The High Court found in favour of the federal government, establishing the right of the federal government to henceforth take an even more proactive role in employment relations – and by implication, other domains: New South Wales v Commonwealth (Work Choices Case) (2006) 229 CLR 1.

The Work Choices decision case [34.50] The High Court decision on the Work Choices Act was somewhat unusual in that New South Wales was joined, either directly as parties, or indirectly, by all States and Territories in its action. The Work Choices Act made substantial reforms to the WRA. Section 51(xx) of the Constitution (the corporations power) was used as the basis to centralise power nationally, to enable regulation of industrial relations between companies and their employees. The States and Territories challenged the constitutional validity of the reforms arguing that the corporations power was supposed to be applied with respect to the “external relationships” of such corporations and not that of employees. The States argued that the relationship between corporations and their employees – including prospective employees – was not what the corporations power was meant to be used for, and that the scope of the corporations power was affected by s 51(xxxv) (the industrial relations power) which relates to power with regard to industrial disputes. The States argued that the industrial relations power meant that the federal parliament had no authority to legislate with respect to the relationship between employer and employee, except in relation to making laws for the “conciliation and arbitration for the prevention and settlement of industrial disputes” that threatened to spread between States. The majority of the High Court rejected the States’ argument and held that the federal government’s Work Choices Act did not violate constitutional power, and did not interfere with the

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States’ constitutions or function. While two of the judges on the High Court dissented, the majority found that the corporations power, which the federal government had relied on in drafting the legislation, was capable of underpinning the legislative framework. Their Honours rejected the argument that the corporations power was limited to external relationships and by the existence of the conciliation and arbitration power: New South Wales v Commonwealth (Work Choices Case) (2006) 229 CLR 1. [34.60] The Work Choices decision was significant in marking, as it does, a shift in power from the States to the Commonwealth. Thus, as a result of the Work Choices amendments to the WRA and the consequential High Court Work Choices decision the Commonwealth government is now able to use s 51(xx) (the corporations power) to regulate industrial/employment relationships. The later Fair Work Act is therfore primarily underpinned by the corporations power.

Reforms under the Labor government [34.70] The 2007 federal election of the Rudd Labor government inevitably saw major reform to the Work Choices legislation. Having been elected on a platform that prominently featured the abolition of the Howard government’s Work Choices legislation, the Rudd government rapidly introduced the Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008 (Cth) (the TFF Act) on 28 March 2008. This Act abolished Australian Workplace Agreements (AWAs), although AWAs made prior to this date gained retrospective acceptance until their expiry or termination. The TFF Act replaced the No Disadvantage Test with the Better Off Overall Test. The Fair Work Ombudsman (FWO) has to be satisfied that any new enterprise agreement will not reduce working conditions for any employee, relative to applicable enterprise agreements, or in the absence of such an agreement, either the appropriate modern award, or a similar award chosen for the purpose of the Better Off Overall Test. New enterprise agreements must also comply with the National Employment Standards. Awards were also modernised as part of the implementation of the TFF Act, to ensure they contained provisions relating to 10 allowable award matters (minimum wages, type of work – that is, casual or permanent – arrangements, including hours and shifts; overtime rates; penalty rates; minimum annualised wage or salary; allowances; leave; superannuation; and dispute arbitration and representation). What this means, in effect, is that the complex network of federal and State awards have been simplified, with the Australian Industrial Relations Commission, and since 1 January 2010, Fair Work Australia (FWA), replacing a multiplicity of awards covering some 93 industries and occupations with “just” 122 modernised awards from 1 January 2010. New modernised awards, pay rates and loadings began being phased in from 1 January 2010, while those with transitional provisions commenced on 1 July 2010. Pre-existing rate changes will be phased in over the following five years in percentage increments each July according to the transitional provisions. Amongst the other key early changes introduced by the Rudd Labor government, it is worth noting the abolition of the Australian Fair Pay Commission and the Australian Fair Pay Secretariat in July 2009, with the power of both bodies now vested in the FWC, whose “wage panel” is responsible for setting the federal minimum wage. National Employment Standards were introduced to ensure uniform industry conditions existed throughout Australia. The National Employment Standards came into effect on 1 January 2010, controlling aspects of the workplace such as leave arrangements and termination.

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Most employees covered by the national employment system are entitled to the benefits of the 10 National Employment Standards.

The 10 National Employment Standards [34.80] The National Employment Standards set out in the Fair Work Act comprise 10 minimum standards of employment, as follows: 1 1.

Fair Work Information Statement: employers must provide this statement to all new employees. It contains information about the national employment standards, modern awards, agreement-making, the right to freedom of association, termination of employment, individual flexibility arrangements, right of entry, transfer of business, and the respective roles of the FWC and the FWO.

2.

Maximum weekly hours of work: 38 hours per week, plus reasonable additional hours.

3.

Requests for flexible working arrangements: allows parents or carers of a child under school age or of a child under 18 with a disability, to request a change in working arrangements to assist with the child’s care.

4.

Parental leave and related entitlements: up to 12 months’ unpaid leave for every employee, plus a right to request an additional 12 months’ unpaid leave, and other forms of maternity, paternity and adoption-related leave.

5.

Annual leave: Four weeks’ paid leave per year, plus an extra week for certain shift workers.

6.

Personal/carer’s leave and compassionate leave: 10 days paid personal (sick)/carer’s leave, two days’ unpaid carer’s leave and two days’ compassionate leave (unpaid for casuals) as required.

7.

Community service leave: up to 10 days’ paid leave for jury service (after 10 days is unpaid) and unpaid leave for voluntary emergency work.

8.

Long service leave: entitlements are carried over from pre-modern awards or from State legislation.

9.

Public holidays: a paid day off on a public holiday, except where reasonably requested to work.

10.

Notice of termination and redundancy pay: up to four weeks’ notice of termination (plus an extra week if the employee is over 45 and has been in the job for at least two years) and up to 16 weeks’ redundancy pay, both based on length of service.

Perhaps most significant, however, has been the commencement on 1 July 2009 of Fair Work Australia ((FWA) later renamed the Fair Work Commission (FWC)), the new national workplace relations tribunal, and the Fair Work Ombudsman (FWO). There are also Fair Work divisions of the Federal Court of Australia and the Federal Circuit Court of Australia. On 1 January 2010, the FWA/FWC replaced both the Australian Industrial Relations Commission and the Australian Industrial Registry, both of which date back to 1904, and has powers in relation to a range of functions (see [34.90]). It also superseded the Australian Fair Pay Commission established in 2005, and some of the functions of the Workplace Authority established two years later. The FWC also has powers and responsibilities under the Fair Work (Registered Organisations) Act 2009 (Cth) relating to the registration and financial accountability of unions and employer associations. 1

Source: https://www.fwc.gov.au/creating-fair-workplaces/the-national-workplace-relations -system/national-employment-standards-0 (as of 1 July 2016).

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Role of the Fair Work Commission (FWC) [34.90] The FWC is the national workplace relations tribunal. As an independent body, it has powers to carry out a number of key workplace relations roles including: • Set[ting] the safety net of minimum wages and employment conditions; • ensuring the enterprise bargaining process is fair; • dealing with protected and unprotected industrial action; • helping with resolving workplace disputes; and • dealing with termination of employment matters. 2

Role of the Fair Work Ombudsman (FWO) [34.100] The FWO is a statutory office that commenced operations on 31 January 2010, replacing the Workplace Ombudsman. The FWO’s role is to monitor compliance with the Fair Work Act, and investigate and prosecute possible breaches of workplace law. More broadly, the function of the FWO is to promote harmonious and productive workplace relations in accordance with Commonwealth workplace laws. The FWO also has an information dissemination role, distributing fact sheets and best practice guides relating to workplace rights and responsibilities of employers, employees and contractors. As such, it provides a single point of contact for information. While providing its services for free, it does not represent or advocate on behalf of any particular group or interests. However, it often represents employees in claims for unpaid or underpaid wages, investigates complaints and litigates to enforce workplace laws. While its role includes developing “strong and effective relationships with industry, unions and other stakeholders”, in its litigious role it also acts as a deterrent for wrongdoing. As previously noted, the Work Choices and Fair Work era has seen a significant erosion of State industrial powers. Private sector employees formerly covered by State awards have moved to modern federal awards.

case [34.105] The FWO prosecuted two Melbourne restaurants for underpaying 111 mostly teenage employees in pizzas and soft drink instead of correct wages. Following an investigation by the FWO from 2009 until 2012, they were found to have underpaid the employees a total of $258,000 and were ordered to pay an additional $79,000 in outstanding entitlements. They were fined a total of $139,507. The owner of both franchises was fined a further $55,803. The court noted that many of the employees were engaged under training schemes which enabled the companies to claim $45,000 in Commonwealth benefits; that the companies’ conduct had been deliberate and their cooperation with the FWO’s investigation less than forthcoming. Consequently, the court held that this was a fundamental breach of the safety net provisions of the Fair Work Act and any penalties imposed had to deter possible further breaches: FWO v Bound for Glory Enterprises Pty Ltd [2014] FCCA 432.

Fair Work Act Review and Amendments to the Act [34.110] The first major review of the Fair Work Act by a panel of three eminent experts was released in August 2012. The 294-page report entitled Towards More Productive and Equitable Workplaces states that: “[T]he Panel was asked to assess the operation of the Fair Work Act and the extent to which its effects have been consistent with the objects set out in s 3 of the Fair Work Act.” While wide-ranging, and taking account of some 250 submissions, and proposing 53 changes to the legislation, the Review’s suggested amendments were relatively modest in nature, with most not implemented by the government. 2

Source: https://www.fwc.gov.au/creating-fair-workplaces/the-national-workplace-relations-system (as of 1 July 2016).

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Despite this and following the Review, the Federal government enacted the Fair Work Amendment Act 2012 (Cth) and Fair Work Amendment Act 2013 (Cth). Amongst other matters, the Fair Work Amendment Act 2012 (Cth) harmonised all time periods for the lodging of unfair dismissal claims and general protection claims to 21 days. It empowered the FWC to dismiss unfair dismissal claims which were vexatious, or where the applicant had acted unreasonably (for example, failed to attend a conference or comply with a Commission Order). It clarified that enterprise agreements could not be made with a single employee or include prohibited terms allowing an employee to opt out of an enterprise agreement. Also, it prohibited union officials from acting as bargaining representatives for an employee unless the union had coverage to represent the employee. Finally, it permitted employers and unions covered by an award to make applications to vary the award, to remove uncertainties and empowered the FWC to strike-out such applications if they were irregular, frivolous or had no reasonable prospect of success. Less than six months later the government enacted the Fair Work Amendment Act 2013 (Cth). This was far more extensive than the previous legislation. First, it expanded the groups of employees entitled to request flexible work arrangements to employees with school-aged children; carers; disabled employees; employees over 55 years; and employees experiencing domestic violence. Employees could also request part-time hours to care for children after returning from parental leave. It also clarified the right of the employer to refuse requests for flexible working arrangements on reasonable business grounds. Reasonable business grounds were clarified to include that: the work arrangements would be too costly; there was no capacity to change the arrangements to accommodate the request; the arrangements would be impractical for other employees; the new work arrangements would lead to a loss of efficiency or productivity or would result in significant negative impacts on customer service. The Act also increased the taking of concurrent unpaid parental leave from three to eight weeks; special maternity leave; and the entitlement to transfer to a safe job during pregnancy. The Act also enabled new content requirements to be inserted into modern awards and enterprise agreements in relation to employers consulting with employees regarding changes to rosters and ordinary hours of work. Employers must now “genuinely”” consult with affected employees about proposed changes, allow employees to respond and consider employees’ views. Finally, the Act empowered the Commission to take into account the need to provide additional remuneration for employees working shifts, overtime, unsocial or irregular hours, or weekends and public holidays. Perhaps the government’s most extensive amendments were its anti-bullying measures. Under the Act bullying is defined as repeated behaviour directed towards a worker or group of workers which creates a risk to health and safety. Employees who believe they are being bullied in the workplace may apply to the FWC for a “stop bullying order”. The FWC is obliged to process the application within 14 days and if it is satisfied that bullying has occurred make the necessary orders for the bullying to stop. However, the FWC has no power to order the payment of damages or pecuniary penalties. These matters must be referred to the courts under relevant workplace health and safety legislation or via a breach of contract claim. It is noted that after six months of operation of these sections, only one complainant has been successful in obtaining a stop-bullying order. This does not mean that there have not been other satisfactory outcomes, as a stop-bullying order is a last resort saved for the serious of occasions which cannot be remedied by agreed conciliation. Though it would be useful to be able to outline the Act by providing a detailed account of the case, the parties’ names were suppressed in Applicant v Respondent [PR548852], as were the background facts. Nevertheless, the nature of the orders allow us to understand the severe nature of the offence. The order does demonstrate the degree to which the FWC will customise relief to suit particular circumstances and employment contexts. The respondent was ordered to:  Complete any exercise at the employer’s premises before 8.00 am (and the applicant conversely was ordered not to arrive at work before 8.15 am);

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 Have no contact with the applicant unless in the company of others;  Make no comment about the applicant’s clothes or appearance;  Send no emails or texts to the applicant except in emergency circumstances; and  Raise all work issues in the first instance with the Chief Operating Officer or his subordinate. The Act also enabled new content requirements to be inserted in modern awards and enterprise agreements in relation to employers consulting with employees regarding changes to rosters and ordinary hours of work. Employers must now “genuinely” consult with affected employees about proposed changes, allow employees to respond and consider employees’ views. Finally, the Act empowered the Commission to take into account the need to provide additional remuneration for employees working shifts, overtime, unsocial or irregular hours, or weekends and public holidays.

Sources of legal rights and obligations [34.120] While employment law is complex, at its most basic level, the legal rights and obligations of both employers and employees can be seen to stem from just three major sources. First, and most obviously, as we have already seen, federal, and nowadays to a lesser extent, State, legislation impacts on the employment arena. While the industrial relations power under the Australian Constitution restricts the power of the federal government to legislate in this area, as discussed at [34.30]–[34.60], the last decade has seen this restriction successfully challenged before the High Court via the use of the corporations power. The common law forms a second and powerful source of inspiration for employment law. Common law often forms a solid basis for resolving employment law disputes where legislation may not exist or when its meaning is disputed. The basic relationship between employee and employer – involving the employee agreeing to offer labour in return for monetary reward – is governed by an implied or an express contract. Express contracts of employment, which may be written, oral or a combination of both, are often governed by compulsory legislative provisions of either a State or federal nature. The implied common law terms, often based on common law precedents, are nevertheless relied on by courts to determine the meaning or validity of these contracts. An employment contract is similar to other types of contracts and still requires the elements of any other simple contract to be present (for example, intention or capacity). Awards and enterprise agreements form a third significant source of employment law. Enterprise agreements have a more constrained scope with the potential to be negotiated at a micro, single-firm level. While awards are legally enforceable orders made by a federal or State government tribunal, enterprise agreements are created between employers and employees to directly regulate conditions of employment and then registered with a government body (the FWC or State industrial commissions).

Defining the employment relationship [34.130] The origins of today’s system of employment law stem from traditional master and servant legal concepts. While an employee serves his or her employer (master), an independent contractor provides a service but strictly does not promise to serve the principal/employer. Furthermore, within reason, the independent contractor often decides how and sometimes when to produce the end result and most often completes work for other parties as well. Additionally, a principal/employer is generally not liable for those contracts that the independent contractor enters into while an employee, such as a manager, may often enter into contracts with suppliers. In doing so, the manager has acted as an agent of the employer, and the employer may be held vicariously liable for those acts. The issue of vicarious liability is discussed further at [34.350].

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[34.140] In defining the employment relationship, a distinction needs to be drawn between a contract of service – which creates an employer-employee relationship – and a contract for services, which involves a relationship between a party (the principal) and an independent contractor. This latter relationship has very different and much more limited legal implications. On the other hand, the former relationship, that is, an employer-employee contract of service, is one that brings with it a number of legal rights and obligations for both employers and employees including the application of federal and State employment-related legislation. For example, most employees have unfair dismissal rights, access to workers compensation in the case of injury or illness, and the benefit of certain statutory obligations such as sick leave and annual holiday leave, to name a few. Furthermore, the employer-employee relationship is also often subject to federal or State awards or enterprise agreements. Additionally, employers (as opposed to principals hiring independent contractors) are required to pay payroll tax (where the size of the company’s payroll reaches a certain threshold), superannuation, fringe benefits tax and training levies. The issue of vicarious liability also comes into play with employers becoming vicariously liable for torts committed by employees, again within certain legal constraints. For example, when an employee acts negligently but within the scope of his or her duties and injures another employee or other person, the employer may be held liable. There are also certain legislative rights that sometimes apply to independent contractors such as various workplace health and safety laws and discrimination laws. Nevertheless, it can already be seen that the distinction between a contract of service and a contract for services is extremely important when determining a worker’s rights.

Legal tests applied [34.160] Over time the courts developed legal tests to identify when a contract of employment (contract of service) actually exists. In order to determine whether a worker was an independent contractor or a genuine employee, the common law developed what is commonly referred to as the “control test”. This test posed the question: Did the so-called employer have the right to tell the so-called employee not just what to do but also how to do it? Or, to use the wording of a significant case, Humberstone v Northern Timber Mills (1949) 79 CLR 389, whether the purported employer had “ultimate authority” over an individual. If so, using the control test, the individual was deemed an employee, not an independent contractor, regardless of whether that right was exercised. Using the control test the actual degree of control the employer exerts on his or her employees is less relevant than the existence of the “right” to exercise control. The High Court held in Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 that “there must be some scope for control, even if only in incidental or collateral matters”.

case [34.170] A trapeze artist performing for Wirth Brothers circus sustained injuries during a scheduled performance and claimed workers compensation. The employer in this case attempted to argue that they could not control how the employee conducted his performance and therefore the relationship could not be characterised as one of employer-employee. The High Court held that the employer had a right to control the trapeze artist and therefore was, from the perspective of the law, in fact an employer of the injured individual: Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561. [34.180] The issue of control is complex. The multi-factor test has evolved through the courts in response to continuing difficulties in distinguishing an employee from an independent contractor solely on the basis of control. The circumstances of Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 is a good example of how

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tenuous the control can become in cases where the employee, although working for a single employer, still has a great deal of leeway in how their work is conducted because of the highly skilled or creative nature of their work. Workplace reform and the rapid pace of technological advances in the workplace have further clouded the issue. A surgeon working for a hospital would clearly appear to be an employee, yet will perform novel and independent procedures in the course of his or her work without real or potential direction from their employer. Courts have moved to the point where they now consider particular cases on their merit with the existence of control no longer the sole major criterion. The multi-factor test developed in Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 is now considered the authoritative test in Australia. It takes circumstances collectively into account, although a consequence of the multi-factor test is that courts and tribunals have retained substantial discretion in determining who is, or is not, an employee:

case [34.190] The case involved the issue of liability for an injury incurred by a truck driver caused by the incorrect loading of logs onto his truck by a third party. The driver claimed compensation from the sawmill operator for whom the work was being carried out. The sawmiller argued that both the driver and the party loading the truck were independent contractors, not employees. The High Court found in favour of the sawmiller. Mason J said (at [25]): “The facts … do not support an inference that Brodribb retained lawful authority to command” either the driver or the loader of the logs. Both parties, his Honour added “maintained their own equipment, set their own hours of work and received payments, not in the form of fixed salary or wages, but in amounts determined by reference to the volume of timber which they had been involved in delivering through the use of their equipment, to the sawmill.” While an employee of the sawmiller did direct the truck driver as to which logs were to be removed, for example, he had no authority to direct the truck driver in the management and control of his equipment: Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16. [34.200] The problems involved in determining the status of a worker as one employed either under a contract of service (employee) or a contract for services (independent contractor) were later considered by the High Court in Hollis v Vabu Pty Ltd (2001) 207 CLR 21:

case [34.210] The case concerned a collision between a pedestrian and a courier on a bicycle and was the subject of several appeals. At a State level, the New South Wales Court of Appeal in an earlier case involving the company noted that the couriers bore the costs of providing and using their own equipment (in this case primarily bicycles) and were therefore independent contractors: Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 81 IR 150. However, the High Court overturned this finding, reverting to the control test in its decision. It held that a number of factors indicated a high level of control by the courier company, Vabu, over the offending cyclist including the wearing of Vabu uniforms, the fixed payment system which their couriers conformed to, and the fact that the couriers were unable to generate goodwill independent of their position with Vabu: Hollis v Vabu Pty Ltd (2001) 207 CLR 21. [34.220] Cases since Hollis v Vabu Pty Ltd (2001) 207 CLR 21, such as the High Court’s decision in Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161, have seen decisions pivot on the multi-factor

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test. Collectively, these other factors that the courts have identified as relevant in determining the employment relationship are beginning to accumulate. The range of factors emerging from the cases include:  Can workers choose, within limits, their hours of work?  Are workers required to supply their own uniform, tools, equipment, and source their own resources to carry out the tasks of their job?  Are workers able to delegate aspects or indeed the entirety of their job and work for others?  Are workers hired to carry out a particular task, as opposed to a relatively endless series of tasks like an employee?  Are payments to workers irregular, depending on the nature and quantity of work they undertake?  Do workers have any chance of making a profit or bear any risk of loss? If collectively and on balance, the answer to these questions is “yes”, the “worker” is almost certainly not an employee at all but an independent contractor, and the reverse is also true. The facts of each case must be weighed up individually, although control still remains the main element. Other indicia of a worker being an employee include:  The employer having the legal right to exercise control over the worker and the way work is performed.  The employer feeling obliged to pay the worker’s tax, holiday or sick pay.  The worker acting as an integrated part of the employer’s business. The issue of control underlies a number of the points listed above and it is worth emphasising that if the “employer” determines to a large degree the pattern of behaviour of an individual on an ongoing basis, then the individual concerned is likely to be deemed an employee. Simply by referring to the relationship as something other than that of employer and employee does not change the relationship and the courts will investigate the actual effect and true nature of the relationship between the parties. This conclusion gives rise to a number of significant duties on the part of the employer and an employee.

Employment categories [34.230] Full-time employees are typically engaged for a maximum 38 hours per week, plus reasonable additional overtime, as per the National Employment Standards (see [34.80]). In addition to normal full-time employees, many workplaces include a mix of employees that fit less neatly into the standard employee category. Notably, casual employees, those explicitly hired for variable periods dependent on the employer’s needs, are usually not eligible for key statutory benefits accorded full-time workers, such as holiday and sick leave. However, casual employees are entitled to a significant loading (normally up to 25%) on top of normal hourly rates as compensation. Part-time employees often work for a single employer, working less than the full-time workload, on an ongoing basis, pending mutual agreement. The rate of pay is calculated pro rata on the basis of hours worked and normal entitlements accrued, proportional to the equivalent full-time benefits. However, as with casual employees, the law applies certain restrictions to the freedom of employers and employees, even with mutual consent, to craft unique work conditions. Agreements and awards frequently establish a minimum and maximum engagement period (number of hours per week) a part-time employee can work without being considered full-time.

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Also attracting unique conditions are the category of employees that are engaged in training. Trainees, or more formally, apprentices, work for an employer, often for a reduced rate of pay, in return for the opportunity to gain on-the-job training that may lead to a trade or vocation. They are often given statutory time away from work for formal off-the-job training, and the federal and State governments, particularly in the case of apprenticeships, closely regulate and often subsidise this process.

Recruitment and selection [34.240] Recruitment is increasingly becoming a focus in employment law, with employers’ conduct scrutinised carefully in relation to discriminatory behaviour. For example, in Blair v Goldpath & Callinan [2010] QCAT 483, an employer was forced to apologise formally for asking an applicant for a storeman position “do you have children?” and questions about his health. The recruitment process does not conclude with a successful job interview. The nature of an employment contract, a job description, the training process to induct the new employee into his or her new work environment and how his or her early efforts are appraised, are all issues relevant to employment law. Businesses, particularly those with established human resources departments, are increasingly documenting these processes. This can lead to improved practice but also can increase the potential for an employer to be found liable, in case of breaches of the law. For example, formal feedback processes or job descriptions are increasingly found in even small and medium-sized firms. The existence of such statements of duties or performance is primarily a management prerogative and not necessarily a domain for employment law directly. However, such behaviours and records may prove to be relevant in relation to issues such as unfair dismissal, as well as in relation to discrimination and workplace health and safety issues, and therefore deserve to be scrutinised and monitored carefully by the employer. It is worth noting, in a theme we will return to before the end of this chapter, that simply because unlawful behaviour has taken place out of sight of the employer, does not mean the employer is not liable: the thorny question of vicarious liability places an obligation on the employer to take reasonable care to ensure that his or her employees are conforming with the law.

Common law duties of an employer [34.250] In addition to legislation, the common law forms the background to many of the obligations in individual contracts and collective (enterprise) agreements – if not expressed, then implied. A somewhat obvious obligation under the common law is to pay wages to employees, but this is only if the employee is ready, willing and able to complete their duties, and does not include certain categories of employees such as casual employees, unless work is available to be performed. Interestingly, although an employer must pay a full-time employee wages in most cases if the employee is ready, willing and able to work, an employer does not have to provide full-time employees with work unless the employee provides a special skill, or is someone whose wages are commission-based. Nevertheless, under certain circumstances an employer may be able to stand-down any type of employee without paying them wages, for example when the contract of employment has been frustrated. Since the 1980s it had been widely believed that the common law of employment recognised an implied duty of mutual trust and confidence. This duty originated in the UK where it was primarily linked to the concept of constructive dismissal and based around the relationship between the employer and employee rather than on performance of the contract (Malik v Bank of Credit and Commerce International SA [1998] AC 20). Fundamentally, it recognised that the employment relationship is premised on co-operation

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and mutual respect. However, in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 the High Court held that the duty is not applicable to Australia because of the legislative protection against dismissal that already exists:

case [34.255] In 2009 Barker, a bank executive manager, was advised by his employer, the Commonwealth Bank, that he was being made redundant but would be redeployed within the bank in accordance with the bank’s redeployment policy. The redeployment policy, however, was expressly excluded from employment contracts. The bank failed to make sufficient and timely efforts to redeploy Barker and eventually terminated him with only four weeks’ notice. Barker sued the bank alleging that in failing to follow its own redeployment policy, the bank had breached an implied term of mutual trust and confidence. The Full Court of the Federal Court held, by majority, that a term of mutual trust and confidence was implied by law into the contract of employment. The bank was in breach of this implied term in failing to advise Barker of possible redeployment opportunities and in terminating his employment without sufficient redundancy pay. The Court affirmed the decision at first instance to award Barker $317,500 in damages. The High Court unanimously allowed the appeal. The plurality of the High Court (French CJ, Bell and Keane JJ) in their joint judgment said (at [15]) that: “The primary question raised by the appeal is whether, under the common law of Australia, employment contracts contain a term that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between them.” Their Honours held that such a term of mutual trust and confidence should not be implied by law into employment contracts. It was not reasonably necessary to do so for its efficacy – in essence stating that it would be necessary for the nature of the contract to implicitly require this, rather than being an objective test of reasonableness (at [36]). Implying such a term was more appropriate for the legislature and was beyond the legitimate law-making function of the courts (at [19] and [40]). The development of the implied term of mutual trust and confidence in the UK “is not applicable to Australia” (at [35]): furthermore, to imply such a term would impose obligations not only on employers but also on employees the consequences of which had not been addressed in the appeal (at [38]). Their Honours were careful to note that this did not mean that there is not a general obligation to act in good faith (fidelity) in regard to employment contracts (at [42]): Commonwealth Bank of Australia v Barker (2014) 253 CLR 169. [34.260] Amongst other key elements implied into all existing agreements by the common law is the increasingly important issue of health and safety. This places obligations on employers at a number of stages, including recruitment (an obligation to hire employees that are able, competent and qualified to carry out a role), and at later stages of the employment process including providing proper supervision when necessary. While common law duties have largely been clarified and made explicit in statutory law, some elements of common law remain implicit. For example, the common law obliges the employer to provide a safe workplace and places a duty of care on the employer to ensure that systems of work are, and remain, safe. The issue of workplace safety is discussed at [34.370].

Common law duties of an employee [34.265] It may seem less obvious, at first glance, that the common law also places obligations on the less powerful member of the employment relationship: the employee. In fact, the common law provides that employees, on their part, must act in the best interests of their employer and faithfully carry out the tasks

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assigned to them. Indeed, the employee is obliged to obey the reasonable directions of the employer or the employer’s lawful agents as long as those requests are lawful, reasonable, safe commands and within the scope of the employee’s job description. If an employer dismisses an employee without proper notice, the employee may consider an action for breach of contract. To bring such an action can be costly and time-consuming and therefore the most common action is for unfair dismissal under the relevant legislation. Nevertheless if an employee is excluded, for example the FWC, because the employee is above the legislative financial cap in the Fair Work Act (as discussed at [34.310]), then the employee may consider an action for breach of contract at common law.

case [34.270] The curious case of Ottoman Bank Ltd v Chakarian [1930] AC 277 is still frequently cited in employment law. It concerned an employee of an Armenian bank who refused to be transferred to the bank’s branch in the Turkish capital, now known as Istanbul. The employee’s refusal (followed, in fact, by his decision to flee to Greece) was because the Armenians were a persecuted minority in Turkey and he feared for his life if forced to move there. Despite its vintage, the case is peculiarly modern and a good early example of employment law in action. The employee won the case on the basis of constructive dismissal, that is, he felt that he had no other choice but to resign. The court agreed that it was unreasonable for the employer to require the employee to put his life at risk for the company. The case also had an interesting footnote when another employee of the bank refused a transfer to Asia Minor and had his case of wrongful dismissal denied because Asia Minor was not seen by the court to be a dangerous posting despite the employee’s contention that his inability to speak the local language would mean he faced a degree of hostility in his new workplace. [34.280] The issue of protecting an employer’s best interests has particularly broad implications preventing employees, even in the absence of confidentiality agreements, from betraying trade secrets to a competitor of the employer, or setting up a competing entity to the employer whilst working for the employer. Under certain circumstances these constraints on an employee may continue to apply after the relevant employment relationship is terminated depending on the particular case, for example, the degree of confidentiality of the information later betrayed.

Termination of employment Dismissal at common law — breach of contract [34.290] The case of Ottoman Bank Ltd v Chakarian [1930] AC 277 discussed at [34.270] is a historic example of how legally fraught the process of dismissal can be. This point was reiterated in the case of Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37:

case [34.295] The respondent company executive was dismissed following allegations of sexual harassment made by another employee of the company. He was not given an opportunity to respond to the claims nor a right of appeal as stipulated in his contract. The New South Wales Court of Appeal held that contractual procedures intended to protect employees must be followed. Consequently, the Court awarded the respondent six months’ salary and a “Special Bonus” of $1.4 million in

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accordance with the terms of his contract: Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37.

Limitations [34.300] However, like any other contract, the common law contract of employment can be terminated subject to certain limitations. In Australian law, these constraints commonly include the issue of notice. Even when notice is not explicitly stipulated in a contract or able to be appraised by reference to legislation (such as the Fair Work Act) the law is able to generally determine its existence on the basis of the frequency of wages or time remaining under the contract, or by reference to an overarching award or agreement. Most often, legislation also implies minimum notice periods depending on the length of service and type of employee. The employer is free to summarily (instantly) dismiss an employee where he or she commits a serious breach of a clause of the contract or the employer is able to establish that a clause was about to be breached. Interestingly, the bankruptcy of either party does not necessarily rupture the employment contract even though employees may rightly fear their entitlements are at risk. To avoid employees losing all their entitlements when an employer is placed into liquidation, the government introduced the General Employment Entitlements and Redundancy Scheme (now known as the Fair Entitlements Guarantee). Although often capped, the scheme provides some protection to employee entitlements including unpaid wages, notice periods, redundancy pay and annual and long service leave.

Dismissal in breach of statute [34.310] Like other elements of employment law, the law in relation to dismissal procedures is still evolving. The new decade saw the introduction of significant changes to legislation which dramatically increased the uniformity of rights in relation to dismissal, particularly for those covered by the national system which now includes most employees in Australia. Since 1 January 2010, FWA/FWC has been charged with dealing with dismissal claims at the federal level. Briefly, under the provisions of the Fair Work Act, there are two main types of dismissal breaches that may form the basis for applications: unfair dismissals and dismissals that breach “general protections”. There is a third category known as unlawful termination but this is only applicable when an unfair dismissal or general protections claim cannot be made: a possible example, although not tested at this stage, may be a State government employee. Regarding unfair dismissals, for a dismissal to be deemed to have been unfair, conditions (in addition to the most basic condition that the employee was indeed dismissed) need to be met: First, that the circumstances of the dismissal are deemed to be harsh, unjust and unreasonable. Furthermore, if the employee was employed by what the Fair Work Act states is a small business (those which employ fewer than 15 staff), the dismissal needs to violate the Small Business Fair Dismissal Code and the employee must have been employed with the business for at least 12 months. For larger businesses, the employee must have been employed for a period of at least six months in order to claim unfair dismissal. The procedure for lodging a complaint with the FWC requires the dismissed employee to lodge an application within 21 days of the date of dismissal. In terms of jurisdiction, the FWC can only act in cases where the employee is:  covered by national unfair dismissal laws (which, in the case of Queensland employees, means all those employed by private enterprise – however, there are exemptions in some of the other States);  employed for a period of at least six months (or 12 months in the case of small businesses); and

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 earning less than the legislative cap which is indexed each year in July (as at 1 July 2016, it is $138,900 per annum) or if earning more than the legislative cap, covered by an award or agreement. The decision in Lawrence v Coal & Allied Mining Services (2012) 202 IR 388 is an interesting example of FWA’s broad interpretation of the term “harsh, unjust, unreasonable” when determining unfair dismissal cases.

case [34.320] In Lawrence v Coal & Allied Mining Services (2012) 202 IR 388, the Full Bench of FWA overturned the decision at first instance which had found no unfairness in the dismissal of Mr Lawrence over breach of Mt Thorley’s safety procedures. The case related to an occasion when Mr Lawrence removed safety locks on a pump to allow him to switch the pump on and complete his duties, which caused a possible safety risk. The locks were designed to prevent the pump being switched on while pipeline contractors were working. However, prior to removing the locks, Mr Lawrence had checked the full length of the pipe and subsequently informed the job contractor of his actions. Initially it had been ruled that the dismissal was not unfair given the seriousness of Mr Lawrence’s actions in a high-risk environment. However the Full Bench of FWA determined that the dismissal was “manifestly harsh” taking into account: Mr Lawrence’s 28 years’ of unblemished and exemplary service, including on safety issues; his attempt to mitigate the risks; his willingness to admit to the breach and express remorse; and the unlikelihood that Mr Lawrence would be able to find comparable work in future. Interestingly, the Full Bench concluded that had the employer chosen to discipline Mr Lawrence by suspending him without pay, it would have supported the action. [34.330] There are a number of significant exemptions from coverage of the national unfair dismissal laws. The laws do not cover those employed by the Queensland, New South Wales, Tasmanian, Western Australian or South Australian State governments. Additionally, local government employees in Queensland, New South Wales and South Australia are exempt, as are employees of non-constitutional corporations (such as sole traders, partnerships or trusts) in Western Australia. Not surprisingly, contractors employed on fixed term or seasonal contracts, or those who resign voluntarily, are also exempt from protection. Interestingly, an employee who has suffered deterioration in their status but not their remuneration or duties at a particular workplace is unable to gain unfair dismissal protection unless the employee leaves his or her place of employment and claims constructive dismissal, that is, the employee felt that they had no other choice but to resign. Some protection is now available in similar circumstances by making a general protections claim under the Fair Work Act. To a significant extent the Act consolidated a range of protections that were previously dispersed across different sections of earlier federal industrial relations (employment) legislation. Some of the protections have been broadened, in particular the discrimination provisions, including being able to bring an action without having already been dismissed and actions being available to both existing and prospective employees. General protections provisions primarily focus on protection from workplace discrimination and matters akin, with the ultimate aim of protecting workplace rights. In effect, general protections ensure that employers cannot legally take adverse action against an employee (such as dismissing the employee, refusing to employ them, discriminating against them or even demoting them) because the employee has a

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workplace right, has exercised such a right, or proposed to exercise it. Such workplace rights are very broadly defined, ranging from entitlement to an award or agreement or a workplace law. These entitlements can be categorised as:  workplace rights (entitlement to a benefit under a workplace law, or the entitlement to make a complaint or inquiry);  industrial activities (such as the right to belong to a union);  sham arrangements (where a person’s employment status is characterised falsely as an independent contractor); or  other protections (such as freedom from discrimination). Employers must not take adverse action, for example, if an employee (or prospective employee) is ill or injured, or because of colour, sex, race, sexual preference, age, physical or mental disability, family responsibilities, pregnancy, political opinion, marital status, religion or national extraction. General protections do not require that employees have been dismissed for the provisions to be applicable. A person can nevertheless make an application to the FWC to deal with the dispute which can lead to either a private conference, or, if such a conference fails to resolve the dispute, a court hearing. If the FWC believes that an application to a court would have a reasonable chance of success, it must advise the parties accordingly. The same process applies in cases relating to dismissal, with general protections dismissals applications being required within 21 days of the dismissal taking effect. There is a burgeoning number of cases in this area with findings in favour of both employers and employees. This is not surprising in view of the broad scope of the General Protections provisions. It is important to note that these sections can also be used against employees or their unions by employers if their rights have been adversely affected. The most significant General Protections case was brought under s 346 of the Fair Work Act. Section 346 of the Act prohibits an employer from taking adverse action against an employee because the employee “is ... an officer or member of an industrial association” or “engages ... in industrial activity”. Adverse action includes dismissing an employee and altering the position of an employee to the employee’s prejudice. An example of how this section operates can be illustrated by the decision of the High Court in the Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 248 CLR 500. It is important to note that whilst the employee was not successful, the failure of his action was related to his behaviour in disseminating unsubstantiated accusations about his employer. The case does not represent a failure of the adverse action sections in the Fair Work Act, although as a result of this first case brought before the High Court, the way in which key sections of the General Protections are to be interpreted have crystallised.

case [34.340] Barclay was employed by the Bendigo Regional Institute of Technical and Further Education (“BRIT”) and was also an official of the Australian Education Union (the AEU). In January 2010 he sent an email to all the members of the union employed by BRIT alleging serious misconduct on the part of certain unnamed persons employed at the Institute. He alleged that they had been involved in the production of false documents in relation to a forthcoming audit and warned members not to participate in these activities. He did not report the allegations to management and did not provide details when requested by them. Consequently, in February 2010 he was asked by

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BRIT’s Chief Executive Officer, Dr Harvey, to show cause why he should not be disciplined for his actions. When he failed to do so, Dr Harvey suspended Barclay on full pay pending a disciplinary investigation. Barclay and the AEU then commenced proceedings in the Federal Court for a declaration that BRIT had contravened s 346 of the Fair Work Act. Dr Harvey gave evidence that she had not taken adverse action against Barclay because of his industrial activities or union membership but because of the inappropriate way in which he had raised the allegations of serious misconduct. The trial judge accepted Dr Harvey’s evidence and dismissed the application. Barclay and the AEU appealed to the Full Court of the Federal Court which, by a majority, allowed the appeal. BRIT then appealed to the High Court. The High Court unanimously allowed the appeal and held that as Dr Harvey’s evidence had been accepted and had not been challenged before the Full Court, the alleged adverse action taken against Barclay could not be established. It could not be argued that the alleged action had been for a prohibited reason under s 346 of the Fair Work Act: Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 248 CLR 500.

case [34.345] The scope of the adverse action sections for employees is further demonstrated by the decision in Murrihy v Betezy.com.au Pty Ltd (2013) 238 IR 307: The applicant had not been paid commissions for three years to which she was entitled under her contract. After repeated attempts to secure these payments she informed the CEO that she would be seeking legal advice. The CEO threatened to dismiss her and after receiving a letter from her lawyer prevented her from accessing the company’s computer system and suspended her without pay. The Federal Court held that this constituted adverse action against the applicant because it prevented her from exercising her workplace right to seek legal advice about contractual matters. The Court awarded her compensation for unpaid wages, commissions and superannuation contributions, interest on those amounts and damages in excess of $500,000: Murrihy v Betezy.com.au Pty Ltd (2013) 238 IR 307 and Murrihy v Betezy.com.au Pty Ltd (No 2) [2013] FCA 1146.

Vicarious liability [34.350] One of the most onerous but necessary aspects of employer obligations is to ensure that the workplace, and indeed the workforce, conforms with relevant legislation and common law duties. This gives rise to the issue of vicarious liability which may see an employer found liable for behaviour of which the employer was not aware. The issue of duty of care is thus dramatically extended and requires an employer, in effect, to create a system whereby employees are kept systematically informed of changes in company policy and that the employees’ adherence to company policy is reasonably monitored. An employer may be found responsible for an employee’s injury to him or herself, other employees or outsiders such as clients. This can occur either through an employee’s direct breach of the common law duty of care or through a breach of statutory duty. Alternatively, the employer may be liable strictly under workers compensation legislation which operates as a no-fault system. If sued at common law for either a breach of an independent (employer) duty of care or for vicarious liability, the employer can rely on one of two defences:

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1.

Contributory negligence: If an employee has substantially contributed to an accident through negligent behaviour, the degree to which an employer may be found to be responsible may be reduced. However, the courts in general have proved reluctant to apply this exemption or mitigating rule, acknowledging that employees generally are working with imperfect knowledge in imperfect conditions. Thus, the courts reason, it is unfair to expect employees to make perfect judgments and employers need to take this into account. For an employee to be held liable, their actions would normally need to be outside the scope of their duties and culpably negligent.

2.

Volenti non fit injuria: In rare cases, an employee’s willingness, in writing or otherwise, to assume a workplace risk, may be used to mitigate an employer’s responsibility. Courts are particularly reluctant to apply volenti non fit injuria simply on the basis of a written agreement. Interestingly, implicit agreements are, if anything, more legally plausible. Certain jobs, such as military assignments, are intrinsically and transparently dangerous and by taking on these jobs, an employee may well be considered to have tacitly acknowledged the risk incidental to the prosecution of the duties involved in that job.

Workplace health and safety and workers' compensation [34.370] As discussed at [34.250], the common law places significant obligations on employers, employees and other relevant parties in regard to workplace health and safety. This part provides an overview of the history of this issue together with workers compensation and rehabilitation. Additionally, it provides an overview of the current state of play of the National Health and Safety legislation, a basic introduction to the Queensland legislation comprising the Workplace Health and Safety Act 2011 (Qld) and Workers’ Compensation and Rehabilitation Act 2003 (Qld), in addition to a basic introduction to the role of the relevant parties, regulations and codes of practice. Every year thousands of workers worldwide die as a result of injuries or diseases suffered at work with hundreds of thousands being injured or becoming ill. In 2013, nationally compiled workers compensation figures showed that 186 workers died (a slight drop on previous years) and their families compensated, because of work-related injuries and diseases. Another 135,000 suffered a serious injury or illness (Safework Australia, 2014). As bad as these figures are, they seriously underestimate the real extent of workplace injury and disease. Of the 223 workers recorded as dying from work-related causes in 2011, only 45 are listed as dying from exposure to chemicals and other substances, most notably asbestos. In fact, it is probable that thousands, if not tens of thousands, of Australians die from work-related cancers. Given that there is typically a gap of decades between the time workers are exposed to a dangerous substance in their workplace and the onset of cancer, many workers fail to pursue a successful workers compensation claim either because of the difficulty in legally proving a causal link or due to the fact that they are too ill to pursue a claim. Workers compensation figures also fail to include the many non-workers who die because of work-related incidents, namely, self-employed contractors, farmers and their families, pedestrians and residents who happen to live next to a factory or storage facility that emits dangerous substances into the air, water or soil. Thus, while official statistics tell us that the largest number of fatalities occurred in the road freight industry, these figures only include drivers of vehicles engaged in that industry. They do not include the families killed in private cars when a truck driver, exhausted from working long hours, fell asleep at the wheel. Nor do the official figures account for the indirect costs of workplace injury or disease – the emotional anguish of losing a parent or child; the cost of rehabilitating injured workers; the dollars

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involved in recruiting and training replacements for those killed or injured at work; and the financial strain imposed on our already over-burdened health system. England introduced the Factories and Shops Act 1833 (UK) and gradually the Australian colonies enacted similar legislation. Accordingly, Victoria, with its relatively large manufacturing workforce, introduced the Factories and Shops Act 1876 (Vic), Queensland did not have health and safety laws until 1896. In Tasmania and Western Australia, workers had to wait until the dawn of the 20th century for any protection. Even when laws were introduced, the Factories and Shops Acts suffered from a number of major problems. Many small businesses, particularly in the rural sector, were exempted. The laws typically only addressed problems associated with traumatic injury and death caused by entanglement in machinery and the like. They did little to mitigate the effects of occupational disease. Enforcement was often lax with inspectors tending to let wayward employers off with a warning or a small fine. Even when negligent employer behaviour resulted in workplace deaths, the courts invariably imposed fines that barely exceeded those handed down for breaches of traffic laws. Nor were workers and their representatives empowered to have any say in the way safety issues were handled (or neglected) at their place of employment. Where complaints were made, employers frequently responded by dismissing the concerned worker as a “trouble-maker”.

Workers' compensation [34.380] Effective workers compensation laws were first enacted in Bismarck’s Germany and by the end of World War I all the Australian States had compulsory workers compensation insurance schemes in place. These laws differed markedly from the remedies available to workers at common law, where workers had to prove that their injury resulted from the negligent actions of their employer. Under the workers compensation schemes all employers were required to pay a premium for each of their workers. If no premium was paid, any injured worker was still able to draw on the central, government-controlled fund with payments and penalties then being sought from the non-compliant employer. Workers compensation also operated on a “no-fault” basis. This means that an injured worker only had to prove he or she suffered the injury at work. Workers compensation boards were not interested in the cause of the injury or disease, only in providing financial remedies for the afflicted employee. While workers compensation laws were a great boon for Australian workers, they retained a number of faults. They did little, for example, for those who suffered from occupational illness. Workers who had diseases such as silicosis, which was rife among miners and building industry workers who spent much of their life drilling into sandstone or granite, did not receive compensation until well into the 20th century. Nor did workers compensation do much to protect workers from being injured in the first place. Where payments were given they were almost always less than the worker would have received if he or she had continued in their normal employment. Moreover, payments were normally terminated after several months. While those who suffered permanent impairment did receive a “lump sum”, this also was seldom enough to cover a worker’s loss of earning power. For workers who suffered workplace injuries and diseases there was always the option of pursuing a “common law” claim through the courts. However, such claims tended to be both expensive and time-consuming. In suing an employer for damages, a worker is engaged in what is called a “tort action”. This means that the worker is seeking recompense, in the form of a financial payment, for the permanent or temporary loss of his or her health and/or earning power. For such a claim to be successful a worker must prove both that he or she was employed by the employer being sued at the time of the injury, and that the injury or disease resulted from the employer’s negligent action, that is, the injury or disease was the employer’s “fault”. To do this is by no means easy since the burden of proof falls upon the injured worker with the employer being presumed innocent until negligence is proved. Despite the problems associated

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with the common law, it has nevertheless played an important role in protecting workers and in advancing statutory health and safety law. The most important advance came in 1937 when the House of Lords heard an appeal in Wilsons & Clyde Coal Co Ltd v English [1937] 3 All ER 628. In this case, the Law Lords held that the employer, the Clyde Coal Co, owed Wilson a “duty of care” in terms of health and safety, and that this responsibility was “a paramount duty” that overrode all other legal responsibilities owed by the company. In 1972, a revolution in health and safety law began when Lord Robens handed down a report in England recommending the abandonment of the old system of Factories and Shops Acts and the adoption of a new approach. Robens’ recommendations were three-fold. First, he argued that the myriad special responsibilities placed on employers through the Factories and Shops Acts should be replaced by a simplified Act that imposed an over-arching “duty of care” on employers, principal contractors, designers and all others whose actions impacted upon the safety and health of workers and others in the workplace. If a worker, or a visitor to a workplace, or anyone else who came into contact with the business was injured or became ill because of the firm’s actions this would be prima facie evidence that it had breached its duty of care. To ensure health and safety at work, Robens also suggested that any health and safety legislation require employers to implement a system of risk management that would necessitate the identification of hazards, the assessment of risks, the implementation of controls and the monitoring of the effectiveness of any control. The second major recommendation made by Robens involved consultation. He advised that any new health and safety legislation mandate “tripartite” consultation between government, employers (and their representatives) and workers (and their representatives) at three levels. At the highest level, Robens argued, employer associations and trade unions should have direct input into any health and safety legislation. They should also have a say at the industry level in drafting regulations and advisory standards that met each industry’s specific problems. At the workplace level, Robens argued that workers should be able to elect their own representatives with powers to veto unsafe practices if necessary. Robens also believed that safety would be enhanced at each workplace through the formation of health and safety committees that included representatives from both workers and management. In his final major recommendation, Robens argued in favour of increased penalties for breaches of an employer’s duty of care, as well as for enhanced powers for inspectors charged with enforcing any new legislative provisions. Not surprisingly, England was the first to adopt Lord Robens’ recommendations, enacting legislation in 1974 that provided for a simplified Act that imposed a broad duty of care on employers. In Australia, where health and safety remained largely a State rather than a federal responsibility, Robens’ approach found favour with the Labor governments that won office during the 1980s and 1990s. Victoria led the way, passing a Robens-style Act in 1985. Queensland proved the laggard, retaining old-style Factories and Shops legislation until 1989. Even then, its first attempt at reformed legislation failed to adopt all of Robens’ recommendations. It was not until the passage of the Work Health and Safety Act 2011 (Qld) that Queensland was brought fully into line with the approach adopted elsewhere in Australia. In Australia, the Robens-style Health and Safety Acts shared some common features and some major differences. All imposed a general “duty of care” on employers (termed an “obligation of care” under Queensland’s Work Health and Safety Act 2011). All required employers to implement proper systems of risk management. In every State and Territory, the broad “obligations” imposed under the various Acts were supplemented by regulations and advisory standards or codes of practice that provided more detailed legislative guidance for hazards such as noise, working at heights, handling asbestos, managing workplace harassment and storing hazardous substances. The main differences between the various States occurred in the area of “consultation”. Victoria led the way in giving elected Workplace Health and Safety Representatives considerable powers, including the capacity to impose temporary prohibition notices on

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unsafe work. This system was gradually replicated in other States. New South Wales gave trade unions powers that were never adopted elsewhere, including the capacity to launch prosecutions in their own right against employers with the union keeping half of any fine if the prosecution was successful. Queensland differed from other States in legislating for qualified Workplace Health and Safety Officers (WHSOs). Under Queensland law, those wishing to become WHSOs had to complete an approved course (typically taking a week to 10 days) with a Registered Training Organisation. Every workplace that had 30 or more employees had to have an employer-appointed WHSO, thereby giving Queensland a body of trained health and safety personnel that was unequalled elsewhere. The differences in health and safety law between the various States inevitably led to employer claims that this variation and “red-tape” was imposing unnecessary costs on business. While these claims were made for many years, they were not acted upon until the election of the Rudd government in 2007. Under the Rudd government, the Commonwealth moved swiftly to bring about the “harmonisation” of State health and safety legislation. While the States retained their constitutional primacy in the area, in late 2009 they agreed to adopt the same “model” laws from 1 January 2012. When Prime Minister Rudd was removed from office by Julia Gillard in mid-2010, the new government continued the push for federal harmonisation. The main supporters of the harmonisation process came from business. Trade unions and many health and safety professionals were sceptical, fearing that the only way harmonisation could be achieved was by adopting a “lowest common denominator” approach. Not surprisingly, the strongest opposition came from New South Wales where unions faced the loss of their extensive health and safety powers under the federal proposals. Reflecting these concerns, the Keneally Labor Government withdrew its support for federal harmonisation in late 2010. This opposition, however, came to nought when Labor lost office in New South Wales in March 2011, with the incoming Coalition administration declaring its support for harmonisation. In Queensland there was concern that harmonisation would lead to lower standards due to the effective abolition of WHSO positions. Despite the debate about federal harmonisation, it is clear that the new model laws broadly continue the approach first outlined by Lord Robens in 1972. The new laws continue to emphasise a broad duty of care; the need for formal systems of risk management and consultation (including empowered Workplace Health and Safety Representatives); an enhanced inspectorate and legislation that is supplemented by regulations and codes of practice. The growing acceptance of the need for health and safety managers equipped with formal qualifications in the shape of a Certificate IV in Health and Safety ensures that workplace health and safety will remain a specialised area of management (in Queensland those holding a WHSO certificate were able to move to a Certificate IV through a short transition course). Since 1 January 2012, many Australians have been bound by the same health and safety laws for the first time in the nation’s history.

National health and safety legislation [34.390] As noted at [34.380], for the first time in Australia’s history the Commonwealth and States are gradually working towards national occupational health and safety legislation. Following a national review commissioned by the federal government and the States in 2008, a model Work Health and Safety Act 2011 (Cth) was enacted by the Commonwealth. Throughout 2011, Queensland, New South Wales, Tasmania, the Australian Capital Territory and the Northern Territory, enacted mirror legislation embodying the provisions of the Commonwealth Act followed by South Australia in 2012. 3 Western 3

Work Health and Safety Act 2011 (Qld); Work Health and Safety Act 2011 (NSW); Work Health and Safety Act 2011 (Tas); Work Health and Safety Act 2011 (ACT); Work Health and Safety (National Uniform Legislation) Act 2011 (NT); Work Health and Safety Act 2012 (SA).

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Australia is expected to introduce mirror legislation to the national model OHS laws in late 2014. Victoria has not decided whether to follow the other States and Territories and is still regulated by its Occupational Health and Safety Act 2004. The model Commonwealth Work Health and Safety Act 2011 is still essentially based on the reasoning laid down by the Robens report and draws upon much of the previous legislation. Consequently, it lays down a general duty of care on persons conducting a business or undertaking. This duty imposes on a person conducting a business – usually the officers of a company – that the person ensures, so far as is reasonably practicable, the health and safety of workers and others who may be affected by the business. This duty is owed not just to employees but to any person carrying out work or even visiting the business. Similarly, workers owe a duty of care to themselves and to anyone else affected by their conduct at work. The model Act also broadens the consultation requirements on health and safety requiring participation and representation for all workers. As well, it makes provision for the resolution of health and safety issues by means of consultation, clarifies workers’ rights to refuse to perform dangerous work and empowers health and safety representatives to issue provisional improvement notices. The enforcement powers of workplace inspectors are enhanced and now include enforceable undertakings, improvement and prohibition notices. Financial penalties have been increased and courts can also impose non-financial penalties like injunctions, adverse publicity orders, restoration orders and training orders. In addition, a new statutory body, Safe Work Australia, has developed model regulations, and codes of practice and each jurisdiction is required to implement these regulations and codes.

Work Health and Safety Act 2011 (Qld) [34.400] The Queensland Work Health and Safety Act 2011 is aimed at preventing workplace death, injury or illness, whether such consequences arise from a fault in the workplace, by work activities, or by equipment or substances used in the workplace. The broad objective of the Act is to make workplaces safer; in other words, the focus is on the prevention of accidents and illnesses not compensation. However, the Act does impose obligations on a wide variety of parties who can influence workplace health and safety, and failure to comply with it is punishable not just by financial penalties but also by imprisonment. The Act is broad-ranging in its reach. It places obligations on owners and managers of businesses, designers, manufacturers and suppliers of plant and equipment, erectors and installers of that equipment, manufacturers and suppliers of substances, line managers – those in charge of sections of workplaces – and those in control of fixtures, fittings or equipment in relevant workplace areas. The obligations do not stop there: in addition, clients, project managers and principal contractors may be liable. In terms of limiting liability, agents in the workplace can reduce their liability by taking reasonable precautions and exercising proper diligence. This behaviour can involve identifying, assessing and recording hazards, planning and implementing risk mitigation procedures, and monitoring and periodically reviewing the effectiveness of such a workplace health and safety system. Training and supervision to ensure that safety protocols are adhered to are an essential component of the process. Where possible and practical, hazards and risks should be eliminated or minimised, either by installing safety protections such as protective clothing, or preferably by redesigning workplaces. The obligation to maintain a safe workplace extends beyond just protecting employees or other agents related to a company – it also includes visitors to a workplace. At a workplace level, workplace health and safety representatives may be elected by fellow workers and do not necessarily need to be trained safety officers. However, they are entitled to training which must be paid for by the employer. For larger workplaces, that is, those with 30 or more employees, workplace health and safety officers were required to be appointed. As from 1 January 2012, this legislative

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requirement no longer applies. While records of incidents must be kept and significant accidents reported (if an incident causes serious bodily injury or ranks as a dangerous event), inspectors have the right to inspect a workplace and monitor the implementation of workplace health and safety programs and measures, register high risk plants, investigate serious accidents or complaints and provide advice to management and owners on mitigating risks. The motivation to comply with workplace health and safety obligations – beyond the moral motivation – is substantial for small business, though some may argue it is not substantial enough for large employers who sometimes allow for legal fee/fine contingencies in their budgets. In Queensland, individual workers can be levied fines of up to $300,000 while officers can be fined up to $600,000. Both categories can face up to five years’ imprisonment. For corporations, the range of penalties extends from $500,000 to $3,000,000. 4

Workers compensation and rehabilitation [34.410] The workplace health and safety system arises from the Queensland Workers’ Compensation and Rehabilitation Act 2003 which ensures that employees who sustain injury or contract an illness in the course of employment – which generally includes lunch and other breaks during a working day – are provided compensation. Workers compensation itself is governed by a no-fault scheme which means that the worker receives compensation for all relevant workplace-related injury or illness (which includes disease) regardless of whether the employer or employee was at fault. It is important to note that while an employee covered by the Workers’ Compensation and Rehabilitation Act 2003 (Qld) is likely to be entitled to compensation for injury when travelling to and from work, this is not normally the case under the Commonwealth Safety, Rehabilitation and Compensation Act 1988. The latter Act is the basis of the federal worker’s compensation and rehabilitation scheme facilitated by a government agency known as Comcare, which covers federal and Territory employees in addition to being able cover large employers who self-insure. 5 An interesting High Court decision involving a claim for workers’ compensation while travelling on the employer’s business is Comcare v PVYW (2013) 250 CLR 246:

case [34.415] The appellant in Comcare v PVYW was a Commonwealth public servant who was required to travel to a regional office for work purposes. As she needed to stay overnight the employer had booked a motel room for her. During that evening she had dinner with a friend and subsequently sexual intercourse. While having sex a glass light fitting was pulled from its mount and struck her on

4 5

Source: http://www.deir.qld.gov.au/workplace/law/whslaws/penalities/index.html#.U5--c_mSx8E (as of 1 July 2016). The other States and Territories are regulated by their respective Acts. The main ones include: the Workers Compensation Act 1987 (NSW) and the Workplace Injury Management and Workers Compensation Act 1998 (NSW); the Workplace Accident Compensation Act 1985 (Vic) and the Accident Compensation (WorkCover Insurance) Act 1993 (Vic); the Workers Rehabilitation and Compensation Act 1986 (SA) and the WorkCover Corporation Act 1994 (SA); the Workers’ Compensation and Injury Management Act 1981 (WA) and the Employers’ Indemnity Supplementation Fund Act 1954 (WA); the Workers Rehabilitation and Compensation Act 1988 (Tas); the Workers Compensation Act 1951 (ACT); and the Workers Rehabilitation and Compensation Act 1988 (NT).

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the face. She needed hospital treatment and also suffered psychological injuries. Subsequently she claimed workers compensation under the Safety, Rehabilitation and Compensation Act 1988 (Cth). The majority of the High Court (4:2) held that the appellant was not entitled to compensation. The majority found that merely because the appellant stayed overnight in a room booked by her employer did not mean that the injury occurred within the course of employment. The injury had occurred because of an activity she had engaged in without her employer’s encouragement and was therefore not compensable.

case [34.417] In a recent landmark decision, the New South Wales Dust Diseases Tribunal, which deals specifically with claims for compensation relating to dust diseases awarded a record $2.1 million in damages to a mesothelioma victim who was exposed to asbestos while working for BHP Billiton between 1979 and 1981. The Tribunal heard that despite senior management at BHP being aware that even intermittent exposure to asbestos could kill workers, it continued to use the product without warning them: Dunning v BHP Billiton Ltd [2014] NSWDDT 3.

The Law of Registered Industrial Associations [34.420] This section examines the development of the role of trade unions and how that role is changing. The legal personality of unions and freedom of association is examined followed by the regulation of industrial action, the industrial torts and the secondary boycott provisions in the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)). Modern trade unions developed in the 19th century as voluntary organisations of workers in crafts and occupations who joined together to improve their wages and working conditions. Initially the courts treated unions with suspicion and often deemed their activities to be unlawful. However, at the end of the 19th century trade union legislation in both the United Kingdom and Australia legalised the position of unions and gave them certain privileges. This situation continued under both the Conciliation and Arbitration Act 1904 (Cth) and the Industrial Relations Act 1988 (Cth). However, the law changed significantly with the WRA. Under the Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002 (Cth) and subsequent legislation, the provisions relating to the regulation of employer and employee organisations were removed from the WRA and appended in a Schedule. The present Fair Work (Registered Organisations) Act 2009 (Cth) replicates, with some amendments, much of that Schedule in the sections of the Act. The Fair Work (Registered Organisations) Act 2009 (Cth) regulates the activities of trade unions including their internal affairs. Among other things, the Act has provisions relating to:  the registration of organisations and their cancellation;  amalgamations and withdrawal from amalgamations;  representation rights of unions;  rules of organisations;  members’ rights;  elections;

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 financial accounting and reporting requirements;  duties of officers;  penalties that may be imposed by the FWC; and  complementary registration systems. Accordingly, this part of the law also underpins the regulation of collective bargaining and freedom of association. As early as 1904 State and Federal arbitration statutes provided for the registration of Australian trade unions. Since that time registration has been conferred on associations of employees or employers only if they fulfil a number of conditions. Upon registration, these industrial associations become bodies corporate with full legal personality, perpetual succession, power to own property and the ability to sue and be sued in their own names: Fair Work (Registered Organisations) Act 2009 (Cth), s 27. By being registered under the Act, associations can make enterprise agreements; participate in bargaining for proposed enterprise agreements; take protected industrial action and represent their members in unfair dismissal hearings and conflicts at work. Industrial associations must also be registered in order to be parties to awards and industrial agreements and so that they may submit industrial disputes to the FWC for conciliation and, ultimately, arbitration if this becomes necessary. Registered associations also fulfil a vital health and safety role by providing most accredited workplace health and safety officers. Registration also determines union structure its internal affairs and membership. In order to be registered the rules of associations must comply with ss 140, 141 and 142 of the Fair Work (Registered Organisations) Act 2009 (Cth). The rules must identify:  the purposes of the association and eligibility criteria for membership;  the powers and duties of its officers;  the conduct of its meetings;  the way its property is held and its funds expended; and  the means by which the rules may be changed. Union officers also have substantial duties under Ch 9 of the Fair Work (Registered Organisations) Act 2009. They must exercise their duties with due care and diligence and in good faith and for a proper purpose. Officers are prohibited from doing anything that is contrary to the Act, an order of the Federal Court, or the FWC. Any breach of the legislation may result in damages being awarded against both the officer and the association. State industrial relations Acts have a similar framework to the Commonwealth legislation. In 2012, following an investigation into the misconduct of officers of the Health Services Union the government amended the Act. The Fair Work (Registered Organisations) Amendment Act 2012 (Cth) increased the disclosure requirements imposed on union officers (especially those pertaining to conflicts of interest); tightened the rules relating to union governance and financial accountability; and increased the FWC’s powers to investigate inappropriate conduct and refer matters to State and Federal police. One of the most important areas of regulation concerns the right of entry by union officials into workplaces. This is covered in Ch 3 and in particular Pt 3-4 of the Fair Work Act, but is currently under review. Chapter 3 reinstates the right of entry by union officers into employer premises under certain conditions. The Act also regulates who can apply for an entry permit as union officials must now be “fit and proper persons”. The FWC Registrar must take certain matters into consideration when assessing the suitability of union officials. These include whether the person has been properly trained; whether the person has ever been convicted of an offence against the law; whether the person has ever had their permit revoked and similar matters: Fair Work Act, ss 512 and 513.

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Permit holders must notify an employer under s 487 of the Fair Work Act of their intention to enter the employer’s premises at least 24 hours prior to entry. The permit holder must have reasonable grounds to suspect that a breach of the Act, or workplace agreement or award has occurred prior to entry. Union officers can only inspect employee records of union members and must apply for specific orders from the FWC to inspect non-member records. They may only conduct interviews with their members at a time and place determined by the employer and they may be refused entry if they do not comply with the employer’s requirements. However, the Fair Work Act does not totally exclude right of entry under State industrial laws and in particular those pertaining to workplace health and safety. The FWC has the right to suspend or revoke the permit of union officers if they do not follow the law, misrepresent their powers, or engage in unlawful conduct when exercising their right of entry. If they are found to have breached the law, unions and their officers may be ordered to pay damages or pecuniary penalties. The Fair Work Act also bans preference to unionists and allows for freedom of association, namely the right of workers to choose whether they belong to a union or not. More specifically the Act bans agreements between unions and employers to give preferential treatment to union members; bans closed shop and compulsory unionism; and bans discrimination and victimisation of employees because of their union or non-union membership. Interestingly, the freedom of association provisions in the legislation has been relied upon more by unions to stop mass dismissals of employees who are union members, rather than by employers: Fair Work Act, Ch 3, Pt 3-1. This is illustrated by Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, which was decided under the former WRA:

case

[34.430] The Australian waterfront had been riven with industrial turmoil for years before Patrick Stevedores put the issue onto the front pages of newspapers in 1997. That year, Patrick Stevedores, the Liberal/National Federal government and the National Farmers Federation (NFF) expressed their dissatisfaction with the working conditions and productivity of the Australian waterfront. They maintained that the Maritime Union of Australia (MUA) through its disruptive industrial tactics was undermining Australia’s competitiveness in international trade. In late 1997 and early 1998, Patrick and the NFF engaged in a series of strategies in order to bypass the MUA and its members. The NFF engaged non-union labour which it trained at a dock leased from Patrick in Melbourne. Patrick in turn restructured its corporate operations so as to enable it to dismiss its entire workforce without being subject to actions for unfair dismissal or redundancy before the Australian Industrial Relations Commission. In effect, Patrick established a number of labour hire companies with very few assets apart from the agreements with the labour force. If these labour hire companies were unable to fulfil their commitments because of industrial action they could be easily liquidated. When the MUA went on strike in March 1998, Patrick locked out the stevedores and non-union workers trained by the NFF and Patrick took their place. This was in breach of both the award and certified agreements. The MUA commenced proceedings against Patrick, the NFF and the Minister for Industrial Relations alleging conspiracy and breach of the freedom of association provisions of the WRA. At this point it emerged that the Patrick companies were largely insolvent and could not continue in business. Against a background of mass picketing involving thousands of workers and their supporters, and unfavourable publicity for the Federal government and Patrick, Federal Court proceedings were

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instigated. The union sought interlocutory injunctions and damages under the freedom of association provisions of the WRA to stop Patrick’s conduct and return the parties to their positions at the beginning of the strike. North J at first instance agreed that the Patrick companies had breached the freedom of association provisions and that there was a prima facie case of conspiracy which included the Patrick group, the Minister for Industrial Relations and the NFF. As a consequence and despite the fact that it meant forcing the insolvent companies to continue trading, North J granted interlocutory injunctions requiring Patrick to continue employing the union workforce. The parties subsequently appealed to the Full Federal Court and the High Court. The High Court held that the injunctions prejudiced the ability of the administrators to exercise their powers under the Corporations Law but that it was up to the administrators to decide whether to resume trading or not. This resulted in the workers being allowed to return to work until negotiations between the union, Patrick and the administrator could resolve the dispute. The matter was finally settled out of court. The MUA agreed to changes in conditions of employment, a substantial part of the workforce was retrenched with compensation but the union retained its role on the docks: Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1.

Heydon Royal Commission [34.435] In 2014 the Abbott, Liberal National Party government established a Royal Commission headed by former High Court Justice, Dyson Heydon to enquire into alleged financial irregularities associated with trade unions. After extensive investigations Commissioner Heydon submitted an interim report which found cases of “wilful defiance of the law”, illegal activities in nine large unions and over 50 breaches of civil and criminal law. In its final report, the Commission found that there was widespread and deep-seated misconduct by union officials, payments of large sums by employers to unions and more than 40 people and organisations were referred to various authorities including the police, the Director of Public Prosecutions and the Australian Securities and Investments Commission (ASIC) for investigation and possible prosecution. The Commission’s report recommended the Commonwealth and State governments consider adopting national laws regarding the registration and regulation of employer and employee organisations with a single regulator to oversee organisations. Such a regulator would have a structure similar to ASIC and extensive powers to conduct investigations into criminal offences contrary to the Fair Work Act and, in particular, into the financial management of registered organisations. In addition, the Commission recommended that officers of organisations receive training in financial administration; that all organisations include policies relating to financial decision-making; that recordkeeping be enhanced with regards to expenditures and the use of credit cards and that registered organisations lodge audited financial disclosure statements. In relation to internal management, the Commission recommended that: organisations be required to keep better records; there be protection for whistle-blowers; penalties for officers be increased and include criminal liability for officers who dishonestly or recklessly breach statutory duties; and officers be required to disclose material personal interests of themselves and their relatives in any transaction involving the organisation or an employer. In relation to bargaining representatives, the Commission recommended that they disclose to employees prior to voting any financial benefits they expect in relation to the operation of an enterprise agreement; that a new offence be created prohibiting anyone from threatening industrial action to force an employer to

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pay money into an employee benefit, superannuation, or insurance scheme; and, importantly, that employees have freedom of choice in superannuation. The Commission also recommended special provisions relating to the building and construction industry including that picketing of construction sites be deemed “industrial action” under the Fair Work Act. Moreover, it recommended that the right of entry provisions be streamlined so that permit holders complete approved training annually relating to their rights and responsibilities and that written notice of entry be provided except where the permit holder believed and could prove that there had been a contravention of the Act giving rise to serious safety concerns.

Industrial action, the industrial torts and secondary boycotts [34.440] The right to strike has never been formally recognised in Australian law. There is, however, a limited right to take protected industrial action under Ch 3, Pt 3-3 of the Fair Work Act. This right only exists in relation to bargaining for a collective agreement and after stringent conditions are met including protected action ballots. Protected industrial action cannot be taken before the normal expiry of a workplace agreement (s 417) or in support of pattern bargaining (s 422). In addition, it may only be undertaken by employees if they have generally tried to reach agreement with their employer and complied with FWC orders made during the bargaining period. Otherwise industrial action is illegal and actionable under the Fair Work Act, the law of torts and the secondary boycott provisions of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)). Employee industrial action is defined in s 19 of the Fair Work Act as bans or limitations on the performance of work, failure or refusal to attend work, or work being performed in a manner different from the way it is usually performed. Employer industrial action usually consists of a lockout. It is an offence for employees to accept payment for certain periods of industrial action: Fair Work Act, Ch 3, Pt 3-3, Div 9. The FWC must issue orders suspending or terminating the bargaining period or protected industrial action if it is satisfied that such action threatens or would threaten personal health and safety or the welfare of a portion of the population or could cause significant damage to the Australian economy: Fair Work Act, Ch 3, Pt 3-1, Div 6. Penalties for unprotected industrial action may be obtained from the Federal Court and include fines, injunctions and damages. Since the employment relationship is essentially based on the notion of contract, a refusal to work or industrial action is technically a breach of contract. However, it is now commonly accepted that a strike is not a breach of the employment contract but rather a suspension of it. The parties to an employment relationship may seek tortious remedies at common law. These torts are often termed industrial torts and consist of:  interference with contractual relations (which may include a union inducing its members to breach their employment contracts);  conspiracy to injure (union members causing damage to an employer by contractual interference);  intimidation; and  public nuisance. Apart from Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, examined at [34.430] in relation to freedom of association and conspiracy under the former WRA, three other significant cases illustrate the industrial torts and the severe consequences for unions of taking unprotected industrial action, namely, Dollar Sweets Pty Ltd v Federated Confectioners Association of Australia [1986] VR 383; Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Airline Pilots [1991] 1 VR 637; and Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (CFMEU) (2013) 234 IR 59; [2014] VSC 134. After consideration of these cases, an

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industrial dispute which gained publicity across the world because of the grounding of the fleet of Australian airline Qantas, Transport Workers’ Union of Australia v Qantas Airways Limited (2012) 225 IR 13, will be discussed.

case [34.450] Until the decision in Dollar Sweets Pty Ltd v Federated Confectioners Association of Australia [1986] VR 383 it was widely believed that the industrial torts did not operate in Australia. Dollar Sweets manufactured confectionery in Melbourne. The Federated Confectioner’s Association informed the employer association that it intended to seek a 36-hour week for its members under the relevant award. Three strikes occurred in July 1983 and seriously injured Dollar Sweets’ business. The managing director of the company then wrote to each of the employees (there were 27 in total) advising them to abide by the award or be sacked. Twelve employees returned to work but the other 15 set up a continuous picket line which obstructed delivery vehicles and the provision of other services to the company. Finally, a major supplier of raw materials advised Dollar Sweets that it was not prepared to break the picket line because its drivers feared for their safety. There was evidence of intimidation, assaults and obstructive behaviour. As a result, Dollar Sweets suffered a loss of some $80,000 and took action in the Supreme Court for both damages and an injunction to stop the conduct of the union. The Supreme Court of Victoria held that the union and its officials had interfered with Dollar Sweets’ normal contractual activities with suppliers and customers. The court added that the picket was designed to intimidate and force those who had dealings with Dollar Sweets to stop performing their contracts and as a result Dollar Sweets had incurred losses. Consequently, the court held that the torts of interference with contractual relations, conspiracy to injure, intimidation and nuisance had all been committed.

case [34.455] In 2012 after a long-running building dispute, Grocon, a large building company, issued proceedings in the Victorian Supreme Court against the CFMEU over alleged unlawful conduct at two Melbourne building sites. It sought temporary injunctions against the union for picketing, nuisance, and interference with contractual relations. The Supreme Court granted the injunctions but the CFMEU did not comply with the orders. As a result, Grocon brought contempt proceedings against the union and some of its officials and also claimed $10 million in damages as compensation for the union’s actions. The Supreme Court held that the CFMEU was liable for contempt and fined the union $1.25 million plus costs (as at the time of writing Grocon is continuing the separate action for damages). The Court found that access to Grocon sites had been hindered by protesters and this had caused substantial interference in central Melbourne and to Grocon’s operations and contractual relations. Furthermore the Court ruled that there was overwhelming evidence that the CFMEU had intended to cause the obstruction by organising the men and this amounted to contempt of the court orders: Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (2013) 234 IR 59; Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (No 2) (2014) 241 IR 288.

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case [34.460] The Airline Pilots dispute occurred during the Accord years of the late 1980s when wage rises were limited to 2% to 3% per annum. In 1991 the Federation of Airline Pilots sought a wage increase of 30% and when this was refused, commenced industrial action. The Federation issued a directive to all pilots to work only between 9am and 5pm. This threw the Australian airline industry into chaos. However, the airline companies were supported by the federal Labor government and advertised both nationally and internationally to replace the existing labour force. The airline companies also filed writs in the Victorian Supreme Court claiming damages against individual pilots. As a result, the Federation advised pilots to resign en masse and placed advertisements overseas discouraging applicants from applying for positions. The airlines commenced action against the Federation and its officers alleging interference with contractual relations and conspiracy. The Victorian Supreme Court held that the 9am to 5pm directive amounted to interference with contractual relations between the airlines and their pilots as well as the airlines and the public. However, the court held that the advertisements did not amount to intimidation because there was no evidence that they had actually deterred any pilots from taking up employment. Nor did the resignations amount to anything but advice from the Federation to its members, not interference with their contracts of employment: Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Airline Pilots [1991] 1 VR 637.

case

[34.470] One of the most high profile industrial disputes of recent years was the Qantas dispute which embroiled a number of unions, the employer, the federal Parliament and, eventually, passengers in heated debate carried out in the public arena. The dispute had its immediate origins in the commencement of negotiations for a new enterprise bargaining agreement in late 2010. Tension increased when Qantas announced it would expand its Jetstar brand in the Asian market with unions concerned that the expansion would see the outsourcing of jobs to Asia. Unions began a series of protected industrial actions, culminating in members of the Australian and International Pilots Association (AIPA) initiating the first industrial action against the airline since 1966. The dispute took an unexpected turn when the CEO of Qantas, Alan Joyce, suddenly announced the immediate cessation of all domestic and international flights, locking out airline staff late in October 2011. So unexpected was the action that, in some cases, passengers were forced to disembark planes that were already fuelled for take-off, affecting an estimated 80,000 passengers on the first day alone, costing the airline an estimated $20 million per day. An emergency meeting of the FWA tribunal resulted in response to a call from the Prime Minister Julia Gillard and an application under s 424 of the Fair Work Act by the Minister for Tertiary Education, Skills Jobs, and Workplace Relations, Senator Chris Evans. The hastily convened Tribunal moved rapidly convening an urgent hearing of the dispute at 10pm that night which continued until 2am, before resuming later that day at 2pm. It handed down orders the following day requiring that action by both parties be terminated immediately for an initial (and extendable) three-week period. Interestingly, and perhaps because it wanted to distance itself from the dispute by having the independent umpire, FWA, intervene, the government did not make use of its powers under s 431 of the Fair Work Act. These powers would have allowed the Minister to unilaterally terminate the Qantas and union industrial actions. Instead, the government intervened through the FWA Tribunal. One of the consequences of the government’s non-use of its powers is the recommendation by the Fair Work Review Panel to repeal this power in the Fair Work Act, as it had not previously been used

chapter 34 The Law of Employment

under the Act or any of its predecessors. Whilst the dispute was settled, several significant legal decisions were subsequently challenged. The Full Federal Court determined that the pilots’ jurisdictional challenge to FWA terminating the industrial action be dismissed: Australian and International Pilots Association v Fair Work Australia (2012) 202 FCR 200. Furthermore, in August 2012, the FWA Full Bench overruled union calls for pay improvements and a restriction on contract workers to 20% of the workforce: Transport Workers’ Union of Australia v Qantas Airways Limited (2012) 225 IR 13.

Secondary boycotts [34.480] Another way by which employers may stop industrial action is by means of the secondary boycott provisions of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)). A primary boycott is essentially a ban by two or more persons against a target, usually another individual or company. A strike is thus a primary boycott. A secondary boycott, on the other hand occurs when two or more persons take action against a third party in order to damage a target or fourth party. For example, a union and its members may pressure Company A not to supply goods to Company B. This puts pressure on Company B, the target company and usually amounts to an interference with contractual relations. The secondary boycott provisions in the Competition and Consumer Act 2010 (Cth) are complex. Essentially however Pt IV, Div 2 and, in particular, s 45D define and prohibit secondary boycotts undertaken for the purposes of causing loss or damage. Section 45DC makes it easier to attribute conduct by union officers and their members to the union thereby enabling fines, injunctions and contempt proceedings to be commenced against a union. Section 45DD provides a partial defence for primary boycotts undertaken by employees in relation to their terms and conditions of employment, and also permits boycotts in relation to consumer protection and environmental issues. Sections 75 – 87 provide remedies of fines, injunctions and damages against parties which infringe the provisions.

case [34.490] The case that best illustrates the operation of the secondary boycott provisions is Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1985) 61 ALR 417. Mudginberri station was a small local abattoir in the Northern Territory. It processed cattle for export and employed a casual and non-unionised workforce. The Australasian Meat Industry Employees Union (AMIEU) attempted to force the company to adopt a different method of calculating wages in accordance with the relevant award and to employ a more permanent workforce. When the company refused the union’s demands and the workers continued to work, the union set up a picket line at the gates of the abattoir. This did not stop work from being performed but Commonwealth meat inspectors refused to cross the picket line to inspect the meat that was being processed. This meant that the company could not export meat and was gradually being forced out of business. When a compulsory conference failed to settle the dispute, the company sought an injunction and damages against the union under s 45D of the Trade Practices Act 1974 (Cth) (now s 45D of the Competition and Consumer Act 2010 (Cth)). In all, there were 17 decisions in the Federal Court and

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Pt 5 Allied Areas of Law

one appeal to the High Court. Essentially, the courts decided that the union and its officers constituted the first and second parties under the section and they had hindered, or prevented through the operation of the picket the supply of services by the meat inspectors to Mudginberri. This was a clear breach of s 45D and had caused the loss and damage to Mudginberri. The courts granted injunctions and awarded damages totalling approximately $1.8 million against the union.

Further reading A Stewart, Stewart’s Guide to Employment Law (5th ed, Federation Press, Sydney, 2015). R Johnstone, E Bluff and A Clayton, Work Health and Safety Law and Policy (3rd ed, Thomson Reuters, 2012)

Internet sites Commonwealth Employment and Workplace – http://australia.gov.au/topics/employment-andworkplace Fair Work Act 2009 (Cth) – http://www.comlaw.gov.au/Series/C2009A00028 Fair Work Commission – http://www.fwc.gov.au Fair Work Ombudsman – http://www.fairwork.gov.au Safe Work Australia – http://www.safeworkaustralia.gov.au Report: Towards More Productive and Equitable Workplaces – http://www.deewr.gov.au/ WorkplaceRelations/Policies/FairWorkActReview/Pages/Home.aspx

Journal Australian Journal of Labour Law

Index A Acceptance — see Offer and acceptance Accord and satisfaction, [11.80] Account of profits copyright infringement, [30.1140], [30.1150], [30.1160], [30.1170] patent infringement, [30.2120] Acquisitions lessening competition — see Mergers or acquisitions Acts Interpretation Acts — see Statutory interpretation Acts — see Statutes Administrative law, [1.720] ADR — see Alternative dispute resolution Advertising adverse publicity orders, [17.980] bait advertising, [17.530] case example, [17.540] penalties, [17.550] consumer credit, [19.860] ethical issues, [33.120] invitation to treat or offer, [3.40] misleading or deceptive conduct, [17.60] disclosure of terms, [17.80] injunctions, [17.80], [17.770] offer and acceptance, [3.40], [3.70] Carbolic Smoke Ball case, [3.80] offer of securities, [27.820] unfair practices, [17.600] adverse publicity orders, [17.980] bait advertising, [17.530]-[17.550] defences, [17.700] Agency authority, actual implied, [13.235] cohabitation, arising from, [13.150], [13.190] contracts, [13.10] privity of contract, [10.40] contractual capacity, [13.40] creation of agency, [13.90] estoppel, [13.130] express creation, [13.100]-[13.120] holding out, [13.130] operation of law, [13.150]-[13.190] ratification, [13.140] definition, [13.20] express creation, [13.90]

contracts under seal, [13.100] verbal offer, [13.120] written appointment, [13.110] implied authority, cases, [13.231] necessity, [13.150], [13.160] examples, [13.170], [13.180] other relationships, distinction, [13.30] overview, [13.10] privity of contract, [10.40] ratification, [13.140] revocation of authority, [13.710] agents’ rights, [13.730] third party rights, [13.720] termination of agency, [13.670] agreement, [13.700] bankruptcy, [13.760], [13.770] completion of agency, [13.680] death, [13.740] impossibility of performance, [13.690] insanity, [13.750] performance, by, [13.680] renunciation by agent, [13.780] revocation of authority, [13.710]-[13.730] trusts, distinction, [29.90], [29.110] Agents actual authority, [13.210] express authority, [13.220] implied authority, [13.230] apparent authority, [13.240] basis of authority, [13.260] case example, [13.250] reliance by third party, [13.240], [13.260] appointment of agents, [13.40] auctioneers, [13.850], [13.860], [14.1110] authority of agent, [13.200] actual authority, [13.210]-[13.230] apparent authority, [13.240]-[13.260] breach of warranty, [13.580] revocation of authority, [13.710]-[13.730] unauthorised acts, [13.640]-[13.660] bailee’s liability, [21.170] bankruptcy, [13.760] bills of exchange, [23.310]-[23.330] brokers, [13.810] capacity to act as, [13.40] care and skill, [13.350] directors, [13.370] failure to exercise, [13.350], [13.360]

gratuitous agents, [13.370] cheques, [24.220] classification of agents, [13.50] general agents, [13.70] special agents, [13.60] universal agents, [13.80] commissions, [13.390], [13.410], [13.420] entitlement to commission, [13.430] statutory restrictions, [13.440] company’s liability, [27.320], [27.330] assumptions, [27.320] death of agent, [13.740] definition, [13.20] del credere agents, [13.800] directors, [13.830] care and skill, [13.350] duties of agent, [13.270], [13.380] act in person, [13.290] care and skill, [13.350]-[13.370] follow principal’s instructions, [13.280] full disclosure of interests, [13.330] good faith, [13.300]-[13.320] secret profits, [13.340] employees, as, [13.30] factors, [13.790] general agents, [13.50], [13.70] good faith, [13.300] case example, [13.310] conflict of interests, [13.300], [13.320] indemnity, [13.450] independent contractors, as, [13.30] insanity, [13.750] insurance — see Insurance agents and employees liability, [13.470] breach of authority, [13.580] misrepresentations, [13.590] principal, to, [13.480] third parties, [13.490]-[13.570], [13.590] wrongful acts, [13.600]-[13.660] lien, [13.460] mercantile agents, [13.790] del credere agents, [13.800] minors, [13.40] partners, [13.820], [26.350] real estate agents, [13.840] commissions, [13.410], [13.420], [13.430] duty to inform, [13.370] statutory regulation, [13.860] reimbursement of expenses, [13.450]

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Australian Commercial Law Agents — cont remuneration, [13.390] effective cause of sale, [13.400]-[13.420] entitlement to commission, [13.430] statutory restrictions, [13.440] renunciation of agency, [13.780] rights of agents, [13.390] indemnity, [13.450] lien, [13.460] reimbursement of expenses, [13.450] remuneration, [13.390]-[13.440] revocation of authority, [13.730] special agents, [13.50], [13.60] statutory regulation, [13.860] third parties, liability to, [13.490] existence of principal disclosed, [13.540] misrepresentations, [13.590] name of principal disclosed, [13.500]-[13.530] undisclosed principal, [13.550]-[13.570] trustees, distinction, [13.30] types of agents, [13.790]-[13.850] universal agents, [13.50], [13.80] wrongful acts, [13.600], [13.610] fraudulent misrepresentation, [13.620], [13.630] negligence, [13.660] unauthorised acts, [13.640]-[13.660] Agreements — see also Anti-competitive agreements; Contracts charitable activities, [4.110], [4.120] remuneration, [4.130] commercial agreements, [4.140], [4.150] express exclusion of intention, [4.180]-[4.210] form of agreement, [4.160], [4.170] intention to create legal relations, [4.140]-[4.220] letters of comfort, [4.220] letter of commitment, [4.220] sale of business, [4.160], [4.170] contracts, and, [2.10], [2.30], [4.10] domestic agreements, [4.20] de facto relationships, [4.50] family agreements, [4.70], [4.80] husband and wife, [4.30], [4.40], [4.50], [4.60] family agreements, [4.70], [4.80] husband and wife, [4.30], [4.40] breakdown of marriage, [4.50], [4.60] commercial matters, [4.50] partnership agreement, [26.200], [26.210] goodwill, [26.330] selling of goods, [14.80] rights of parties, [14.100] social agreements, [2.30], [4.20], [4.90]

charitable activities, [4.110]-[4.130] lottery participation, [4.90], [4.100] Air carriage of goods, [21.510], [21.520] absolute liability, [21.530] intrastate liability, [21.530] Alternative dispute resolution commercial arbitration, [1.850], [1.930] agreements to arbitrate, [1.860] arbitrator’s award, [1.850] international arbitration, [1.860] legal proceedings, and, [1.860] removal of arbitrator, [1.850] commercial dispute centres, [1.950] commercial mediation, [1.940] conciliation, [1.900] independent expert appraisal, [1.910] mediation, [1.890] commercial dispute centres, [1.950] commercial mediation, [1.940] private sector, [1.950] senior executive appraisal mediation, [1.920] methods, [1.870] negotiation, [1.880] overview, [1.840], [1.870] senior executive appraisal mediation, [1.920] Animals strict liability in torts, [28.800] Anti-competitive agreements breadth of application, [18.60], [18.70], [18.80] covenants affecting land, [18.160] examples, [18.60] exclusionary provisions, [18.100] authorisation, [18.140], [18.510] defence, [18.140] purpose of prohibition, [18.100], [18.110] substantially lessening competition, [18.120], [18.130] overview, [8.490], [18.50], [18.60] restraint of trade, and, [8.490], [8.500], [8.510] scope of prohibition, [18.90] Anti-competitive disclosure of information, [18.151] Anton Piller orders, [30.1250] Arbitration — see Commercial arbitration Arrangements and reconstructions majority vote, requirements, [27.1262] statutory framework, [27.1262]

Assault, [28.640] ASIC — see Australian Securities and Investments Commission Assignment copyright, [30.1030], [30.1040] Australian Performing Rights Association, [30.390] future copyright, [30.1090] partnership share, [26.610] trade marks, [30.2510] Assignment of contracts assignees, [10.100], [10.120] assignors, [10.110] bankruptcy, [10.220] choses in action, [10.150] equitable assignments, [10.170]-[10.190] notice of assignment, [10.160] statutory provisions, [10.150], [10.160] deceased persons, [10.210] definition, [10.130] equitable assignments, [10.170], [10.190] equitable chose in action, [10.190] legal chose in action, [10.180], [10.190] liabilities under contract, [10.140] deceased persons, [10.210] novation, [10.140], [10.160] operation of law, [10.200] bankruptcy, [10.220] deceased persons, [10.210] personal service contracts, [10.230] overview, [10.10], [10.100] personal service contracts, [10.230] rights under contract, [10.150], [10.160] Assignment of lease, [22.820] Associations partnerships, distinction, [26.70] Auction sales conditions of sale, [14.1110] conduct of sale, [14.1110] consumer guarantees, [17.1130] invitations to treat or offer, [3.50] mock auctions, [14.1160] overview, [14.1110] statutory provisions, [14.1110] Auctioneers agents, as, [13.850], [14.1110] authority, [14.1110] duties, [14.1120] implied conditions, [14.1130], [14.1140] cattle sales, [14.1150] licensing, [13.860] misrepresentation, [14.1110] overview, [14.1110] statutory regulation, [13.860] warranties, [14.1110], [14.1130]

B Index Auditors appointment, [27.940] cessation of office, [27.940] negligent misstatement, [28.320] duty of care, [28.330] reasonable reliance, [28.330] overview, [27.940] Australian Capital Territory innkeeper’s liability, [21.650] misrepresentation, [7.670] small claims tribunals, [1.690] Supreme Court, [1.610] Australian colonies constitutional development, [1.50], [1.70] federation movement, [1.60] reception of English law, [1.470] Australian Company Number, [27.170], [27.180] Australian Competition and Consumer Commission authorisation of conduct, [18.40], [18.510] cartel conduct, policy, [18.580] consideration of applications, [18.510] exclusionary provisions, [18.140] exclusive dealing, [18.390] mergers or acquisitions, [18.450]-[18.460] functions, [1.670], [18.40] overview, [1.670], [18.30] powers, [1.670] Australian Competition Tribunal functions, [18.40] membership, [1.670] overview, [1.670], [18.30] Australian Consumer Law application, [17.20] consumer guarantees, [17.30], [17.1000] acceptable quality, [17.1040]-[17.1060] auction sales, [17.1130] common carrier’s liability, [21.480] consumer, meaning, [17.1020] correspondence with description, [17.1090] demonstration models, [17.1100] exclusion of guarantees, [17.1150] express warranties, [17.1120] fitness for disclosed purpose, [17.1070]-[17.1075], [17.1080] hire of goods, [21.300] limitation of liability, [17.1150] manufacturers’ liability, [17.1170], [17.1280], [17.1290] provision of services, [17.1140], [21.230] remedies for non-compliance, [17.1160]

repairs, [17.1110] spare parts, [17.1110] supply by sample, [17.1100] supply, definition, [17.1010] title of goods, [17.1030] contravention of provisions, [17.650] aiding or abetting, [17.830] corporate liability, [17.670] criminal penalties, [17.660] defences, [17.680]-[17.700] liability of persons involved, [17.830]-[17.850] pecuniary penalties, [17.710]-[17.714] defective goods — see Defective goods enforcement provisions, [17.930] adverse publicity orders, [17.980] disqualification orders, [17.990] non-punitive orders, [17.970] public warning notices, [17.950], [17.960] substantiation notices, [17.950] undertakings, [17.940] false or misleading representations, [7.680], [17.30], [17.330] corporate liability, [17.670] country of origin, [17.390], [17.690] goods or services, [7.680], [17.340]-[17.380] profitability of business activities, [17.430]-[17.450] sale or grant of land, [7.680], [17.400]-[17.420] implied terms, [9.290] legislative framework, [17.30] misleading or deceptive conduct — see Misleading or deceptive conduct overview, [17.20], [33.30] product safety, [17.1310] remedies, [17.650] compensation orders, [17.880], [17.900] criminal penalties, [17.660] damages, [17.780]-[17.860] injunctions, [17.720]-[17.770] non-party consumers, [17.890], [17.900] other orders, [17.870]-[17.920] pecuniary penalties, [17.710]-[17.714] void contracts, [17.910], [17.920] States and Territories, [17.20] time restrictions, request to leave, [17.1370] unconscionable conduct, [7.960], [17.30], [17.200] remedies for contravention, [17.280] supply of goods and services, [17.240]-[17.260] unwritten law, within, [17.210]-[17.230] unfair contract terms, [17.30], [17.290] effect of terms, [17.290]

examples, [17.310] standard form contracts, [17.320] unfair, meaning, [17.300] unfair practices — see Unfair practices unsolicited consumer agreements, [17.1350] definition, [17.1360] right to terminate, [17.1390] statutory requirements, [17.1380] time restrictions, [17.1370] Vienna Sales Convention, and, [15.20] Australian Performing Rights Association, [30.390] Australian Prudential Regulatory Authority overview, [24.960] responsibilities, [24.960] Australian Securities and Investments Commission administrative role, [27.40] consumer credit scheme, [19.130] applications for licence, [19.70] sanctions for non-compliance, [19.130] suspension or termination of licence, [19.80], [19.130] Corporations Act, [27.40] examinations, [27.1760] deregistration of companies, [27.1430] financial services, [17.1430] functions and powers, [27.40] hearings, [27.1440] investigations, [27.1440] membership, [27.40] overview, [27.40]

B Bailments classification of bailments, [21.50] gratuitous bailments, [21.240] nature of bailments, [21.20], [22.310] overview, [21.10], [22.310] sub-bailments, [21.180] actions by owners, [21.200] duty owed to bailor, [21.180], [21.190] termination of bailment, [21.310] demand of gratuitous bailor, [21.330] destruction of subject matter, [21.360] expiry of term, [21.320] repossession of goods, [21.370] third parties, rights against, [21.380] wrongful act of bailee, [21.340], [21.350] transfer of possession, [21.20], [21.30] car parking, [21.40] trusts, distinction, [29.90], [29.120]

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Australian Commercial Law Bailor and bailee bailee for reward, [21.60] liability for employees and agents, [21.170] insurance, and [21.90] misdeliveries, [21.100], [21.110] precautions against loss, [21.70]-[21.90] reasonable care, [21.140] common carriers — see Common carriers consumer protection, [21.230] hire of goods, [21.300] determination of relationship, [21.20], [21.30] duties of bailee, [21.60], [21.390] bailee for reward, [21.60]-[21.110], [21.140] gratuitous bailees, [21.120]-[21.160] statutory obligations, [21.230] duties of bailor, [21.240] dangerous goods, [21.240], [21.250] hire of goods, [21.260]-[21.300] exemption clauses, [21.210], [21.220] consumer protection, [21.230] gratuitous bailees, [21.120] damage of goods, [21.160] failure to return goods, [21.140], [21.150] reasonable care, [21.120], [21.130], [21.140] hire of goods, [21.270] consumer protection, [21.300] fitness for purpose, [21.270]-[21.290], [21.300] innkeepers — see Innkeepers legal relationship, [21.10], [22.300] special types of bailee, [21.390] common carriers, [21.400]-[21.540] innkeepers, [21.540]-[21.670] sub-bailments, [21.180] actions by owners, [21.200] duty owed to bailor, [21.180], [21.190] Bait advertising case example, [17.540] overview, [17.530] penalties, [17.550] Banker and customer Australian Bankers’ Association, [24.980] bank fees, whether penalty, [12.330] duties and rights, [24.40], [24.610] undue influence, [7.840], [7.850] Banking — see also Cheques; Financial Transaction Reports Act Code of Banking Practice, [24.980], [33.110] opening accounts, [24.950] identification requirements, [24.950]

Bankruptcy acts of bankruptcy, [31.200], [31.220] departure from Australia, [31.200], [31.210] non-compliance with notice, [31.220], [31.230] personal insolvency agreements, [31.700] agents, [13.760] annulment of bankruptcy, [31.640], [31.650] effect of annulment, [31.660] assignment of contracts, [10.220] commencement of bankruptcy, [31.400] relation back, [31.400], [31.410] Common Investment Fund, [31.70] companies, [31.90] creditors, [31.20] available property, [31.390], [31.400], [31.450]-[31.470], [31.510] debt agreements, and, [31.680] execution against debtor’s property, [31.450], [31.460] meetings of creditors, [31.290] preferences, [31.530] secured creditors, [31.380] transfers to defeat creditors, [31.480]-[31.540], [31.550] unavailable property, [31.560] undervalued transactions, [31.450], [31.470] creditor’s petition, [31.150] hearing of petition, [31.260] relation back, [31.400] transfers of property, [31.510] debtor’s petition, [31.160] relation back, [31.410] transfers of property, [31.510] deceased estates, [31.170] discharge from bankruptcy, [31.620] annulment of bankruptcy, [31.640]-[31.660] automatic discharge, [31.620] effect of discharge, [31.630] objections to discharge, [31.620] distribution of property, [31.580] deferred claims, [31.590] dividends, [31.600] joint debtors, [31.610] partnerships, [31.610] priority of debts, [31.580] examination, [31.300] offshore information notices, [31.310] guarantors, [20.220] Inspector-General in Bankruptcy, [31.40] jurisdiction, [31.80] legislation, [31.10], [31.20] administration of Act, [31.30]-[31.80] application of Act, [31.90]-[31.130] scope of Act, [31.140]-[31.180] minors, [31.100]

notice of bankruptcy, [31.230] compliance with requirements, [31.230] extension for compliance, [31.250] non-compliance with notice, [31.220]-[31.240] sum specified, [31.230], [31.240] offences, [31.740] Official Receivers, [31.50] debt agreements, and, [31.680] Official Trustee, [31.50] Common Investment Fund, [31.70] general powers, [31.570] personal insolvency agreements, [31.700] possession of property, [31.570] realisation of property, [31.570] overview, [31.10], [31.20] partnerships, [26.600], [31.90], [31.130] distribution of property, [31.610] persons of unsound mind, [31.110] petitions for bankruptcy, [31.190] preferences, [31.510] creditor’s preference, [31.530] good faith, [31.540] insolvent debtors, [31.520] principal, [13.770] priority of debts, [31.580] order of payments, [31.580] prisoners, [31.120] purpose of law, [31.10] registered trustees, [31.60] distribution of property, [31.580] general powers, [31.570] possession of property, [31.570] realisation of property, [31.570] relation back, [31.400] debtor’s petition, [31.410] limitations, [31.420] secured creditors, [31.380] sequestration orders, [31.270] effect of order, [31.270] proceedings after, [31.280]-[31.300] statement of affairs, [31.280] termination of agency, [13.760], [13.770] termination of contract, [11.520] transfers to defeat creditors, [31.480], [31.490] avoidance of preferences, [31.510]-[31.540] main purpose requirement, [31.480], [31.500] recovery of money or property, [31.550] superannuation contributions, [31.500] transfers of property, [31.510] Bankrupts administration of property, [31.350] acquisitions post-bankruptcy, [31.430]

B Index Bankrupts — cont available property, [31.390], [31.400], [31.450]-[31.470], [31.510] income contributions, [31.440] mutual credit and set-off, [31.370] possession of property, [31.570] proof of debts, [31.360] realisation of property, [31.570] secured creditors, [31.380] unavailable property, [31.560] compositions, [31.320] effect, [31.340] procedure, [31.330] contractual capacity, [6.200] debt agreements, [31.680] discharge from bankruptcy, [31.620] annulment of bankruptcy, [31.640]-[31.660] automatic discharge, [31.620] effect of discharge, [31.630] objections to discharge, [31.620] discovery of property, [31.300] distribution of property, [31.580] deferred claims, [31.590] dividends, [31.600] joint debtors, [31.610] partnerships, [31.610] priority of debts, [31.580] duties, [31.310] effect of non-compliance, [31.310] income contributions, [31.440] income, definition, [31.440] mutual credit and set-off, [31.370] offences, [31.740] proof of debts, [31.360] schemes of arrangement, [31.320] effect, [31.340] procedure, [31.330] Barristers immunity from liability for negligence, [28.380] overview, [1.830] solicitors, distinction, [1.820], [1.830] Battery, [28.630] Beneficiaries appointment of trustee, [29.370] equitable interests in land, [22.710] overview, [29.10], [29.70] proprietary remedies, [29.720] rights, [29.710] termination of trust, [29.760] Berne Convention, [30.1550] Bills of exchange — see also Promissory notes acceptance for honour, [23.980] liability of acceptor, [23.990] payment, [23.1000], [23.1010] referee in case of need, [23.1020] acceptance of bill, [23.710] general acceptance, [23.720] non-acceptance, [23.760], [23.820], [23.830], [23.1000]

presentation for acceptance, [23.260], [23.730], [23.750], [23.760] qualified acceptance, [23.720] requirements, [23.710] time for acceptance, [23.740] acceptors, [23.280] estoppel, [23.550] accommodation bills, [23.350] advantages, [23.30] holder in due course, [23.510]-[23.630] backing a bill, [23.340] bearer, [23.100], [23.200] bills in a set, [23.1040] cheques, comparison, [23.1080] conflict of laws, [23.1050] consideration, [5.170], [23.470] presumptions, [23.490] date of bill, [23.130] wrong date, [23.620] defective title, [23.500], [23.520] definition, [23.40] addressed to drawee, [23.60] payable on demand, [23.80] signed by drawer, [23.70] specified person or bearer, [23.100] sum payable, [23.90] unconditional order in writing, [23.50] delivery, [23.420], [23.530], [23.710] liability, and, [23.420] discharge of bill, [23.920] acceptor as holder, [23.940] cancellation, [23.960] express waiver, [23.950] material alteration, [23.970] payment, [23.930] dishonoured bills, [23.820] acceptance for honour, [23.980] damages, [23.900] negotiation, [23.610] non-acceptance, [23.760], [23.820], [23.830] non-payment, [23.820], [23.840] notice of dishonour, [23.600], [23.850]-[23.890], [23.910] noting and protesting, [23.910] dispense with payment, [23.800] drawer, [23.160] estoppel, [23.560] liability, [23.290] duress, [23.460], [23.500] example, [23.140] form of bill, [23.140] fraud, [23.460], [23.500] holder, [23.210], [23.480] defective title, [23.500] enforcement of rights, [23.260] rights, [23.260], [23.480] holder for value, [23.220] presumptions of value, [23.490] holder in due course, [23.230], [23.250], [23.480] advantages, [23.510]-[23.630] defective title, [23.500], [23.520] delivery, [23.420], [23.530]

derivative title, [23.540] estoppel, [23.550], [23.560] essential elements, [23.510] forged indorsement, [23.640] inchoate instruments, [23.580] indorser, [23.570] irregularities, [23.240], [23.250] material alteration, [23.590] negotiation of dishonoured bill, [23.610] notice of dishonour, [23.600] renunciation, [23.630] wrong date, [23.620] illegality, [23.460], [23.500] inchoate instruments, [23.450], [23.580] indorsements, [23.670] classes of indorsements, [23.680] conditions for compliance, [23.670] forged indorsements, [23.640], [23.700] transfer of order bill without, [23.690] indorsers, [23.190] estoppel, [23.560] liability, [23.300], [23.570] legal capacity, [23.370] liability of parties, [23.270]-[23.300], [23.360] acceptor for honour, [23.990] consideration, [23.470] delivery, [23.420] duress, fraud or illegality, [23.460] inchoate instruments, [23.450] legal capacity, [23.370] matters affecting, [23.370]-[23.470] signature, [23.380]-[23.410], [23.430], [23.440] lost instruments, [23.1030] material alteration, [23.590], [23.970] negotiation, [23.650] dishonoured bill, [23.600] indorsements, [23.670] party already liable, [23.660] notice of dishonour, [23.600], [23.850] delay, excuses for, [23.880] dispensing with notice, [23.890] protesting, [23.910] reasonable time, [23.870] rules, [23.860] noting, [23.910] omission of immaterial facts, [23.120] order or bearer bills, [23.110] overview, [23.20] parties to bill, [23.150] accommodation party, [23.350] bearer, [23.200] drawee, [23.170] drawer, [23.160], [23.290] general position of parties, [23.260] holder, [23.210], [23.260], [23.480] holder for value, [23.220]

1051

1052

Australian Commercial Law Bills of exchange — cont holder in due course, [23.230]-[23.250] indorser, [23.190], [23.300] liability of parties, [23.270]-[23.300], [23.360] payees, [23.180] payees, [23.180] named with certainty, [23.100] payable on demand, [23.80] presentment for acceptance, [23.260], [23.730] excused presentment, [23.760] non-acceptance, [23.760], [23.820], [23.830], [23.1000] rules for presentation, [23.750] presentment for payment, [23.770] delay, excuses for, [23.790] dispensing with, [23.800] honour supra protest, [23.1000], [23.1010] non-payment, [23.820], [23.840], [23.1000] rules for presentment, [23.780] time of payment, [23.810] promissory notes, [23.1120] comparison, [23.1080] investment schemes, [23.1060] protesting, [23.910] signature, [23.70], [23.400] agents, [23.310]-[23.330] backing a bill, [23.340] forged or unauthorised, [23.430], [23.640], [23.700] liability, and, [23.380]-[23.410], [23.430], [23.440] partnerships, [23.380], [23.390] personally signed, [23.400], [23.410] procuration signature, [23.440] representative capacity, [23.310]-[23.330] sum payable, [23.90] transferor by delivery, [23.360] uses, [23.30] Boycotts overview, [18.50], [18.170] primary boycotts, [18.100] authorisation, [18.140], [18.510] defence, [18.140] purpose of prohibition, [18.100], [18.110] substantially lessening competition, [18.120], [18.130] secondary boycotts, [18.170] Breach of confidence — see Confidential information Breach of contract conditions, [9.180], [9.210], [11.270], [12.40] election to terminate, [12.30], [12.50] damages, [12.10], [12.70], [12.260] adequacy of damages, [12.340], [12.350]

chance or opportunity, [12.190], [12.200] disappointment or distress, [12.210]-[12.240] exemplary damages, [12.280] general principle, [12.80]-[12.110] mitigation of loss, [12.150]-[12.180] nominal damages, [12.270] penalty or liquidated damages, [12.290]-[12.330] quantifying loss, [12.190], [12.200] remoteness of damage, [12.120]-[12.140] termination for breach, [12.50] essential terms, [11.260] fulfillment of terms, [11.210] essential terms, [11.260] intention not to be bound, [11.220]-[11.240] mutual abandonment, [11.250] inducement to breach, [10.10], [10.80] justified interference, [10.80], [10.90] wilful blindness or reckless indifference, [10.80] intermediate terms, [11.300] misrepresentation, [7.480] overview, [11.160] professional services, [28.30] remedies, [12.10], [12.60] availability of remedies, [12.20] damages, [12.70]-[12.330] injunctions, [12.400] limitation of actions, [12.410], [12.420] nature of breach, [12.20] sale of goods, [14.840]-[14.1100] specific performance, [12.340]-[12.390] termination for breach, [12.30]-[12.50] repudiation of contract, [11.160], [11.170], [12.20] anticipatory breach, [11.180] conduct amounting to, [11.190] effect of repudiation, [11.200] fulfillment of terms, [11.210], [11.220], [11.230] specific performance, [12.340] adequacy of damages, [12.340], [12.350] termination for breach, [11.10], [11.160] conditions, [9.180], [9.200], [11.270], [12.30]-[12.50] fulfillment of terms, [11.210]-[11.300] intermediate terms, [11.300] remedies, [12.20], [12.30]-[12.50] repudiation of contract, [11.170]-[11.200], [12.20] torts, and, [28.30] warranties, [9.180], [9.210], [11.270] Brokers — see also Insurance brokers overview, [13.810]

Business ethics benefits, [33.40] commercial law, and, [33.30] corporate collapses, [33.20] corporate ethics codes, [33.100] corporate governance, [33.20] corporate social responsibility, [33.50] ethical duties of business, [33.50], [33.120] ethical issues in business, [33.20] environmental protection, [33.20] executive salaries, [33.20] human rights, [33.65], [33.90] industry codes of conduct, [18.680], [33.110] international standards, [33.60] business activities, [33.90] Corruption Convention, [33.60] human rights, [33.65], [33.90] Global Compact, [33.70] Guiding Principles, UN, [33.65] OECD Guidelines, [33.80] overview, [33.10], [33.30] regulatory responses, [33.120] socially responsible investing, [33.130] theories, [33.50]

C Carriage of goods — see Common carriers; Private carriers Cartel conduct competition condition, [18.150] offences, [18.590] overview, [18.50], [18.150] pecuniary penalties, [18.580], [18.590] purpose /effect condition, [18.150] Cases — see Citation of cases; Common law Cash transactions — see Financial Transaction Reports Act Catalogues invitation to treat or offer, [3.40] Champerty, [8.270] Character merchandising passing off, [30.2600] case examples, [30.2610]-[30.2630] Charitable activities enforceability of agreements, [4.110], [4.120] remuneration, [4.130] Charitable trusts, [29.220], [29.270] Chattel securities — see Security interests Chattels — see also Personal property conversion, [28.700], [28.710] detinue, [28.700], [28.720] trespass to chattels, [28.690]

C Index Cheques — see also Financial Transaction Reports Act agency cheques, [24.920] backing a cheque, [24.500], [24.510] bank cheques, [24.810], [24.830] building societies, [24.830] credit unions, [24.830] forgery of signature, [24.810], [24.820] banker/customer relationship, [24.40] rights and duties, [24.40], [24.610] bearer cheques, [24.150] bills of exchange, comparison, [23.1080] collecting institutions, [24.460], [24.600] statutory protections, [24.710], [24.720] without negligence, meaning, [24.720]-[24.790] consideration, [24.240] antecedent debt or liability, [24.240], [24.250]-[24.270] proof of consideration, [24.280] crossings on cheques, [24.160] duties of financial institutions, [24.620] not negotiable, [24.170] date of cheque, [24.110] post-dated cheques, [24.120] definition, [24.50] address to financial institution, [24.70] payment on demand, [24.90] signature, [24.80] sum certain in money, [24.100] unconditional order in writing, [24.60] delivery, [24.200], [24.390] destroyed cheques, [24.870] discharge of cheque, [24.540] cancellation of cheque, [24.570] material alteration, [24.580] payment in due course, [24.550] renunciation of rights, [24.450], [24.560] discharge of indorsers, [24.590] dishonoured cheques, [24.350], [24.470] liability, [24.520] drawee, [24.610] drawer, [24.480] estoppel, [24.410] liability, [24.80], [24.480] signature, [24.80] duty of care, customer, [24.700] examples, [24.20], [24.160] FCA institutions, [24.880] agency cheques, [24.920] duty to present cheques promptly, [24.890] protection when collecting cheques, [24.900]-[24.915] fees, [24.40] financial institutions, [24.70], [24.600]

alteration of cheques, [24.680]-[24.700] bank cheques, [24.810]-[24.830] collecting institutions, [24.460], [24.600], [24.710]-[24.790] conversion, [24.710] crossed cheques, [24.160], [24.620] customer relationship, [24.40], [24.610] duties, [24.40], [24.610], [24.620] forged or unauthorised indorsements, [24.630] forged signature, [24.640]-[24.670] holder for value, as, [24.800] holder in due course, as, [24.800] paying institutions, [24.610]-[24.700] payment on demand, [24.90] presentment of cheques, [24.460] revocation of authority to pay, [24.840] stale cheques, [24.850] statutory protections, [24.630]-[24.700], [24.710], [24.720] form of cheque, [24.20], [24.30] holder, [24.360], [24.550] renunciation of rights, [24.450], [24.560] transferor by delivery, [24.530] holder for value, [24.800] holder in due course, [24.360], [24.370] defects of title, [24.380] definition, [24.370] delivery, [24.390] estoppel, [24.400], [24.410] financial institution, as, [24.800] inchoate instruments, [24.430] material alteration, [24.440] personal defences, [24.380] presumption, [24.370] privileges, [24.370], [24.380]-[24.450] renunciation of rights, [24.450] stranger signing cheque, [24.420] inchoate instruments, [24.290], [24.430] effect of filling up, [24.310] reasonable time for filling, [24.290], [24.300] indorsements, [24.320], [24.330] forged or unauthorised, [24.630] transfer of order cheque without, [24.340] indorser, [24.490] discharge of indorser, [24.590] estoppel, [24.410], [24.490] liability, [24.480] backing a cheque, [24.500], [24.510] consideration, [24.240]-[24.280] delivery, [24.200] dishonoured cheques, [24.520] drawer, [24.80], [24.480]

inchoate instruments, [24.290]-[24.310] indorser, [24.490] legal capacity, [24.180] matters affecting, [24.180]-[24.310] signature, [24.80], [24.190], [24.210], [24.220], [24.230], [24.500], [24.510] transferor by delivery, [24.530] lost cheques, [24.860], [24.870] material alteration, [24.440], [24.580], [24.700] negotiation of cheques, [24.320] dishonoured cheques, [24.350] indorsement, [24.320], [24.330] stale cheques, [24.350] transfer without indorsement, [24.340] not negotiable crossings, [24.170] collecting institutions, [24.790] holder in due course, [24.370] order cheques, [24.140] transfer without indorsement, [24.340] overview, [24.10] payment on demand, [24.90] payment in due course, [24.550] payment via mail, [24.860] post-dated cheques, [24.120] presentment of cheques, [24.460] promissory notes, comparison, [23.1080] renunciation of rights, [24.450], [24.560] signature, [24.80], [24.190] agents, [24.220] backing a cheque, [24.500], [24.510] forged or unauthorised, [24.210], [24.640]-[24.670] joint accounts, [24.670] procuration signature, [24.230] representative capacity, [24.220] stranger signing cheque, [24.420] stale cheques, [24.350], [24.850] statutory regulation, [24.10] transferor by delivery, [24.530] types of cheques, [24.130] bearer cheques, [24.150] order cheques, [24.140] Child pornography, [16.560] Choses in action assignment, [10.150] equitable assignments, [10.170]-[10.190] notice of assignment, [10.160] statutory provisions, [10.150], [10.160] equitable chose in action, [10.190] legal chose in action, [10.180], [10.190] overview, [22.30]

1053

1054

Australian Commercial Law Choses in possession, [22.30] Citation of cases electronic form, [1.520] medium-neutral citations, [1.520] overview, [1.500] parties, [1.510] volume number, [1.510] year, [1.510] Civil law criminal law, distinction, [1.740], [32.10], [32.30] consequences of conviction, [32.50] involvement of the state, [32.40] onus of proof, [32.70] proceedings, [32.60] standard of proof, [32.70] overview, [1.740] Civil penalties credit providers, [19.320], [19.400] applicants for imposition, [19.340], [19.360] assessment of amount, [19.370]-[19.390] debtors or guarantors, [19.340], [19.350] government consumer agencies, [19.360] key requirements, [19.330] director’s duties, [27.750] Civil penalty provisions director’s duties, [27.940], [27.950] discovery procedures, [27.960] insolvent trading, [27.1000] related party loans and payments, [27.980], [27.990] Civil proceedings commencement of proceedings, [1.760] discovery, [1.780] interrogatories, [1.770] overview, [1.760], [32.60] parties, [1.760] pleadings, [1.760] pre-trial proceedings, [1.770] standard of proof, [1.800] statement of claim, [1.760] trial procedure, [1.790] writs, [1.760] Code of Banking Practice, [24.980], [33.110] Codes of conduct franchising, [30.2790] overview, [18.680], [33.110] Codes of ethics corporate codes, [33.100] Cohabitation agency arising from, [13.150], [13.190] Collateral contracts consistency with main contract, [9.130], [9.140]

intention of parties, [9.150], [9.160], [9.170] overview, [9.120] Commerce — see Electronic commerce; Trade and commerce Commercial agreements intention to create legal relations, [4.140], [4.150] express exclusion, [4.180]-[4.210] form of agreement, [4.160], [4.170] letters of comfort, [4.220] sale of business, [4.160], [4.170] Commercial arbitration agreements to arbitrate, [1.860] legal proceedings, and, [1.860] arbitrator’s award, [1.850] international arbitration, [1.860] overview, [1.850], [1.930] removal of arbitrator, [1.850] UNCITRAL Model Law on International Commercial Arbitration, [1.860] disputes, [1.850] uniform legislation, [1.850] Commercial dispute centres, [1.950] Commercial law — see also Business ethics common law, [1.30] development of law, [1.30] overview, [1.30] statute law, [1.30] Commercial mediation, [1.940] Commissions — see Tribunals or commissions Common carriers carriage by air, [21.510], [21.520] absolute liability, [21.530] intrastate liability, [21.530] carriage by rail, [21.500] carriage by sea, [21.540] definition, [21.400] duties, [21.430] liability of carriers, [21.440] carriage by air, [21.510], [21.530] carriage by rail, [21.500] consumer contracts, [21.480] New South Wales, [21.460] Queensland, [21.470] statutory limitations, [21.450]-[21.480] overview, [21.390], [21.400] private carriers, distinction, [21.410] rights of carriers, [21.490] Common law commercial law, [1.30] contract, [1.30] doctrine of precedent, [1.540] equity, and, [1.460] distinction, [1.440], [1.460] Judicature system, [1.460]

historical background, [1.450], [1.460] Judicature system, [1.460] reception of English law, [1.470] insurance contracts, [25.10], [25.70] law reports, [1.480] meaning, [1.440] overview, [1.440] partnerships, [26.10] source of law, as, [1.200], [1.440] statutory interpretation, [1.380] golden rule, [1.400] literal rule, [1.390] mischief rule, [1.410] statutory law, and, [1.440] Common seal, [27.190] Commonwealth Parliament corporations power, [1.110] Work Choices case, [1.110] imperial acts, and, [1.470] legislative powers, [1.100] concurrent powers, [1.100] corporations power, [1.110] criminal law, [32.170] delegation of powers, [1.90] excise or customs duties, [1.170] exclusive powers, [1.100] external affairs, [1.140] intellectual property, [30.20] interpretation, [1.100] reference power, [1.150] taxation, [1.130] trade and commerce, [1.120], [1.160] making of statutes, [1.220] resolution of deadlocks, [1.220] overview, [1.70] trade and commerce, [1.120] interstate trade, [1.160] Companies — see also Business ethics acts of agents, [27.320], [27.330] assumptions, [27.320] annual reports, [27.920] arrangements or compromises, [27.950]-[27.960] reconstruction or amalgamation, [27.970] articles of association, [27.230] auditors, [27.940] Australian Company Number, [27.170], [27.180] bankruptcy, and, [31.90] claims by members for debts, [27.1340] common seal, [27.190] companies limited by guarantee, [27.90] constitution, [27.290] constitution, [27.60], [27.240], [27.270] exercise of powers, [27.300] membership, [27.350] modification or repeal, [27.280] notice of contents, [27.310] requirement, [27.290] ultra vires principle, [27.300]

C Index Companies — cont contractual capacity, [6.170], [27.60] corporate finance, general rules, [27.420] reduction of share capital, [27.540] corporate personality, [27.50] criminal capacity, [32.440] deregistration, [27.1410] ASIC-initiated deregistration, [27.1430] voluntary deregistration, [27.1420] directors — see Directors disqualification from management, [27.830] features, [27.60] financial records, [27.910] financial reports, [27.920] half-year reports, [27.930] foreign companies, [27.210] formation, [27.50], [27.70] investigations by ASIC, [27.1440] legal entity, as, [6.170], [27.50] limited liability, [27.60] managed investment schemes, [27.220] members’ remedies, [27.380] oppressive or unfair conduct, [27.400], [27.410] statutory derivative action, [27.390] membership, [27.350] cessation of membership, [27.370] register of members, [27.350], [27.360] memorandum of association, [27.230] no liability companies, [27.110] constitution, [27.290] officers, [27.710] disqualified persons, [27.830] secretary, [27.820] overview, [26.120], [27.50] partnerships, distinction, [26.120], [27.120] pre-registration contracts, [27.340] promoter’s liability, [27.340] proprietary companies, [27.130] accounting records, [27.140] companies limited by shares, [27.80], [27.130] large companies, [27.140] name of company, [27.130] one member companies, [27.150] privileges or concessions, [27.160] replaceable rules, [27.250] small companies, [27.140] public companies, [27.70] companies limited by shares, [27.80] constitution, [27.280] removal of directors, [27.800] replaceable rules, [27.250] receivers — see Receivers reconstructions or amalgamations, [27.970] registered office, [27.660]

registration of companies, [27.170] membership, [27.350] one place of registration, [27.200] replaceable rules, [27.240], [27.250] amendment, [27.260] membership, [27.350] secretary, [27.820] shareholders meetings, [27.840] agenda, [27.870] annual general meeting, [27.850] general meetings, [27.860] minutes, [27.900] ordinary resolutions, [27.880] special resolutions, [27.890] shares — see Shares trusts, distinction, [29.90], [29.140] types of companies, [27.70] companies limited by guarantee, [27.90] companies limited by shares, [27.80] no liability companies, [27.110] proprietary companies, [27.80], [27.130]-[27.160] public companies, [27.80] unlimited companies, [27.100] ultra vires principle, [27.300] voluntary administration, [27.1180] whistleblower protection, [32.480] winding up — see Winding up

constitutional framework, [18.20], [18.30] contravention of provisions, [18.50], [18.520] enforcement proceedings, [18.40] exceptions, [18.500] exclusive dealing, [18.50], [18.310]-[18.390], [18.470], [18.510] industry codes of conduct, [18.680] market, definition, [18.480] mergers or acquisitions, [18.50], [18.450]-[18.460], [18.470], [18.510] misuse of market power, [18.50], [18.180]-[18.300], [18.470] remedies, [18.50], [18.520]-[18.670] resale price maintenance, [18.50], [18.400]-[18.440] States and Territories, [18.30] types of practices, [18.50] Competition and Consumer Regulations, [18.390] Competitions or lotteries enforceability of agreements, [4.90], [4.100] express exclusion of intention, [4.200], [4.210]

Company law — see also Companies Corporations Act, [27.10], [27.20] administration of Act, [27.40] scope, [27.30] overview, [1.720], [27.10], [27.20]

Compositions by bankrupts effect, [31.340] overview, [31.320] procedure, [31.330]

Compensation native title extinguishment, [22.1290]

Compulsion recovery of money paid under, [12.520]

Competition and Consumer Act constitutional framework, [17.20], [18.20] Competition Code, [18.30] consumer protection — see Australian Consumer Law misleading or deceptive conduct — see Misleading or deceptive conduct overview, [17.10], [17.20] restrictive trade practices, [17.10], [18.10] administrative machinery, [18.40] aim of provisions, [18.10] anti-competitive agreements, [8.490], [8.500], [8.510], [18.50], [18.60]-[18.140], [18.160], [18.510] authorisation of conduct, [18.40], [18.140], [18.390], [18.450], [18.460], [18.510] boycotts, [18.50], [18.100]-[18.140], [18.170], [18.510] cartel conduct, [18.150], [18.580], [18.590] Competition Code, [18.30] competition, meaning, [18.490]

Computer crime anti-spam legislation, [16.550] copyright infringement, [16.590], [16.600], [16.610] Criminal Code (Cth), [16.470] child pornography, [16.560] telecommunications offences, [16.470], [16.530] unauthorised impairment, [16.490], [16.500] unauthorised modification, [16.490], [16.510] Cybercrime Convention, Council of Europe Convention on Cybercrime, [16.460], [16.470] cyberstalking, [16.530] denial of service attacks, [16.500] investigative powers, [16.540] National Cybercrime Working Group, [16.470], [16.470] overview, [16.460], [32.540] peer-to-peer file sharing, [16.590], [16.600], [16.610] private copying provisions, [16.570]-[16.580] States and Territories, [16.520] statutory measures, [16.470]

1055

1056

Australian Commercial Law Computer crime — cont anti-spam legislation, [16.550] investigative powers, [16.540] telecommunications offences, [16.520], [16.530] Computer programs copyright, [30.150] parallel importation, [30.550] patents, [30.1850] Conciliation, [1.900] Conditions auctions, [14.1110] breach of conditions, [9.180], [9.210], [11.270], [12.40] election to terminate, [12.30], [12.50] conditions precedent, [11.110] courts’ approach, [11.140] existence of subject matter, [7.110], [7.120] formation of contract, [11.110], [11.130] performance of obligations, [11.110], [11.120], [11.140] conditions subsequent, [11.150] implied — see Implied conditions intermediate terms, and, [11.300] misrepresentation, and, [7.480] overview, [9.180], [11.100], [11.270] sale of goods, [14.210], [14.400], [14.410] time stipulations, [11.290] warranties, distinction, [9.180], [11.270], [11.290], [14.210] case examples, [9.190], [9.200], [11.280] intention of parties, [9.210] Confidential information contracts, [30.2720] elements of action, [30.2720] employee obligations, [30.2750] post-employment, [30.2750], [30.2760] nature of action, [30.2700] overview, [30.10], [30.2700], [30.2710] public interest defence, [30.2730] remedies, [30.2740] trade secrets, [30.2700] types of information, [30.2700] Conflict of laws overview, [15.460], [16.430] Consideration adequacy, [5.60], [5.70] bills of exchange, [5.170], [23.470] presumptions, [23.490] capable of performance, [5.100] cheques, [24.240] antecedent debt or liability, [24.240], [24.250]-[24.270] proof of consideration, [24.280] contracts under seal, [5.10], [5.180] definite in nature, [5.80], [5.90] definition, [5.30], [5.150]

essential rules, [5.40]-[5.130] executed or executory, [5.100], [5.140] existing obligations, [5.100] contractual obligations, [5.120] legal duties, [5.110] substituted performance, [5.130] guarantees, [20.40] illegal or unlawful, [5.80] meaning, [5.30] movement from promisee, [5.100] new promise indistinguishable from old, [5.100] overview, [5.10], [5.20] past consideration, [5.100], [5.150], [5.160] exceptions to rule, [5.170] past debts, [5.170] sale of goods contracts, [14.20], [14.40] total failure of consideration, [12.470] valuable consideration, [2.40] Constitution Australian Consumer Law, constitutional basis for [17.20] branches of government, [1.40], [1.70] executive, [1.80], [1.90] judiciary, [1.180] legislature, [1.100] separation of powers, [1.70] constitutional law, [1.720] Competition and Consumer Act, [17.20], [18.20] Common law, unity of Australian, [18.180] corporations power, [1.110] Competition and Consumer Act, [18.20] Trade Practices Act, [17.20] Work Choices case, [1.110] High Court, [1.100], [1.180] appellate jurisdiction, [1.570] functions, [1.180] judicial activism, [1.190] historical background, [1.60] implied freedom of communication, [1.190] interpretation, [1.100], [1.180] legislative powers, [1.100] concurrent powers, [1.100] corporations power, [1.110] criminal law, [32.170] division of powers, [1.100] excise or customs duties, [1.170] exclusive powers, [1.100] external affairs, [1.140] intellectual property, [30.20] interpretation, [1.100] reference power, [1.150] taxation, [1.130] trade and commerce, [1.120], [1.160] making of statutes, [1.220] native title, [22.1000] overview, [1.40] previous decisions, [1.180]

States and Territories, [1.40], [1.70] consumer credit, [19.40] division of powers, [1.100] reference power, [1.150] trade and commerce power, [1.160] Consumer contracts — see also Credit contracts; Defective goods guarantees, [17.30], [17.1000] acceptable quality, [17.1040]-[17.1060] auction sales, [17.1130] common carrier’s liability, [21.480] consumer, meaning, [17.1020] correspondence with description, [17.1090] demonstration models, [17.1100] exclusion of guarantees, [17.1150] express warranties, [17.1120] fitness for disclosed purpose, [17.1070]-[17.1075], [17.1080] hire of goods, [21.300] limitation of liability, [17.1150] manufacturers’ liability, [17.1170], [17.1280], [17.1290] provision of services, [17.1140], [21.230] remedies for non-compliance, [17.1160] repairs, [17.1110] spare parts, [17.1110] supply by sample, [17.1100] supply, definition, [17.1010] title of goods, [17.1030] unfair terms, [17.30], [17.290] effect of terms, [17.290] examples, [17.310] standard form contracts, [17.320] unfair, meaning, [17.300] Consumer credit administration of scheme, [19.130] advertising, [19.860] applicable credit, [19.160] debtor a natural person, [19.170] no charges or fees, [19.210] provision in course of business, [19.220] purpose of credit, [19.180]-[19.200] requirements, [19.160] Consumer Credit Code, [19.30], [19.140] comparative table, [19.140], [19.890] excepted credit, [19.230] forms of credit, [19.10] credit contracts — see Credit contracts default notices, [19.460], [19.480] enforcement, [19.460] direct debit default, [19.470] mortgages, [19.490]-[19.540] negotiation of postponement, [19.480]

C Index Consumer credit — cont termination by debtor, [19.550] general conduct obligations, [19.80] guarantees, [19.450], [20.250] enforcement, [19.560] home loans and credit cards, [19.40] disclosure requirements, [19.110] insurance, [25.1200] interest rate comparisons, [19.860] licensing scheme, [19.50], [19.60] applications for licences, [19.70] Australian credit licence, [19.70] suspension or termination of licence, [19.80], [19.130] mortgaged goods, [19.460], [19.490] regaining possession, [19.530] limitation on taking possession, [19.500] procedure post-possession, [19.510] sale of repossessed goods, [19.520] surrender of goods, [19.540] mortgages, [19.410], [22.660] assignment or disposal of property, [19.440] enforcement, [19.460], [19.490]-[19.540] future property, [19.420] general provisions, [19.420] prohibited securities, [19.430] National Credit Code, [19.140] advertising, [19.860] applicable credit, [19.160]-[19.220] application of Code, [19.150] civil penalties, [19.320]-[19.400] comparative table, [19.140], [19.890] contracting-out of provisions, [19.870] credit contracts, [19.240]-[19.310] effect of contravention, [19.880] enforcement, [19.460]-[19.560] excepted credit, [19.230] general approach, [19.140] guarantees, [19.450] hardship, [19.570] interest rate comparisons, [19.860] mortgages, [19.410]-[19.430], [22.660] Personal Property Securities Act, and, [19.1040] related insurance contracts, [19.780] related sale contracts, [19.660]-[19.770] scope of operation, [19.150] unjust transactions, [19.590]-[19.650] overview, [19.10] purpose of credit, [19.180] declaration as to other purposes, [19.200] predominant purpose, meaning, [19.190]

regulatory framework, [19.20], [19.50] background to introduction, [19.40] comparison of provisions, [19.140], [19.890] Consumer Credit Code, [19.30], [19.140] National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011, [19.110] National Credit Code, [19.140], [19.150] reforms, [19.40] States and Territories, [19.30], [19.40] remedies, [19.120] sanctions for non-compliance, [19.130] responsible lending conduct, [19.90] credit guides, [19.110] unsuitability of contracts, [19.100] States and Territories, [19.30] referral of powers, [19.40] unconscionable fees or charges, [19.640], [19.650] unjust transactions, [7.970], [19.590] ASIC applications, [19.650] court orders on reopening, [19.610]-[19.630] court’s considerations, [19.600] Consumer guarantees — see Consumer contracts Consumer protection — see also Australian Consumer Law financial services, [17.1430] motor vehicles, [17.1410] repairs, [17.1420] States and Territories, [17.20] motor vehicles, [17.1410], [17.1420] Competition and Consumer Act, [17.20] Contract law — see also Contracts overview, [1.30], [1.720], [2.10] scope of law, [2.10] torts, and, [28.30] Contracts — see also Electronic commerce acceptance — see Offer and acceptance agency, [13.10] privity of contract, [10.40] agreements, [2.10], [2.30] assignment — see Assignment of contracts bankrupts, [6.200] bilateral contracts, [2.90] breach — see Breach of contract capacity to contract — see Contractual capacity charitable activities, [4.110], [4.120] remuneration, [4.130] classification of contracts, [2.50]

bilateral contracts, [2.90] contracts under seal, [2.70] express contracts, [2.80] implied contracts, [2.80] simple contracts, [2.60] unenforceable contracts, [2.100] unilateral contracts, [2.90] valid contracts, [2.100] void contracts, [2.100], [8.160] voidable contracts, [2.100] collateral contracts, [9.120] consistency with main contract, [9.130], [9.140] intention of parties, [9.150], [9.160], [9.170] merger clause, [9.170] common law, [1.30] companies, pre-registration, [27.340] competitions or lotteries, [4.90], [4.100] express exclusion of intention, [4.200], [4.210] confidential information, [30.2720] consent to contract, [7.10] consideration — see Consideration contents of contract — see Terms of contract contracts under seal, [2.70], [5.20], [5.180] consideration, and, [5.10], [5.180] creation of agency, [13.90], [13.100] deed polls, [5.220] delivery, [5.180] escrow, [5.200] indentures, [5.210] merger of contract, [11.530] requirements, [5.180] simple contracts, differences, [5.190] termination of contract, [11.90] variation of contract, [11.90] corporations, [6.170] credit — see Credit contracts definition, [2.20] domestic agreements, [4.20] de facto relationships, [4.50] family agreements, [4.70], [4.80] husband and wife, [4.30], [4.40], [4.50], [4.60] duress — see Duress employment — see Employment contracts essential elements, [2.30], [9.20] valuable consideration, [2.40] express contracts, [2.80] example, [2.110] exemption clause, [9.470] forfeiture of deposits, cases, [12.332], [12.333] formalities, [5.290] memorandum, [5.350] written requirement, [5.290]-[5.340] frustration — see Frustration of contract guarantees — see Guarantees

1057

1058

Australian Commercial Law Contracts — cont illegal contracts — see Illegal contracts implied contracts, [2.80], [5.20] insurance — see Insurance contracts intention to create legal relations, [2.30], [4.10] charitable activities, [4.110]-[4.130] commercial agreements, [4.140]-[4.220] competitions or lotteries, [4.90], [4.100], [4.200], [4.210] domestic agreements, [4.20], [4.30]-[4.80] express exclusion of intention, [4.180]-[4.210] family agreements, [4.70], [4.80] husband and wife, [4.30], [4.40], [4.50], [4.60] letters of comfort, [4.220] sale of business, [4.160], [4.170] social agreements, [4.20], [4.90]-[4.130] test to determine, [4.10] international sales — see International sales contracts interpretation of contract, [9.10] parol evidence rule, [9.30]-[9.70] written contracts, [9.20]-[9.70] joint contracts, [3.330], [3.340] joint promises, [3.330], [3.340] legality of object, [8.10] liability, exemption clause, [9.530] lotteries or competitions, [4.90], [4.100] express exclusion of intention, [4.200], [4.210] memorandum, [5.350] minors, [6.30] contracts for necessaries, [6.40] contracts of service, [6.50]-[6.90] misrepresentation, [6.140] ratification of contract, [6.120], [6.160] repudiation of contract, [6.110], [6.150], [6.160] void contracts, [6.130] voidable contracts, [6.100]-[6.120] misrepresentation — see Misrepresentation mistake — see Mistake negotiations in good faith, [9.80], [9.90] offer — see Offer and acceptance oral contracts, [5.20], [5.290] collateral contracts, [9.120] parol evidence rule, [9.30], [15.110] collateral verbal agreements, [9.50], [9.60] exceptions, [9.30]-[9.70] part performance, [5.360] acts referable to contract, [5.390] case examples, [5.370], [5.380] penalty, [12.290] distinguished from liquidated damages, [12.290]-[12.330]

personal services contracts, [10.230] privity of contract, [10.10], [10.20] agency relationship, [10.40] courts’ adherence, [10.70] exceptions to doctrine, [10.40] general principle, [10.20], [10.30] insurance contracts, [10.50]-[10.70] interference, [10.80] trust relationship, [10.40] profit a prendre, [5.330] rectification — see Rectification repudiation — see Repudiation of contract restraint of trade, [8.370], [8.400] legislation, [10.610] rights and liabilities, [10.10] sale of goods — see Sale of goods sale of land — see Sale of land simple contracts, [2.60], [5.20], [5.290] contracts under seal, differences, [5.190] examples, [2.110] merger of contract, [11.530] social agreements, [2.30], [4.20], [4.90] charitable activities, [4.110]-[4.130] lottery participation, [4.90], [4.100] specific performance, [12.340] supply of materials, [14.60] termination — see Termination of contract terms, [9.240], [9.420] trusts, distinction, [29.90], [29.100] unconscionable contracts — see Unconscionable contracts undue influence — see Undue influence unenforceable contracts, [2.100] unilateral contracts, [2.90] unjust contracts, [7.860], [7.980] applications for relief, [7.1000] court’s considerations, [7.980] exclusion of rights, [7.1000] examples of application, [7.1010]-[7.1060] restrictions on relief, [7.990] unjust, definition, [7.860], [7.980] valid contracts, [2.100] void contracts — see Void contracts voidable contracts, [2.100] economic duress, [7.770] intoxicated persons, [6.180] mentally incapacitated, [6.180] minors, [6.100]-[6.120] unilateral mistake, [7.30], [7.190], [7.360] work and labour, [14.60] written contracts, [9.20] collateral contracts, [9.120] parol evidence rule, [9.30]-[9.70] variation of contract, [11.90] written requirement, [5.10], [5.20], [5.290] effect of non-compliance, [5.360]

examples of statutes, [5.300] guarantees, [5.340] sale of land contracts, [5.330] Statute of Frauds, [5.310], [5.320], [5.330], [5.340] Contracts under seal consideration, and, [5.10], [5.180] creation of agency, [13.90], [13.100] deed polls, [5.220] escrow, [5.200] indentures, [5.210] overview, [2.70], [5.20], [5.180] requirements, [5.180] simple contracts, differences, [5.190] termination of contract, [11.90] merger of contract, [11.530] variation of contract, [11.90] Contractual capacity agency, [13.40] bankrupts, [6.200] bills of exchange, [23.370] cheques, [24.180] corporations, [6.170], [27.60] intoxicated persons, [6.180], [14.70] married women, [6.190] mentally incapacitated persons, [6.180], [14.70] minors, [6.20] bills of exchange, [23.370] contracts for necessaries, [6.40], [14.70] contracts of service, [6.50]-[6.90] misrepresentation, [6.140] New South Wales, [6.150] ratification of contract, [6.120], [6.160] repudiation of contract, [6.110], [6.150], [6.160] South Australia, [6.160] valid contracts, [6.30]-[6.90] void contracts, [6.130] voidable contracts, [6.100]-[6.120] parties, legal capacity, [2.40] overview, [6.10] sale of goods, [14.70] Contributory negligence damages, and, [12.250], [17.1230] manufacturers’ liability, [17.1230] overview, [28.550], [28.560] pleading defence, [28.560] statutory provisions, [28.560] Conversion cheques, and, [24.710], [24.900] copyright infringement, [30.1220], [30.1230] damages, [28.710] overview, [28.40], [28.700], [28.710] Co-ownership land, [22.390] joint tenancy, [22.400]-[22.430], [22.450], [22.460] tenancy in common, [22.440], [22.450], [22.460]

C Index Co-ownership — cont termination of co-ownership, [22.450] joint tenancy, [22.400] concurrent interests, [22.460] right of survivorship, [22.420] severance, [22.430] termination of co-ownership, [22.450] unities of tenancy, [22.410] partnership, distinction, [26.130] personal property, [22.260] tenancy in common, [22.440] concurrent interests, [22.460] termination of co-ownership, [22.450] Copyright Acts of Parliament, [30.700] Anton Piller orders, [30.1250] artistic works, [30.180] commissioned works, [30.300] definition, [30.180] drawings, [30.180] duration of copyright, [30.730] exceptions to infringement, [30.690] exclusive rights, [30.310] novelty, [30.1890] published editions, [30.980] resale royalty rights, [30.1540] three-dimensional reproduction, [30.350] work of artistic craftsmanship, [30.190], [30.200] assignment, [30.1030], [30.1040] Australian Performing Rights Association, [30.390] future copyright, [30.1090] authorising infringement, [30.430] case example, [30.440] connection requirement, [30.450] matters taken into account, [30.450] authors, [30.240] exceptions, [30.250] moral rights, [30.1420]-[30.1530] resale royalty rights, [30.1540] carriage service providers, [30.1260] categories, [30.30], [30.40] cinematograph films, [30.750], [30.830] computer games, [30.840] duration of copyright, [30.890] exclusive rights, [30.860] ownership of copyright, [30.870] subsistence of copyright, [30.850] compilations, [30.100] telephone directories, [30.110], [30.140] television program schedules, [30.120], [30.130] computer programs, [30.150] parallel importation, [30.550] Conventions, Berne and UCC, [30.1550] criminal offences, [30.1330] performers’ rights, [30.1400] damages, [30.1120], [30.1130]

additional damages, [30.1180]-[30.1210] conversion or detention, [30.1220], [30.1230] defences, [30.590] fair dealing, [30.600]-[30.640], [30.1010] innocent infringement, [30.1140], [30.1150], [30.1230] designs, and, [30.1710], [30.1770] applied industrially, meaning, [30.1750] corresponding design, meaning, [30.1730] exceptions, [30.1760] registered corresponding designs, [30.1720], [30.1730] standards, [30.1600] unregistered corresponding designs, [30.1740], [30.1750] dramatic works, [30.160] duration of copyright, [30.720] published editions, [30.980] duration of copyright, [30.720] artistic works, [30.730] cinematographic films, [30.890] joint authorship, [30.740] sound recordings, [30.820] television and sound broadcasts, [30.970] educational copying, [30.670] broadcast programs, [30.660] photocopying, [30.670] employees, [30.260] exclusive rights, [30.310] adaptations, [30.410] cinematograph films, [30.860] commercial rental, [30.420] communication to the public, [30.400] publication, [30.360] public performance, [30.370], [30.380] reproduction in a material form, [30.320]-[30.350] sound recordings, [30.780] television and sound broadcasts, [30.920]-[30.940] exemptions from infringement, [30.2115] fair dealing, [30.600], [30.610] audio-visual items, [30.1010] case examples, [30.610], [30.630], [30.640] meaning, [30.600], [30.620] research or study, [30.650] format-shifting, [30.680] sound recordings, [30.810] franchise agreement, disclosure, [30.2790] Franchising Code of Conduct, [30.2790] future copyright, [30.1090] ideas, and, [30.210], [30.220] formulated expression, distinction, [30.230] importing infringing articles, [30.460], [30.470]

knowledge of importer, [30.470], [30.480] parallel importation, [30.490]-[30.560], [30.1000] published editions, [30.990] incorporeal right, [30.40] independent contractors, [30.260] journalists, [30.290] infringement, [30.430] authorising infringement, [30.430]-[30.450] carriage service providers, [30.1260] damages, [30.1210] importing infringing articles, [30.460], [30.470]-[30.560] online piracy, [30.1265] peer-to-peer file sharing, [16.590], [16.600], [16.610] remedy, [30.1160] sale of infringing articles, [30.460], [30.570], [30.580], [30.2400] secondary infringements, [30.460] statutory defences, [30.590]-[30.640], [30.1010] statutory exceptions, [30.650]-[30.700], [30.810], [30.960], [30.1020] international protection, [30.1550] TRIPS agreement, [30.1560] internet service providers, [30.1260] journalists, [30.270], [30.280] newspaper proprietors, [30.260], [30.290] judgments or orders, [30.700] judicial proceedings, acts for, [30.1020] legislation, [30.20] licences, [30.1050] exclusive licences, [30.1060] implied licences, [30.1070], [30.1080] musical works, [30.710] sound recordings, [30.800] literary works, [30.90] compilations, [30.100]-[30.140] computer programs, [30.150] definition, [30.90], [30.100], [30.150] duration of copyright, [30.720] published editions, [30.980] moral rights — see Moral rights musical works, [30.170] Australian Performing Rights Association, [30.390] duration of copyright, [30.720] licences for manufacture, [30.710] public performance, [30.370], [30.380] published editions, [30.980] nature of copyright, [30.30], [30.40] overview, [30.10], [30.30] ownership, [30.240] author, meaning, [30.240] cinematographic films, [30.870] commissioned artistic works, [30.300]

1059

1060

Australian Commercial Law Copyright — cont employees, [30.260] independent contractors, [30.260], [30.290] journalists, [30.270]-[30.290] sound recordings, [30.790] statutory exceptions, [30.250]-[30.300] television and sound broadcasts, [30.950] parallel importation, [30.490], [30.500] books, [30.520] computer software, [30.550] electronic items, [30.560] labelling or packaging, [30.530], [30.540] relaxation of restrictions, [30.510]-[30.560] sound recordings, [30.1000] Patents Act 1990, [30.1780] biological processes, [30.1840] computer programs, [30.1850] extensions, [30.2040] performers’ protection, [30.1340] consent to use, [30.1380] duration of protection, [30.1390] extension of rights, [30.1410] moral rights, [30.1410] offences, [30.1400] performance, meaning, [30.1350] remedies, [30.1370] unauthorised use, [30.1360], [30.1370] public performance, [30.370] Australian Performing Rights Association, [30.390] case example, [30.380] published editions, [30.750], [30.980] infringing copies, [30.990] remedies for infringement, [30.1100] access to encoded broadcasts, [30.1320] account of profits, [30.1140], [30.1150], [30.1160], [30.1170] anti-circumvention provisions, [30.1290] conversion or detention, [30.1220], [30.1230] damages, [30.1120], [30.1130], [30.1180]-[30.1210], [30.1220] delivery up, [30.1240] electronic rights management information, [30.1310] injunctions, [30.1110] interlocutory injunctions, [30.2120] moral rights, [30.1510], [30.1520] performers’ rights, [30.1370] reproduction in a material form, [30.320] digitised form, [30.340] films, [30.330] sound recordings, [30.330] substantial reproduction, [30.320] three-dimensional form, [30.350]

resale royalty rights, [30.1540] research or study, [30.650] sale of infringing articles, [30.460], [30.570] proof of knowledge, [30.580] published editions, [30.990] sound recordings, [30.750], [30.760] duration of copyright, [30.820] exclusive rights, [30.780] format-shifting, [30.810] licences, [30.800] ownership of copyright, [30.790] parallel importation, [30.1000] reproduction in material form, [30.330] subsistence of copyright, [30.770] subject matter, [30.40] subject matter other than works, [30.40], [30.750] categories, [30.750] technological protection measures, [30.1270] access to encoded broadcasts, [30.1320] anti-circumvention provisions, [30.1270]-[30.1290] civil remedies, [30.1290], [30.1310] electronic rights management information, [30.1300], [30.1310] exceptions, [30.1280] television and sound broadcasts, [30.750], [30.900] duration of copyright, [30.970] exception to infringement, [30.960] exclusive rights, [30.920]-[30.940] ownership of copyright, [30.950] subsistence of copyright, [30.910] time-shifting, [30.960] trade mark, case, [30.2245] registration opposed, [30.2345] remedy, [30.2455] works, [30.40], [30.50] artistic works, [30.180]-[30.200] author, [30.240] dramatic works, [30.160] literary works, [30.90]-[30.200] musical works, [30.170] original work, meaning, [30.80] published works, [30.70] unpublished, [30.60] Corporate ethics code, [33.100] Corporate financing, [27.651] Disclosure documents, [27.653] Misleading or deceptive statements, [27.656] Omissions, [27.656] Offer information statement, [27.655] Prospectus, [27.653], [27.654] Corporations — see also Business ethics; Companies contractual capacity, [6.170] criminal capacity, [32.440]

false or misleading representations, [17.670] unfair practices contraventions, [17.670] Corporations Act — see also Companies administration of Act, [27.40] compromises arrangement, [27.950]-[27.960] managed investment schemes, [27.220] overview, [27.10], [27.20] reconstruction, [27.970] scope, [27.30] Country of origin, [17.390], [17.690] County courts, [1.620] Court system — see also Citation of cases cross-vesting of jurisdiction, [1.710] doctrine of precedent, and, [1.540] conflict of authority, [1.540] obiter dicta, [1.550] ratio decidendi, [1.550] Federal Court, [1.580] cross-vesting of jurisdiction, [1.710] Federal Circuit Court, [1.590] federal tribunals or commissions, [1.650], [1.660] Australian Competition and Consumer Commission, [1.670] Australian Competition Tribunal, [1.670] hierarchy of courts, [1.560] doctrine of precedent, [1.540], [1.550] federal courts, [1.560]-[1.590], [1.710] federal tribunals or commissions, [1.650], [1.660], [1.670] Privy Council, [1.640] State courts, [1.600]-[1.630], [1.650], [1.680], [1.700], [1.710] State tribunals, [1.650], [1.680], [1.690], [1.700] High Court, [1.180], [1.540], [1.570] appellate jurisdiction, [1.570] State courts, [1.600], [1.650] County Courts, [1.620] cross-vesting of jurisdiction, [1.710] District Courts, [1.620] Local Courts, [1.630] Magistrates Courts, [1.630] specialist courts, [1.650], [1.680], [1.700] Supreme Courts, [1.610] State tribunals, [1.650], [1.680], [1.700] small claims tribunals, [1.690] Covenants — see Anti-competitive agreements; Leases Credit assistance providers credit assistance, [19.60] credit guides, [19.110]

C Index Credit assistance providers — cont licensing scheme, [19.60] unsuitability of contracts, [19.100] Credit cards unfair practices, [17.570] Credit contracts advertising, misleading conduct, [19.860] false information, [19.860] applicable credit, [19.160] debtor a natural person, [19.170] no charges or fees, [19.210] provision in course of business, [19.220] purpose of credit, [19.180]-[19.200] requirements, [19.160] contents of contracts, [19.260], [19.330] case example, [19.270] requirements, [19.260], [19.280] copies to debtors, [19.290] default notices, [19.460] definition, [19.160] enforcement, [19.460] fees or charges, [12.330], [19.310], [19.330] review by court, [19.640] form of contract, [19.250] hardship, [19.570] ASIC applications, [19.650] case example, [19.580] penalty, case, [12.330] pre-contractual disclosure, [19.240] related guarantees, [19.450] related insurance contracts, [19.780] related mortgages, [19.410] future property, [19.420] general provisions, [19.420] prohibited securities, [19.430] related sale contracts, [19.660] defective goods, [19.710] defences, [19.720] limitation of liability, [19.730] linked credit providers, [19.680] supplier’s misrepresentations, [19.700] termination of contract, [19.740]-[19.770] tied continuing credit contracts, [19.690], [19.750] tied loan contracts, [19.670], [19.750], [19.760], [19.770] responsible lending conduct, [19.90] unsuitability of contracts, [19.100] termination of contract, [19.740] debtors, by, [19.300], [19.550] tied continuing credit contracts, [19.750] tied loan contracts, [19.750], [19.760], [19.770] unconscionable fees or charges, [19.640], [19.650] unjust transactions, [7.970], [19.590] ASIC applications, [19.650]

court orders on reopening, [19.610]-[19.630] court’s considerations, [19.600] unsuitable contracts, [19.100] Credit providers civil penalties, [19.320], [19.400] applicants for imposition, [19.340], [19.360] assessment of amount, [19.370]-[19.390] debtors or guarantors, [19.340], [19.350] government consumer agencies, [19.340], [19.360] key requirements, [19.330] consumer remedies, [19.120] sanctions for non-compliance, [19.130] credit activities, [19.60] credit guides, [19.110] default notices, [19.460], [19.480] enforcement, [19.460] direct debit default, [19.470] guarantees, [19.560] mortgages, [19.490]-[19.540] negotiation of postponement, [19.480] termination by debtor, [19.550] false information, penalty, [19.860] general conduct obligations, [19.80] guarantees, [19.450] enforcement, [19.560] licensing scheme, [19.60] applications for licences, [19.70] Australian credit licence, [19.70] suspension or termination of licence, [19.80], [19.130] linked providers, [19.680] defective goods, [17.1320]-[17.1340], [19.710] defences, [17.1330], [19.720] limitation of liability, [17.1340], [19.730] supplier’s misrepresentations, [19.700] termination of contract, [19.740]-[19.770] misleading conduct, [19.860] mortgaged goods, [19.460], [19.490] regaining possession, [19.530] limitation on taking possession, [19.500] procedure post-possession, [19.510] sale of repossessed goods, [19.520] surrender of goods, [19.540] mortgages, [19.410] assignment or disposal of property, [19.440] enforcement, [19.460], [19.490] future property, [19.420] general provisions, [19.420] prohibited securities, [19.430] non-compliance, [19.400] consumer remedies, [19.120], [19.130]

key requirements, [19.320], [19.400] payday loans, [19.40] related sale contracts, [19.660] defective goods, [19.710] defences, [19.720] limitation of liability, [19.730] linked credit providers, [19.680] supplier’s misrepresentations, [19.700] termination of contract, [19.740]-[19.770] tied continuing credit contracts, [19.690], [19.750] tied loan contracts, [19.670], [19.750], [19.760], [19.770] remedies, [19.120] responsible lending conduct, [19.90] credit guides, [19.110] unsuitability of contracts, [19.100] unfair conduct orders, [19.120] Creditors — see also Bankruptcy arrangements with debtors, [31.180], [31.670] debt agreements, [31.680], [31.740] personal insolvency agreements, [31.690]-[31.730] trusts, distinction, [29.90], [29.130] Crime overview, [32.20] Criminal capacity children, [32.430] corporations, [32.440] mentally impaired persons, [32.450] overview, [32.420] public officers, [32.460] members of parliament, [32.460], [32.470] Criminal law aims of law, [32.100] denunciation, [32.140] deterrence, [32.110] prevention, [32.130] rehabilitation, [32.150] retribution, [32.120] appeals, [32.315] business and crime, [32.490] case, [32.470] civil law, distinction, [1.740], [32.10], [32.30] consequences of conviction, [32.50] involvement of the state, [32.40] onus of proof, [32.70] proceedings, [32.60] standard of proof, [32.70] concept of crime, [32.20] criminal conduct, [32.20] onus of proof, [32.70], [32.80] overview, [1.720], [1.740], [28.20], [32.10] role of injury, [32.320] sources of law, [32.160] Constitution, [32.170]

1061

1062

Australian Commercial Law Criminal law — cont federal legislation, [32.170] Model Criminal Code, [32.200] States and Territories, [32.180], [32.190] standard of proof, [32.70], [32.90] whistleblower protection, [32.480] Criminal liability tortious liability, and, [28.20] Criminal offences appeals, [32.315] causation, [32.380] classification of offences, [1.750], [32.210] felonies, crimes and misdemeanours, [32.220] indictable offences, [1.750], [32.230] summary offences, [1.750], [32.230] commercial crime offences, [32.490] computer offences, [16.460], [16.470], [32.540] child pornography, [16.560] cyberstalking, [16.530] possession, control and supply, [16.530] States and Territories, [16.520], [16.530] telecommunications offences, [16.530] unauthorised access, [16.480], [16.510] unauthorised impairment, [16.480], [16.490], [16.500], [16.520] unauthorised modification, [16.490], [16.510] consequences of conviction, [32.50] copyright infringement, [30.1330] performers’ rights, [30.1400] crimes, [32.220] director’s duties, [27.750] elements of crime, [32.340] actus reus, [32.360], [32.370], [32.380] mens rea, [32.350] felonies, [32.220] fraud, [32.520] indictable offences, [1.750], [32.230] misdemeanours, [32.220] overview, [32.20] public officers, [32.460] members of parliament, [32.460], [32.470] state involvement, [32.40] strict liability offences, [32.390], [32.400] examples, [32.390] excuse of mistake, [32.410] summary offences, [1.750], [32.230] terrorism, [32.550] theft, [32.530] victimless crimes, [32.20] white collar crime, [32.500] sentencing, [32.500], [32.510]

Criminal penalties unfair practices contraventions, [17.660] Criminal proceedings director’s duties, [27.750] onus of proof, [32.70], [32.80] overview, [1.750], [32.60] standard of proof, [1.750], [1.800], [32.70], [32.90] Criminal procedure arrest, [32.260] bail, [32.270] committal hearing, [32.280] ex-officio indictments, [32.290] legal representation, [32.325]-[32.327] overview, [32.240] summons, [32.250] trials, [32.300] jury trials, [32.320] sentencing, [32.310] Cross-examination civil proceedings, [1.790] Cross-vesting of jurisdiction, [1.710] Customary law, [1.530] Customer and banker bank fees, whether penalty, [12.330] duties and rights, [24.40], [24.610] undue influence, [7.840], [7.850] Customs duties, [1.170] Cybercrime — see Computer crime Cyberspace jurisdiction, [16.430]

D Damages assessment of damages, [12.80] general principle, [12.90]-[12.110] mitigation of loss, [12.150]-[12.180] remoteness of damage, [12.120]-[12.140] bills of exchange, [23.900] breach of contract, [12.10], [12.70], [12.260] adequacy of damages, [12.340], [12.350] chance or opportunity, [12.190], [12.200] disappointment or distress, [12.210]-[12.240] exemplary damages, [12.270] general principle, [12.90]-[12.110] mitigation of loss, [12.150]-[12.180] nominal damages, [12.270] penalty or liquidated damages, [12.290]-[12.330] quantifying loss, [12.190], [12.200] remedy, cases, [12.110]-[12.111]

remoteness of damage, [12.120]-[12.140] termination for breach, [12.50] contributory negligence, [12.250], [28.560] manufacturers’ liability, [17.1230] conversion, [28.710] copyright infringement, [30.1120], [30.1130] additional damages, [30.1180]-[30.1210] conversion or detention, [30.1220], [30.1230] deceit, [28.600] defamation, [28.950] design infringement, [30.1670] detinue, [28.720] disappointment or distress, [12.210], [12.220] exception to rule, [12.230], [12.240] exemplary damages, [12.280] unfair practices, [17.820] fraudulent misrepresentation, [7.560], [7.640] innocent misrepresentation, [7.610], [7.620], [7.640] international sales contracts, [15.380], [15.390] buyers, [15.310] current price, [15.420] foreseeability, [15.380] sellers, [15.320] substitute transactions, [15.400], [15.410] sufficient certainty, [15.400] manufacturers’ liability, [17.1230] misleading or deceptive conduct, [17.790] misrepresentation, [7.640], [7.660] Australian Capital Territory, [7.670] mitigation of loss, [12.150] case example, [12.160], [12.181] international sales contracts, [15.420] onus of proof, [12.150] reasonable actions, [12.170], [12.180] negligence, [28.80] contributory negligence, [12.250], [17.1230], [28.560] statutory limitations, [28.80] negligent misrepresentation, [7.690], [7.700] measure of damages, [7.730] nominal damages, [12.270] ordinary damages, [12.260] patent infringement, [30.2120] penalty or liquidated damages, [12.290], [12.300] case example, [12.330] difficulties in determining, [12.310], [12.320] guidelines to determine, [12.310] mere disproportions, [12.330] principals’ liability, [13.620] remoteness of damage, [12.120]

D Index Damages — cont case examples, [12.130], [12.140] restrictive trade practices, [18.610] sale of goods, [14.1020] breach of warranty of quality, [14.1040]-[14.1080] non-acceptance of goods, [14.970]-[14.1010] non-delivery of goods, [14.1090] unfair practices, [17.780] analogies with tort, [17.790] assessment of damages, [17.790], [17.800], [17.810] commercial advantage, [17.820] exemplary damages, [17.820] liability of persons involved, [17.830]-[17.850] limitation of actions, [17.860] Death — see also Wills or intestacy agency, [13.740] assignment of contracts, [10.210] bankruptcy, [31.170] frustration of contract, [11.340] guarantors, [20.230] partners, [26.380] goodwill, [26.330] Debit cards unfair practices, [17.570] Debtors — see also Bankruptcy; Credit contracts; Guarantees arrangements outside bankruptcy, [31.180], [31.670] debt agreements, [31.680], [31.740] personal insolvency agreements, [31.690]-[31.730] personal insolvency agreements, [31.690] acts of bankruptcy, [31.720] creditor’s meeting, [31.710] duties of sheriff, [31.730] procedure, [31.700] requirements, [31.690] trust, distinction, [29.90], [29.130] Debts — see Choses in action Deceit damages, [28.600] overview, [28.40], [28.580], [28.590] Deed poll overview, [5.220] rectification, and, [7.470] Deeds — see Contracts under seal Defamation actionable statements, [28.850] common law, [28.850] damages, [28.950] defences, [28.860] absolute privilege, [28.880] honest opinion, [28.910] innocent dissemination, [28.920] justification, [28.870] public concern, [28.890] qualified privilege, [28.900]

triviality, [28.930] dispute resolution, [28.940] implied freedom of communication, [1.190] nature of action, [28.850] overview, [28.40], [28.850] uniform legislation, [28.850] Defective goods consumer guarantees, [17.1280] affected person, definition, [17.1280] non-compliance, [17.1170], [17.1280], [17.1290] linked credit providers, [17.1320], [19.710] defences, [17.1330], [19.720] limitation of liability, [17.1340], [19.730] manufacturers’ liability, [17.30], [17.1170], [17.1180] contributory negligence, [17.1230] defences, [17.1220] exclusion of provisions, [17.1250] extent of liability, [17.1180] extent of safety, [17.1190] goods, definition, [17.1200] limitation period, [17.1240] manufacturer, definition, [17.1210] non-compliance with guarantees, [17.1170], [17.1280], [17.1290] representative actions, [17.1270] requirements, [17.1180] safety defect, definition, [17.1190] work-related injuries, [17.1260] negligence, [28.350], [28.370] product safety, [17.1310] suppliers, [17.1170], [17.1290], [17.1320] indemnity by manufacturer, [17.1290] limitation of liability, [17.1300] Defences confidential information, [30.2730] copyright, [30.590] fair dealing, [30.600]-[30.640], [30.1010] innocent infringer, [30.1140], [30.1150] moral rights, [30.1490] defamation, [28.860] absolute privilege, [28.880] honest opinion, [28.910] innocent dissemination, [28.920] justification, [28.870] public concern, [28.890] qualified privilege, [28.900] triviality, [28.930] defective goods, [17.1220] linked credit providers, [17.1330], [19.720] designs, [30.1690] false or misleading representations, [17.690] financial services, [17.1430]

linked credit providers, [17.1330], [19.720] misrepresentation, [7.670] moral rights, [30.1490] negligence, [28.550] contributory negligence, [28.560] voluntary assumption of risk, [28.570] non est factum, [7.300]-[7.350] resale price maintenance, [18.430] trade marks, [30.2410] similar goods, [30.2410], [30.2420] statutory defences, [30.2410] importers, and [30.2425] unregistered marks, [30.2430] unfair practices, [17.680] actions beyond control, [17.700] case example, [17.690] innocent publication, [17.700] reasonable precaution, [17.700] Definitions acceptable quality, [17.1050] acceptance, [14.200] affected person, [17.1280] agency, [13.20] agent, [13.20] artistic work, [30.180] assault, [28.640] assignees, [10.120] assignment of contract, [10.130] assignors, [10.110] battery, [28.630] bill of exchange, [23.40] binder, [25.1050] broker, [13.810] browsewrap contracts, [16.180] cash dealers, [24.940] cheque, [24.50] choses in action, [22.30] choses in possession, [22.30] cinematograph film, [30.830] civil act, [6.150] clickwrap contracts, [16.170] common carrier, [21.400] company, [27.10] competition, [18.490] computer crime, [16.460] computer program, [30.150] conditions, [11.270] consideration, [5.30], [5.150] consumer, [17.1020] contract, [2.20] contract of sale of goods, [14.20] conversion, [28.710] copyright, [30.30] credit activity, [19.60] credit assistance, [19.60] credit contracts, [19.160] delivery, [23.420] design, [30.1580] detinue, [28.720] director, [27.700] disclosed purpose, [17.1080] dramatic work, [30.160] drawing, [30.180] eligible contract of insurance, [25.220]

1063

1064

Australian Commercial Law Definitions — cont FCA institution, [24.880] financial institution, [24.70] financial product, [17.1430] financial service, [17.1430] foreign company, [27.210] general agent, [13.70] good faith, [31.540] goods, [14.30], [17.1200] goodwill, [26.320] guarantee, [5.340] holder, [23.210], [24.550] holder in due course, [24.370] income, [31.440] injunction, [12.400] insurance contract, [25.20] international funds transfer instructions, [24.940] involved, [17.830], [17.850] law, [1.20] lease, [22.730] lien, [22.270] linked credit providers, [19.680] literary work, [30.90], [30.100], [30.150] manufacturer, [17.1210] market, [18.480] mercantile agents, [13.790] merchantable quality, [14.270] native title, [22.960] native title rights, [22.950] necessaries, [6.40] negotiable instrument, [23.10] officer, [27.710] partnership, [26.30] past acts, [22.1070] personal property, [22.30] personalty, [22.30] prior art base, [30.1880] private nuisance, [28.750] promissory note, [23.1060] property, [22.20] public nuisance, [28.740] quantum meruit, [12.530] real property, [22.30] related party, [27.980] relevant interest, [27.1220] representative, [25.960] restitution, [12.430] restraint of trade, [8.360] risk insurance product, [25.1050] safety defect, [17.1190] security, [27.220] security interest, [19.930], [19.990] services, [21.230] shrinkwrap contract, [16.160] small business operator, [16.450] sound broadcast, [30.900] sound recording, [30.760] special agent, [13.60] stale cheques, [24.350] substantial shareholder, [27.1200] supply, [17.1010] supply of goods, [21.300] television broadcast, [30.900] tied continuing credit contracts, [19.690] tied loan contract, [19.670]

trade mark, [30.2190], [30.2370] trans-Tasman market, [18.300] trust, [29.20] unjust, [7.860], [7.980] unjust enrichment, [12.440] universal agent, [13.80] unsolicited consumer agreements, [17.1360] warranties, [11.270] Del credere agents, [13.800] Delegated legislation Governor-General, [1.90], [1.430] overview, [1.430] validity of legislation, [1.430] Deregistration of companies ASIC-initiated deregistration, [27.1750] effects of deregistration, [27.1730] overview, [27.1730] voluntary deregistration, [27.1740] Description correspondence with description, [14.240] consumer contracts, [17.1090] identity of goods, distinction, [14.240], [14.250] sale by description, [14.240] sale by sample, [14.260] Designs copyright, and, [30.1710], [30.1770] applied industrially, meaning, [30.1750] corresponding design, meaning, [30.1730] exceptions, [30.1760] registered corresponding designs, [30.1720], [30.1730] unregistered corresponding designs, [30.1740], [30.1750] damages, [30.1670] definition, [30.1580] duration of registration, [30.1680] exclusive rights, [30.1640] infringement, [30.1650] proceedings, [30.1650] remedies, [30.1670] substantially similar impression, [30.1660] legislation, [30.1570] new and distinctive designs, [30.1600] determining, [30.1600] overview, [30.10], [30.1570] ownership of design, [30.1610] exclusive rights, [30.1640] priority date, [30.1630] publication of design, [30.1700] registrable designs, [30.1600] registration, [30.1570], [30.1590] duration of registration, [30.1680] procedure, [30.1620] publication alternative, [30.1700] remedies, [30.1670] spare parts, [30.1690] right of repair defence, [30.1690]

Detinue copyright infringement, [30.1220], [30.1230] delivery up, [30.1240] damages, [28.720] overview, [28.40], [28.700], [28.720] Directors age limit, [27.690] appointment, [27.670] bills of exchange, [23.310]-[23.330] backing a bill, [23.340] cheques, [24.220] civil penalty, [27.750] definition, [27.700] directors’ report, [27.920] half-year reports, [27.930] disclosure of interests, [27.760] disqualified persons, [27.830] duties, [27.670], [27.710], [33.30] care and diligence, [27.710], [27.740] care and skill, [13.350] case, [27.720] good faith, [27.730] honesty, [27.730] financial benefits, [27.770] insolvent trading, [27.790] number of directors, [27.680] overview, [27.670] removal of directors, [27.800] retirement payments, [27.810] validity of acts, [27.700] Discovery overview, [1.780] Discretionary trusts, [29.220], [29.230] Dispute resolution — see also Alternative dispute resolution defamation, [28.940] domain names, [16.400]-[16.420] District courts, [1.620] Dividends bankruptcy, [31.600] overview, [27.530] solvency requirement, [27.530] Doctrine of precedent — see Precedent Domain names applications for names, [16.280] cybersquatters, [16.420] enforcement, [16.370], [16.380] dispute resolution policy, [16.400]-[16.420] recognition of foreign judgments, [16.390] misleading or deceptive conduct, [16.340] cases, [16.350]-[16.365] overview, [16.280] passing off, [16.320], [16.330] cases, [16.330], [16.335] registration, [16.280] first-come first-served, [16.300] remedies, [16.310]

E Index Domain names — cont trade marks, [16.280], [16.340], [16.400] Door-to-door sales — see Unsolicited consumer agreements Dual listed companies resale price maintenance, [18.440] Duress bills of exchange, [23.460], [23.500] contracts made under, [7.740] economic duress, [7.770] examples, [7.780], [7.790], [7.795] overview, [7.740], [7.750] recovery of money paid under, [12.520] threat of prosecution, [7.760] Duty of care — see also Negligence insurance agents, [25.920], [25.930]

E Economic loss — see Negligence Electronic commerce — see also Computer crime attribution of communications, [16.150] browsewrap contracts, [16.180] Australian position, [16.200] terms of download, [16.180], [16.190] clickwrap contracts, [16.170] assent to contract, [16.170]-[16.177] Australian position, [16.200] enforceability, [16.174]-[16.177] consent, [16.80] digital signatures, [16.210] dispatch and receipt, [16.100] default rules, [16.120] place of, [16.140] postal acceptance rule, [16.120] time of receipt, [16.100], [16.110] domain names — see Domain names electronic communication, definition, [16.40] electronic communication, time of receipt, [16.110] electronic signatures, [16.210] Electronic Transactions Acts, [16.30] attribution of communications, [16.130] background to introduction, [16.30] comparative table, [16.60] consent, [16.80] dispatch and receipt, [16.100]-[16.120] electronic communication, definition, [16.40] object of legislation, [16.30] production of documents, [16.70] retention of information and documents, [16.90] signature requirements, [16.60]

time of dispatch, [16.100] time of receipt, [16.110] validity of transactions, [16.40] written requirement, [16.50] evidence, [16.210] electronic records, [16.230] email hard copies, [16.240] hearsay rule, [16.210] social media, [16.250]-[16.260] wilful destruction, [16.270] international agreements, [16.30] international Model Law electronic signature, [16.210] jurisdiction, [16.430], [16.440] overview, [16.10] peer-to-peer file sharing, [16.600] privacy, [16.450] production of documents, [16.70] retention of information and documents, [16.90] shrinkwrap contracts, [16.160] Australian position, [16.200] signatures, [16.60] digital signature, [16.210] electronic signature, [16.210] United Nations Convention on the Use of Electronic Communications in International Contracts, [16.30] validity of transactions, [16.40] written requirement, [16.50] Employees bailee’s liability, [21.170] confidential information, [30.2750] post-employment, [30.2750], [30.2760] copyright ownership, [30.260] independent contractors, distinction, [13.30] insurance companies — see Insurance agents and employees inventions, [30.2150] university academics, [30.2150], [30.2160] overview, [13.30] patents, [30.2150], [30.2160] unfair practices contraventions, [17.670] workers’ compensation — see Workers’ compensation Employers vicarious liability, [28.810], [28.830] course of employment, [28.830] unrelated actions, [28.830], [28.840] Employment copyright ownership, [30.260] found articles, [22.180], [22.190] misleading conduct, [17.470] Employment contracts covenants, [8.429] restraint of trade, [8.400], [8.420] cases, [8.410], [8.421], [8.422], [8.423]

fairness of bargain, [8.460], [8.470] reasonableness of restraint, [8.420], [8.430], [8.460] release from contract, [8.440], [8.450] restrictive trading agreements, [8.481] subsequent unlawful conduct, [8.480] time for determination, [8.480] Employment law agency, and [34.140] Australian industrial history, [34.30] categories of employment, [34.230] common law duties case, [34.255] employee, [34.265]-[34.280] employer, [34.250] employment relationship definition, [34.130], [34.150] legal tests, [34.160]-[34.170] control, [34.180]-[34.190] relevant considerations, [34.220] Fair Work Act review, [34.110] Fair Work Commission, role, [34.90] Fair Work Information Statement, [34.80] Fair Work Ombudsman, role, [34.100] health and safety, [34.260] independent contractors, [34.200] industrial action, [34.440]-[34.470] secondary boycotts, [34.480]-[34.490] legislative framework, [34.20] modern employment environment, [34.40] National Employment Standards, [34.80] national health and safety legislation, [34.390] recruitment and selection, [34.240] reforms under Labor government, [34.70] registered industrial associations, [34.420] Australian waterfront dispute, [34.430] disclosure requirements, [34.420] sources of rights and obligations, [34.10], [34.120] termination of employment dismissal at common law – breach of contract, [34.290] dismissal in breach of contract, [34.310]-[34.320] unfair dismissal laws amendments, exemption, [34.330]-[34.340] claims, [34.110] vicarious liability, [34.350] Work Choices decision, [34.50]-[34.60] workers compensation, [34.380] case, [34.415] Queensland, legislation, [34.410] workplace health and safety, [34.370] Queensland, legislation, [34.400]

1065

1066

Australian Commercial Law Employment relationship definition, [34.130], [34.150] legal tests, [34.160]-[34.170] control, [34.180]-[34.190] negligence, [28.140] relevant considerations, [34.220] Equitable estoppel — see Promissory estoppel Equity — see also Rectification; Restitution assignments, [10.170], [10.190] equitable chose in action, [10.190] legal chose in action, [10.180], [10.190] common law, and, [1.460] distinction, [1.440], [1.460] Judicature system, [1.460] historical background, [1.450], [1.460] Judicature system, [1.460] Escrow, [5.200] Estate agents — see Real estate agents Estates in land concurrent interests, [22.460] freehold estates, [22.370] leasehold estates, [22.380] overview, [22.360] Estoppel — see also Promissory estoppel bills of exchange, [23.550], [23.560] cheques, [24.400] indorsers, [24.410], [24.490] creation of agency, [13.130] sale of goods, [14.640]-[14.660] Ethics — see Business ethics Evidence civil proceedings, [1.790] electronic commerce, [16.210] electronic records, [16.230] email hard copies, [16.240] hearsay rule, [16.210] social media, [16.250]-[16.260] wilful destruction, [16.270] Excise duties, [1.170] Exclusive dealing authorisation, [18.390], [18.510] examples, [18.360]-[18.380] notification, [18.390] overview, [18.50], [18.310] substantially lessening competition, [18.310], [18.320], [18.470] third-line forcing, [18.330], [18.350] case example, [18.340] notification, [18.390] summary of concept, [18.350] types of conduct, [18.310] Executive branch of government Cabinet, [1.80] Governor-General, [1.80] exercise of powers, [1.90] overview, [1.40], [1.80]

Executors trustees, distinction, [29.90], [29.150] Exemption clauses acts outside contract, [9.480]-[9.530] ambiguities, [9.450], [9.460] bailee’s liability, [21.210], [21.220] consumer protection, [21.230] contra proferentum rule, [9.450] function, [9.320] hire of goods, [21.290], [21.300] implied conditions, [14.390] insurance contracts, [25.510] deliberate or intentional acts, [25.530], [25.540], [25.550] motor vehicle insurance, [25.520], [25.530] proximate cause of loss, [25.560] misrepresentation, [9.430], [9.440] misleading or deceptive conduct, [17.170], [17.180] negligence, liability, [9.470] bailees, [21.210] overview, [9.320] part of contract, as, [9.330], [9.340] intention of parties, [9.420] notice to other party, [9.350]-[9.390] receipts or vouchers, [9.400], [9.410] strict interpretation, [9.450], [9.460] Express terms — see Terms of contract External affairs power, [1.140]

F False imprisonment, [28.650] False or misleading representations corporate liability, [17.670] country of origin, [17.390] defences, [17.690] franchising, [17.430], [17.440], [30.2800] goods and services, [7.680], [17.340] case examples, [17.350]-[17.370] penalties for contravention, [17.380] mergers or acquisitions, [18.450]-[18.460] overview, [17.30], [17.330] profitability of business activities, [17.430] franchise schemes, [17.430], [17.440], [30.2800] reasonable grounds, [17.450] sale or grant of land, [7.680], [17.400] application of provision, [17.400], [17.410] requirements, [17.420] Family agreements, [4.70], [4.80] Federal Circuit Court jurisdiction, [1.590] bankruptcy, [31.80] overview, [1.590]

Federal Court of Australia appellate jurisdiction, [1.580] jurisdiction, [1.580] bankruptcy, [31.80] cross-vesting of jurisdiction, [1.710] mergers or acquisitions, [18.450]-[18.460] native title claims, [22.970] overview, [1.580] Federal Parliament — see Commonwealth Parliament Federal system Constitution, [1.40], [1.70] legislative power, [1.100] overview, [1.40] States and Territories, [1.40] constitutional development, [1.50], [1.60], [1.70] federation movement, [1.60] legislative power, [1.840] Fidelity guarantees, [20.80] Fiduciary relationship constructive trusts, [29.210] illegal contracts, [8.580] partnerships, [26.240] dissolution of partnership, [26.240], [26.250], [26.260] prospective partners, [26.260] Financial institutions cheques, [24.70], [24.600] alteration of cheques, [24.680]-[24.700] bank cheques, [24.810]-[24.830] collecting institutions, [24.460], [24.600], [24.710]-[24.800] crossed cheques, [24.160], [24.620] customer relationship, [24.40], [24.610] duties, [24.40], [24.610], [24.620] forged or unauthorised indorsements, [24.630] forged signature, [24.640]-[24.670] holder for value, as, [24.800] holder in due course, as, [24.800] paying institutions, [24.610]-[24.700] payment on demand, [24.90] presentment of cheques, [24.460] revocation of authority to pay, [24.840] statutory protections, [24.630]-[24.700], [24.710], [24.720] definition, [24.70] Financial Ombudsman Service banking complaints, [24.970] insurance complaints, [25.1230] Financial products insurance products, [25.1070]

G Index Financial sector regulation Australian Prudential Regulation Authority, [24.960] Financial services consumer protection, [17.1430] Financial services licences insurance agents and brokers, [25.1070] requirement for licence, [25.960] Financial services licensees insurance brokers, [25.1060] payment of premiums, [25.1060] liability for employees and agents, [25.960], [25.1050] representative, definition, [25.960] Financial Transactions Reports Act cash dealers, definition, [24.940] opening accounts, [24.950] identification requirements, [24.950] overview, [24.930] purpose of Act, [24.930] reporting cash transactions, [24.940] suspect transactions, [24.940] Fire insurance average clauses, [25.1110] home buildings, [25.1100] home contents, [25.1100] nature of contract, [25.1090] overview, [25.1090] Fitness for purpose consumer contracts, [17.1070]-[17.1075] disclosed purpose, meaning, [17.1080] hire of goods, [21.300] implied condition, [14.290] case examples, [14.310]-[14.340] damages for breach, [14.1060], [14.1080] hire of goods, [21.270]-[21.290] partial reliance on seller, [14.350], [14.360] particular purpose, [14.290], [14.300] trade names, [14.370] Fixtures, [22.310] Foreign judgments recognition in Australia, [16.390] Franchising advantages, [30.2770] code of conduct, [30.2790] false or misleading representations, [17.430], [17.440], [30.2800] franchise agreement, [30.2780] intellectual property, and, [30.2770] misleading or deceptive conduct, [30.2800] overview, [30.10], [30.2770] restrictive trade agreements, [8.481] end of franchise agreement, at [8.482]

intellectual property, [8.482] types of arrangements, [30.2770] unconscionable conduct, [30.2800] Fraud bills of exchange, [23.460], [23.500] criminal offence, [32.520] dissolution of partnership, [26.550] Fraudulent misrepresentation agents’ liability, [13.620], [13.630] elements, [7.490] belief in falsity, [7.520] falsity, [7.510] inducement to contract, [7.540] intended to be acted upon, [7.530] knowledge of falsity, [7.520] resulting in damage, [7.550] statement of fact, [7.500] innocent misrepresentation, distinction, [7.580] remedies, [7.620] insurance contracts, [25.380], [25.390] life insurance, [25.400], [25.420] overview, [7.480], [7.490] principal’s liability, [13.620], [13.630] remedies, [7.560], [7.620] damages, [7.560], [7.640] rescission, [7.560], [7.630] Freedom of communication political matters, [1.190] Freehold estates fee simple, [22.370] future interests, [22.370] life estates, [22.370] overview, [22.370] Frustration of contract application of doctrine, [11.310], [11.320] changes not amounting to, [11.440] case examples, [11.450]-[11.470], [11.471] common objective unattainable, [11.360] case examples, [11.370]-[11.390] death or illness, [11.340] destruction of subject matter, [11.350] effect of frustration, [11.480] New South Wales, [11.490] South Australia, [11.500] Victoria, [11.310], [11.485] government intervention, [11.400], [11.410] overview, [11.10], [11.310] radically different performance, [11.420], [11.430] recovery of money, [11.480]-[11.485] statutory provisions supervening illegality, [11.330]

G Gifts personal property, [22.230] unfair practices, [17.480] Good faith agent’s duties, [13.300] case example, [13.310] conflict of interests, [13.300], [13.320] director’s duties, [27.910] insurance claims, [25.110] native title claims, [22.1230] preferences in bankruptcy, [31.540] terms of contract, [9.80], [9.90] Goods — see also Bailments; Common carriers; Defective goods; Sale of goods; Security interests country of origin representations, [17.390] defences, [17.690] hire of goods, [21.270] consumer protection, [21.300] fitness for purpose, [21.270]-[21.290], [21.300] Goodwill definition, [26.320] overview, [26.320] partnerships, [26.320] death or retirement of partner, [26.330] Governor-General delegated legislation, [1.90], [1.430] Executive Council, [1.80] exercise of powers, [1.90] overview, [1.80] Guarantees consideration, [20.40] continuing guarantees, [20.140] credit contracts, [19.450], [20.250] enforcement, [19.560] co-sureties, [20.30], [20.170] definition, [5.340] disclosure by creditor, [20.70] fidelity guarantees, [20.80] indemnities, distinction, [5.340], [20.30] married women, [7.930], [7.940], [20.150] rationale for principle, [7.950] minors, [20.100] misrepresentation, [20.50] part of contract, [20.50], [20.60] nature of contract, [20.20] not uberrimae fidei, [20.50] overview, [20.10] parties to contract, [20.20] past and future indebtedness, [20.142] revocation of guarantee, [20.240] statutory provisions, [20.250] terminology, [20.10] unconscionable contracts, [20.70] married women, [7.930]-[7.950], [20.150]

1067

1068

Australian Commercial Law Guarantees — cont unconscionable fees or charges, [19.640], [19.650] undue influence, [20.70] unjust transactions, [7.970], [19.590] ASIC applications, [19.650] court orders on reopening, [19.610]-[19.630] court’s considerations, [19.600] written requirement, [5.340] Guarantors civil penalty applications, [19.340], [19.350] discharge of guarantor, [20.180] bankruptcy of debtor, [20.220] breach of essential condition, [20.200], [20.210] case examples, [20.190], [20.210] death of surety, [20.230] principles, [20.180], [20.200] revocation of guarantee, [20.240] liabilities, [20.90], [20.100] continuing guarantees, [20.140] creditor’s breach of duty, [20.110]-[20.130] married women, [20.150] minors, [6.150], [6.160], [20.100] rights, [20.160] co-sureties, [20.170] post-payment of debt, [20.160] volunteers, and [7.951]

H Harassment and coercion supply of goods, [17.640] High Court appellate jurisdiction, [1.570] special leave, [1.570] binding precedents, [1.180], [1.540] constitutional interpretation, [1.180] legislative powers, [1.100] doctrine of precedent, [1.540] functions, [1.180] judicial activism, [1.190] law reports, [1.480] overview, [1.180], [1.570] previous decisions, [1.540] Hire of goods consumer protection, [21.300] exclusion clauses, [21.290], [21.300] fitness for purpose, [21.270], [21.280], [21.300] exclusion clauses, [21.290] overview, [21.270] Human rights responsibilities of business, [33.65], [33.90] Husband and wife — see also Married women enforceability of agreements, [4.30], [4.40] breakdown of marriage, [4.50], [4.60] commercial matters, [4.50]

undue influence, [7.800], [7.810]

I Illegal contracts — see also Void contracts administration of justice, prejudicial, [8.220] champerty, [8.270] maintenance of suit, [8.270] stifling a prosecution, [8.230]-[8.260] bills of exchange, [23.460], [23.500] categories of contracts, [8.10] commission of crime, tort or fraud, [8.190] common law, [8.10], [8.170] public policy grounds, [8.180]-[8.320] consequences of illegality, [8.530] recovery of money, [8.550]-[8.580] related transactions, [8.590] severance, [8.620] void contracts, [8.540] implied prohibition, [8.50]–[8.105] overview, [8.10], [8.520] public life, corruption, [8.280] case examples, [8.290], [8.300] public safety, prejudicial, [8.310] recovery of money, [8.550] exceptions, [8.560]-[8.580] fiduciary relationships, [8.580] substantial performance, [8.580] related transactions, [8.590] revenue, defrauding, [8.320] severance, [8.620] sexual immorality, promoting, [8.200], [8.210] statute, by, [8.10], [8.20] express prohibition, [8.30], [8.40] formation of contract, [8.110], [8.120] implied prohibition, [8.50]-[8.100] interpretation, [8.70] misleading or deceptive conduct, [8.100] performance of contract, [8.110], [8.130]-[8.150] public policy objectives, [8.70], [8.80], [8.90] void contracts, [8.160] Implied conditions auctions, [14.1130], [14.1140] cattle sales, [14.1150] correspondence with description, [14.240] damages for breach, [14.1050] identity of goods, distinction, [14.240], [14.250] sale by description, [14.240] sale by sample, [14.260] exclusion of conditions, [14.390] fitness for purpose, [14.290] case examples, [14.310]-[14.340]

damages for breach, [14.1060], [14.1080] hire of goods, [21.270]-[21.290] partial reliance on seller, [14.350], [14.360] particular purpose, [14.290], [14.300] trade names, [14.370] merchantable quality, [14.270] examination of goods, [14.285] meaning, [14.270] sale by description, [14.270], [14.280] overview, [9.310], [14.210], [14.230], [14.410] sale by sample, [14.260], [14.380] title of goods, [14.230] Implied terms business efficacy, [9.230], [9.240], [9.250] nature of implied term, [9.260], [9.270] necessity of term, [9.280] test to determine, [9.260] custom or trade usage, [9.220], [9.300] overview, [9.220] specific types of contract, [9.230], [9.290] statute, by, [9.220], [9.310] Implied warranties exclusion of warranties, [14.390] overview, [14.210], [14.410] title of goods, [14.230] Indemnities guarantees, distinction, [5.340], [20.30] insurance contracts, and, [25.10], [25.870] overview, [5.340] trustees’ rights, [29.630] Indentures, [5.210] Independent contractors agents, as, [13.30] copyright ownership, [30.260] journalists, [30.290] employees, distinction, [13.30] overview, [13.30] Independent expert appraisal, [1.910] Indigenous Land Use Agreements, [22.1280] Indigenous lands — see Native title Industry codes of conduct banking practice, [24.980], [33.110] franchising, [30.2790] overview, [18.680], [33.110] Injunctions breach of contract, [12.400] copyright infringement, [30.1110] misleading or deceptive conduct, [17.80], [17.770] overview, [12.400]

I Index Injunctions — cont restrictive trade practices, [18.600] unfair practices, [17.720] advertising, [17.770] applicants for injunctions, [17.730]-[17.760] interim injunctions, [17.720] territoriality, [17.720] trade competitors, [17.740]-[17.760] Innkeepers examples, [21.550] guest or lodger, distinction, [21.550], [21.560] booking accommodation, [21.570] limitations on liability, [21.550], [21.580] Australian Capital Territory, [21.650] New South Wales, [21.590] Northern Territory, [21.660] Queensland, [21.610] South Australia, [21.620] Tasmania, [21.640] Victoria, [21.600] Western Australia, [21.630] lien, [21.670] overview, [21.390], [21.550] Innocent misrepresentation example, [7.590], [7.600] fraudulent misrepresentation, distinction, [7.580] remedies, [7.620] insurance contracts, [25.350]-[25.370] life insurance, [25.400], [25.410] overview, [7.480], [7.570] remedies, [7.610] damages, [7.620], [7.640] equitable remedies, [7.620] exceptions to rule, [7.610] rescission, [7.620], [7.630] Insider trading Prohibition against, [27.795] Insolvent trading director’s duty to prevent, [27.790] Insurance ASIC, exercise powers, [25.110] code of practice, [25.1240] complaints scheme, [25.1230] liability, case, [25.1145] overview, [25.10] trustees’ power, [29.530] Insurance agents and employees duty of care, [25.920], [25.930] financial services licences, [25.1070] liability of insurer, [25.950] financial services licensee, as, [25.960], [25.1050] representative, definition, [25.960] misleading or deceptive conduct, [25.1020] multi-agents, [25.920]

overview, [25.920], [25.940] payment of premiums, [25.1060] Insurance brokers agent of client, [25.1060] binders, acting under, [25.1050] duty of care and skill, [25.980], [25.990] breach of duty, [25.1000], [25.1010], [25.1030], [25.1040] settlement of claim, [25.1030], [25.1040] financial services licences, [25.1070] financial services licensees, [25.1060] payment of premiums, [25.1060] misleading or deceptive conduct, [25.1020] overview, [25.920], [25.940], [25.970] payment of premiums, [25.1060] risk insurance products, [25.1050] Insurance contracts basis of contract clauses, [25.340] breach of warranty or condition, [25.570] causing or contributing to loss, [25.580]-[25.620] cancellation of contract, [25.840] notice of cancellation, [25.850] reason given, [25.860] changed circumstances, case, [25.210] claims, [25.570] proximate cause of loss, [25.560] classes of insurance, [25.1080] co-insureds, [25.280] composite policies, [25.810], [25.820] duty of disclosure, [25.280], [25.290] fraudulent conduct of another, [25.770]-[25.820] joint policies, [25.780]-[25.800] common law, [25.10], [25.70] consumer credit insurance, [25.1200] cover notes, [25.60], [25.430] credit contracts, [19.780] definition, [25.20] double insurance, [25.880] doctrine of contribution, [25.880] duty of disclosure, [25.120] amendments, [25.155], [25.190] change in circumstances, [25.200]-[25.220] co-insured’s liability, [25.280], [25.290] criminal conduct, [25.160] dishonest conduct, [25.160] eligible contract of insurance, [25.220]-[25.230] exceptional circumstance, [25.210] information to insured, [25.180]-[25.200] life insurance, [25.300]-[25.320] matters not required to be disclosed, [25.170] non-disclosure, [25.250]-[25.320]

relevant matters, [25.120], [25.130], [25.140] statutory limitation on insured’s duty, [25.210], [25.220] unknown matters, [25.140], [25.150] duty of good faith, [25.110] breach, [25.110] exclusion clauses, [25.510] deliberate or intentional acts, [25.530], [25.540], [25.550] motor vehicle insurance, [25.520], [25.530] proximate cause of loss, [25.560] expiry of contract, [25.830] notification of expiry, [25.830] financial products, as, [25.1070] fire — see Fire insurance flood, [25.1104] household indemnity, [25.1104] meaning, [25.1104] formation of contract, [25.30] cover notes, [25.60] policy, [25.50] proposal form, [25.40] fraudulent claims, [25.690] court orders to pay, [25.690], [25.700] innocent co-insured, effect, [25.770] validity of claim, [25.710] good faith, [25.110], [25.765] home buildings, [25.1100] home contents, [25.1100] exclusions, [25.1107] indemnity, and, [25.10], [25.870] insolvency, case, [25.250] insurable interest, [25.90] legislation, [25.10], [25.70] application of Act, [25.80] excluded contracts, [25.80] limitation on avoiding liability, [25.570]-[25.720] legislation, cases, [25.610]-[25.615] life insurance — see Life insurance marine insurance, [25.1220] misrepresentation, [25.330] basis of the contract clauses, [25.340] co-insured’s liability, [25.280], [25.290] effect of Act, [25.330], [25.340] fraudulent, [25.380], [25.390] innocent, [25.350]-[25.370], [25.420] life insurance, [25.400]-[25.420] remedies, [25.350]-[25.420] motor vehicle insurance, [25.520] comprehensive insurance, [25.1180] exclusion clauses, [25.520], [25.530] third party, [25.1170] non-disclosure, [25.250] co-insured’s liability, [25.280], [25.290] fraudulent non-disclosure, [25.260], [25.270], [25.320]

1069

1070

Australian Commercial Law Insurance contracts — cont innocent non-disclosure, [25.250], [25.320] life insurance, [25.300]-[25.320] overview, [25.10] personal accident insurance, [25.1140] policies, [25.50], [25.440] arbitration provisions, [25.720] breach of warranty or condition, [25.570]-[25.620] construed contra proferentum, [25.450]-[25.500] exclusion clauses, [25.510]-[25.550], [25.560] interpretation, [25.440] pre-existing defects or disabilities, [25.660] professional indemnity insurance, [25.630]-[25.650] proximate cause of loss, [25.560] standard cover, [25.670], [25.1100] subrogation, [25.910] unusual terms, [25.680] privity of contract, [10.50]-[10.70] statutory duty to act in utmost good faith, and [25.765] third party beneficiaries, [25.730]-[25.760] third party, duty of good faith, [25.760] professional indemnity insurance, [25.630], [25.1190] case example, [25.640] notice of circumstances, [25.650] proposal form, [25.40] public liability insurance, [25.1160] refusal to insure, [25.860] remedies duty of disclosure, [25.10] misrepresentation, [25.350]-[25.420], [25.425] non-disclosure, [25.240], [25.320], [25.425] renewal of contract change in circumstances, [25.230], [25.240] notification of expiry, [25.830] reason given for non-renewal, [25.860] sickness insurance, [25.1140] standard cover, [25.1147] subrogation, [25.890] exclusion or limitation terms, [25.910] negligent employees, [25.890], [25.900] third party rights, [25.730], [25.750], [25.760] defences, [25.730], [25.740] travel insurance, [25.1210] underlying principle, [25.10] workers’ compensation, [25.1150] Insurers agents and employees, [25.950], [25.960], [25.1050] representative, definition, [25.960]

brokers under binder, [25.1050] duty of broker, [25.980] financial services licences, [25.960] limitation on avoiding liability, [25.570] arbitration provisions, [25.720] breach of warranty or condition, [25.570]-[25.620] fraudulent claims, [25.690]-[25.710] pre-existing defects or disabilities, [25.660] professional indemnity policies, [25.630]-[25.650] standard cover, [25.670] unusual terms, [25.680] subrogation, [25.890] exclusion or limitation terms, [25.910] negligent employees, [25.890], [25.900] Intellectual property copyright — see Copyright designs — see Designs franchising, and, [30.2770] overview, [30.10] patents — see Patents trade marks — see Trade Marks International agreements business ethics, [33.60] Corruption Convention, [33.60] human rights, [33.65], [33.90] Global Compact, [33.70] OECD Guidelines, [33.80] carriage by air, [21.510] Convention Against Corruption, [33.60] copyright protection, [30.1550] TRIPS agreement, [30.1560] electronic commerce, [16.30] external affairs power, and, [1.140] patents, [30.2170] sales contracts — see International sales contracts trade marks, [30.2550] International commercial arbitration, [1.860] International sales contracts avoidance of contract, [15.330] buyers, [15.340], [15.360] damages, [15.400], [15.420] declaration of avoidance, [15.330] instalment contracts, [15.370] sellers, [15.340], [15.350] conformity of goods, [15.150] examination of goods, [15.160] notice of non-conformity, [15.310] damages, [15.380], [15.390] buyers, [15.310] current price, [15.420] foreseeability, [15.380] sellers, [15.320] substitute transactions, [15.400], [15.410] sufficient certainty, [15.400]

delivery of goods, [15.210] elements of contract, [15.70] formation of contract, [15.70] acceptance, [15.90] exclusion of provisions, [15.100] intention of parties, [15.110] modification or termination, [15.130] offer, [15.80] parol evidence, [15.110] trade usages, [15.140] written requirement, [15.120] fundamental breach, [15.270] case example, [15.280] non-payment, [15.290], [15.300] intellectual property, [15.170] intention of parties, [15.110] modification of contract, [15.130] non-conformity to regulatory requirements in purchaser’s country, [15.155] buyer’s knowledge, [15.157] fitness for purpose, and [15.157] passing of risk, [15.157] seller, liability, [15.155] overview, [15.10] passing of risk, [15.220] payment for goods, [15.180] price of goods, [15.200] steps to enable payment, [15.180], [15.190] time for payment, [15.200] performance of contract, [15.180] additional time, [15.240], [15.310], [15.320], [15.350], [15.360] anticipatory breach, [15.260] delivery of goods, [15.210] exemption from performance, [15.250] fundamental breach, [15.270]-[15.300] passing of risk, [15.220] payment for goods, [15.180]-[15.200] preservation of goods, [15.230] preservation of goods, [15.230] private international law, [15.30], [15.460] form of contract, [15.470] jurisdiction, [15.460] mandatory laws, [15.480], [15.490] proper laws, [15.480] remedies, [15.310] avoidance of contract, [15.330]-[15.370] buyers, [15.310] damages, [15.310], [15.320], [15.380]-[15.420] interest, recovery, [15.430] restitution, [15.450] sellers, [15.320] specific performance, [15.440] termination of contract, [15.130] third party claims, [15.170] trade usages, [15.140]

L Index International sales contracts — cont Vienna Sales Convention, [15.10], [15.20] application of Convention, [15.30] Australian Consumer Law, and, [15.20] conformity of goods, [15.150], [15.160] formation of contract, [15.70]-[15.140] entry into force, [15.20] excluded sales, [15.40] exclusion of application, [15.50] interpretation, [15.60] parties to Convention, [15.20] performance of contract, [15.180]-[15.300] private international law, [15.30] remedies, [15.310]-[15.450] scope of Convention, [15.40] third party claims, [15.170] Internet — see Computer crime; Domain names; Electronic commerce Internet service providers copyright infringement, [30.1260] Interpretation — see also Statutory interpretation broad limits, [1.360] maxim of interpretation, [1.360] exemption clauses, [9.450] acts outside contract, [9.480]-[9.530] Interrogatories, [1.770] Intoxicated persons contractual capacity, [6.180] sale of goods, [14.70] Invitations to treat advertisements, [3.40] auction sales, [3.50] catalogues, [3.40] offer, distinction, [3.30]-[3.60] shop displays, [3.40] tenders, [3.60]

J Joint promises, [3.330], [3.340] Joint tenancy concurrent interests, [22.460] overview, [22.400] right of survivorship, [22.420] severance, [22.430] termination of co-ownership, [22.450] unities of tenancy, [22.410] Joint ventures business structure, [26.90], [26.100], [26.110] overview, [26.90] partnerships, and, [26.30], [26.40], [26.50], [26.90]-[26.110]

Journalists copyright ownership, [30.270], [30.280] newspaper proprietor, [30.260], [30.290] Judge-made law — see Common law Judiciary — see also Court system Constitution, [1.40] High Court, [1.180], [1.190] separation of powers, [1.70], [1.180] Jurisdiction bankruptcy, [31.80] conflict of laws, [15.460], [16.430] cross-vesting of jurisdiction, [1.710] electronic commerce, [16.430], [16.440] Federal Circuit Court, [1.590] bankruptcy, [31.80] Federal Court, [1.580] bankruptcy, [31.80] cross-vesting of jurisdiction, [1.710] High Court, [1.570] international sales contracts, [15.460] private international law, [15.460], [16.430] State courts, [1.610] County Courts, [1.620] cross-vesting of jurisdiction, [1.710] District Courts, [1.620] Local Courts, [1.630] Magistrates Courts, [1.630] Supreme Courts, [1.610] void contracts, [8.340] Jury trials, [32.320]

L Land anti-competitive agreements, [18.160] co-ownership, [22.390] joint tenancy, [22.400]-[22.430], [22.450], [22.460] tenancy in common, [22.440], [22.450], [22.460] termination, [22.450] equitable interests, [22.670] agreements to lease, [22.700] beneficiaries under will, [22.710] contract for sale, [22.680] options to purchase, [22.690] equitable mortgages, [22.510] agreement to give legal mortgage, [22.540] deposit of title deeds, [22.550] priority of interests, [22.720] types of mortgages, [22.530] estates in land, [22.360] concurrent interests, [22.460] freehold estates, [22.370] leasehold estates, [22.380] fixtures, [22.310] indigenous land — see Native title

interests in land, [22.350] concurrent interests, [22.460] co-ownership, [22.390]-[22.460] estates in land, [22.360]-[22.380], [22.460] joint tenancy, [22.400] concurrent interests, [22.460] right of survivorship, [22.420] severance, [22.430] termination of co-ownership, [22.450] unities of tenancy, [22.410] leases — see Leases legal mortgages, [22.510], [22.520], [22.560] mortgage deed, [22.520] priority of interests, [22.720] mortgagees’ remedies, [22.580] appointment of receiver, [22.620] entry into possession, [22.610] foreclosure, [22.590] payment of principal, [22.600] power of sale, [22.630]-[22.650] mortgagees’ rights and liabilities, [22.570] mortgagors’ rights and liabilities, [22.560] native title — see Native title nature of land, [22.330] overview, [22.10], [22.30], [22.330] partnership property, [26.310] sale of land — see Sale of land tenancy in common, [22.440] concurrent interests, [22.460] termination of co-ownership, [22.450] title to land, [22.470] old system title, [22.480] Torrens title, [22.490]-[22.500] trespass — see Trespass to land Law civil law, [1.740] classification of law, [1.720] civil law, [1.740] criminal law, [1.740] procedural law, [1.730] substantive law, [1.730] commercial — see Commercial law common law — see Common law contract — see Contract law criminal law — see Criminal law customary law, [1.530] definition, [1.20] object of law, [1.20] overview, [1.10] private law, [1.720] procedural law, [1.730] public law, [1.720] sources of law, [1.200] common law, [1.440] statute law, [1.210] substantive law, [1.730] Law reports citation of cases, [1.500] parties, [1.510] volume number, [1.510] year, [1.510]

1071

1072

Australian Commercial Law Law reports — cont form of a report, [1.490] citation of cases, [1.500], [1.510] overview, [1.480] Leases agreement to lease, [22.700] assignment of lease, [22.820] classification of leases, [22.750]-[22.790] covenant to repair, [22.810] creation of lease, [22.740] express covenants, [22.800] covenant to repair, [22.810] fixed term leases, [22.750], [22.760] implied covenants, [22.800] licence, distinction, [22.740] overview, [22.730] periodic tenancies, [22.750], [22.770] termination, [22.830] recovery of possession, [22.850] residential tenancies, [22.870] retail leases, [22.860] tenancies at sufferance, [22.790] tenancies at will, [22.780] termination of lease, [22.830] repudiation, [22.840] serving notice, [22.840] terms of lease, [22.800] trustees’ power, [29.540] Leasehold estates, [22.380] Legal profession barristers, [1.830] immunity from liability for negligence, [28.380] solicitors, distinction, [1.820], [1.830] overview, [1.810] solicitors, [1.820] barristers, distinction, [1.820], [1.830] professional negligence, [28.380] undue influence, [7.800] Legal system — see Constitution; Court system; Federal system Legislation — see Delegated legislation; Statutes Legislature — see Commonwealth Parliament; States and Territories Letters of comfort, [4.220] Licence lease, distinction, [22.740] overview, [22.740] Liens agents’ right, [13.460] innkeepers, [21.670] overview, [22.270], [22.280] possessory liens, [22.270] general liens, [22.280] particular liens, [22.290] unpaid sellers, [14.870], [14.880], [14.910]

Life insurance correlation, [25.100] insurable interest, [25.100] misrepresentation, [25.400]-[25.420] nature of contract, [25.870] non-disclosure, [25.300]-[25.320] overview, [25.1120] suicide, [25.1130] third party beneficiary, [25.765] varying terms, [25.320] Life tenants, [22.370] Limitation of actions acknowledgment of debt, [12.420] commencement of time, [12.410] effect of statutes, [12.410] manufacturers’ liability, [17.1240] overview, [12.410] part-payment of debt, [12.420] revival of right of action, [12.420] unfair practices, [17.860] Limited companies — see Companies Linked credit providers defective goods, [17.1320], [19.710] defences, [17.1330], [19.720] limitation of liability, [17.1340], [19.730] definition, [19.680] related sale contracts, [19.660], [19.680] defective goods, [19.710] defences, [19.720] limitation of liability, [19.730] supplier’s misrepresentations, [19.700] termination of contract, [19.740]-[19.770] tied continuing credit contracts, [19.690], [19.750] tied loan contracts, [19.670], [19.750], [19.760], [19.770] Liquidation — see Winding up Liquidators overview, [27.1200] powers and duties, [27.1270], [27.1320] contributories, [27.1210] voluntary winding up, [27.1310] requirements, [27.1320] Loans — see Consumer credit Local Courts, [1.630] Lotteries or competitions enforceability of agreements, [4.90], [4.100] express exclusion of intention, [4.200], [4.210]

M Mabo case High Court decision, [22.910] extinguishment of native title, [22.1000], [22.1010]

recognition of native title, [22.910], [22.940] legislative response, [22.920] overview, [22.910] Magistrates Courts, [1.630] Maintenance of suit, [8.270] Managed investment schemes overview, [27.220] Manufacturers’ liability consumer guarantees, [17.1280] affected person, definition, [17.1280] non-compliance, [17.1170], [17.1280], [17.1290] manufacturer, definition, [17.1210] overview, [17.30], [17.1170] personal injuries, [17.1170] safety defects in goods, [17.1170], [17.1180] contributory negligence, [17.1230] defences, [17.1220] exclusion of provisions, [17.1250] extent of liability, [17.1180] extent of safety, [17.1190] goods, definition, [17.1200] limitation period, [17.1240] manufacturer, definition, [17.1210] representative actions, [17.1270] requirements, [17.1180] safety defect, definition, [17.1190] work-related injuries, [17.1260] sellers of defective goods, [17.1170], [17.1290] indemnity by manufacturer, [17.1290] limitation of liability, [17.1300] Manufacturing process misleading conduct, [17.490] Marine insurance, [25.1210] Market power — see Misuse of market power Marriage void contracts, [8.350] Married women contractual capacity, [6.190] guarantees for husbands’ debts, [7.930], [7.940], [20.150] rationale for principle, [7.950] Mediation commercial dispute centres, [1.950] commercial mediation, [1.940] native title claims, [22.970] overview, [1.890] private sector, [1.950] senior executive appraisal mediation, [1.920] Meetings — see Shareholders meetings Mentally incapacitated persons agency, [13.750] bankruptcy, [31.110]

M Index Mentally incapacitated persons — cont contractual capacity, [6.180] sale of goods, [14.70] criminal capacity, [32.450] Mercantile agents definition, [13.790] del credere agents, [13.800] overview, [13.790] sale of goods, [14.670] Merchantable quality implied condition, [14.270] examination of goods, [14.285] sale by description, [14.270], [14.280] Mergers or acquisitions authorisations, [18.450], [18.460], [18.510] clearances, [18.450] divestiture of shares or assets, [18.450], [18.630] acquisitions outside Australia, [18.650] case example, [18.640] substantially lessening competition, [18.50], [18.450]-[18.460], [18.470] acquisitions outside Australia, [18.460], [18.650] considerations, [18.450] Minors bankruptcy, [31.100] bills of exchange, [23.370] contracts for necessaries, [6.40], [14.70] necessaries, definition, [6.40] contracts of service, [6.50] beneficial requirement, [6.90] case example, [6.60] detrimental to minors’ interests, [6.70], [6.80] contractual capacity, [6.20] misrepresentation, and, [6.140] New South Wales, [6.150] South Australia, [6.160] valid contracts, [6.30]-[6.90] void contracts, [6.130] voidable contracts, [6.100]-[6.120] contractual liability, [6.30] contracts for necessaries, [6.40] contracts of service, [6.50]-[6.90] misrepresentation, and, [6.140] tort, and, [6.140], [6.150] guarantors, [6.150], [6.160], [20.100] misrepresentation, [6.140] overview, [6.20] partners, [26.160], [26.180] ratification of contract, [6.120], [6.160] repudiation of contract, [6.110], [6.150], [6.160] sale of goods, [14.70] void contracts, [6.130] voidable contracts, [6.100] binding unless repudiated, [6.110]

not binding unless ratified, [6.120] Misleading or deceptive conduct advertising, [17.60] disclosure of terms, [17.80] injunctions, [17.80], [17.770] agents’ liability, [13.590] conduct constituting, [17.60], [17.70], [17.240] same product names, [17.80]-[17.120] silence, [17.130] country of origin, [17.390] cases, [16.395] domain names, [16.340] case examples, [16.350], [16.360] engage, meaning of [17.55] financial services, [17.1430] franchising, [30.2800] guarantees, [20.250] illegal contracts, [8.100] “in trade or commerce”, meaning, [17.50] information providers, [17.190] injunctions, [17.80], [17.770] insurance agents or brokers, [25.1020] liability, natural persons, [17.830] meaning, [17.60] misrepresentations, [7.680], [17.140] case examples, [17.150], [17.160] exemption clauses, [17.170], [17.180] mistaken belief, [17.131] news media exemption, [17.190] non-disclosure, [17.131] overview, [17.10], [17.40] pricing, cases, [17.620] remedies, [17.660] damages, [17.790], [17.820] injunctions, [17.80], [17.770] orders, [17.990] pecuniary penalties, [17.710]-[17.714] statutory guarantees, [17.1000] same product names, [17.80], [17.110] case examples, [17.90], [17.100] scope of prohibitions, [17.40] cases, [17.131]-[17.135] silence constituting, [17.130] specific unfair practices, [17.290] unconscionable conduct, cases, [17.255] Misrepresentation agents’ liability, [13.590] auctioneers, [14.1110] damages, [7.640], [7.660] Australian Capital Territory, [7.670] exemption clauses, [9.430], [9.440] fraudulent — see Fraudulent misrepresentation guarantees, [20.50] part of contract, [20.50], [20.60] innocent — see Innocent misrepresentation

insurance contracts, [25.330] basis of the contract clauses, [25.340] co-insured’s liability, [25.280], [25.290] effect of Act, [25.330], [25.340] fraudulent misrepresentation, [25.380], [25.390] innocent misrepresentation, [25.350]-[25.370] life insurance, [25.400]-[25.420] remedies, [25.350]-[25.420] linked credit provider’s liability, [19.700] minors’ liability, [6.140] misleading or deceptive conduct, [7.680], [17.140] case examples, [17.150], [17.160] exemption clauses, [17.170], [17.180] negligent — see Negligent misrepresentation overview, [7.480] partnerships, [26.550] pre-contractual negotiations, [17.140] case examples, [17.150], [17.160] exemption clauses, [17.170], [17.180] principals’ liability, [13.590] remedies, [7.480] Australian Capital Territory, exceptions, [7.610], [7.670] Australian Consumer Law, [7.680] South Australia, legislation exceptions, [7.640]-[7.660] sale of goods, [14.830] simple representations, [7.480] terms of contract, distinction, [7.480] suppliers, [19.700] terms of contract, [7.480] Mistake contracts, and, [7.10], [7.20], [7.480] Mistake of fact common mistake, [7.40] attributes of subject matter, [7.90], [7.100] cessation of subject matter, [7.70], [7.80], [7.90] condition precedent, [7.110], [7.120] existence of fundamental fact, [7.70]-[7.120] rectification, [7.410]-[7.440] effect on contract, [7.30], [7.360] identity of contracting party, [7.200]-[7.230] intention to contract, [7.240], [7.250], [7.260] third parties, [7.270], [7.280], [7.290] mutual mistake, [7.50], [7.130], [7.140] nature of transaction, [7.300] non est factum defence, [7.300]-[7.350]

1073

1074

Australian Commercial Law Mistake of fact — cont recovery of money, [7.360], [7.370] restitution, [7.380], [12.480]-[12.500] rectification, [7.410], [7.420] availability of remedy, [7.430] intention of parties, [7.430], [7.440] unconscionable conduct, [7.450] unilateral mistake, [7.450], [7.460] restitution, [7.380], [12.480] case examples, [12.490], [12.500] unilateral mistake, [7.30], [7.60] effect on contract, [7.30], [7.190], [7.360] identity of contracting party, [7.200]-[7.290] promise of one party, [7.150]-[7.190] rectification, [7.450], [7.460] written terms, [7.190], [7.360]

procedure post-possession, [19.510] sale of repossessed goods, [19.520] surrender of goods, [19.540] equitable interests beneficiary, [22.710] equitable mortgages of land, [22.510], [22.530] agreement to give legal mortgage, [22.540] deposit of title deeds, [22.550] priority of interests, [22.720] types of mortgages, [22.530] legal mortgages of land, [22.510], [22.520], [22.560] mortgage deed, [22.520] priority of interests, [22.720] Torrens title, [22.490] trustees’ power, [29.520] unconscionable fees or charges, [19.640], [19.650] unjust transactions, [7.970], [19.590] ASIC applications, [19.650] court orders on reopening, [19.610]-[19.630] court’s considerations, [19.600]

Mistake of law recovery of money, [7.390], [7.400], [12.510] voluntary payments, [7.390] Misuse of market power application of provision, [18.180]-[18.210] degree of market power, [18.180] difficulties in establishing, [18.220]-[18.260] overview, [18.50], [18.180], [18.470] predatory pricing, [18.290] relevant market, [18.270], [18.280] taking advantage, [18.290] trans-Tasman market, [18.300] Moral rights application of rights, [30.1530] attribution of authorship, [30.1450] false attribution, [30.1460] beneficiaries of protection, [30.1440] buildings, [30.1500] consent provisions, [30.1480] defences, [30.1490] duration of rights, [30.1530] integrity of authorship, [30.1470] nature of rights, [30.1430] overview, [30.1420] performers, [30.1410] remedies for infringement, [30.1510], [30.1520] Mortgages — see also Security interests credit contracts, [19.410], [22.660] enforcement, [19.460], [19.490]-[19.540] future property, [19.420] general provisions, [19.420] prohibited securities, [19.430] surrender of goods, [19.540] enforcement of mortgage, [19.460], [19.490] regaining possession, [19.530] limitation on taking possession, [19.500]

Mortgagees remedies, [22.580] appointment of receiver, [22.620], [27.1270] entry into possession, [22.610] foreclosure, [22.590] payment of principal, [22.600] power of sale, [22.630]-[22.650] rights and liabilities, [22.570] Mortgagors assignment or disposal of property, [19.440] rights and liabilities, [22.560] Motor vehicle insurance comprehensive insurance, [25.1180] exclusion clauses, [25.520], [25.560] third party, [25.1170] Motor vehicles cooling-off period, [17.1410] repairs, [17.1420] Motor vehicle repair industry compensation funds, [17.1420] second-hand sales, [17.1410]

N Nachfrist, [15.240], [15.310], [15.320], [15.350], [15.360] National Credit Code — see Consumer credit Native title ALRC inquiry, [22.920] common law extinguishment, [22.1010] non-statutory extinguishment, [22.1030]

statutory extinguishment, [22.1020] compensation, [22.1290] concept, [22.940], [22.960] content, [22.950] definition, [22.960] determination of claims, [22.970] mediation, [22.970] extinguishment, [22.1000]-[22.1010], [22.1050] common law, [22.1010] compensation, [22.1290] degrees of inconsistency, [22.1010] Native Title Act, [22.1050]-[22.1150] regulatory rights, [22.1020] future dealings regime, [22.1160] extinguishment, [22.1140]-[22.1150] freehold test, [22.1170] future acts, [22.1180] right to negotiate, [22.1190] Indigenous Land Use Agreements, [22.1280] leases, [22.1030] Mabo case, [22.910] extinguishment of native title, [22.1000], [22.1010] recognition of native title, [22.910], [22.940] legislative response, [22.920] Native Title Act, [22.920] determination of claims, [22.970] future dealings regime, [22.1160]-[22.1190] objectives, [22.930] proof of native title, [22.980] rationale for introduction, [22.930] registration of claims, [22.990] Native Title Act extinguishment, [22.1000], [22.1050] compensation, [22.1290] deemed extinguishment, [22.1110]-[22.1130] effect of validation, [22.1060] “future dealings regime”, [22.1140]-[22.1150] “intermediate period acts”, [22.1060], [22.1090], [22.1100] “past acts”, [22.1060], [22.1070], [22.1080] negotiate, right to, [22.1190] agreement, [22.1240], [22.1260] compliance with process, [22.1200] criteria, [22.1250] duty of good faith, [22.1230] ministerial override, [22.1270] notice, [22.1200] scope of negotiations, [22.1200] offshore areas, [22.960] overview, [22.880], [22.900], [22.1310] ownership, and, [22.960]

N Index Native title — cont previous exclusive possession acts (PEPAs), [22.1120] proof of native title, [22.980] Racial Discrimination Act, and, [22.930], [22.1000] recognition of native title, [22.910], [22.930], [22.940], [22.1310], [22.1270] registration of claims, [22.990] regulatory, [22.1020] rights, [22.950], [22.960] non-exclusive resources, [22.960] scope of rights, inconsistency, [22.960], [22.1010] source, [22.940] Ward case, [22.930], [22.960], [22.1010], [22.1020] Wik case, [22.920], [22.1010] Negligence bailee’s liability, [21.210] breach of duty, [28.50], [28.390] burden of eliminating risk, [28.430]-[28.450] causation, [28.500] gravity of harm, [28.410] probability of risk of injury, [28.400] reasonable man test, [28.470]-[28.490] reasonableness of response, [28.450] remoteness of damage, [28.510]-[28.540] statutory provisions, [28.390] utility of defendant’s conduct, [28.460] causation, [28.500] “but for” test, [28.500] contributory negligence, [28.550], [28.560] damages, and, [12.250], [17.1230], [28.560] manufacturers’ liability, [17.1230] pleading defence, [28.560] statutory provisions, [28.560] damages, [28.80] contributory negligence, [12.250], [17.1230], [28.560] statutory limitations, [28.80] defective structures, [28.250], [28.350], [28.360] builders, [28.370] test for liability, [28.370] defences, [28.550] contributory negligence, [28.560] voluntary assumption of risk, [28.570] Donoghue v Stevenson, [28.60] duty of care, [28.60], [28.90] breach of duty, [28.50], [28.390]-[28.540] neighbour principle, [28.90] liability for omissions, [28.110]-[28.170] negligent misstatement, [28.260], [28.270], [28.280]

positive infliction of harm, [28.100] public authorities, [28.80], [28.170] pure economic loss, [28.180]-[28.240] road authorities, [28.80] exclusion clauses, [9.470] bailees, [21.210] liability, [28.70], [28.90] reasonable foreseeability test, [28.90] statutory limitations, [28.80] medical negligence, [28.500] nervous shock, [28.90] omissions, liability for, [28.110] doctor and patient, [28.120] employer and employee, [28.140] occupier’s liability, [28.140], [28.150], [28.160] prison authority and prisoner, [28.120] public authorities, [28.170] reliance and dependence, [28.110] school authority and students, [28.120], [28.130] overview, [28.40], [28.50], [28.70] prevalence of action, [28.70] principals’ liability, [13.660] professional negligence, [28.30], [28.250], [28.380] barristers, [28.380] reasonable man test, [28.470] solicitors, [28.380] public authorities, [28.170] defective structures, [28.250], [28.350]-[28.370] road authorities, [28.80] statutory reforms, [28.170] pure economic loss, [28.180] damage to third party property, [28.250], [28.340] defective products, [28.250], [28.370] defective structures, [28.250], [28.350]-[28.370] indeterminacy of liability, [28.200] individual autonomy factor, [28.210] knowledge of risk, [28.230], [28.240] negligent misstatement, [28.250], [28.260]-[28.330] professional negligence, [28.250], [28.380] reasonable foreseeability, [28.190] vulnerability to risk, [28.220] reasonable foreseeability, [28.90], [28.190], [28.510], [28.520], [28.530], [28.540] reasonable man test, [28.470] drivers, [28.470], [28.480], [28.490] professional negligence, [28.470] remoteness of damage, [28.510]

reasonable foreseeability, [28.510], [28.520], [28.530], [28.540] standard of care, [28.470] reasonable man test, [28.470]-[28.490] statutory reform, [28.80] voluntary assumption of risk, [28.570] Negligent misrepresentation advice or information, [7.690], [7.700], [7.730] local council liability, [7.710], [7.720] agents’ liability, [13.590] damages, [7.690], [7.700] measure of damages, [7.730] overview, [7.480], [7.690] principals’ liability, [13.590] Negligent misstatement auditors, [28.320], [28.330] reasonable reliance, [28.330] duty of care, [28.260] advice or information, [28.280], [28.290] auditors, [28.330] implied duty, [28.260], [28.270] fiduciary relationship, [28.280] volunteering advice or information, [28.300], [28.310] foreign currency loans, [28.320] overview, [28.250], [28.260] special relationship, [28.280] Negotiable instruments bills of exchange — see Bills of exchange characteristics, [23.10], [24.10] cheques — see Cheques overview, [23.10] promissory notes — see Promissory notes Negotiation, [1.880] Nemo dat rule, [14.630] New South Wales common carrier’s liability, [21.460] District Courts, [1.620] frustrated contracts, [11.490] innkeeper’s liability, [21.590] Local Courts, [1.630] minors’ contracts, [6.150], [20.100] restraint of trade, [8.610] small claims tribunals, [1.690] Supreme Court, [1.610] unjust contracts, [7.860] New Zealand trans-Tasman market, [18.300] News media misleading or deceptive conduct, [17.190]

1075

1076

Australian Commercial Law Non est factum, [7.300]-[7.350]

silence as acceptance, [3.240], [3.250] unconditional acceptance, [3.260] silence as acceptance, [3.240], [3.250] unconditional acceptance, [3.260]

Northern Territory innkeeper’s liability, [21.660] small claims tribunals, [1.690] Supreme Court, [1.610] Novation, [10.140] Nuisance overview, [28.40], [28.730] private nuisance, [28.750] examples, [28.770] substantial interference, [28.750], [28.760] public nuisance, [28.740]

O Obiter dictum, [1.550] Offer and acceptance advertisements, [3.40], [3.70] Carbolic Smoke Ball case, [3.80] auctions, [14.1110] communication of acceptance, [3.180], [3.220], [3.280], [3.290] email, [3.200] external manifestation of assent, requirement, [3.240] method of communication, [3.180], [3.190], [3.200], [3.220], [3.230] prescribed time, [3.210] communication of offer, [3.90] invitations to treat, distinction, [3.30] advertisements, [3.40] auction sales, [3.50] catalogues, [3.40] shop displays, [3.40] tenders, [3.60] joint promises, [3.330], [3.340] international sales contracts, [15.80], [15.90] lapse of offer, [3.150] nature of acceptance, [3.160], [3.170] nature of offer, [3.20] overview, [2.30], [3.10] persons to whom offer made, [3.70] world at large, [3.70], [3.80] postal acceptance rule, [3.300] exclusion of rule, [3.300], [3.310] revocation of offer, [3.320] revocation of offer, [3.100] communication to offeree, [3.120], [3.130], [3.140] method of communication, [3.140] postal acceptance rule, [3.320] time specification in offer, [3.100], [3.110] rule as to acceptance, [3.220], [3.230], [3.280], [3.290], [3.320] conditions of offer, [3.260], [3.280] performance of act, [3.260]

Onus of proof criminal law, [32.70], [32.80] Options purchase of land, [22.690] Ownership — see also Co-ownership found articles, [22.80] course of employment, [22.180], [22.190] in or attached to land, [22.90]-[22.140] on land, [22.150]-[22.170] native title, [22.960] personal property, [22.200] acquisition of ownership, [22.210]-[22.250] possession, distinction, [14.430], [22.40] case examples, [22.50]-[22.70] found articles, [22.80]-[22.190]

P Parallel importation copyright, [30.490], [30.500] relaxation of restrictions, [30.510] books, [30.520] computer software, [30.550] electronic items, [30.560] labels or packaging, [30.530], [30.540] sound recordings, [30.1000] Parliament — see Commonwealth Parliament Parol evidence rule exceptions, [9.30]-[9.70] collateral verbal agreements, [9.50], [9.60] international sales contracts, [15.110] overview, [9.30], [15.110] Part performance acts referable to contract, [5.390] case examples, [5.370], [5.380] overview, [5.360] Partnerships agent, partner as, [13.820], [26.350] assignment of share, [26.610] associations, distinction, [26.70] authority of partners, [26.350] apparent authority, [26.360] implied authority, [26.370] winding up, [26.530]-[26.535] bankruptcy, [26.600], [31.90], [31.130] distribution of property, [31.610] bills of exchange, [23.380], [23.390] capacity to be partner, [26.160] minors, [26.180]

persons of unsound mind, [26.170] change in firm, [26.280] revocation of guarantee, [26.280] characteristics, [26.120], [26.130] commencement, [26.50] common law, [26.10] companies, distinction, [26.120], [27.120] continuing guarantees, [26.280] co-ownership, distinction, [26.130] death of partner, [26.380] goodwill, [26.320] liability, [26.380], [26.420] profit sharing, [26.570] definition, [26.30] dissolution, [26.490] apportionment of premiums, [26.540] assignment of share, [26.610] case, [26.420] change of membership, [26.490] court order, [26.520] fiduciary obligations, and, [26.240], [26.250], [26.260] final settlement of accounts, [26.590] fraud or misrepresentation, [26.550] notice of dissolution, [26.400], [26.410], [26.420] operation of law, [26.500] partners, by, [26.510] partnership property, [26.560] profit sharing, [26.570], [26.580] retirement of partner, [26.270], [26.400], [26.410], [26.420] examples of partnerships, [26.30] existence of partnership, [26.80] examples of non-existence, [26.80] factors in determining, [26.80] expulsion of partner, [26.230] fiduciary obligations, [26.240] dissolution of partnership, [26.240], [26.250], [26.260] prospective partners, [26.260] firm name, [26.190] fixed term, [26.290] continuance after expiration, [26.290] formation of partnership, [26.140] goodwill, [26.320] death or retirement of partner, [26.330] holding out as partner, [26.430] importance, [26.20] incorporated limited partnerships, [26.650] joint ventures, [26.30], [26.40], [26.50], [26.90]-[26.110] legal relationship, [26.10] legislation, [26.10] liability of partners, [26.380] deceased partners, [26.380], [26.420] incoming partners, [26.390] holding out as partner, [26.430]

P Index Partnerships — cont joint liability, [26.380] retiring partners, [26.400], [26.410], [26.420] third parties, [26.380] wrongful acts, [26.440]-[26.480] limited liability company, difference, [26.120] limited partnerships, [26.10], [26.620] advantages, [26.620] incidents, [26.640] incorporated limited partnerships, [26.650] registration, [26.630] minors, [26.160], [26.180] new partners, [26.390] inducement by fraud or misrepresentation, [26.550] premiums, [26.540] number of partners, [26.150] overview, [26.10], [26.30] partnership agreement, [26.200], [26.210], [26.240] goodwill, [26.330] partnership property, [26.300] charging partner’s share, [26.340] dissolution of partnership, [26.560] goodwill, [26.320], [26.330] land as personalty, [26.310] private debts of partners, [26.340] persons of unsound mind, [26.160], [26.170] profit sharing, [26.50], [26.60] outgoing partners, [26.570], [26.580] relationship of partners, [26.200] expulsion of partner, [26.230] implied terms, [26.220] partnership agreement, [26.210], [26.240], [26.330] restraint of trade, [8.420], [8.422] retirement of partners, [26.270] goodwill, [26.330] liability, [26.400], [26.410], [26.420] notice of retirement, [26.400], [26.420] third parties, [26.350] liability to in contract, [26.380] wrongful acts, [26.440] misapplication of money, [26.460], [26.470] misapplication of trust money, [26.480] ordinary course of business, [26.440], [26.450] Passing off character merchandising, [30.2600] case examples, [30.2610]-[30.2630] domain names, [16.320], [16.330] elements of action, [30.2560] examples, [30.2570]-[30.2590] overview, [30.2560] remedies, [30.2680] trade marks, [30.2690]

well-known persons, connection to, [30.2640]-[30.2670] Patents acceptance, [30.2010] computer programs, [30.1850] damages, [30.2120] employee inventions, [30.2150] university academics, [30.2150], [30.2160] examination, [30.2000] innovation patents, [30.2060] re-examination, [30.2030] exclusive rights, [30.2100] foreign patents, [30.2170] infringement, [30.2110] innovation patents, [30.2070] remedies, [30.2120] innovation patents, [30.1790], [30.2050] certification for infringement, [30.2070] examination, [30.2060] standard patents, differences, [30.2060]-[30.2090] term of patent, [30.2090] validity requirements, [30.2080] inventive step requirement, [30.1900] application of test, [30.1900] legislation, [30.1780] manner of manufacture, [30.1820] medical treatment methods, [30.1830] microbiological processes, [30.1840] nature of patents, [30.1790] novelty requirement, [30.1870] assessment of novelty, [30.1890] prior art base, [30.1880] reverse infringement test, [30.1890] opposition to grant, [30.2020] overview, [30.10], [30.1780], [30.1790] plant varieties, [30.1860] procedure for obtaining, [30.1930] acceptance and publication, [30.2010] applicants, [30.1930] applications, [30.1940], [30.1970] examination, [30.2000] priority date, [30.1990] provisional applications, [30.1940], [30.1960], [30.1990] specifications, [30.1950]-[30.1980], [30.1990] publication, [30.2010] Register of Patents, [30.2140] remedies, [30.2120] revocation of patent, [30.2130] secret use, [30.1920] specifications, [30.1950] complete, [30.1970], [30.1980], [30.1990] priority date, [30.1990] provisional, [30.1960], [30.1990] standard patents, [30.1790] grant of patent, [30.2040]

innovation patents, differences, [30.2060]-[30.2090] opposition to grant, [30.2020] term of patent, [30.2040] subject matter, [30.1800] threshold requirement, [30.1810] types of patents, [30.1790] usefulness of invention, [30.1910] Payment unfair practices, [17.560] acceptance without intention to supply, [17.560] unauthorised entries or advertisements, [17.600] unsolicited goods, [17.580], [17.590] Personal accident insurance, [25.1140] Personal injuries manufacturers’ liability, [17.1170] Personal property — see also Bailments; Choses in action acquisition of ownership, [22.210] abandoned property, [22.250] gift, [22.230] purchase, [22.220] wills or intestacy, [22.240] co-ownership, [22.260] definition, [22.30] intangible property, [22.30] overview, [22.10], [22.30] ownership, [22.200] acquisition of ownership, [22.210]-[22.250] possession, [22.200] security interests — see Personal property security interests Personal property security interests acquisitions free of interests, [19.1020] application of Act, [19.920] attachment, [19.940], [19.960] background to legislation, [19.910] enforcement of interests, [19.940], [19.950] enforcement provisions, [19.1030] general priority rules, [19.960] National Credit Code, and, [19.1040] perfection, [19.960] personal property securities legislation, [14.600], [19.900]-[19.910], [22.300] Personal Property Securities Register, [19.1050] priority of interests, [19.970]-[19.1000] purchase money security interests, [19.990] registration provisions, [14.600] security interest, definition, [19.930] special priority rules, [19.000] States and Territories, [19.910] third parties, [19.950], [19.1010] reservation of title clauses, [14.600]

1077

1078

Australian Commercial Law Personal service contracts assignment of contracts, [10.230] specific performance, [12.360] Possession found articles, [22.80] course of employment, [22.180], [22.190] in or attached to land, [22.90]-[22.140] on land, [22.150]-[22.170] ownership, distinction, [14.430], [22.40] case examples, [22.50]-[22.70] found articles, [22.80]-[22.190] personal property, [22.200] Postal acceptance rule electronic commerce, [16.120] exclusion of rule, [3.300], [3.310] overview, [3.300] revocation of offer, [3.320] Precedent conflict of authority, [1.540] court hierarchy, and, [1.540] High Court, [1.180], [1.540] obiter dicta, [1.550] overview, [1.540] ratio decidendi, [1.550] lower courts, [1.550] States and Territories, [1.540] Pre-contractual negotiations misrepresentations, [17.140] case examples, [17.150], [17.160] exemption clauses, [17.170], [17.180] Price — see also Resale price maintenance sale of goods, [14.170] unpaid sellers’ action, [14.960] unfair practices, [17.620] Price-fixing pecuniary penalties, [18.530], [18.540] Principal — see also Agents bankruptcy, [13.770] capacity to act as, [13.40] death of principal, [13.740] insanity, [13.750] liability for agent, [13.590] misrepresentations, [13.590] wrongful acts, [13.600]-[13.660] liability of agent to, [13.480] overview, [13.10], [13.20] revocation of agency, [13.710] agents’ rights, [13.730] third party rights, [13.720] vicarious liability, [13.590] wrongful acts, [13.600], [13.610] damages, [13.620] fraudulent misrepresentation, [13.620], [13.630] negligence, [13.660] unauthorised acts of agent, [13.640]-[13.660]

Prisoners bankruptcy, [31.120] Privacy Australian Privacy Principles, Office of the Australian Information Commissioner, [16.450] electronic commerce, [16.450] employee records, [16.450] overview, [16.450] small business operators, [16.450] Private carriers common carriers, distinction, [21.410] liability for loss, [21.410], [21.420] overview, [21.410] Private companies — see Proprietary companies Private international law international sales contracts, [15.30], [15.460] form of contract, [15.470] mandatory laws, [15.480], [15.490] proper laws, [15.480] jurisdiction, [15.460], [16.430] overview, [15.30] Private law, [1.720] Privilege defamation defences, [28.880], [28.900] Privity of contract agency relationship, [10.40] exceptions to doctrine, [10.40] general principle, [10.20], [10.30] insurance contracts, [10.50]-[10.70], [25.730] third party rights, [25.730]-[25.760] overview, [10.10], [10.20] trust relationship, [10.40] Privy Council, [1.640] Prizes unfair practices, [17.480] Procedural law, [1.730] Product safety defences, [17.1310] overview, [17.1310] recall of goods, [17.1310] Professional indemnity insurance claims made and notified, [25.630] case example, [25.640] notice of circumstances, [25.650] overview, [25.1190] Professional negligence breach of contract, and, [28.30] economic loss, [28.250], [28.380] reasonable man test, [28.470] Promise joint promises, [3.330], [3.340]

Promissory estoppel effect of operation, [5.230], [5.240] material detriment, [5.250] overview, [5.10], [5.230] parol evidence rule, [9.70] unconscionable conduct, [5.280] Waltons Stores v Maher, [5.260], [5.270] Promissory notes bills of exchange, [23.1120] applicable provisions, [23.1120] comparison, [23.1080] cheques, comparison, [23.1080] delivery, [23.1070] joint and several notes, [23.1090] liability of maker, [23.1080] options, [23.1060] overview, [23.1060] payable on demand, [23.1100] presentment for payment, [23.1110] Property classification of property, [22.30] found articles, [22.80] course of employment, [22.180], [22.190] in or attached to land, [22.90]-[22.140] on land, [22.150]-[22.170] meaning, [22.20] overview, [22.10] ownership and possession, distinction, [14.430], [22.40] case examples, [22.50]-[22.70] found articles, [22.80]-[22.190] partnership property, [26.300] dissolution of partnership, [26.560] goodwill, [26.320], [26.330] land as personalty, [26.310] private debts of partners, [26.340] personal — see Personal property proprietary rights, [22.20] real — see Real property trust property, [29.60], [29.80], [29.320] preservation of property, [29.410] proprietary remedies, [29.720] sale, [29.510], [29.770] Proprietary companies accounting records, [27.140] companies limited by shares, [27.80], [27.130] large companies, [27.140] name of company, [27.130] one member companies, [27.150] overview, [27.130] privileges or concessions, [27.160] replaceable rules, [27.250] small companies, [27.140] Public authorities duty of care, [28.170] road authorities, [28.80] statutory reforms, [28.170] negligence, [28.80], [28.170] defective structures, [28.250], [28.350]-[28.370]

R Index Public companies — see Companies Public law, [1.720] Public liability insurance, [25.1160] Public officers criminal offences, [32.460] members of parliament, [32.460], [32.470] whistleblower protection, [32.480] Public policy illegal contracts, [8.170], [8.180] administration of justice, prejudicial, [8.220]-[8.270] commission of crime, tort or fraud, [8.190] revenue, defrauding, [8.320] public life, corruption, [8.280]-[8.300] public safety, prejudicial, [8.310] sexual immorality, promoting, [8.200], [8.210] statue, by, [8.70], [8.80], [8.90] restraint of trade, [8.610] void contracts, [8.170], [8.330] ousting jurisdiction, [8.340] restraint of trade, [8.360]-[8.510] status of marriage, prejudicial, [8.350] Pyramid selling, [17.610]

Q Quantum meruit discharged contracts, [12.560] overview, [12.530] unenforceable contracts, [12.540], [12.550] Queensland common carrier’s liability, [21.470] District Courts, [1.620] innkeeper’s liability, [21.610] Magistrates Courts, [1.630] small claims tribunals, [1.690] Supreme Court, [1.610]

R Racial Discrimination Act native title, and, [22.930], [22.1000] Rail carriage of goods, [21.500] Ratio decidendi, [1.550] Real estate agents commissions, [13.410], [13.420] entitlement to commission, [13.430] duty to inform, [13.370] overview, [13.840] statutory regulation, [13.860] Real property definition, [22.30] land — see Land

overview, [22.10], [22.30], [22.320] Receivers accounts, [27.1080] appointment of receiver, [27.980] effect of appointment, [27.1010] mortgagees, [22.620] notice of appointment, [27.1000] requirements, [27.990] distribution of moneys received, [27.1100] duties of receiver, [27.1020], [27.1040] liability of receiver, [27.1130]-[27.1150] powers of receiver, [27.1020], [27.1030] removal, [27.1170] remuneration, [27.1160] reports, [27.1050]-[1070] supervision of receivers, [27.1120] winding up orders, [27.1110] Rectification common mistake, [7.410], [7.420] availability of remedy, [7.430] intention of parties, [7.430], [7.440] deed poll, [7.470] unilateral mistake, [7.450], [7.460] Referral selling, [17.630] Remedies beneficiaries, [29.720] breach of contract, [12.10], [12.60] damages, [12.70]-[12.330] injunctions, [12.400] limitation of actions, [12.410], [12.420] nature of breach, [12.20] specific performance, [12.340]-[12.390] termination for breach, [12.20], [12.30]-[12.50] company members, [27.380] oppressive or unfair conduct, [27.400], [27.410] statutory derivative action, [27.390] confidential information, [30.2740] consumer credit, [19.120] sanctions for non-compliance, [19.130] consumer guarantees, [17.1160] copyright infringement, [30.1100] access to encoded broadcasts, [30.1320] account of profits, [30.1140], [30.1150], [30.1160], [30.1170] anti-circumvention provisions, [30.1290] conversion or detention, [30.1220], [30.1230] damages, [30.1120], [30.1130], [30.1180]-[30.1210], [30.1220] delivery up, [30.1240]

electronic rights management information, [30.1310] injunctions, [30.1110] moral rights, [30.1510], [30.1520] performers’ rights, [30.1370] damages — see Damages design infringement, [30.1670] domain names, [16.310] disclosure documents, [27.800] financial services, [17.1430] fraudulent misrepresentation, [7.560], [7.620] damages, [7.560], [7.640] insurance contracts, [25.380], [25.390] life insurance, [25.400], [25.420] rescission, [7.560], [7.630] innocent misrepresentation, [7.610] damages, [7.620], [7.640] equitable remedies, [7.620] exceptions to rule, [7.610] insurance contracts, [25.350]-[25.370] life insurance, [25.400], [25.410] rescission, [7.620], [7.630] insurance contracts, [25.250] misrepresentation, [25.350]-[25.420] non-disclosure, [25.250]-[25.320] international sales contracts, [15.310] avoidance of contract, [15.330]-[15.370] buyers, [15.310] damages, [15.310], [15.320], [15.380]-[15.420] interest, recovery, [15.430] restitution, [15.450] sellers, [15.320] specific performance, [15.440] misleading or deceptive conduct, [17.660] damages, [17.790], [17.820] injunctions, [17.80], [17.770] pecuniary penalties, [17.710]-[17.714] misrepresentation, [7.480] Australian Capital Territory, [7.670] Australian Consumer Law, [7.680] insurance contracts, [25.350]-[25.390] life insurance, [25.400]-[25.420] South Australia, [7.640]-[7.660] moral rights, [30.1510], [30.1520] mortgagees, [22.580] appointment of receiver, [22.620] entry into possession, [22.610] foreclosure, [22.590] payment of principal, [22.600] power of sale, [22.630]-[22.650] negligent misrepresentation, [7.690], [7.700] measure of damages, [7.730] passing off, [30.2680] trade marks, [30.2690] patent infringement, [30.2120] recovery, quantum meruit, [12.530]

1079

1080

Australian Commercial Law Remedies — cont cases, [12.551], [12.555] restitution — see Restitution restrictive trade practices, [18.50], [18.520] ancillary orders, [18.620] damages, [18.610] disqualification, [18.660] divestiture of shares or assets, [18.630]-[18.650] injunctions, [18.600] pecuniary penalties, [18.530]-[18.590] severance, [18.670] sale of goods, [14.840] buyers, [14.1020]-[14.1100] specific performance, [12.340], [12.350], [14.1100] unpaid sellers, [14.850]-[14.1010] specific performance — see Specific performance torts, [28.10] trade marks, [30.2450] passing off, [30.2690] unconscionable conduct, [17.280], [17.660] pecuniary penalties, [17.710]-[17.714] unenforceable contract, recovery, [12.540]-[12.555] unfair practices, [17.650] compensation orders, [17.880], [17.900] criminal penalties, [17.660] damages, [17.780]-[17.860] injunctions, [17.720]-[17.770] non-party consumers, [17.890], [17.900] other orders, [17.870]-[17.920] pecuniary penalties, [17.710]-[17.714] void contracts, [17.910], [17.920] Repairs trustees’ power, [29.560] Representations — see also Misrepresentation deceit, [28.580], [28.590] simple representations, [7.480] terms of contract, distinction, [7.480], [9.100], [9.110] Repudiation of contract anticipatory breach, [11.180] conduct amounting to, [11.190] effect of repudiation, [11.200] fulfillment of terms, [11.210] intention not to be bound, [11.220], [11.230] minors’ contracts, [6.110], [6.150], [6.160] misrepresentation, [7.480] mistake of fact, [7.360] overview, [11.160], [11.170] sale of goods, [14.1030] termination, distinction, [12.20]

Resale price maintenance case examples, [18.410], [18.420] defence, [18.430] dual listed companies, [18.440] overview, [18.50], [18.400] seasonal clearance sales, [18.430] types of conduct, [18.400] Rescission fraudulent misrepresentation, [7.560], [7.630] innocent misrepresentation, [7.620], [7.630] misrepresentation, [7.660] Residential tenancies, [22.870] Restitution applicable circumstances, [12.450] basis of restitution, [12.440] international sales contracts, [15.450] nature of action, [12.430] overview, [12.10], [12.430] reasonable remuneration, [12.450], [12.530] discharged contracts, [12.560] unenforceable contracts, [12.540], [12.550] recovery of money paid, [12.450], [12.460] duress or compulsion, under, [12.520] mistake of fact, [7.380], [12.480]-[12.500] mistake of law, [7.390], [7.400], [12.510] total failure of consideration, [12.470] requirements, [12.440] unjust enrichment, [12.440] unenforceable contracts, [12.540]-[12.555] Restraint of trade categories of contracts, [8.360] confidential information, [8.421] court’s considerations, [8.360] definition, [8.360] employment contracts, [8.400], [8.410] fairness of bargain, [8.460], [8.470] reasonableness of restraint, [8.420], [8.421], [8.430], [8.460] release from contract, [8.440], [8.450] subsequent unlawful conduct, [8.480] time for determination, [8.480] excluded transactions, [8.510] overview, [8.360], [8.490] partnership agreements, [8.420] sale of business contracts, [8.370] case examples, [8.380], [8.390] severance, and, [8.610] statutory prohibitions, and, [8.490], [8.500], [8.510] validity, [8.420]

Restrictive trade practices agreements, cases, [18.70]-[18.90] administrative machinery, [18.40] aim of provisions, [18.10] anti-competitive agreements, [8.490], [18.50], [18.60] breadth of application, [18.60], [18.70], [18.80] covenants affecting land, [18.160] examples, [18.60] exclusionary provisions, [18.100]-[18.140] inducement, case, [8.95] restraint of trade, and, [8.490], [8.500], [8.510] scope of prohibition, [18.90] anti-competitive disclosures of information, [18.151] authorisation of conduct, [18.40], [18.510] exclusionary provisions, [18.140] exclusive dealing, [18.390] mergers or acquisitions, [18.450]-[18.460] boycotts, [18.50], [18.170] primary boycotts, [18.100]-[18.140] secondary boycotts, [18.170] cartel conduct, [18.50], [18.150] competition condition, [18.150] conditional immunity, [18.550] offences, [18.590] pecuniary penalties, [18.580], [18.590] purpose /effect condition, [18.150] Competition Code, [18.30] competition, meaning, [18.490] constitutional framework, [18.20] Competition Code, [18.30] contravention of provisions, [18.50], [18.520] enforceable undertakings, [18.550] enforcement proceedings, [18.40] exceptions, [18.500] exclusive dealing, [18.50], [18.310] authorisation, [18.390], [18.510] examples, [18.360]-[18.380] notification, [18.390] substantially lessening competition, [18.310], [18.320], [18.470] third-line forcing, [18.330]-[18.350], [18.390] types of conduct, [18.310] industry codes of conduct, [18.680] injunctions, [18.600] market, definition, [18.480] mergers or acquisitions, [18.50] acquisitions outside Australia, [18.460], [18.650] authorisations, [18.450]-[18.460], [18.510] clearances, [18.450] divestiture of shares or assets, [18.450], [18.630]-[18.650] substantially lessening competition, [18.50], [18.450]-[18.460]

S Index Restrictive trade practices — cont misuse of market power, [18.50], [18.180], [18.470] application of provision, [18.180]-[18.210] degree of market power, [18.180], [18.220]-[18.260] predatory pricing, [18.290] relevant market, [18.270], [18.280] taking advantage, [18.290] trans-Tasman market, [18.300] overview, [17.10], [18.10] pecuniary penalties, [18.530] agreed penalties, [18.560]-[18.580] assessment of penalty, [18.530] cartel conduct, [18.580], [18.590] liquidation, [18.550] price fixing, [18.530], [18.540] proceedings for recovery, [18.530] predatory pricing, [18.290] remedies, [18.50], [18.520] ancillary orders, [18.620] damages, [18.610] disqualification, [18.660] divestiture of shares or assets, [18.630]-[18.650] injunctions, [18.600] pecuniary penalties, [18.530]-[18.590] severance, [18.670] resale price maintenance, [18.50], [18.400] case examples, [18.410], [18.420] defence, [18.430] dual listed companies, [18.440] seasonal clearance sales, [18.430] types of conduct, [18.400] States and Territories, [18.30] substantially lessening competition, [18.470] exclusive dealing, [18.310], [18.320] mergers or acquisitions, [18.50], [18.450]-[18.460] types of practices, [18.50] Retail leases, [22.860] Risk duty of care, [28.400] burden of eliminating risk, [28.430]-[28.450] breach of duty, [28.400], [28.430]-[28.450] pure economic loss, [28.220], [28.230], [28.240] voluntary assumption of risk, [28.570] international sales contracts, [15.220] sale of goods, [14.610] delayed delivery, [14.620]

S Sale of goods — see also Supply of goods or services acceptance of goods, [14.200]

damages for non-acceptance, [14.970]-[14.1010] meaning, [14.200] misrepresentation, [14.830] performance of contract, [14.200], [14.830] agreement to sell, [14.80] rights of parties, [14.100] sale, distinction, [14.80] auction sales, [14.1110] dummy bids, [14.1160] buyer’s remedies, [14.840], [14.1020] breach of warranty of quality, [14.1040]-[14.1080] non-delivery of goods, [14.1090] repudiation, [14.1030] specific performance, [14.1100] capacity to contract, [14.70] caveat emptor, [14.410] CIF contracts, [14.820] classification of goods, [14.110] existing goods, [14.120] future goods, [14.130] specific goods, [14.140], [14.160] unascertained goods, [14.150], [14.160] conditions, [14.210], [14.410] implied conditions, [9.310], [14.220]-[14.390] warranties, as, [14.400] warranties, distinction, [14.210] codification, [14.10] correspondence with description, [14.240] damages for breach, [14.1050] identity of goods, distinction, [14.240], [14.250] sale by description, [14.240] sale by sample, [14.260] damages, [14.1020] breach of warranty of quality, [14.1040]-[14.1080] non-acceptance of goods, [14.970]-[14.1010] non-delivery of goods, [14.1090] prima facie rule, [14.970] definition, [14.20] delivery of goods, [14.760] CIF contracts, [14.820] constructive delivery, [14.780] delayed delivery, [14.620] FOB contracts, [14.820] general rules, [14.770] instalment deliveries, [14.800], [14.810] mixed goods, [14.790] non-delivery, [14.1090] symbolic delivery, [14.780] withholding delivery, [14.880] wrong quantity, [14.790] elements of contract, [14.20] exclusion clause, [14.390] executed contracts, [14.80] executory contracts, [14.80] factors, [13.790] fitness for purpose, [14.290] case examples, [14.310]-[14.340]

damages for breach, [14.1060], [14.1080] partial reliance on seller, [14.350], [14.360] particular purpose, [14.290], [14.300] trade names, [14.370] FOB contracts, [14.820] formalities, [14.180] acceptance of goods, [14.200] note or memorandum, [14.190] written requirement, [14.180] formation of contract, [14.20] goods, [14.20] definition, [14.30] examples, [14.30] implied conditions, [9.310], [14.210], [14.220], [14.410] cases, [14.340], [14.345] correspondence with description, [14.240]-[14.260], [14.1050] exclusion of conditions, [14.390] fitness for purpose, [14.290]-[14.370], [14.1060], [14.1080] merchantable quality, [14.270]-[14.285] sale by sample, [14.260], [14.380] title of goods, [14.230] implied warranties, [14.210], [14.410] exclusion of warranties, [14.390] title of goods, [14.230] intermediate stipulations, [14.210] international sales — see International sales contracts mercantile agents, [13.790], [14.670] merchantable quality, [14.270] cases, [14.280], [14.286] examination of goods, [14.285] meaning, [14.270] sale by description, [14.270], [14.280] money consideration, [14.20], [14.40] note or memorandum, [14.190] ownership of goods, [14.430] possession, distinction, [14.430] transfer of ownership, [14.440]-[14.530] overview, [14.10] performance of contract, [14.760] acceptance of goods, [14.200], [14.830] CIF contracts, [14.820] delivery of goods, [14.770]-[14.820] FOB contracts, [14.820] possession of goods, [14.430] price of goods, [14.170] unpaid sellers’ action, [14.960] property in goods, [14.430] possession, distinction, [14.430] transfer of ownership, [14.440]-[14.530] receipt of goods, [14.200] rejection of goods, [14.205] remedies for breach, [14.840] buyers, [14.1020]-[14.1100]

1081

1082

Australian Commercial Law Sale of goods — cont specific performance, [12.340], [12.350], [14.1100] unpaid sellers, [14.850]-[14.1010] rescission of contract within reasonable time, [14.205] reservation of title, [14.540] risk of loss or damage, [14.610], [14.620] Romalpa clauses, [14.550]-[14.590] security interests, as, [14.600] risk of loss or damage, [14.610] delayed delivery, [14.620] sale, [14.80] agreement to sell, distinction, [14.80] rights of parties, [14.90] sale by sample, [14.260], [14.380] specific goods, [14.140] passing of ownership, [14.440]-[14.500] risk of loss or damage, [14.610] unascertained goods, distinction, [14.160] specific performance, [12.340], [14.1100] adequacy of damages, [12.350] stoppage in transitu, [14.890] defeat of stoppage, [14.920] duration of transit, [14.900] effecting stoppage, [14.910] supply of materials, distinction, [14.60] terms of contract, [14.210] caveat emptor, [14.410] conditions as warranties, [14.400] implied conditions, [14.220]-[14.390] implied warranties, [14.210], [14.230], [14.390] title of goods, [14.230] title of transferee, [14.630] estoppel, [14.640]-[14.660] exceptions to rule, [14.640]-[14.750] mercantile agents, [14.670] nemo dat rule, [14.630] sale by buyer in possession, [14.710]-[14.750] sale by seller in possession, [14.700] voidable title, [14.680], [14.690] transfer of property, [14.20], [14.50], [14.420], [14.440] delivery on approval, [14.500] ownership of goods, [14.430] possession of goods, [14.430] reservation of title, [14.540]-[14.620] risk of loss or damage, [14.610], [14.620] sale by description, [14.510]-[14.530] sale on return, [14.500] time ownership passes, [14.440]-[14.510]

unconditional contracts, [14.450]-[14.470] unascertained goods, [14.80], [14.150] passing of ownership, [14.440], [14.510]-[14.530] risk of loss or damage, [14.610] specific goods, distinction, [14.160] unpaid sellers’ remedies, [14.840], [14.850] unpaid sellers’ rights against buyer, [14.850], [14.950] action for price, [14.960] damages for non-acceptance, [14.970]-[14.1010] unpaid sellers’ rights against goods, [14.850], [14.860] lien, [14.870], [14.880], [14.910] resale of goods, [14.930], [14.940] stoppage in transitu, [14.890]-[14.920] withholding delivery, [14.880] warranties, [14.210], [14.410] breach of warranty of quality, [14.1040]-[14.1080] conditions, as, [14.400] implied warranties, [14.210], [14.230], [14.390] work and materials, distinction, [14.60] written requirement, [14.180] Sale of land acts referable to contract, [5.390] equitable interests, [22.670], [22.680] false or misleading representations, [7.680], [17.400] application of provision, [17.400], [17.410] requirements, [17.420] overview, [5.330] part performance, [5.360], [5.370], [5.390] specific performance, [12.340] written requirement, [5.330] Sea carriage of goods, [21.540] Secondary boycotts, [18.170] Securities — see Shares Security interests liens, [22.270] general liens, [22.270] particular liens, [22.280] possessory liens, [22.270]-[22.290] overview, [19.10], [19.900], [22.300] personal property security interests — see Personal property security interests

Senior executive appraisal mediation, [1.920] Services — see Supply of goods or services Severance illegal contracts, [8.620] restraint of trade, [8.610] restrictive trade practices, [18.670] void contracts, [8.600], [8.610] Sexual immorality contracts promoting, [8.200], [8.210] Share buy-backs employee share schemes, [27.580] equal access schemes, [27.560] minimum holding buy-backs, [27.590] on-market buy-backs, [27.570] overview, [27.540], [27.550] selective buy-backs, [27.600] shareholder approval, [27.630] Share capital alteration of capital, [27.440] dividends, [27.530] overview, [27.430] reduction of capital, [27.540] authorised means, [27.540] other means, [27.540] selective reductions, [27.540] self-acquisition of shares, [27.550] share buy-backs, [27.540], [27.550]-[27.600] subsidiaries, [27.610] register of members, [27.360] Shareholders meetings agenda, [27.870] annual general meeting, [27.850] general meetings, [27.860] minutes, [27.900] ordinary resolutions, [27.880] overview, [27.840] special resolutions, [27.890] Shares companies limited by shares, [27.80] corporate financing, [27.651] disclosure documents, [27.653] misleading or deceptive statements, [27.656] omissions, [27.656] prospectus, [27.653], [27.654] deferred shares, [27.490] dividends, [27.530] financial assistance, [27.620] exempted assistance, [27.640], [27.650] shareholder approval, [27.630] founders’ shares, [27.490] insider trading, [27.795] offer information statement, [27.655] ordinary shares, [27.460] overview, [27.450] ownership, [27.450] preference shares, [27.470] prospectuses, [27.654]

S Index Shares — cont redeemable preference shares, [27.480] self-acquisition of shares, [27.550] subsidiaries, [27.610] transfer of shares, [27.60], [27.510] transmission of shares, [27.520] Small claims tribunals, [1.690] Solicitors barristers, distinction, [1.820], [1.830] overview, [1.820] professional negligence, [28.380] undue influence, [7.800] South Australia District Courts, [1.620] frustrated contracts, [11.500] innkeeper’s liability, [21.620] Local Courts, [1.630] minors’ contracts, [6.160], [20.100] misrepresentation, [7.640] mere puffery, [7.640], [7.650] rescission, [7.660] small claims tribunals, [1.690] Supreme Court, [1.610] Spare parts right of repair defence, [30.1690] Specific performance adequacy of damages, [12.340], [12.350] international sales contracts, [15.440] mutual availability, [12.390] overview, [12.340] personal services contracts, [12.360] sale of goods contracts, [12.340], [14.1100] adequacy of damages, [12.350] sale of land contracts, [12.340] supervision of contract, [12.370], [12.380] Standard of proof civil proceedings, [1.800] criminal proceedings, [1.750], [1.800], [32.70], [32.90] Stare decisis — see Precedent State courts County Courts, [1.620] cross-vesting of jurisdiction, [1.710] District Courts, [1.620] doctrine of precedent, [1.540] Local Courts, [1.630] Magistrates Courts, [1.630] overview, [1.600] specialist courts or tribunals, [1.650], [1.680], [1.700] small claims tribunals, [1.690] Supreme Courts, [1.610] States and Territories — see also Australian colonies computer offences, [16.520] cyberstalking, [16.530]

constitutional development, [1.50], [1.70] federation movement, [1.60] Constitution, [1.40], [1.70] consumer credit, [19.40] division of powers, [1.100] reference power, [1.150] security interests, [19.910] trade and commerce power, [1.160] constitutions, [1.40] consumer credit, [19.30] referral of powers, [19.40] consumer protection, [17.20] motor vehicles, [17.1410], [17.1420] courts — see State courts criminal law, [32.180] Code jurisdictions, [32.190] Imperial Acts, and, [1.470] law reports, [1.480] making of statutes, [1.220] resolution of deadlocks, [1.220] restrictive trade practices, [18.30] security interests, [19.910] Statutes — see also Delegated legislation Australian colonies, [1.470] Bills, [1.220] codifying statutes, [1.210] commencement date, [1.220], [1.270] commercial law, [1.30] common law, and, [1.440] consolidating statutes, [1.210] construing legislation, [1.420] examples, [1.315] making of statutes, [1.220] resolution of deadlocks, [1.220] overview, [1.210] parts of a statute, [1.230] Act number, [1.240] Chapters, Parts and Divisions, [1.320] commencement date, [1.270] definitions, [1.290] long title, [1.250] marginal notes, [1.310] object or purpose, [1.280] Schedules, [1.330] sections, [1.300] short title, [1.260] source of law, as, [1.200], [1.210] Statutory authorities — see Public authorities Statutory demands, [27.1550] Statutory interpretation Acts Interpretation Acts, [1.350] extrinsic materials, [1.370], [1.410] purposive approach, [1.360], [1.390], [1.410] common law rules, [1.380] golden rule, [1.400] literal rule, [1.390] mischief rule, [1.410] Constitution, [1.180] legislative powers, [1.100]

extrinsic materials, [1.370], [1.410] deficiency, [1.360] explanatory memorandum, [1.370] second reading speeches, [1.370] failure of parliament to make provision, [1.360] golden rule, [1.400] literal rule, [1.390] maxims of interpretation, [1.360], [1.420] mischief rule, [1.410] overview, [1.340] purposive approach, [1.360] statutory language may not be ignored, [1.370] Stoppage in transitu defeat of stoppage, [14.920] duration of transit, [14.900] effecting stoppage, [14.910] overview, [14.890] Subordinate legislation — see Delegated legislation Substantive law, [1.730] Suicide life insurance policies, [25.1130] Superannuation contributions bankruptcy, [31.500] Suppliers defective goods, [17.1170], [17.1290], [17.1320] indemnity by manufacturer, [17.1290] limitation of liability, [17.1300] Supply of goods or services acceptable quality, [17.1040] meaning, [17.1050] services, [17.1050], [17.1060] consumer guarantees, [17.30], [17.1000] acceptable quality, [17.1040]-[17.1060] auction sales, [17.1130] common carrier’s liability, [21.480] consumer, meaning, [17.1020] correspondence with description, [17.1090] demonstration models, [17.1100] exclusion of guarantees, [17.1150] express warranties, [17.1120] fitness for disclosed purpose, [17.1070]-[17.1075], [17.1080] hire of goods, [21.300] limitation of liability, [17.1150] provision of services, [17.1140], [21.230] remedies for non-compliance, [17.1160] repairs, [17.1110] spare parts, [17.1110] supply by sample, [17.1100] supply, definition, [17.1010]

1083

1084

Australian Commercial Law Supply of goods or services — cont title of goods, [17.1030] false or misleading representations, [7.680], [17.340] case examples, [17.350]-[17.370] penalties for contravention, [17.380] fitness for disclosed purpose, [17.1070]-[17.1075] disclosed purpose, meaning, [17.1080] product safety, [17.1310] provision of services, [17.1140], [21.230] bailees, and, [21.230] supply, definition, [17.1010] unconscionable conduct, [17.240], [17.260] court’s considerations, [17.240] remedies for contravention, [17.280] unconscionable, meaning, [17.240], [17.250] unfair contract terms, [17.30], [17.290] effect of terms, [17.290] examples, [17.310] standard form contracts, [17.320] unfair, meaning, [17.300] unfair practices — see Unfair practices Supply of materials sale of goods, distinction, [14.60] Supreme Courts jurisdiction, [1.610] overview, [1.610] Survivorship joint tenancy, [22.420]

T Tasmania innkeeper’s liability, [21.640] Magistrates Courts, [1.630] small claims tribunals, [1.690] Supreme Court, [1.610] Taxation Commonwealth powers, [1.130] Telecommunications offences overview, [16.530] Television and sound broadcasts Australian Consumer Law, [17.20] copyright, [30.750], [30.900] duration, [30.970] exception to infringement, [30.960] exclusive rights, [30.920]-[30.940] ownership, [30.950] subsistence of copyright, [30.910] time-shifting, [30.960] Tenancies at sufferance, [22.790] at will, [22.780]

periodic tenancies, [22.750], [22.770] termination, [22.830] residential tenancies, [22.870] Tenancy in common concurrent interests, [22.460] overview, [22.440] termination of co-ownership, [22.450] Tenders invitation to treat or offer, [3.60] Termination of contract agreement between parties, [11.10] cancellation of contract, [11.50], [11.60]-[11.80] contingent conditions, [11.100]-[11.150] express power to terminate, [11.30] implied right to terminate, [11.40] subsequent agreement, [11.50]-[11.90] substituted agreement, [11.90] breach of contract, [11.10], [11.160] conditions, [9.180], [9.200], [11.270], [12.30]-[12.50] essential terms, [11.260] fulfillment of terms, [11.210]-[11.300] intention not to be bound, [11.220]-[11.240] intermediate terms, [11.300] remedies, [12.20], [12.30]-[12.50] repudiation of contract, [11.170]-[11.200], [12.20] cancellation of contract, [11.50] accord and satisfaction, [11.80] mutual termination, [11.60] release, [11.70] contingent conditions, [11.100] conditions precedent, [11.110]-[11.140] conditions subsequent, [11.150] contracts under seal, [11.90] merger of contract, [11.530] credit contracts, [19.740] debtors, by, [19.300], [19.550] tied continuing credit contracts, [19.750] tied loan contracts, [19.750], [19.760], [19.770] frustration — see Frustration of contract mutual abandonment, [11.250] operation of law, [11.10], [11.510] bankruptcy, [11.520] merger of contract, [11.530] overview, [11.10] performance, by, [11.10], [11.20] repudiation of contract, [11.160], [11.170], [12.20] anticipatory breach, [11.180] conduct amounting to, [11.190] effect of repudiation, [11.200] fulfillment of terms, [11.210], [11.220], [11.230] substituted agreement, [11.90]

Terms of contract binding agreement, [4.155] collateral contracts, [9.120] consistency with main contract, [9.130], [9.140] intention of parties, [9.150], [9.160], [9.170] merger clause, [9.170] conditions, [9.180], [11.270] breach of condition, [9.180], [9.210], [11.270] misrepresentation, and, [7.480] sale of goods, [14.210] time stipulations, [11.290] warranties, distinction, [9.180]-[9.210], [11.270], [11.290], [14.210] determining terms, [9.100] intention of parties, [9.100] essential terms, [9.20], [11.260] exemption clauses, [9.320] acts outside contract, [9.480]-[9.530] ambiguities, [9.450], [9.460] misrepresentation, [9.430], [9.440] negligence, liability, [9.470] part of contract, as, [9.330]-[9.420] strict interpretation, [9.450], [9.460] express terms, [9.20] collateral contracts, [9.120]-[9.170] conditions, [9.180]-[9.210] negotiations in good faith, [9.80], [9.90] parol evidence rule, [9.30]-[9.70] uncertainty, [9.20] warranties, [9.180]-[9.210] implied terms, [9.220] business efficacy, [9.230], [9.240]-[9.280] custom or trade usage, [9.300] sale of goods, [9.310], [14.220]-[14.390] specific types of contract, [9.230], [9.290] statute, by, [9.310] intention, objective test, [4.10] intermediate terms, [11.300] misrepresentation, [7.480] overview, [9.10], [9.20] parol evidence rule, [9.30], [15.110] collateral verbal agreements, [9.50], [9.60] exceptions, [9.30]-[9.70] representations, distinction, [7.480], [9.100], [9.110] sale of goods, [14.210] caveat emptor, [14.410] conditions as warranties, [14.400] implied conditions, [9.310], [14.220]-[14.390] implied warranties, [14.210], [14.230], [14.390] warranties, [9.180], [11.270]

T Index Terms of contract — cont breach of warranty, [9.180], [9.210], [11.270] conditions, distinction, [9.180]-[9.210], [11.270], [11.290], [14.210] sale of goods, [14.210], [14.230], [14.390], [14.400] Terrorism criminal offences, [32.550] Testamentary trusts, [29.220], [29.260] Theft criminal offence, [32.530] Torrens title caveats, [22.500] certificate of title, [22.490] overview, [22.490] registration of instruments, [22.490] unregistered interests, [22.490], [22.500] Torts aim of law, [28.10] causation, “but for” test, [28.500] concurrent wrongdoer, [28.500] contract law, and, [28.30] inducement to breach, [10.80], [10.90] minors’ liability, [6.140], [6.150] conversion, [28.700], [28.710] criminal liability, and, [28.20] deceit, [28.40], [28.580], [28.590] damages, [28.600] false imprisonment, NSW, [28.650] defamation — see Defamation detinue, [28.700], [28.720] duty of care – enforceable, [28.100] employer, [28.140] public authorities, [28.140] schools, [28.120] minors’ liability, [6.140], [6.150] negligence — see Negligence nuisance — see Nuisance overview, [1.720], [28.10], [28.20] particular torts, [28.40] passing off — see Passing off remedies, [28.10] strict liability torts, [28.40], [28.780] animals, [28.800] case example, [28.790] trespass — see Trespass unfair practices, and, [17.790] vicarious liability — see Vicarious liability Trade and commerce — see also Restraint of trade legislative powers, [1.120] interstate trade, [1.160] Trade marks assignment, [30.2510] authorised users, [30.2460] certification marks, [30.2470], [30.2490]

collective marks, [30.2470], [30.2480] deceptively similar marks, [30.2400] unregistered marks, [30.2430] defences, [30.2410] similar goods, [30.2410], [30.2420] unregistered marks, [30.2430] defensive marks, [30.2470], [30.2500] definition, [30.2190], [30.2370] domain names, [16.280], [16.340] exclusive rights, [30.2200] graphical representation, [30.2230] false representation, [30.2330] imported infringing goods, [30.2530] infringement, [30.2380] deceptively similar, [30.2400] functional shape, [30.2380], [30.2390] imported goods, [30.2530] remedies, [30.2450], [30.2690] statutory defences, [30.2410]-[30.2430] substantially identical, [30.2400] interests in marks, [30.2520] international agreements, [30.2550] nature of trade marks, [30.2180] offences, [30.2540] opposition to registration, [30.2280] defective applications, [30.2340] false geographical indication, [30.2330] grounds for opposition, [30.2290] ownership of mark, [30.2300] similar marks, [30.2320] use of mark, [30.2310] overview, [30.10], [30.2180] register, [30.2350] rectification, [30.2360] removal for non-use, [30.2370] registrable marks, [30.2190] registration, [30.2350] applications, [30.2210], [30.2340] rejection of applications, [30.2220]-[30.2270] opposition to registration, [30.2280]-[30.2340] term of registration, [30.2350] rejection of applications, [30.2220], [30.2270] confusion or deception, [30.2250] distinguishing goods or services, [30.2240] graphical representation, [30.2230] substantially identical marks, [30.2260] remedies, [30.2450] passing off, [30.2690] substantially identical marks, [30.2260], [30.2400] unregistered marks, [30.2430] Trade Practices Act — see also Competition and Consumer Act renaming of Act, [17.20]

Trade Practices Regulations, [18.390] — see also Competition and Consumer Regulations Trade secrets — see Confidential information Trading trusts, [29.220], [29.240] Travel insurance, [25.1210] Trespass chattels, [28.690] forms of trespass, [28.610] overview, [28.40], [28.610] Trespass to land consent of occupier, [28.660], [28.670] withdrawal, [28.680] overview, [28.660], [28.680] scope of protection, [28.680] Trespass to person assault, [28.640] battery, [28.630] false imprisonment, [28.650] overview, [28.620] Trials civil proceedings, [1.790] criminal trials, [32.300] jury trials, [32.320] sentencing, [32.310] Tribunals or commissions commercial arbitration, [1.850] federal, [1.660], [1.670], [18.30], [18.40] overview, [1.650], [1.690] State tribunals, [1.680] small claims tribunals, [1.690] uniform legislation, [1.850] TRIPS Agreement, [30.1560] Trust law, [1.720] Trustees advice from court, [29.570], [29.640] agents, distinction, [13.30] appointment of trustees, [29.350] beneficiaries, by, [29.370] court appointment, [29.390] liability, breach, [29.650] power to appoint, [29.380] settlor, by, [29.360] bankruptcy, [31.50], [31.60] distribution of property, [31.580] possession of property, [31.570] realisation of property, [31.570] breach of trust, [29.650] cessation of trusteeship, [29.660]-[29.690] disclaimer by trustee, [29.670] duties, [29.400] account keeping, [29.450] act in person, [29.470] enforcement, [29.490] impartiality between beneficiaries, [29.480] profits from trust, [29.440]

1085

1086

Australian Commercial Law Trustees — cont preservation of trust property, [29.410] provision of information, [29.460] reasonable care, [29.420], [29.430] executors, distinction, [29.90], [29.150] overview, [29.10], [29.50] powers, [29.500] advice from court, [29.570] carry on business, [29.550] compromise, [29.590] insurance, [29.530] leases, [29.540] maintenance and advancement, [29.580] mortgages, [29.520] repairs or improvements, [29.560] sale of trust property, [29.510] removal of trustee, [29.690], [29.700] retirement, [29.680], [29.700] revocation of trust, [29.780] rights, [29.600] advice from court, [29.640] indemnity, [29.630] reimbursement, [29.610] remuneration, [29.600] settlement of account, [29.620] termination of trusteeship, [29.700] trust property, [29.80] preservation of property, [29.410] Trusts accumulation of income, [29.340] agency, distinction, [29.90], [29.110] bailment, distinction, [29.90], [29.120] basic concept, [29.10] beneficiaries, [29.10], [29.70] appointment of trustee, [29.370] proprietary remedies, [29.720] rights, [29.710], [29.760] charitable trusts, [29.220], [29.270] classification of trusts, [29.160]-[29.210] companies, distinction, [29.90], [29.140] constructive trusts, [29.190] case example, [29.200] breach of fiduciary duty, [29.210] remedial nature, [29.190] strangers, [29.210] contract, distinction, [29.90], [29.100] creation of trust, [29.280] accumulations of income, [29.340] certainty of intention, [29.290] certainty of objects, [29.310] certainty of subject matter, [29.300] rule against perpetuities, [29.330] trust property, [29.320] debtor and creditor, distinction, [29.90], [29.130] definition, [29.20] discretionary trusts, [29.220], [29.230]

essential nature, [29.20] express trusts, [29.30], [29.170] beneficiaries, [29.70] creation, [29.280]-[29.340] enforceable in equity, [29.80] settlor, [29.40] trust property, [29.60] trustees, [29.50] implied trusts, [29.180] other legal relationships, distinction, [29.90] overview, [29.10] resulting trusts, [29.180] rule against perpetuities, [29.330] settlor, [29.40] appointment of trustee, [29.360] revocation of trust, [29.780] termination of trust, [29.730] beneficiaries’ right, [29.760] court order, [29.750] distribution of assets, [29.740] revocation, [29.780] sale of trust property, [29.770] testamentary trusts, [29.220], [29.260] trading trusts, [29.220], [29.240] trust property, [29.60], [29.80], [29.320] preservation of property, [29.410] proprietary remedies, [29.720] sale, [29.510], [29.770] types of trusts, [29.220]-[29.270] unit trusts, [29.220], [29.250]

U Ultra vires principle, [27.300] UNCITRAL Model Laws Electronic Commerce, [16.30], [16.80], [16.150], [16.210] International Commercial Arbitration, [1.850] Unconscionable conduct — see also Credit contracts determination, [17.240] financial services, [17.1430] intentional breach of contract, [17.260] franchising, [30.2800] overview, [7.960], [17.30], [17.200] supply of goods and services, [17.240], [17.260] case example, [17.250] court’s considerations, [17.240] remedies for contravention, [17.280] unconscionable, meaning, [17.240] unwritten law, within, [17.210] application of provisions, [17.230] case example, [17.220] meaning, [17.210] remedies for contravention, [17.280]

Unconscionable contracts — see also Unjust contracts Amadio’s case, [7.880], [7.890] applications for relief, [7.1010] Australian Consumer Law, [17.210], [17.230] case examples, [7.910], [7.915], [7.920], [7.925] guarantees, [20.70] married women, [7.930]-[7.950], [20.150] married women’s guarantees, [7.930], [7.940], [20.150] extension of principle, [7.950], [20.150] rationale for principle, [7.950] overview, [7.870] special disadvantage, [7.880], [7.890] application of principle, [7.900] circumstances, [7.900] Undue influence banker and customer, [7.840], [7.850] case examples, [7.830], [7.840] effect, [7.860] guarantees, [20.70] husband and wife, [7.800], [7.810] overview, [7.800] special relationships, [7.800] absence of relationship, [7.820] Unfair contract terms effect of terms, [17.290] examples, [17.310] overview, [17.30], [17.290] standard form contracts, [17.320] unfair, meaning, [17.300] Unfair practices — see also False or misleading representations; Misleading or deceptive conduct; Unconscionable conduct bait advertising, [17.530] case example, [17.540] penalties, [17.550] contravention of provisions, [17.650] aiding or abetting, [17.830] corporate liability, [17.670] criminal penalties, [17.660] defences, [17.680]-[17.700] liability of persons involved, [17.830]-[17.850] pecuniary penalties, [17.710]-[17.714] damages, [17.780] analogies with tort, [17.790] assessment of damages, [17.790], [17.800], [17.810] commercial advantage, [17.820] exemplary damages, [17.820] liability of persons involved, [17.830]-[17.850] limitation of actions, [17.860] defences, [17.680] actions beyond control, [17.700] case example, [17.690] innocent publication, [17.700]

W Index Unfair practices — cont reasonable precaution, [17.700] enforcement provisions, [17.930] adverse publicity orders, [17.980] disqualification orders, [17.990] non-punitive orders, [17.970] public warning notices, [17.950], [17.960] substantiation notices, [17.950] undertakings, [17.940] gifts, prizes or rebates, [17.480] harassment and coercion, [17.640] injunctions, [17.720] advertising, [17.770] applicants for injunctions, [17.730]-[17.760] interim injunctions, [17.720] territoriality, [17.720] trade competitors, [17.740]-[17.760] misleading conduct, [17.460] employment conditions, [17.470] nature of manufacturing, [17.490] nature of services, [17.500]-[17.520] overview, [17.30], [17.460] payment, [17.560] acceptance without intention to supply, [17.560] unauthorised entries or advertisements, [17.600] unsolicited goods, [17.580], [17.590] pricing of goods, [17.620] pyramid selling, [17.610] referral selling, [17.630] remedies, [17.650] compensation orders, [17.880], [17.900] criminal penalties, [17.660] damages, [17.780]-[17.860] injunctions, [17.720]-[17.770] non-party consumers, [17.890], [17.900] other orders, [17.870]-[17.920] pecuniary penalties, [17.710]-[17.714] void contracts, [17.910], [17.920] unsolicited credit or debit cards, [17.570] unsolicited goods, [17.580] recipient’s liability for payment, [17.590] Unit trusts, [29.220], [29.250] United Nations — see also International agreements business ethics, [33.60] human rights norms, [33.65] Global Compact, [33.70] UNCITRAL Model Law electronic signature, [16.210] Universal Copyright Convention, [30.1550] Unjust contracts — see also Credit contracts applications for relief, [7.1000]

illegal contracts, [8.160], [8.540] related transactions, [8.590] minors, [6.130] mistake of fact, [7.30], [7.360] ousting jurisdiction, [8.340] overview, [2.100], [8.10], [8.520] recovery of money, [8.630], [8.640] restraint of trade, [8.360], [8.490] categories of contracts, [8.360] employment contracts, [8.400]-[8.480] excluded transactions, [8.510] sale of business, [8.370]-[8.390] severance, and, [8.610] statutory prohibitions, and, [8.160], [8.490], [8.500], [8.510] severance, [8.600], [8.610] restraint of trade, [8.610] statute, by, [8.160] status of marriage, prejudicial, [8.350] unfair practices, [17.910], [17.920]

considerations determining whether unjust, [7.980] exclusion of rights, [7.1000] examples of application, [7.1010]-[7.1060] guarantees, [20.250] overview, [7.860], [7.980] restrictions on relief, [7.990] unjust, definition, [7.860], [7.980] Unjust enrichment, [12.440] Unsolicited consumer agreements definition, [17.1360] overview, [17.1350] right to terminate, [17.1390] statutory requirements, [17.1380] time restrictions, [17.1370]

V Vicarious liability employers, [28.810], [28.830] course of employment, [28.830] unrelated actions, [28.830], [28.840] overview, [28.810], [28.820] principal’s liability, [13.590] Victoria County Courts, [1.620] Court of Appeal, [1.610] innkeeper’s liability, [21.600] Magistrates Courts, [1.630] minors’ contracts, [6.130] small claims tribunals, [1.690] Vienna Sales Convention application of Convention, [15.30] exclusion of application, [15.50] Australian Consumer Law, and, [15.20] conformity of goods, [15.150], [15.160] consensus ad idem rule, [15.90] entry into force, [15.20] excluded sales, [15.40] exclusion of application, [15.50] formation of contract, [15.70]-[15.140] interpretation, [15.60] overview, [15.10], [15.20] parties to Convention, [15.20] performance of contract, [15.180]-[15.300] private international law, [15.30] remedies, [15.310]-[15.450] scope of Convention, [15.40] third party claims, [15.170] Void contracts — see also Illegal contracts common law, at, [8.170], [8.330] ousting jurisdiction, [8.340] restraint of trade, [8.360]-[8.510] status of marriage, prejudicial, [8.350] consequences, [8.520] severance, [8.600], [8.610] fraudulent misrepresentation, [7.560]

Voluntary administration, [27.1500] Voluntary assumption of risk, [28.570]

W Warranties auctions, [14.1110], [14.1130] breach of warranty, [9.180], [9.210], [11.270] warranty of quality, [14.1040]-[14.1080] conditions, distinction, [9.180], [11.270], [11.290], [14.210] case examples, [9.190], [9.200], [11.280] intention of parties, [9.210] consumer contracts, [17.1120] implied warranties, [14.210] exclusion of warranties, [14.390] title of goods, [14.230] intermediate terms, and, [11.300] misrepresentation, and, [7.480] motor vehicles, [17.1410] overview, [9.180], [11.270] sale of goods, [14.210], [14.410] breach of warranty of quality, [14.1040]-[14.1080] conditions as warranties, [14.400] implied warranties, [14.210], [14.230], [14.390] Western Australia District Courts, [1.620] innkeeper’s liability, [21.630] Magistrates Courts, [1.630] motor vehicle repairs, [17.1420] small claims tribunals, [1.690] Supreme Court, [1.610]

1087

1088

Australian Commercial Law Whistleblower protection, [32.480] Wife — see Husband and wife; Married women Wik case, [22.920], [22.1010] Wills or intestacy acquisition of personal property, [22.240] equitable interests in land, [22.710] Winding up contributories, [27.1210] court order, [27.1230] applications, [27.1250] effect of order, [27.1260] liquidator’s powers and duties, [27.1270], [27.1310], [27.1400] powers of court, [27.1270] stay or termination, [27.1270] deregistration, [27.1410]-[27.1420]

ASIC, [27.1430] effects, [27.1230] employee entitlements, [27.1330] liquidators — see Liquidators object of winding up, [27.1200] overview, [27.1190] powers and duties of liquidators, [27.1270], [27.1310], [27.1400] proof of debts, [27.1330] priority of debts, [27.1330] shareholders’ claims, [27.1330], [27.1340] tax debts, [27.1350] requirements, [27.1320]-[27.1330] voidable transactions, [27.1360] court’s powers, [27.1380] defences, [27.1390] voluntary, [27.1280]-[27.1290] types, [27.1300]

Witnesses civil proceedings, [1.790] Words and phrases — see also Definitions applied industrially, [30.1750] common law, [1.440] corresponding design, [30.1730] fair dealing, [30.600], [30.620] in trade or commerce, [17.50] misleading or deceptive conduct, [17.60] predominant purpose, [19.190] standard form contract, [17.320] unconscionable, [17.240], [17.250] unfair, [17.300] Workers’ compensation insurance, [25.1150] manufacturers’ liability, [17.1260] World Trade Organization TRIPS Agreement, [30.1560]