Business law for managers [4th edition.] 9780455238807, 0455238804

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BUSINESS LAW FOR MANAGERS

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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Business Law for Managers 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

ROGER GAMBLE LLB (Melb) LLM (Mon) Dip Ed (Rus) Lecturer in Law in the Faculty of Business and Economics Monash University

BEN FRENCH B Laws (Hons), B Business (Griffith), Grad Dip Legal Prac (QUT), Grad Cert Higher Ed (Griffith) Lecturer, Griffith Business School Griffith University

FOURTH EDITION

LAWBOOK CO. 2017

Published in Sydney by Thomson Reuters (Professional) Australia Limited ABN 64 058 914 668 19 Harris Street, Pyrmont, NSW First edition Second edition Third edition

2011 2012 2015

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PREFACE Business Law for Managers 4th edition incorporates Concise Australian Commercial Law (CACL), which itself is an abridged adaptation of Clive Turner and John Trone’s Australian Commercial Law 31st edition (ACL) compiled by Roger Gamble (Monash University). The content in the topics covered in CACL is, in every substantive way, the same as in ACL. CACL extracts the topics most commonly taught within business law units from ACL, streamlines some of the content, expands some of the case summaries and commentary. In Business Law for Managers 4th edition, Ben French has included two chapters: “Employment Law” and “Anti-Discrimination and Equal Employment Opportunity Law”, to meet the course requirements of business law at Griffith University. Thank you again to the team at Thomson Reuters who have brought this fourth edition to fruition: Janet Armstrong, Vickie Ma and Ben Brocherie. Many thanks are owed to Clive Turner, John Trone and Roger Gamble for their permission to produce this adaptation of Concise Australian Commercial Law. Finally, to ensure the correct attribution of authorship, we acknowledge Olav Muurlink for his work on previous chapters of Employment and Discrimination Law and his continued support and friendship. We also acknowledge the work of Dr Karen Vaggelas on the Law of Torts chapter, Dr John Trone on the Business Ethics chapter, and Associate Professor Paul Ali on the Partnership and Company Law chapters in Australian Commercial Law 31st edition, which have been incorporated into this work. BEN FRENCH Griffith University, Nathan, Qld 1 December 2016

ACKNOWLEDGMENTS Extracts from the texts below have been reproduced in this book: CCH Australia: http://www.cch.com.au Australian Trade Practices Reporter (ATPR).

Council of Law Reporting for New South Wales: New South Wales Law Reports (NSWLR). © Council of Law Reporting for New South Wales.

HIH Royal Commission (Commonwealth of Australia): http://www.hihroyalcom.gov.au HIH Royal Commission, The Failure of HIH Insurance (2003), Vol 1.

Incorporated Council of Law Reporting for England & Wales: http://www.lawreports.co.uk Appeal Cases (AC). Chancery Division Cases (Ch D). King’s Bench (KB). Queen’s Bench (QB). Weekly Law Reports (WLR).

LexisNexis Australia: http://www.lexisnexis.com.au Australian Law Reports (ALR). Intellectual Property Reports (IPR). Queensland Reports (Qd R). Victorian Reports (VR).

Thomson Reuters (Professional) Australia Limited: http://www.thomsonreuters.com.au Australian Law Journal Reports (ALJR). Commonwealth Law Reports (CLR). Federal Court Reports (FCR). State Reports of New South Wales (SR (NSW)).

United Nations Global Compact: www.unglobalcompact.org United Nations Global Compact.

While efforts have been taken to establish and acknowledge copyright, Lawbook Co. (a part of Thomson Reuters (Professional) Australia Limited) tenders its apology for any accidental infringement. The publisher would be pleased to come to a suitable arrangement with the rightful owners in each case.

TABLE OF CONTENTS Preface ........................................................................................................................................................................................... v Acknowledgments ....................................................................................................................................................................... vii Table of Cases.............................................................................................................................................................................. xi Table of Statutes ...................................................................................................................................................................... xxiii Table of Abbreviations .......................................................................................................................................................... xxxiii Glossary .................................................................................................................................................................................. xxxv

PART 1: INTRODUCTION ................................................................................................................................... 1 Chapter 1: An Introduction to Law and the Australian Legal System ....................................................... 3 PART 2: LAW OF CONTRACT........................................................................................................................... 45 Chapter 2: Introduction to the Law of Contract ........................................................................................ 47 Chapter 3: Offer and Acceptance................................................................................................................... 53 Chapter 4: Intention to Create Legal Relations........................................................................................... 81 Chapter 5: Consideration, Promissory Estoppel and Formalities ............................................................. 91 Chapter 6: Contractual Capacity................................................................................................................... 111 Chapter 7: Genuine Consent ......................................................................................................................... 117 Chapter 8: Legality of Object........................................................................................................................ 147 Chapter 9: Contents and Interpretation of the Contract ........................................................................ 167 Chapter 10: Operation of the Contract....................................................................................................... 197 Chapter 11: Termination and Breach of a Contract .................................................................................. 205 Chapter 12: Remedies .................................................................................................................................... 229 PART 3: CONSUMER PROTECTION.............................................................................................................. 249 Chapter 13: Consumer Protection ................................................................................................................ 251 PART 4: TORTS AND ETHICS......................................................................................................................... 325 Chapter 14: Law of Torts ............................................................................................................................... 327

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PART 5: BUSINESS RELATIONSHIPS............................................................................................................. 365 Chapter 15: Law of Agency............................................................................................................................ 367 Chapter 16: Corporations Law..................................................................................................................... 399 PART 6: BUSINESS ETHICS ............................................................................................................................ 431 Chapter 17: Business Ethics .......................................................................................................................... 433 PART 7: EMPLOYMENT AND ANTI-DISCRIMINATION LAW .................................................................... 449 Chapter 18: Employment Law....................................................................................................................... 451 Chapter 19: Anti-Discrimination and Equal Employment Opportunity Law ........................................ 487 Index .......................................................................................................................................................................................... 517

Table of Cases A A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308 ........................ 8.470 ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338 ...................................... 10.140 ANZ Banking Group v Frost [1989] VR 695 ........ 3.740 ATCO Controls Pty Ltd (In liq) v Newtronics Pty Ltd (In liq) (2009) 25 VR 411 .................... 4.220 Abdurahman v Field (1987) 8 NSWLR 158 .......... 8.580 Adams v Lindsell (1818) 106 ER 250 ................... 3.540 Adeels Palace Pty Ltd v Mourabak (2009) 239 CLR 420 .................................... 14.102, 14.508 Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431 ........................................ 13.670 Akron Securities v Iliffe (1997) 41 NSWLR 353 ................................................................ 13.920 Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219 ................ 9.280, 9.390, 13.1145 Alati v Kruger (1955) 94 CLR 216 ............ 7.630, 7.640 Alexander v Rayson [1936] 1 KB 169 ................... 8.320 Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-873 ...................................... 15.590 Allegretta v Prime Holdings Pty Ltd [1991] EOC 92-364 .................................................. 19.290 Alzawy v Coptic Orthodox Church Diocese of Sydney, St Mary and St Merkorious Church (No. 2) [2016] NSWSC 1123 ............ 14.565 Amber Size Chemical Co v Menzel [1913] 2 Ch 239 ............................................................. 8.400 Anderson v Glass (1868) 5 WW & AB (L) 152 .................................................................... 5.70 Anderson v Thompson [2001] NSWADT 11 ...... 19.460, 19.470 Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 ...... 12.331 Andrews v Parker [1973] Qd R 93 ........................ 8.200 Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17 .................................... 9.360 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 ................................................................. 11.300 Annetts v Australian Stations Pty Ltd (2002) 211 CLR 317; [2002] HCA 35 .................................. Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Airline Pilots [1991] 1 VR 637 ..................... 18.440, 18.460 Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994) 52 FCR 474 ........................................ 13.120 Applicant v Respondent [PR548852] .................. 18.110

Ardeshirian v Robe River Iron Associates [1990] EOC 92-299 ....................................... 19.450 Armagas Ltd v Mundogas SA [1986] 1 AC 717 ................................................................ 15.640 Ascot Four Pty Ltd v Australian Competition and Consumer Commission (2009) 176 FCR 106 ........................................................ 13.370 Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828 ....................... 8.140 Ashrafi Persian Trading Co Pty Ltd v Ashrafinia [2001] NSWCA 243 ...................... 14.102 Ashton v Pratt [2015] NSWCA 12 ................. 4.80, 9.20 Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 ..................................................... 9.130 Astley v Austrust Ltd (1999) 197 CLR 1 ............ 12.250, 14.560 Attorney-General (Cth) v The Queen; Ex parte Boilermakers Society of Australia (1957) 95 CLR 529 .......................................... 1.150 Attorney-General (SA) v Corporation of the City of Adelaide (2013) 249 CLR 1 .................. 3.630 Attwood v Lamont [1920] 3 KB 571 .................... 8.400 Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202 ............ 11.480 Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 .................................... 5.285 Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1985) 61 ALR 417 ........................................................ 18.490 Australian and International Pilots Association v Fair Work Australia (2012) 202 FCR 200 ................................................. 18.470 Australian Capital Territory v Munday (2000) 99 FCR 72 ....................................................... 8.510 Australian Communications and Media Authority v Radio 2UE Sydney Pty Ltd (2009) 178 FCR 199 ...................................... 17.120 Australian Competition and Consumer Commission v Apple Pty Ltd [2012] ATPR 42-404; [2012] FCA 646 ................................ 13.713 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 .................... 13.210, 13.220 Australian Competition and Consumer Commission v Channel Seven Brisbane Pty Ltd (2009) 239 CLR 305 ............................... 13.190 Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd [2015] FCA 1204 ............................... 13.315 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 .................. 7.796

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Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634 .................... 13.66 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (No 2) [2014] FCA 1022 ...... 13.66 Australian Competition and Consumer Commission v Dell Computer Pty Ltd (2002) 126 FCR 170 ...................................... 13.350 Australian Competition and Consumer Commission v Excite Mobile Pty Ltd (No 2) [2013] ATPR 42-454; [2013] FCA 1267 .... 13.990 Australian Competition and Consumer Commission v Gordon Superstore Pty Ltd [2014] FCA 452 ............................................. 13.375 Australian Competition and Consumer Commission v Halkalia [2012] FCA 534 ....... 13.995 Australian Competition and Consumer Commission v Harvey Norman Holdings Ltd [2011] FCA 1407 ..................................... 13.711 Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2015] FCA 1263 ........................................... 13.372 Australian Competition and Consumer Commission v Jutsen (No 3) (2011) 206 FCR 264; 285 ALR 110 ................................. 13.610 Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 .......................................... 13.255 Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926 ................................................................ 13.250 Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [2011] FCA 695 ............................................. 13.395 Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8 .................................................................... 13.640 Australian Competition and Consumer Commission v Metricon Qld Pty Ltd [2012] FCA 797 ............................................. 13.145 Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292 ................................................. 13.230 Australian Competition and Consumer Commission v Reckitt Benckiser [2016] FCA 424 .......................................................... 13.67 Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408 .............................................................. 13.495 Australian Competition and Consumer Commission v Samton Holdings (2002)117 FCR 301 ....................................... 13.225 Australian Competition and Consumer Commission v Stott [2013] ATPR 43-439; [2013] FCA 88 ............................................... 13.990 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 ........................... 13.61, 13.940

Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] FCA 487 ............................................. 13.452 Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2012] FCA 19 .......................................................... 13.980 Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2013] FCA 665 .......................................................... 13.65 Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 ...................... 17.20 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 Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 307 ALR 512 ................................................................ 12.440 Australian Iron & Steel Pty Ltd v Banovic (1989) 168 CLR 165 ...................................... 19.160 Australian Mutual Provident Society v Gregory (1908) 5 CLR 615 ............................ 10.190 Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479 ...................................... 14.101 Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 ......................... 16.950, 16.975 Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577 .......................................................... 17.20 Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 ........................................ 3.720 Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 196 FCR 291 ...................................... 16.900 Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 ............ 16.905, 16.910, 16.920 Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199 ................................................... 17.20 Australian Securities and Investments Commission v Plymin, Elliott and Harrison [2003] VSC 123 ............................ 16.1035 Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) FCR 57 ............................................... 16.990 Australian Woollen Mills Pty Ltd v Commonwealth of Australia (1954) 92 CLR 424 .......................................................... 4.227 Avery v Bowden (1855) 5 E & B 714 .................. 11.200

B BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105 ........................................ 8.490, 8.492 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266 ....... 9.550, 9.560 Balfour v Balfour [1919] 2 KB 571 ......................... 4.40

Table of Cases

Balog v Independent Commission Against Corruption (1990) 169 CLR 625 ..................... 1.420 Baltic Shipping Co v Dillon (1993) 176 CLR 344 ................................................... 12.210, 12.240 Bank of America Australia Ltd v Ceda Jon International Pty Ltd (1988) 17 NSWLR 290 .................................................................. 8.100 Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 ....................................................... 4.140, 4.222 Barac (t/as Exotic Studios) v Farnell (1994) 53 FCR 193 .......................................................... 8.200 Barton v Armstrong [1976] AC 104 ...................... 7.750 Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123 .............. 3.670 Bendigo Regional Institute of Technical and Further Education, Board of v Barclay (2012) 248 CLR 500 ............ 18.110, 18.330, 18.340 Bennett v Everitt [1988] EOC 92-244 ................. 19.368 Bermingham v Corrective Services Commission of New South Wales (1988) 15 NSWLR 292 ............................................... 1.360 Beswick v Beswick [1968] AC 58 ............... 10.25, 10.30 Bettini v Gye (1876) 1 QBD 183 ................ 9.120, 9.150 Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325 ................................................................ 13.150 Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37 ............... 18.290, 18.295 Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341 ....................................................... 8.426 Blair v Goldpath & Callinan [2010] QCAT 483 ................................................................ 18.240 Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536; 282 ALR 571 ...... 13.270 Bojczuk v Gregorcewicz [1961] SASR 128 .............. 6.40 Bolton v Mahadeva [1972] 2 All ER 1322 .......... 11.24B Bolton v Stone [1951] AC 850 ............................ 14.425 Boncristiano v Lohmann [1998] 4 VR 82 ........... 12.245 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53 .......................... 3.750 Boyd v Ryan (1947) 48 SR (NSW) 163 ............... 12.390 Brakoulias v Karunaharan (Ruling) [2012] VSC 272 ........................................................ 14.435 Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 ............... 16.333 Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-gesellschaft mbH [1983] 2 AC 34 ................................................ 3.590 Brosnan v Katke [2016] FCAFC 1 ...................... 13.160 Buckland v Massey [1985] 1 Qd R 502 .................. 8.80 Buckley v Tutty (1971) 125 CLR 353 ................... 8.450 Burmic Pty Ltd v Goldview Pty Ltd [2003] 2 Qd R 477 ........................................................... 8.20 Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 ...................................... 14.433 Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 ...................................... 12.170 Buseska v Sergio (1990) 102 FLR 157 ................ 15.264 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 ...................................... 13.177 Butler v Craine [1986] VR 274 ............................. 5.370

Byers v Dorotea Pty Ltd (1986) 69 ALR 715 ...... 13.155 Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 ............................................ 3.240

C CAJ Investments Pty Ltd v Lourandos (1998) 83 FCR 189 ................................................... 13.820 CAL No 14 Pty Ltd v Motor Accidents Board (2009) 239 CLR 390 ...................................... 14.150 CDPP v Hill and Kamay [2015] VSC 86 ........... 16.1046 Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 ............... 14.190 Caparo Industries Plc v Dickman [1990] 2 AC 605 ................................................................ 14.330 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 ..................................... 3.40, 3.50, 3.400, 3.480 Carney v Herbert [1985] 1 AC 301 ....................... 8.620 Carter v Hyde (1923) 33 CLR 115 ....................... 3.320 Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 .................................. 12.180 Causer v Browne [1952] VLR 1 ............................ 9.230 Cedar Hill Flowers & Foliage Pty Ltd v Spierenburg [2003] 1 Qd R 482 ....................... 8.480 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 ....................... 5.243 Century Insurance Co Ltd v Northern Ireland Road Transport Board [1942] AC 509 ........... 14.640 Chappel v Hart (1998) 185 CLR 232 ................. 14.508 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 ................................................................ 5.60 Chiarabaglio v Westpac Banking Corp [1989] ATPR 40-971; [1991] ATPR (Digest) 46-067 ........................................................... 14.320 Chief Executive Officer of Customs v Biocontrol Ltd (2006) 150 FCR 64 .................. 1.420 Chin Keow v Government of Malaysia [1967] 1 WLR 813 .................................................... 14.395 Chitts v Allaine [1982] Qd R 319 ........................... 8.40 Clark v Macourt (2013) 304 ALR 220 ................ 12.115 Claude Neon Ltd v Hardie [1970] Qd R 93 ........ 11.477 Cocks v Queensland [1994] EOC 92-612 ........... 19.260 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 ............................................. 9.570, 11.430 Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 .................................................................. 1.420 Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040 .................................................... 5.100 Comcare v PVYW (2013) 250 CLR 246 ............. 18.410 Comcare v Thompson (2000) 100 FCR 375 ......... 1.360 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 ................ 7.880, 7.890, 13.200 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 ...................................... 18.250 Commonwealth Bank of Australia v Barker [2014] HCA 32 .............................................. 18.255 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 ................ 12.90, 12.100, 12.190 Commonwealth Disposals Commission v McRae (1951) 84 CLR 377 ............................ 11.310

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Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 ...................... 9.570, 9.590 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 ............................ 13.50 Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 ............................................... 1.390, 1.400 Cork v Kirby McLean [1952] 2 All ER 402 ........ 14.508 Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714 .......... 13.170A Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 ........................................ 10.20 Council of the City of Sydney v West (1965) 114 CLR 481 ............................. 9.400, 9.410, 9.440 Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 ............... 3.730 Cowern v Nield [1912] 2 KB 419 ........................... 6.90 Cox v Mosman [1909] QSR 45 .......................... 15.140 Cox v Public Transport Corporation [1992] EOC 92-401 .................................................. 19.100 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 ........................... 15.130, 15.264 Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 ........... 11.40 Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26 ..... 3.760, 5.287, 9.110 Cummings v Sir William Arrol & Co Ltd [1962] 1 WLR 295 ......................................... 14.508 Cummings and anor v Claremont Petroleum NL [1992] FCA 674 ....................................... 16.980 Cundy v Lindsay (1878) 3 App Cas 459 .............. 7.210, 7.290, 7.360 Cutter v Powell (1795) 101 ER 573 ...................... 11.21

D D v Berkeley Challenge Pty Ltd [2001] EOC 93-150 ........................................................... 19.410 Daly v Thiering (2013) 249 CLR 381 ................... 1.420 Daniels v Anderson (1995) 37 NSWLR 438 ...... 16.930, 16.940 Dargusch v Sherley Investments Pty Ltd [1970] Qd R 338 ........................................... 15.330 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 ...................... 9.440, 9.450 David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1 ................ 14.320 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 ........... 7.400 Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 ..................................................... 9.390 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 ..................... 11.313 Day v O’Leary (1992) 57 SASR 206 ................... 12.140 Day Ford Pty Ltd v Sciacca [1990] 2 Qd R 209 .................................................................. 8.620 De Francesco v Barnum (1890) 45 Ch D 430 ......... 6.80 Dearle v Hall (1828) 3 Russ 1; 38 ER 475 .......... 10.190

Deatons Pty Ltd v Flew (1949) 79 CLR 370 ...... 14.650, 15.650 Debenham v Mellon (1880) 5 QBD 394 ............. 15.190 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 ............................................... 7.500, 13.172 Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633 ........................................ 9.580 Derry v Peek (1889) 14 App Cas 337 .................... 7.490 Dick Bentley Productions Limited v Harold Smith (Motors) Ltd [1965] 1 WLR 623 ............. 9.50 Director of Public Prosecutions v Walters [2015] VSCA 303 ............................................. 1.360 Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 .......................................... 8.340 Dobler v Halverson [2007] NSWCA 335 ............ 14.480 Dollar Sweets Pty Ltd v Federated Confectioners Association of Australia [1986] VR 383 .................................. 18.440, 18.450 Donoghue v Stevenson [1932] AC 562 ..... 14.40, 14.60, 14.100 Duff v Blinco (No 2) [2007] 1 Qd R 407 .............. 5.330 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 ....................................... 5.30 Dunning v BHP Billiton Ltd [2014] NSWDDT 3 ................................................... 18.417

E E v Australian Red Cross Society (1992) 31 FCR 299 ...................................................... 13.1060 EBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450 .................................................................. 9.500 Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 ........................ 9.380 Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995) 63 SASR 235 .................................. 3.560 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 .......... 3.350 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 .................... 4.10, 4.15 Ertel Bieber & Co v Rio Tinto Co Ltd [1918] AC 260 .......................................................... 11.330 Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 ................. 14.335 Escobar v Rainbow Printing Pty Ltd (No 2) [2002] EOC 93-229 ....................................... 19.170 Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] 2 AC 269 ..................... 8.510 EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2010] 2 Qd R 517 ......................... 8.400, 8.494

F Falko v James McEwan & Co Ltd [1977] VR 447 ................................................................ 12.220 Famestock Pty Ltd v Body Corporate for No 9 Port Douglas Road Community Title Scheme 24368 [2013] QCA 354 ....................... 9.530 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 ................................... 1.550

Table of Cases

Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037 .................................................... 3.370 Fibrosa Spolka Akcyjna v Fairbairn, Lawson, Combe, Barbour, Ltd [1943] AC 32 .............. 11.482, 11.485 Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd (2011) 34 VR 257 ......... 12.333 First National Securities Ltd v Jones [1978] 1 Ch 109 ............................................................. 5.180 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 .......................................................... 8.150 Fitzgerald v Penn (1945) 71 CLR 637 ................. 12.120 Flannery v O’Sullivan (No 2) [1993] EOC 92-501 ........................................................... 19.280 Fleming Bros (Monaro Agencies) Pty Ltd v Smith [1983] ATPR 40-389 .............................. 8.610 Foakes v Beer (1884) 9 App Cas 605 .................... 5.120 Font v Paspaley Pearls [2002] EOC 93-232 ........ 19.430 Foti v Banque Nationale de Paris [1990] Aust Torts Reports 81-025 ..................................... 14.320 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 .................................... 7.410 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 ..... 15.130, 15.210, 15.240, 15.250 Frost v Warner (2002) 209 CLR 509 .................. 14.640 Fulcher & Ors v Knott Investments Pty Ltd & Ors [2012] QSC 232 .................................... 13.1305 FWO v Bound for Glory Enterprises Pty Ltd [2014] FCCA 432 .......................................... 18.105

G Gaffney v Ryan [1995] 1 Qd R 19 .......................... 8.90 Gardiner v New South Wales WorkCover Authority [2003] EOC 93-291 ....................... 19.310 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 ................................... 13.790 Geraghty v Minter (1979) 142 CLR 177 .............. 8.400 Gibbons v Wright (1954) 91 CLR 423 .................. 6.180 Gibson v Manchester City Council [1979] 1 All ER 972 ......................................................... 3.80 Giles v Thompson [1994] 1 AC 142 ...................... 8.270 Gipps v Gipps [1978] 1 NSWLR 454 ................... 7.535 Gippsreal Ltd v Registrar of Titles (2007) 20 VR 127 .............................................................. 2.90 Given v Pryor (1979) 24 ALR 442 ...................... 13.410 Glasbrook v Glamorgan County Council [1925] AC 270 ................................................. 5.115 Gnych v Polish Club Ltd (2015) 255 CLR 414 .................................................................. 8.105 Godecke v Kirwan (1973) 129 CLR 629 ............. 3.440, 9.330 Goldsbrough, Mort & Co Ltd v Quinn (1910) 10 CLR 674 .......................................... 3.220 Goodridge v Macquarie Bank Ltd (2010) 265 ALR 170 ........................................... 10.140, 10.160 Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 .................................................................. 13.52 Gould v Vaggelas (1984) 157 CLR 215 ................. 7.560

Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 ...................................... 14.438 Great Northern Railway Co v Swaffield (1874) LR 9 Exch 132 ................................... 15.170 Griffiths v Northern Territory of Australia (No 3) [2016] FCA 900 ...................................... 1.95 Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (CFMEU) (2013) 234 IR 59; [2014] VSC 134 ................................................... 18.440, 18.455 Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union (No 2) (2014) 241 IR 288 ......................................... 18.455

H H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] 1 QB 791 ................................ 12.130 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 ........ 13.810 Hadley v Baxendale (1854) 9 Exch 341 ............. 12.120, 12.123 Hall & Barker, Re [1878] 9 Ch D 538 .................. 11.22 Hamilton v Lethbridge (1912) 14 CLR 236 ............ 6.60 Harris v Nickerson (1872–73) LR 8 QB 286 ........ 3.140 Hart v O’Connor [1985] AC 1000 ....................... 6.180 Hartley v Ponsonby (1857) 7 E & B 872 .............. 5.133 Harvela Investments Ltd v Royal Trust Co of Canada Ltd [1986] AC 207 .............................. 3.170 Harvey v Facey [1893] AC 552 ............................... 3.90 Hatt v Magro (2007) 34 WAR 256 ..................... 13.850 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 ............................ 14.250, 14.270 Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 ............................... 9.580 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 ............................................. 15.230, 15.263 Henjo Investments Pty Ltd v Collins Marrickville (1988) 79 ALR 83 ...................... 13.171 Henthorn v Fraser [1892] 2 Ch 27 ........................ 3.530 Herbert Morris Ltd v Saxelby [1916] 1 AC 688 ....................................................... 8.400, 8.410 Hermann v Charlesworth [1905] 2 KB 123 ......... 8.350, 8.640 Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 ........................................................... 11.390 Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 ........................................... 8.400 Hoenig v Isaacs [1952] 2 All ER 176 .................. 11.24A Hollis v Vabu Pty Ltd (2001) 207 CLR 21 ......... 14.620, 18.200, 18.210, 18.220 Holwell Securities Ltd v Hughes [1974] 1 All ER 161 ............................................................. 3.550 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1952] 2 QB 26 ....... 9.170, 11.300 Hopcroft v Edmunds (2013) 116 SASR 191 ....... 15.231 Howard v Geradin Pty Ltd t/as Harvard Securities [2004] EOC 93-358 ......... 19.368, 19.370, 19.390 Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 .......................................................... 15.140

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Howe v Teefy (1927) 27 SR (NSW) 301 ............. 12.200 Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 ......... 9.90 Humberstone v Northern Timber Mills (1949) 79 CLR 389 ........................... 14.620, 18.160 Humphries v Proprietors “Surfers Palms North” Group Titles Plan 1955 (1994) 179 CLR 597 ................................................... 8.620 Hyde v Wrench (1840) 49 ER 132 ........................ 3.280

I IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 .................................................................. 8.610 Imbree v McNeilly (2008) 236 CLR 510 ........... 14.395, 14.400 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] HCA CLR 149 ....................... 1.760, 9.370, 13.1145

J J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyds Rep 1 .................................................. 11.479 JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 ........................................ 12.370 Jaensch v Coffey [1984] HCA 52 ........................ 14.106 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 ................................................... 13.820 Jardin v Metcash Ltd (2011) 285 ALR 677 ........... 8.422 Jarvis v Swans Tours Ltd [1973] 1 QB 233 ......... 12.235 Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101 ......................................................... 5.250 Johnson v Buttress (1936) 56 CLR 113 ................. 7.810 Johnson Tiles Ltd v Esso Australia Pty Ltd [2004] VSC 466 ........................................................ Jones v Dumbrell [1981] VR 199 .......................... 7.510 Jones v Vernon’s Pools Ltd [1938] 2 All ER 626 .................................................................. 4.210 Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154 .... 11.480

K Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 .......................................................... 7.925 Karatjas v Deakin University (2012) 35 VR 355 ................................................................ 14.102 Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 .......................................... 13.860 Keen Mar Corp Pty Ltd v Labrador Shopping Centre (1989) ATPR 46-048 ........................... 13.176 Keighley, Maxsted & Co v Durant [1901] AC 240 ................................................... 15.266, 15.550 Kelly v Solari (1841) 9 M & W 54; 152 ER 24 .................................................................... 7.370 Kelner v Baxter (1866) LR 2 CP 174 .................. 15.510 Khoury v Khouri (2006) 66 NSWLR 241 ............. 5.330 King v Philcox (2015) 255 CLR 304 ..............................

Kiriri Cotton Co Ltd v Dewani [1960] AC 192 .................................................................. 8.560 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 .......... 9.160, 11.300, 11.305, 12.30 Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462 ....................... 15.660 Koufos v Czarnikow Ltd [1969] 1 AC 350 ......... 12.127 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, Re (No 12) Ltd (1978) 36 FLR 134 ...................... 13.50

L L J Hooker Ltd v W J Adams Estate Pty Ltd (1977) 138 CLR 52 ........................................ 15.410 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 ......................................... 11.275 LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 ................................. 10.80 L’Estrange v F Graucob Ltd [1934] 2 KB 394 ..... 9.200, 9.210, 9.460 Lancashire Loans Ltd v Black [1934] 1 KB 380 .................................................................. 7.800 Laurinda Pty Ltd Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 .............. 11.193 Lawrence v Coal & Allied Mining Services (2012) 202 IR 388 ............................ 18.310, 18.320 Laws v GWS Machinery Pty Ltd (2007) 209 FLR 53 ......................................................... 13.1020 Le Mans Grand Prix Circuits Pty Ltd v Illiadis [1998] VSC 331 ............................................... 9.240 Leaf v International Galleries [1950] 2 KB 86 ........ 7.90, 7.100 Lee v Smith [2007] EOC 93-456 ........... 19.363, 19.365, 19.367 Leonard v PepsiCo 88 F Supp 2d 116 (1999) .......... 3.60 Leslie v Sheill [1914] 3 KB 607 ............................. 6.140 Lewis v Averay [1972] 1 QB 198 .... 7.260, 7.270, 7.630 Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 73 NSWLR 482 ............... 5.180 Liftronic Pty Ltd v Unver (2001) 179 ALR 321 ................................................................ 14.560 Lightning Bolt Pty Ltd v Skinner & Smith [2002] QCA 518 ............................................ 19.130 Lindner v Murdock’s Garage (1950) 83 CLR 628 .................................................................. 8.400 Lintrose Nominees Pty Ltd v King [1995] 1 VR 574 .......................................................... 15.310 Lister v Romford Ice and Cold Storage Co Ltd [1957] QB 180 ........................... 19.270, 19.280 Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 .................................................... 8.420 Lloyd v Citicorp Australia Ltd (1986) 11 NSWLR 286 .................................................. 14.320 Lloyd’s Bank Ltd v Bundy [1975] QB 326 ............ 7.840 Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 ................................... 8.380 Louth v Diprose (1992) 175 CLR 621 .................. 7.910

Table of Cases

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 ......... 12.270 Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 ................................................................ 15.400

M MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 .................................................................. 9.390 Mabo v State of Queensland (No 2) (1992) 175 CLR 1 ................................................ 1.80, 1.90 MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24 ....................................................... 8.610 Mahmoud & Ispahani, Re [1921] 2 KB 716 .......... 8.40, 8.120 Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227 .................................. 4.150 Malik v Bank of Credit and Commerce International SA [1998] AC 20 ....................... 18.250 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 ................................................. 14.509 Marsh v Baxter (2015) 49 WAR 1 ................................. Marsh v Joseph [1897] 1 Ch 213 ........................ 15.140 Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232 ............... 15.540 Martin v Gale (1876) 4 Ch D 428 ........................ 6.130 Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 .......................................... 8.70 Masters v Cameron (1954) 91 CLR 353 ............... 3.420 Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 .................................... 15.550 McEvoy v ANZ Banking Group Ltd [1988] Aust Torts Reports 80-151 ............................. 14.320 McFarlane v Daniell (1938) 38 SR (NSW) 337 .................................................................. 8.610 McHale v Watson (1964) 111 CLR 384 .............. 14.395 McLaughlin v City Bank of Sydney (1912) 14 CLR 684 .......................................................... 6.180 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 .......... 7.110, 7.120 McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394 .................................................................. 13.95 Mercantile Union Guarantee Corp Ltd v Ball [1937] 2 KB 498 ................................................ 6.90 Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580 .... 14.438 Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 284 ALR 1 .... 13.1075, 13.1190, 13.1220 Meridien AB Pty Ltd v Jackson [2014] 1 Qd R 142 ............................................................... 1.360 Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671 ........................................................ 11.445 Merritt v Merritt [1970] 1 WLR 1211 .................... 4.60 Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119 ......................................... 11.410 Meyer v Kalanick No 15 Civ. 9796 ....................... 9.480

Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 .................................................................... 1.30 Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd [1975] 2 NSWLR 506 ..... 15.500 Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365 ................................................... 15.360, 15.480 Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 ........ 3.270 Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254 ............... 14.102, 14.508 Moorcock, The (1889) 14 PD 64 ............... 9.530, 9.540 Motorcycling Events Group Australia v Kelly [2013] NSWCA 361 ..................................... 13.1145 Mules v Ferguson [2015] QCA 5 ........... 14.485, 14.506 Munro v Willmott [1949] 1 KB 295 .................... 15.180 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 ...................................... 13.790 Murrihy v Betezy.com.au Pty Ltd (2013) 238 IR 307 ............................................................ 18.345 Murrihy v Betezy.com.au Pty Ltd (No 2) [2013] FCA 1146 ........................................... 18.345 Musca v Astle Corp Pty Ltd (1988) 80 ALR 251 ................................................................ 13.820 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 .................................................... 5.140 Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 ............................ 14.280

N NE Perry Pty Ltd v Judge (2002) 84 SASR 86 ...... 8.430, 8.480 NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98 ............................. 13.260, 13.317 NSW Registrar of Births, Deaths and Marriages v Norrie [2014] HCA 11 ................. 19.90 Nagle v Rottnest Island Authority (1993) 177 CLR 423 ........................................................ 14.160 National Employers Mutual General Insurance Association Ltd v Manufacturers Mutual Insurance Ltd (1989) 17 NSWLR 223 .................................................................. 1.360 Nationwide News Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 215 ........................................ 13.360 Nelson v Dahl (1879) 12 Ch D 568 ...................... 9.590 New South Wales v Commonwealth (Work Choices Case) (2006) 229 CLR 1 ......... 18.20, 18.40, 18.50 New South Wales v Fahy (2007) 232 CLR 486 ................................................................ 14.405 New South Wales v Lepore (2003) 212 CLR 511 ................................................................. 14.640 Noonan v Martin (1987) 10 NSWLR 402 .......... 15.740 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 ................ 8.370 Norris v Sibberas [1990] VR 161 ........................ 15.590

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North East Solutions Pty Ltd v Masters Home Improvement Australia Pty Ltd [2016] VSC 1 .............................................................. 9.310 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705 ............ 7.780 Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74 .................................... 3.530

O O’Brien v Smolonogov (1983) 53 ALR 107 .......... 13.50 OOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 .................. 11.472 O’Toole v Charles David Pty Ltd (1991) 171 CLR 232 .......................................................... 1.550 Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237 .............................................................. 13.316 Olley v Marlborough Court Ltd [1949] 1 KB 532 ....................................................... 9.270, 9.460 On Call Interpreters and Translators Agency Pty Ltd v the Commissioner of Taxation (No 3) [2011] FCA 366 .................................. 14.620 Oscar Chess Ltd v Williams [1957] 1 WLR 370 ......................................................... 7.580, 9.40 Ottoman Bank Ltd v Chakarian [1930] AC 277 ................................................... 18.270, 18.290 Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound No 2) [1967] AC 617 ..................................... 14.530 Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388 ........................ 14.515, 14.520

P Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 ...................................................... 15.263A Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28 ............ 12.331A Page One Records Ltd v Britton [1968] 1 WLR 157 ....................................................... 12.400 Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 .......................... 15.262, 16.325, 16.335, 16.860 Pao On v Lau Yiu Long [1980] AC 614 .................. 5.75 Papas v Bianca Investments Pty Ltd (2002) 82 SASR 581 ......................................................... 7.280 Paris v Stepney Borough Council [1951] AC 367 ................................................... 14.433, 14.437 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 ................ 13.100 Parker v McKenna (1874) 10 Ch App 96 ............ 15.340 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 .................................. 18.420, 18.430, 18.440 Parkinson v College of Ambulance Ltd [1925] 2 KB 1 ................................................... 8.290, 8.550 Paul v Cooke (2013) 85 NSWLR 167 ................. 14.511 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 ........................................... 12.440, 12.445

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 .......................................................... 8.425 Peek v Gurney (1873) LR 6 HL 377 ..................... 7.490 Pennington v Norris (1956) 96 CLR 10 .............. 14.560 Pepper v Attorney-General [2008] 2 Qd R 353 .................................................................. 1.420 Perisher Blue Pty Ltd v Nair Smith (2015) 295 FLR 153 ........................................................... 14.50 Perre v Apand Pty Ltd (1999) 198 CLR 180 ...... 14.185, 14.515 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 ...................................... 11.140 Petelin v Cullen (1975) 132 CLR 355 ........ 7.320, 7.330 Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 .......................................................... 8.510 Petrofina (Great Britain) Ltd v Martin [1966] 1 Ch 146 .......................................................... 8.360 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 .............................................. 3.110 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 .............................................. 3.110 Phillips v Brooks Ltd [1919] 2 KB 243 ................. 7.250 Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827 ............... 9.350, 9.420, 9.430 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 ...... 12.190 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 Potter v Minahan (1908) 7 CLR 277 .................... 1.340 Powell v Lee (1908) 99 LT 284 ............................. 3.520 Press v Mathers [1927] VLR 326 ........................ 15.200 Price v Southern Cross Television (TNT9) Pty Ltd [2015] Aust Torts Reports 82-208; [2014] TASSC 70 ............................................. 4.145 Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 .......................... 2.15 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 ........................... 11.195 Public Service Employees Credit Union Co-operative Ltd v Campion (1984) 56 ACTR 39 ......................................................... 8.240 Pukallus v Cameron (1982) 180 CLR 447 ............ 7.440

Q Qantas Airways Ltd v Christie (1998) 193 CLR 280 ........................................... 19.220, 19.240 Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 ..... 13.850

R R v Clarke (1927) 40 CLR 227 ............................. 3.390

Table of Cases

R v Equal Opportunity Board; Ex parte Burns [1984] EOC 92-112 ......................................... 19.20 R v Hannes (2002) 173 FLR 1 .......................... 16.1045 R v Regos (1947) 74 CLR 613 .............................. 1.420 Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109 ......................................... 3.500 Redgrave v Hurd (1881) 20 Ch D 1 ........... 7.535, 7.600 Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [2009] NSWSC 678 ......... 3.680 Regal (Hastings) Ltd v Gulliver [1942] UKHL 1 .................................................................... 15.345 Regazzoni v KC Sethia (1944) Ltd [1958] AC 301 .................................................................. 8.310 Regent v Millett (1976) 133 CLR 679 .................. 5.390 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 .................................................... 9.620 Renehan v Leeuwin Ocean Adventure Foundation Ltd (No 3) (2006) 17 NTLR 83 ................................................................... 11.480 Richardson v Oracle Corporation Australia Pty Ltd [2014] FCAFC 82 .............................. 19.360 Riley v Osborne [1986] VR 193 ............................ 5.370 Ringrow Pty Ltd v BP Australia (2005) 224 CLR 656 ...................................................... 12.331B Roads and Traffic Authority of NSW v Dederer (2007) 238 ALR 761 ........................ 14.428 Robb v Green [1895] 2 QB 315 ............... 8.400, 15.330 Robinson v Davison (1871) LR 6 Ex 269 ........... 11.340 Robinson v Harman (1848) 154 ER 363 .............. 12.90 Rogers v Whitaker (1992) 175 CLR 479 ........... 14.120, 14.435 Roots v Oentory Pty Ltd [1983] 2 Qd R 745 ...... 15.590 Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445 ................................................. 4.190 Ross v Allis-Chalmers Australia Pty Ltd (1980) 32 ALR 561 ............................................ 9.60 Royal Globe Life Assurance Co Ltd v Kovacevic (1979) 22 SASR 78 ........................ 15.610 Ryan v Mutual Tontine Westminster Chambers Assoc [1893] 1 Ch 116 .................. 12.380

S SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 ........................................ 8.610 Sachs v Miklos [1948] 2 KB 23 ........................... 15.160 Saeed v Minister for Immigration and Citizenship [2010] HCA 23 .............................. 1.375 St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 ..................................... 8.20, 8.150 Salomon v Salomon & Co Ltd [1897] AC 22 ....... 16.50, 16.55, 16.57 San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 ................................................................ 14.300 Sanders v Snell (1998) 196 CLR 329 .................... 10.80 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 ................................................. 11.120

Scanlon’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 ........................................ 11.450 Scarborough v Sturzaker (1905) 1 Tas LR 117 ........ 6.40 Scolio Pty Ltd v Cote (1992) 6 WAR 475 ............. 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 Seidler v Schallhofer [1982] 2 NSWLR 80 ............ 8.210 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 ........................................................ 13.820 Seven Network (Operations) Ltd v Warburton [2011] NSWSC 386 ......................................... 8.424 Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 ................ 14.285, 14.290, 14.295 Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465 ......................... 16.905, 16.920 Shelley v Paddock [1980] QB 348 ......................... 8.570 Shevill v Builders Licensing Board (1982) 149 CLR 620 ........................................................ 11.190 Shields v Deliopoulos [2016] VSC 500 .................. 1.555 Sidhu v Van Dyke (2014) 88 ALJR 640 ................. 5.282 Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 ...................................... 13.712 Siu Yin Kwan (Administratrix of the Estate of Chan Ying Lung, Decd) v Eastern Insurance Co Ltd [1994] 2 AC 199 ................ 15.550 Slee v Warke (1949) 86 CLR 271 .......................... 7.410 Smith v Hughes (1871) LR 6 QB 597 ................... 7.160 Smith v The Queen (1994) 181 CLR 338 .............. 1.420 Smythe v Thomas [2007] NSWSC 844 ...... 3.155, 9.460 Solahart Industries Pty Ltd v Solar Shop Pty Ltd (2011) 281 ALR 544 ................................ 13.120 Soltykoff, Re; Ex parte Margrett [1891] 1 QB 413 .................................................................. 6.130 Solution 1 Pty Limited v Optus Networks Pty Ltd [2010] NSWSC 1060 ................................. 9.640 Souter v Shyamba Pty Ltd (2002) 11 BPR 20,369 ............................................................. 3.460 South Australian Railways Commissioner v Egan (1973) 130 CLR 506 ............................... 7.870 Specht v Netscape Communications Corp 306 F 3d 17 (2d Cir 2002) ...................................... 9.470 Spector v Ageda [1973] Ch 30 .............................. 8.590 Spencer v Harding (1870) LR 5 CP 561 ................ 3.160 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 .................................. 13.230 Spong v Spong (1914) 18 CLR 544 ...................... 7.830 Steele v Tardiani (1946) 72 CLR 386 .................. 12.446 Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119 ........................................ 3.430 Stevens v Bodribb Sawmilling Co Ltd (1986) 160 CLR 16 ......................... 14.620, 18.180, 18.190

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Stevenson Jaques & Co v McLean [1880] 5 QBD 346 ......................................................... 3.300 Stilk v Myrick (1809) 2 Camp 317 ......... 5.132, 5.132A, 5.135 Strong v Woolworths Ltd (2012) 246 CLR 182 ................................................... 14.500, 14.505 Sumpter v Hedges [1898] 1 QB 673 ................... 11.26A Sweeney v Boylan Nominees (2006) 226 CLR 161 ................................................... 14.620, 18.220 Swinton v China Mercantile Navigation Co Ltd (1951) 83 CLR 553 ................................. 14.433

T Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 .............. 12.90, 12.110 Tabet v Gett (2010) 240 CLR 537 .................... 14.509A Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 ........................................ 13.820 Tame v New South Wales (2002) 211 CLR 317 .................................................................. 14.80 Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 ................................. 11.310, 11.350, 11.355 Taylor v Johnson (1983) 151 CLR 422 ..... 7.170, 7.180, 7.190, 7.360, 13.200 Thomas v Thomas (1842) 2 QB 851 ....................... 5.45 Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548 ...................................... 15.590 Thomson v Orica Australia Pty Ltd [2002] EOC 93-227 .................................................. 19.200 Thornley v Tilley (1925) 36 CLR 1 ....................... 9.590 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 ............................................................ 9.290 Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 .......................... 5.340 Todd v Nicol [1957] SASR 72 ................................. 4.75 Todrell Pty Ltd v Finch (No 1) [2008] 1 Qd R 540 .................................................................. 5.330 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 ........................ 9.210, 9.460, 15.200 Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 .................. 5.245 Transport Workers’ Union of Australia v Qantas Airways Limited (2012) 225 IR 13 .... 18.440, 18.470 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 Trollope (George) & Sons v Martyn Bros [1934] 2 KB 436 ............................................ 15.730 Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591 ...................................... 13.730 Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 ................................................. 11.470 Turner v Bladin (1951) 82 CLR 463 ................... 12.390 Turner v Morlend Finance Corp (Vic) Pty Ltd [1990] ASC 56-006 .......................................... 1.360 Tutt v Doyle (1997) 42 NSWLR 10 ...................... 7.460 Tweddle v Atkinson (1861) 1 B & S 393 ............... 10.22

U Ultramares v Touche (1931) 255 NY 170 .......... 14.180, 14.515 Upfill v Wright [1911] 1 KB 506 ........................... 8.200

V Vabu Pty Ltd v Federal Commissioner of Taxation (1996) 81 IR 150 ............................ 18.210 Van Den Esschert v Chappell [1960] WAR 114 ..................................................................... 9.80 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 ................. 3.450, 7.450 Vergara v Ewin [2014] FCAFC 100 ....... 19.363, 19.367 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 ...................... 12.125 Videon v Barry Burroughs Pty Ltd (1981) 37 ALR 365 ........................................................ 13.420 Vita Pacific Ltd v Heather (2001) 10 Tas R 334 .................................................................. 9.570 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 .................................... 9.630

W Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd (2001) 79 SASR 517 .......................... 13.800 Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 ............................. 15.330 Wardley v Ansett Transport Industries (Operations) Pty Ltd [1984] EOC 92-002 ...... 19.190 Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388 ................ Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 ............................................................ 9.360 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 .................. 5.270, 5.280, 5.285 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 ...................................... 13.860 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 ..... 14.438, 14.460 Waugh v HB Clifford & Sons Ltd [1982] 1 Ch 374 ........................................................... 15.264 Weigall & Co v Runciman & Co (1916) 85 LJKB 1187 ..................................................... 15.580 Weld-Blundell v Stephens [1920] AC 956 ............ 15.380 Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129 .................................................................. 8.160 Westpac Banking Corp v Spice [1990] ATPR 41-024 ........................................................... 14.320 White v Bluett (1853) 23 LJ Ex 36 .......................... 5.55

Table of Cases

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 ......................................... Wigan v Edwards (1973) 47 ALJR 586 ................... 5.90 Wik Peoples v State of Queensland (1996) 187 CLR 1 ......................................................... 1.90 Wilkinson v Osborne (1915) 21 CLR 89 .............. 8.300 Williams v Pisano (2015) 90 NSWLR 342 ............ 13.50 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512 ............. 5.135 Williams Group Australia Pty Ltd v Crocker (2016) NSWCA 265 .......................... 15.255, 15.267 Wilsons & Clyde Coal Co Ltd v English [1937] 3 All ER 628 ....................................... 18.380 With v O’Flanagan [1936] Ch 575 ....................... 7.500 Woods v Multi-Sport Holding Pty Ltd (2002) 208 CLR 460 ................................................. 14.440 Woolley v Dunford (1972) 3 SASR 43 .................. 10.80 Wynbergen v Hoyts Corporation Pty Ltd (1997) 149 ALR 25 ........................................ 14.560 Wyong Shire Council v Shirt (1980) 146 CLR 40 ..................................................... 14.390, 14.410

X X v Commonwealth (1999) 200 CLR 177 ......... 19.230, 19.240

Y Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 .......... 8.20, 8.50, 8.60 Yonge v Toynbee [1910] 1 KB 215 ......... 15.580, 15.750 Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661 ...................................... 13.174, 13.830, 13.840

Z Zhang v VP302 SPV (2009) 223 FLR 213 .......... 15.264 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 ...................................... 18.160, 18.170, 18.180

xxi

Table of Statutes COMMONWEALTH Acts Interpretation Act 1901: 1.350, 1.360 s 3A(2): 1.220 s 15AA: 1.410 s 15AB: 1.370 s 15AB(1): 1.370 s 15AB(2): 1.370 Age Discrimination Act 2004: 19.60 Atomic Energy Act 1953 s 65: 1.430 Australian Consumer Bill: 13.10 Australian Consumer Law: , 7.680, 7.960, 9.30, 9.580, 9.600, 13.10, 13.20, 13.30, 13.35, 13.40, 13.190, 13.210, 13.330, 13.375, 13.400, 13.430, 13.460, 13.600, 13.650, 13.660, 13.670, 13.730, 13.780, 13.830, 13.870, 13.880, 13.900, 13.930, 13.940, 13.980, 13.1000, 13.1020, 13.1140, 13.1150, 13.1170, 13.1180, 13.1200, 13.1280, 13.1290, 13.1310, 14.320, 18.30 s 2(1): 13.340, 13.830, 13.840, 13.850, 13.1010, 13.1020, , 13.1200, 13.1280 s 2(2)(a): 13.170, 13.170A s 2(2)(c): 13.170A s 3: 13.1150 s 3(1): 13.1020 s 3(2): 13.1020 s 3(3): 13.1020 s 4(1): 13.450 s 5-4: 13.1160 s 7: 13.1002 s 7(1): 13.1210 s 9(1): 13.1190 s 9(2): 13.1190 s 9(3): 13.1190 s 9(4): 13.1190 s 10(1): 13.580 s 18: 8.100, 9.60, 13.40, 13.61, 13.65, 13.66, 13.110, 13.140, 13.145, 13.150, 13.155, 13.170A, 13.173, 13.174, 13.176, 13.177, 13.190, 13.372, 13.390, 13.395, 13.495, 13.660,

13.710, 13.711, 13.820, 13.840, 13.850, 13.980, 13.990, 13.995, , 14.320, 15.590 s 18(1): 7.680, 13.50, 13.51, 13.60, 13.66, 13.95, 13.100, 13.120, 13.910, ss 18 to 37: 13.1002 s 19: 13.190 s 19(2): 13.190 s 19(3): 13.190 s 20: 13.200, 13.210, 13.220, 13.225, 13.230, 13.240 ss 20-22: 13.200 s 20(1): 13.210 ss 20 to 22: 7.960, 13.660, 13.710 s 21: 7.795, 13.200, 13.230, 13.240, 13.250, 13.265 s 21(1): 13.240 s 21(3)(a): 13.240 s 21(3)(b): 13.240 s 21(4)(a): 13.240 s 21(4)(b): 13.240 s 21(4)(c): 13.240, 13.265 s 22: 13.200, 13.240, 13.265 s 22(1): 13.240, 13.265 s 22(2): 13.240 s 23: 13.296 s 23(1): 13.290 s 23(1)(b): 13.320 s 23(3): 13.295 s 23(4): 13.295 ss 23 to 27: 13.660 s 24(1): 13.300 s 24(2): 13.300 s 24(3): 13.300 s 24(4): 13.300 s 25(1): 13.310 s 26(1): 13.320 s 27(2): 13.320 s 29: 13.140, s 29(1): 7.680, 13.340, 13.711 s 29(1)(a): 13.65, 13.66, 13.390 s 29(1)(a)(i): 13.145 s 29(1)(i): 13.350, 13.370, 13.372 s 29(1)(k): 13.390, 13.395 s 29(1)(m): 13.145, 13.315, 13.360, 13.375 s 30: 13.420 s 30(1): 7.680, 13.400 s 30(1)(f): 13.410

s 31: 13.470 s 32: 13.670 s 32(1): 13.480 s 33: 13.66, 13.67, 13.490, 13.495, 13.713 s 34: 13.500 s 35: 13.540 s 36: 13.560, 13.670 s 37: 13.440, 13.995 s 37(1): 13.430 s 37(2): 13.430 s 39(1): 13.570 ss 40(1) to (2): 13.580 s 40(4): 13.580 s 41(1): 13.590 s 41(2): 13.590 s 41(3): 13.590 s 41(4): 13.590 s 42: 13.590 s 43(1): 13.600 s 43(4): 13.600 ss 44 to 46: 13.610 s 47(1): 13.620, 13.710 s 48: 13.61, 13.625 s 48(1): 13.620 s 48(4A): 13.620 s 50: 7.795 s 50(1): 13.640 s 51: 13.1002, 13.1150 s 51(1): 13.1030 s 52: 13.40, 13.1002, 13.1030, 13.1150 s 53: 13.1002, 13.1150 s 53(1): 13.1030 s 53(2): 13.1030 s 53(3): 13.1030 s 54: 13.1002, 13.1050, 13.1060, 13.1280, 13.1290, 13.1305 s 54(1): 13.375, 13.1040 s 54(2): 13.1050 s 54(3): 13.1050 s 54(4): 13.1050 s 54(5): 13.1050 s 54(6): 13.1050 s 55: 13.1002, 13.1290, 13.1305 s 55(1): 13.1070 s 55(2): 13.1080 s 55(3): 13.1080 s 56: 13.1002, 13.1280, 13.1290 s 56(1): 13.1090 s 56(2): 13.1090 s 56(3): 13.1090 s 57: 13.1002, 13.1090

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Australian Consumer Law — cont s 57(1): 13.1100 s 58: 13.1002, 13.1280 s 58(1): 13.1110 s 58(2): 13.1110 s 59: 13.1280, 13.1305 s 59(1): 13.1002, 13.1120 s 59(2): 13.995, 13.1002 s 60: 13.1004, 13.1140, 13.1145, 14.50 ss 60 to 64: 13.1004 s 61: 13.1004 s 61(1): 13.1140 s 61(2): 13.1140 s 61(3): 13.1140 s 62: 13.1004, 13.1140 s 63: 13.1140 s 64: 13.1000, 13.1004, 13.1145 s 64(1): 9.360, 13.1150 s 64A: 13.1000 ss 64A(1) to (2): 13.1150 s 64A(1) to 64A(2): 13.1150 s 64A(3): 13.1150 s 64A(4): 13.1150 s 68: 13.1000 s 97(1): 13.315 s 106(1): 13.1310 s 109(1): 13.1310 s 114(1): 13.1310 s 118(1): 13.1310 s 122(1): 13.1310 s 123(1): 13.1310 s 123(1)(c): 13.1310 s 127(1): 13.1310 s 127(2): 13.1310 s 127(3): 13.1310 s 129: 13.1310 s 131(1): 13.1310 s 134: 13.1310 s 136(1): 13.1310 s 138(1): 13.1180 s 138(2): 13.1180 ss 138 to 150: 13.1170 s 139: 13.1180 s 139A: 13.1150 s 140: 13.1180 s 141: 13.1180 s 142: 13.1220, s 143: 13.1240 s 146: 13.1260 s 148: 13.1220 s 149: 13.1270 s 150(1): 13.1250 s 151(1): 13.380 s 151(1)(a): 13.390 s 151(1)(k): 13.390 ss 151 to 168: 13.650, 13.660 s 152(1): 13.420 s 153(1): 13.470 s 154(1): 13.480 s 155(1): 13.490

s 156(1): 13.520 ss 157(1) to (2): 13.550 s 158(1): 13.560 s 159(1): 13.455 s 161(1): 13.570 s 162(1): 13.580 s 162(2): 13.590 ss 163(1) to (2): 13.600 ss 164(1) to (2): 13.610 s 165(1): 13.627 s 166(1): 13.627 s 167(1): 13.630 s 168(1): 13.640 s 194(1): 13.1310 s 197(1): 13.1310 s 199(1): 13.1310 s 202(1): 13.1310 s 203(1): 13.1310 s 204(1): 13.1310 s 205(1): 13.950 s 207: 13.700 s 207(1): 13.680 s 207(2): 13.680 s 208: 13.700 s 208(1): 13.700 s 209: 13.700 s 210(1): 13.1310 s 212: 13.660 s 217: 13.660 s 218: 13.940 s 219: 13.950 s 223: 13.960 s 224(1): 13.67, 13.650, 13.710 s 224(1)(a)(i): 13.710 s 224(2): 13.67 s 224(3): 13.710 s 225(1): 13.710 s 232: , 13.650, 13.720 s 232(2): 13.730 s 233: 13.720 s 236: , 13.650, 13.780, 13.790, 13.800, 13.810, 13.820, 13.910 s 236(1): 13.780, 13.820, 13.830 s 236(2): 13.860 ss 236 to 238: 13.790 s 237: 13.650, 13.880, 13.900, 13.910 s 237(3): 13.880, 13.900 ss 237 to 238: 13.35 s 239: 13.900 s 239(1): 13.890 s 239(3): 13.890 s 239(4): 13.890 s 243: 8.100, 13.650, 13.900, 13.920 s 246(2): 13.970 s 247: 13.980 s 248(1): 13.990 s 250(3): 13.320 s 251: 13.700

s 252: 13.1310 s 255(3): 13.390 ss 255 to 257: 13.390 ss 256 to 257: 13.390 s 259(1) to (2): 13.1160 s 259(3): 13.1160 s 259(4): 13.1160 s 259(5): 13.1160 s 260: 13.1160 s 260(a): 13.1160 s 260(c): 13.1160 s 260(d): 13.1160 s 260(e): 13.1160 s 262(1): 13.1160 s 262(2): 13.1160 ss 263(2) to (3): 13.1160 s 263(4): 13.1160 s 266: 13.1160 ss 267 to 268: 13.1160 s 271: 13.1170, 13.1280, 13.1305 s 271(1): 13.1280 ss 271(1) to 271(2): 13.1002 s 271(3): 13.1280 ss 271(3) to (4): 13.1002 s 271(5): 13.1002, 13.1280 s 271(6): 13.1002 s 272: 13.1280 s 273: 13.1280 s 274: 13.1160, 13.1170, 13.1290 s 274(2): 13.1290 s 275: 13.1145 s 276: 13.1300 s 276A(1): 13.1300 s 276A(2): 13.1300 s 276A(3): 13.1300 s 276A(4): 13.1300 Ch 1: 13.35 Ch 2: 13.35 Ch 3: 13.35 Ch 4: 13.35 Ch 5: 13.35 Pt 3-2: 13.1001 Pt 3-2, Div 1: 13.340 Pt 3-3: 13.1310 Pt 3-5: 13.1170 Pt XI: 13.30 Sch 2: 15.590, 18.30 59 59: 13.1002 Australian Human Rights Commission Act 1986: 19.60 ss 46P to 46PN: 1.900 Australian Securities and Investments Commission Act 2001: 18.60 Banking Act 1959: , 8.60 Bankruptcy Act 1966: 6.200, 11.520 s 126: 6.200

Table of Statutes

Bankruptcy Act 1966 — cont s 269: 6.200 Pt X: 16.1060 Bills of Exchange Act 1909 s 8: 5.300 s 89: 5.300 Broadcasting Services Act 1992 s 125: 17.120 Cheques Act 1986 s 10: 5.300 Commercial Television Code of Practice cl 1.18: 17.120 Commonwealth of Australia Constitution Act 1900: 1.100, 1.140, 1.160, 1.180, 18.20, 18.30, 18.40, 18.120, 19.60 s 1: 1.130 s 51: 1.130, 1.160 s 51(xiii): 1.160 s 51(xvii): 1.160 s 51(xviii): 1.160 s 51(xxix): 1.160 s 51(xxxv): 1.160, 18.30, 18.50 s 51(xxvi): 1.190 s 51(i): 1.160 s 51(v): 1.160 s 51(ii): 1.160 s 51(vi): 1.160 s 51(xx): 1.160, 18.30, 18.40, 18.50, 18.60 s 51(xii): 1.160 s 51(xiv): 1.160 s 51(xvi): 1.160 s 61: 1.100, 1.140 s 62: 1.140 s 64: 1.140 ss 71 to 80: 1.180 s 90: 1.160 s 109: 1.160, 18.20 s 128: 1.190 Company Law Review Act 1998: 16.230 Competition and Consumer Act 2010: 1.580, 1.590, 1.670, 1.795, 2.15, 8.500, 8.510, 13.670, 13.1305, 15.590, 16.1060, 17.30, 17.120, 18.420, 18.440, 18.480 s 2: 1.280 s 6(3): 13.30 s 45D: 18.480, 18.490 s 45DC: 18.480 s 45DD: 18.480 s 51(2)(b): 8.510 s 51(2)(d): 8.510 s 51(2)(e): 8.510

ss 75 to 87: 18.480 s 131: 13.30 s 131(1): 13.30 s 137A: 13.1230 ss 138 to 138B: 13.30 s 139A: 13.1145 s 139A(1): 13.1150 s 139A(2): 13.1150 s 139A(3): 13.1150 s 139B(1): 13.670 s 139B(2): 13.670 ss 140 to 140K: 13.30 Pt IV: 8.510 Pt IVB: 17.110 Sch 2: 1.330, 7.680, 7.960, 9.30, 9.580, 13.10, 14.50, 14.320 Competition and Consumer Legislation Amendment Act 2011: 13.200, 13.265 Conciliation and Arbitration Act 1904: 18.420 Constitution Bill: 1.120 Copyright Act 1968 s 8: 5.60 s 196(3): 5.300 Corporate Code of Conduct Bill 2000: 17.120 Corporations Act 2001: , 1.230, 1.280, 1.795, 6.170, 16.20, 16.40, 16.70, 16.110, 16.375, 16.860, 16.900, 16.1010, 16.1040, 16.1060, 17.30, 17.60, 17.130 s 1: 1.260 s 2: 1.270 s 9: 16.90, 16.860, 16.880, 16.890 s 15AA: 1.360 s 57: 1.300 s 57(1): 1.300 s 57(2): 1.300 s 117(1): 16.45 s 117(2): 16.45 s 118(1): 16.45 s 119: 16.45 s 120: 16.350 s 121: 16.840 s 123: 16.140 s 124: 6.170 s 124(1): 16.50 s 124(2): 16.280 s 125: 6.170 s 125(1): 16.280 s 125(2): 16.280 s 126: 6.170, 16.50 s 127: 6.170, 16.50, 16.320, 16.325

s 127(1): 16.325 s 127(2): 16.325 s 128: 6.170, 16.325 s 128(3): 16.325 s 128(4): 16.320, 16.325 s 129: 16.325 s 129(1): 16.325 s 129(2): 16.325 s 129(3): 16.325, 16.330 s 129(4): 16.325 s 129(5): 16.320, 16.325 s 129(6): 16.320, 16.325 s 129(7): 16.325 s 130: 16.280 s 131: 15.140 s 134: 16.240 s 135(1): 16.230 s 135(2): 16.250 s 136(1): 16.270 s 140(1): 16.240 s 141: 16.250 ss 142 to 145: 16.840 s 172: 16.350 s 180: 1.230, 16.890, 16.895, 16.975, 16.1010, s 180(1): 16.890, 16.895, 16.900, 16.905, 16.910, 16.920, 16.930, 16.950, s 180(2): 16.930, 16.950, ss 180 to 183: 16.975, s 181: 16.890, 16.960, 16.975, 16.1010, ss 181 to 183: 16.890, 16.1010, s 182: 16.890, 16.970, 16.975, 16.1010 ss 182 to 3: 16.970 ss 182 to 183: s 183: 16.890, 16.975, 16.985, 16.990, 16.1010 s 184: 16.890, 16.1000, 16.1010, s 184(1): 16.1000 s 184(2): 16.1000 s 184(3): 16.1000 s 191(1): 16.1020 s 191(3): 16.1020 s 191(4): 16.1020 ss 191 to 192: 16.850 s 194: 16.1020 s 195(1): 16.1020 s 195(2): 16.1020 s 196: 16.1020 s 198A: 16.850 ss 200A to 200J: 16.1055 s 201A: 16.850 s 201M: 16.880 s 203C: 16.1050 s 203D: 16.1050 s 204A: 16.860 s 204D: 16.860 s 205G: 16.850 s 206B(1): 16.1060

xxv

xxvi

Business Law for Managers

Corporations Act 2001 — cont s 206B(3): 13.990, 16.1060 s 206B(4): 16.1060 s 206C: 16.1060 s 206D: 16.1060 s 206E: 16.1060 s 206F: 16.1060 s 206G: 16.1060 s 206EA: 16.1060 s 206EAA: 16.1060 s 232: 16.990 s 588G: 16.1030 s 588G(1): 16.1030 s 588G(2): 16.1030 s 588H: 16.1030 s 588J: 16.1030 s 588M: 16.1030 s 601AD(1): 16.50 s 1013D(1)(l): 17.130 ss 1042A to 1042H : 16.1040 s 1043A: 16.1040, 16.1046 ss 1043B to 1043K: 16.1040 s 1043L: 16.1040 s 1043M: 16.1040 s 1317H: 16.1010 s 1317J: 16.1010 s 1317K: 16.1010 s 1317M: 16.1010 s 1317S: 16.1010 s 1318: 16.930 Pt 9.4B: 16.1010 Criminal Code Act 1995 Sch 1, Div 70: 17.120 Sch 1, s 70.2(1A): 17.120 Sch 1, s 70.2(2): 17.120 Sch 1, s 70.2(3): 17.120 Sch 1, s 70.3: 17.120 Sch 1, s 70.4(1): 17.120 Sch 1, s 70.5(1): 17.120 Disability Discrimination Act 1992: 19.60 Electronic Transactions Act 1999 s 8: 3.610 s 9: 3.620 s 10: 3.630 s 11: 3.640 s 12: 3.655 s 14: 3.660 s 14A: 3.670 s 14B: 3.600 s 15: 3.600 s 15(2): 3.600 Equal Employment Opportunity (Commonwealth Authorities) Act 1987: 19.70 Equal Opportunity for Women in the Workplace Act 1999: 19.70

Fair Work Act 2009: 18.40, 18.60, 18.80, 18.100, 18.105, 18.110, 18.265, 18.300, 18.310, 18.330, 18.420, 18.435, 18.440, 18.470, 19.70, 19.80 s 19: 18.440 s 346: 18.330, 18.340 s 417: 18.440 s 422: 18.440 s 424: 18.470 s 431: 18.470 s 487: 18.420 s 512: 18.420 s 513: 18.420 Ch 3: 18.420 Ch 3, Pt 3-1: 18.420 Ch 3, Pt 3-1, Div 6: 18.440 Ch 3, Pt 3-3: 18.440 Ch 3, Pt 3-3, Div 9: 18.440 Pt 3-4: 18.420 Fair Work Amendment Act 2012: 18.110 Fair Work Amendment Act 2013: 18.110 Fair Work (Registered Organisations) Act 2009: 18.80, 18.420 s 27: 18.420 s 140: 18.420 s 141: 18.420 s 142: 18.420 Ch 9: 18.420 Fair Work (Registered Organisations) Amendment Act 2012: 18.420 Federal Court of Australia Act 1976: 1.580 s 33: 1.570 Immigration Restriction Act 1901 s 3: 1.340 Industrial Relations Act 1988: 18.420 Insurance Contracts Act 1984: 2.15, 10.70 s 48: 10.50 s 48(1): 10.70 Human Rights and Equal Opportunity Commission Act 1986: 19.60 Judiciary Act 1903 ss 35-35A: 1.570 Legislation Act 2003 s 38: 1.430 s 42: 1.430

Life Insurance Act 1995 s 200(2)(a): 5.300 Marine Insurance Act 1909 s 28: 5.300 Migration Act 1958 s 51A: 1.375 National Consumer Credit Protection Act 2009: 15.860 Sch 1: 7.970 National Credit Code: 7.970 s 7(8): 7.970 s 76(1): 7.970 Native Title Act 1993: 1.90, 1.95, 19.60 Native Title Amendment Act 1998: 1.90 Public Service Act 1999: 19.70 Race Discrimination Act 1975: 19.60 Safety, Rehabilitation and Compensation Act 1988: 18.410, 18.415 Sex Discrimination Act 1984: 19.60, 19.90 Statute of Westminster Adoption Act 1942: 1.97 Therapeutic Goods Act 1989 s 42DL(1)(f): 17.120 Tobacco Advertising Prohibition Act 1992 s 13: 17.120 s 15: 17.120 Tobacco Plain Packaging Act 2011: 17.120 Trade Practices Act 1974: 1.670, 1.795, 7.680, 7.960, 8.500, 9.30, 9.580, 13.10, 13.30, 13.1000, 13.1040, 13.1305, 14.320, 15.590, 17.30, 18.420, 18.440, 18.480 s 4M: 8.500, 8.510 s 45D: 18.490 s 51AA: 13.220 s 51AB: 13.250 s 52: 8.100, 13.40, 13.150, 13.155, 13.820, 13.840, 13.995, 14.320, 15.590 s 52(1): 13.95, 13.100, 13.110, 13.120, 13.910 s 53(e): 13.350 s 53(g): 13.360 s 53A: 13.420

Table of Statutes

Trade Practices Act 1974 — cont s 59: 13.995 s 68: 13.1000 s 71: 13.1060 s 74(1): 14.50 s 74B: 13.1305 s 74D: 13.1305 s 74G: 13.1305 s 75B: 13.840 s 75B(a): 13.830 s 82: 13.790, 13.800, 13.810, 13.820, 13.910 s 82(1): 13.820 s 87: 8.100, 13.790, 13.910 Pt IV: 8.510 Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015: 13.290 Volunteers Protection Act 2003: 14.50 Work Health and Safety Act 2011: 18.390 Workplace Gender Equality Act 2012: 19.70 Workplace Relations Act 1996: 18.20 Workplace Relations Amendment (Registration and Accountability of Organisations) Act 2002: 18.420 Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008: 18.70 Workplace Relations Amendment (Work Choices) Act 2005: 18.40

AUSTRALIAN CAPITAL TERRITORY ACT Civil and Administrative Tribunal Act 2008 s 18: 1.690 Age of Majority Act 1974 s 5: 6.20 Agents Act 2003: 15.860 s 22: 15.860 Civil Law (Property) Act 2006 s 204: 5.330 s 205: 10.160 s 219: 5.180 s 507: 5.320, 5.340 Sch 3: 5.320, 5.340 Civil Law (Wrongs) Act 2002: 14.50

s 3: 14.570 s 41: 14.50 s 43(1): 14.410 s 43(2): 14.410 s 44: 14.450 s 45(1)(a): 14.500 s 45(1)(b): 14.510 ss 95 to 96: 14.560 s 96: 14.570 s 98: 14.50 s 99: 14.50 s 102: 12.250, 14.560 s 221(2)(a): 8.270 Ch 8: 14.50 Pt 2.2: 14.50 Pt 2.2A: 14.50 Electronic Transactions Act 2001 s 7: 3.610 s 8: 3.620 s 9: 3.630 s 10: 3.640 s 11: 3.655 s 13: 3.660 s 13A: 3.670 s 13B: 3.600 s 14: 3.600 s 14(2): 3.600 Fair Trading (Australian Consumer Law) Act 1992 s 7(1): 13.30 Human Rights Commission Act 2005 ss 54 to 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: 15.860 Law Reform (Miscellaneous Provisions) Act 1955 s 15: 14.560 Law Reform (Miscellaneous Provisions) Act 1999 Sch 3: 5.320, 5.340 Legislation Act 2001: 1.350 s 139: 1.360 Married Persons’ Property Act 1986 s 5: 15.190, 15.860 Powers of Attorney Act 1956: 15.740 Sale of Goods Act 1954 s 7: 6.40, 6.180 s 11: 7.90

Unlawful Gambling Act 2009 s 47: 8.160 Work Health and Safety Act 2011: 18.390 Workers Compensation Act 1951: 18.410

NEW SOUTH WALES Anti-Discrimination Act 1977 s 91A: 1.900 Builders Licensing Act 1971: 12.445 s 45: 12.445 Building and Construction Industry Security of Payment Act 1999 : 3.680 Civil Liability Act 2002: 14.50, 14.560 s 5A(1): 14.50 s 5B: 14.410 s 5B(1): 14.390, 14.410 s 5B(2): 14.410 s 5C: 14.450 s 5D(1)(a): 14.500 s 5D(1)(b): 14.510 s 5D(2): 14.508 s 5G: 14.570 s 5O: 14.50, 14.435, 14.480 s 5P: 14.50, 14.480 s 5R: 14.560 s 5S: 14.560 s 12: 14.50 s 16: 14.50 s 21: 14.50 s 59: 14.435 Pt 1A, Div 5: 14.50 Pt 2: 14.50 Pt 5: 14.50 Pt 6: 14.560 Pt 9: 14.50 Sch 2, Item 2: 8.270 5L 5L: 13.1145 5M 5M: 13.1145 5N 5N: 13.1145 Commercial Agents and Private Inquiry Agents Act 2004: 15.860 Conveyancing Act 1919 s 12: 10.160 s 38(1): 5.180 s 54A: 5.330 s 163: 15.100 Electronic Transactions Act 2000 s 7: 3.610 s 8: 3.620 s 9: 3.630 s 10: 3.640 s 11: 3.655

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Electronic Transactions Act 2000 — cont s 13: 3.660 s 13A: 3.670 s 13B: 3.600 s 14: 3.600 s 14(2): 3.600 Factors (Mercantile Agents) Act 1923: 15.790

Workplace Injury Management and Workers Compensation Act 1998: 18.410

NORTHERN TERRITORY Age of Majority Act s 4: 6.20 Agents Licensing Act 1979: 15.860

ss 14 to 15: 14.560 s 20: 14.50 ss 24 to 28: 14.50 Racing and Betting Act s 135: 8.160 s 135(1): 8.160 Sale of Goods Act 1972 s 7: 6.40, 6.180 s 11: 7.90

Fair Trading Act 1987 s 28(1): 13.30 s 79S(7): 1.690 Pt 6A: 1.690

Anti-Discrimination Act 1992 ss 78 to 81: 1.900

Imperial Acts Application Act 1969 s 8(1): 5.320, 5.340

Commercial and Private Agents Licensing Act 1979: 15.860

Interpretation Act 1987: 1.350 s 33: 1.360

Consumer Affairs and Fair Trading Act 1990 s 27(1): 13.30 Pt 11: 15.860

Workers Rehabilitation and Compensation Act 1988: 25.1150, 18.410

Consumer Affairs and Fair Trading Amendment Act 2014 s 6: 15.860

QUEENSLAND

Electronic Transactions (Northern Territory) Act 2000 s 7: 3.610 s 8: 3.620 s 9: 3.630 s 10: 3.640 s 11: 3.655 s 13: 3.660 s 13A: 3.670 s 13B: 3.600 s 14: 3.600 s 14(2): 3.600

Anti-Discrimination Act 1991: 19.80 s 5: 19.250 s 7: 19.90, 19.140 s 10: 19.120 s 11: 19.140 s 11(1): 19.140 s 14: 19.180 s 15: 19.180 s 25: 19.220, 19.250, 19.280 s 26: 19.250 s 27: 19.250 s 28: 19.250 s 29: 19.250 s 30: 19.250 s 31: 19.250 s 32: 19.250 s 33: 19.250 s 34: 19.250 s 35: 19.250 s 36: 19.250, 19.280 s 104: 19.270 s 105: 19.270 s 106: 19.270 s 106A: 19.270 s 107: 19.270, 19.280 s 108: 19.270, 19.280 s 109: 19.270 s 110: 19.270 s 111: 19.270 s 112: 19.270 s 113: 19.270 s 118: 19.350 s 119: 19.350 s 120: 19.350 s 124: 19.210 s 124A(2): 19.440

Law Reform (Miscellaneous Provisions) Act 1965 s 10: 14.560 Legal Profession Act 1987: 14.50 Local Court Act 2007 s 29: 1.690 Married Persons (Equality of Status) Act 1996 s 4: 6.190 s 7: 15.190, 15.860 Minors (Property and Contracts) Act 1970: 6.40 s 6(1): 6.20 s 48: 6.140 Real Property Act 1900 s 88: 15.100 Real Property (Amendment) Act 1970 s 13: 15.100 Restraints of Trade Act 1976: 8.610 s 4(1): 8.610 Sale of Goods Act 1923 s 7: 6.180 s 11: 7.90 Travel Agents Act 1986: 15.860 Travel Agents Appeal Act 2014 : 15.860 Unlawful Gambling Act 1998 s 56: 8.160 s 56(2): 8.160 Work Health and Safety Act 2011: 18.390 Workers Compensation Act 1987: 18.410

Auctioneers Act 1935: 15.860

Interpretation Act 1978: 1.350 s 62A: 1.360 Law Reform (Miscellaneous Provisions) Act s 16: 12.250, 14.560 Law of Property Act 2000 s 56(6): 10.20 s 58: 5.340 s 62: 5.330 s 182: 10.160 s 221: 5.320 Sch 4: 5.320 Married Persons (Equality of Status) Act 1989 s 3: 6.190 s 5: 15.190, 15.860 Personal Injuries (Civil Claims) Act 2003: 14.50 Personal Injuries (Liabilities and Damages) Act 2003: 14.50 s 4: 14.50

Small Claims Act 2016 s 5: 1.690 Work Health and Safety (National Uniform Legislation) Act 2011: 18.390

Acts Interpretation Act 1954: 1.350 s 15AA: 1.360

Table of Statutes

Anti-Discrimination Act 1991 — cont s 124A(2)(a): 19.440 s 129: 19.400 s 130: 19.400 s 131A: 19.440 s 133: 19.300 s 133(2): 19.300 s 136: 19.320 s 138: 19.320 s 139: 19.320 ss 143(1) to (2): 19.320 s 143(2)(d): 19.320 s 143(2)(g): 19.320 ss 155 to 157: 19.320 ss 158 to 163: 19.320 ss 158 to 164AA: 1.900 s 164: 19.320 s 168: 19.320 s 205: 19.140 s 206: 19.220 s 209: 19.330 Pt 4, subdiv 2: 19.220 Civil Liability Act 2003: 14.50 s 4(1): 14.50 s 9(1): 14.390, 14.410 s 9(2): 14.410 s 10: 14.450 s 11(1)(a): 14.500 s 11(1)(b): 14.510 s 14: 14.570 s 22: 14.50, 14.480, 14.485 s 23: 14.560 s 24: 14.560 s 48: 14.570 s 52: 14.50 s 54: 14.50 s 62: 14.50 Pt 1, Div 4: 14.50 Pt 3: 14.50 Pt 3, Div 2: 14.50 Pt 4, Div 2: 14.560 Construction and Tourism (Red Tape Reduction) and Other Legislation Amendment Act 2014 s 52: 15.860 Electronic Transactions (Queensland) Act 2001 s 8: 3.610 s 9 to 13: 3.620 s 14 to 15: 3.630 s 16 to 18: 3.640 s 19 to 21: 3.655 s 23: 3.660 s 24: 3.670 s 25: 3.600 s 26: 3.600 s 26(2): 3.600 Factors Act 1892: 15.790

Fair Trading Act 1989 s 16(1): 13.30 Industrial Relations Act 1999: 19.80 Justices Act 1886: 19.440 Land Title Act 1994 ss 132 to 135: 15.100 Law Reform Act 1995 s 10: 12.250, 14.560 s 17: 6.20 s 18: 6.190 Local Government Act 2009 s 28(1): 1.430 Personal Injuries Proceedings Act 2002: 14.50 Property Agents and Motor Dealers Act 2000 s 45: 15.860 s 117: 15.860 s 140: 15.860 s 217: 15.860 s 288: 15.860 s 346: 15.860 Property Law Act 1974 s 45: 5.180 s 55: 10.20 s 56: 5.340 s 59: 5.330 s 199: 10.160 Public Service Act 2008: 19.80 Queensland Civil and Administrative Tribunal Act 2009 s 11: 1.690 s 43: 19.320 s 85: 19.330 s 86: 19.330 Sch 3: 1.690 Racing Act 2002 s 341: 8.160 s 342: 8.160 Sale of Goods Act 1896 s 5: 6.40, 6.180 s 9: 7.90 Statute of Frauds 1972 s 3(1): 5.320 Travel Agents Act 1988: 15.860 Work Health and Safety Act 2011: 18.380, 18.390, 18.400 Workers’ Compensation and Rehabilitation Act 2003: 18.370, 18.410

Workplace Health and Safety Act 2011: 18.370, 18.400

SOUTH AUSTRALIA Acts Interpretation Act 1915: 1.350 s 22: 1.360 Age of Majority (Reduction) Act 1971 s 3(1): 6.20 Civil Liability Act 1936: 14.50 s 4: 14.50 s 32(1): 14.390, 14.410 s 32(2): 14.410 s 34(1)(a): 14.500 s 34(1)(b): 14.510 s 37: 14.570 s 41: 14.50, 14.480 s 44: 14.560 s 46: 14.560 s 47: 14.570 s 52: 14.50 s 53: 14.105 s 53(1): 14.105 s 54: 14.50 Pt 9, Div 11A: 14.50 Electronic Transactions Act 2000 s 7: 3.610 s 8: 3.620 s 9: 3.630 s 10: 3.640 s 11: 3.655 s 13: 3.660 s 13A: 3.670 s 13B: 3.600 s 16: 3.600 s 16(2): 3.600 Employment Agents Registration Act 1993 s 6: 15.860 Equal Opportunity Act 1984 s 27: 1.900 s 95: 1.900 Fair Trading Act 1987 s 14(1): 13.30 Land Agents Act 1994 s 6(2): 15.860 Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001: 12.250, 14.560 s 7: 14.560 Law of Property Act 1936 s 15: 10.160 s 26: 5.330 s 41: 5.180

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Law of Property Act 1936 — cont ss 92 to 111: 6.190 s 104: 15.190, 15.860 Lottery and Gaming Act 1936 s 50: 8.160 s 50A: 8.160 Magistrates Court Act 1991 s 3: 1.690 s 38: 1.690 Mercantile Law Act 1936: 15.790 Powers of Attorney and Agency Act 1984 s 12: 15.740 Real Property Act 1886 s 156: 15.100 Recreational Services (Limitation of Liability) Act 2002: 14.50 Registration of Deeds Act 1935 s 35: 15.100 Sale of Goods Act 1895 s 2: 6.40, 6.180 s 6: 7.90

s 6(1): 13.30 Civil Liability Act 2002: 14.50 s 4: 14.50 s 11(1): 14.390, 14.410 s 11(2): 14.410 s 12: 14.450 s 13(1)(a): 14.500 s 13(1)(b): 14.510 s 16: 14.570 s 22: 14.50, 14.480 s 23: 14.560 s 26: 14.50 ss 27 to 28: 14.50 Pt 2: 14.560 Pt 6, Div 5: 14.50 Pt 8B: 14.50 Pt 9: 14.50 Pt 10: 14.50 Conveyancing and Law of Property Act 1884 s 36: 5.330 s 63: 5.180 s 86: 10.160

Travel Agents Act 1986: 15.860

Electronic Transactions Act 2000 s 5: 3.610 s 7: 3.630 s 8: 3.620, 3.640 s 9: 3.655 s 11: 3.660 s 11A: 3.670 s 11B: 3.600 s 12: 3.600 s 12(2): 3.600

Travel Agents Repeal Act 2014 : 15.860

Equal Opportunity Act 1984 ss 75 to 77: 1.900

Volunteers Protection Act 2001: 14.50

Factors Act 1891: 15.790

Security and Investigation Agents Act 1995: 15.860 Statutes Amendment (Enforcement of Contracts) Act 1982 s 3: 5.320, 5.340

Work Health and Safety Act 2012: 18.390 WorkCover Corporation Act 1994: 18.410 Workers Rehabilitation and Compensation Act 1986: 18.410

Magistrates Court (Civil Division) Act 1992 s 3: 1.690 s 7(2): 1.690 Married Women’s Property Act 1935 s 3: 6.190 s 7: 6.190 s 11: 6.190

s 103(2): 8.160 Sale of Goods Act 1896 s 7: 6.40, 6.180 s 9: 5.340 s 11: 7.90 Security and Investigations Agents Act 2002: 15.860 Travel Agents Act 1987: 15.860 Work Health and Safety Act 2011: 18.390 Workers Rehabilitation and Compensation Act 1988: 18.410 Wrongs Act 1954 s 4: 12.250, 14.560 s 44: 14.560

VICTORIA Accident Compensation (WorkCover Insurance) Act 1993: 18.410 Age of Majority Act 1977 s 3(1): 6.20 Auction Sales Act 1958: 15.860 Auction Sales (Repeal) Act 2001 s 3: 15.860 Australian Consumer Law and Fair Trading Act 2012: 11.484, 11.485 s 11(1): 13.30 s 35(1)(c): 11.485 s 36(1): 11.485 s 36(3): 11.485 s 37: 11.485 s 38(1)-(2): 11.485 s 38(3): 11.485 s 40: 11.485 s 41: 11.485 ss 182 to 192: 1.690 Credit Act 1984: 2.15

Anti-Discrimination Act 1998: 1.900, 19.60

Property Agents and Land Transactions Act 2005 s 18: 15.860

Electronic Transactions (Victoria) Act 2000 s 7: 3.610 s 8: 3.620 s 9: 3.630 s 10: 3.640 s 11: 3.655 s 13: 3.660 s 13A: 3.670 s 13B: 3.600 s 14: 3.600 s 14(2): 3.600

Australian Consumer Law (Tasmania) Act 2010

Racing Regulation Act 2004 s 103: 8.160

Equal Opportunity Act 2010 s 112: 1.900

TASMANIA Acts Interpretation Act 1931 s 8A: 1.360 Acts Interpretation Act 1983: 1.350 Age of Majority Act 1973 s 3(1): 6.20

Mercantile Law Act 1935 s 6: 5.320, 5.330, 5.340 Powers of Attorney Act 2000: 15.100 s 52: 15.740

Table of Statutes

Estate Agents Act 1980 s 49A: 15.860 s 50: 15.860 Factories and Shops Act 1876: 18.370 Gambling Regulation Act 2003 s 2.4.1: 8.160 s 2.4.2: 8.160 Goods Act 1958: 11.485 s 7: 6.40, 6.180 s 11: 7.90 ss 65 to 72: 15.790 Instruments Act 1958 s 126: 5.320, 5.330 Pt XI: 15.100 Interpretation of Legislation Act 1984: 1.350 s 35: 1.360 Local Government (Decentralised Industries) Act 1963: 9.560 Marriage Act 1958 ss 156 to 161: 6.190 Occupational Health and Safety Act 2004: 18.390 Property Law Act 1958 s 73: 5.180 s 134: 10.160 Residential Tenancies Act 1997: 2.15 s 1: 1.555 s 27(1): 1.555 s 68: 1.555 s 68(1): 1.555 s 452: 1.555 Sale of Goods (Vienna Convention) Act 1987 s 8: 5.320 Supreme Court Act 1986 s 49: 6.120, 6.130 s 51: 6.130 Transfer of Land Act 1958 s 94: 15.100 Travel Agents Act 1986: 15.860 Travel Agents Appeal Act 2014 : 15.860 Workplace Accident Compensation Act 1985: 18.410 Wrongs Act 1958: 14.50 s 14G: 14.560 s 26: 12.250, 14.560 s 28F: 14.50 s 28G: 14.50

s 28H: 14.50 s 32(2): 8.270 ss 34 to 37: 14.50 s 44: 14.50 s 48(1): 14.390, 14.410 s 48(2): 14.410 s 49: 14.450 s 51(1)(a): 14.500 s 51(1)(b): 14.510 s 54: 14.570 s 59: 14.50, 14.480 s 60: 14.50, 14.480 s 62: 14.560 s 63: 14.560 Pt VBA: 14.50 Pt XXII: 14.50

WESTERN AUSTRALIA Age of Majority Act 1972 s 5(1): 6.20 Auction Sales Act 1973: 15.860 Betting Control Act 1954: 8.160 Civil Liability Act 2002: 14.50 s 5B(1): 14.390, 14.410 s 5B(2): 14.410 s 5C(1)(a): 14.500 s 5C(1)(b): 14.510 s 5K: 14.560 s 5L: 14.560 s 5N: 14.570 s 5PB(1): 14.450 s 6: 14.50 ss 9 to 10A: 14.50 s 11: 14.50 Pt 1A, Div 4: 14.50 Pt 1C: 14.50 Debt Collectors Licensing Act 1964: 15.860 Electronic Transactions Act 2011 s 8: 3.610 s 9: 3.620 s 10: 3.630 s 11: 3.640, 3.655 s 13: 3.660 s 14: 3.670, 3.600 s 14(2): 3.600 s 15: 3.600 Employment Agents Act 1976 s 12: 15.860 Employers’ Indemnity Supplementation Fund Act 1954: 18.410 Equal Opportunity Act 1984: 1.900 ss 91 to 92: 1.900

Factors’ Acts Amendment Act 1878: 15.790 Fair Trading Act 2010 s 19(2): 13.30 Gaming and Betting (Contracts and Securities) Act 1985 s 4: 8.160 s 5: 8.160 Imperial Act 5 & 6 Vict, c 39: 15.790 Interpretation Act 1984: 1.350 s 18: 1.360 Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 s 4: 14.560 Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Amendment Act 1947 s 4: 12.250 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 Magistrates Court (Civil Proceedings) Act 2004 s 3: 1.690 s 26: 1.690 Property Law Act 1969 s 9: 5.180 s 11(2): 10.20 s 11(3): 10.20 s 20: 10.160 s 34(1): 5.330 s 85: 15.100 s 85(2): 15.740 Real Estate and Business Agents Act 1978 s 60: 15.860 Sale of Goods Act 1895 s 2: 6.40, 6.180 s 4: 5.340 Transfer of Land Act 1893 s 143: 15.100 s 144: 15.100 Travel Agents Act 1985: 15.860 Volunteers (Protection from Liability) Act 2002: 14.50

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Workers’ Compensation and Injury Management Act 1981: 18.410

UNITED KINGDOM Australia Act 1986 : 1.97 Bills of Exchange Act 1882: 1.210 Companies Act 2006: 17.50 ss 171(1)(d) to (e): 17.50 Exchange Control Act 1947: 8.570 Factories and Shops Act 1833: 18.370 Judicature Act 1873: 1.460 Pharmacy Poisons Act 1933: 3.110 Sale of Goods Act 1893: 1.210 Statute of Frauds 1677: 5.310, 5.320, 5.340, 5.360 s 4: 5.320, 5.330

TREATIES AND CONVENTIONS Convention Concerning Discrimination in Respect of Employment and Occupation: 19.60 Convention on International Civil Aviation: 19.240

Convention on the Elimination of All Forms of Discrimination Against Women Art 2(e): 17.90 Convention on the Rights of Persons with Disabilities: 19.60 Convention on the Rights of the Child Art 32(1): 17.90, 19.60 Declaration of the Rights of the Child: 19.60 Declaration on the Elimination of All Forms of Intolerance and of Discrimination Based on Religion or Belief: 19.60 Declaration on the Rights of Disabled Persons: 19.60 Declaration on the Rights of Mentally Retarded Persons: 19.60 ILO Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour (No 182): 17.90 International Bill of Human Rights: 19.20, 19.60 International Convention on the Elimination of All Forms of Racial Discrimination: 19.60

Art 2(e): 17.90 International Covenant on Civil and Political Rights: 19.20, 19.60 International Covenant on Economic, Social and Cultural Rights: 19.20 Art 10(3): 17.90 UN Convention on the use of Electronic Communications in International Contracts paras 177 to 178: 3.660 UN Convention Against Corruption: 17.60 Art 12(1): 17.60 Art 12(2)(b): 17.60 Art 12(2)(f): 17.60 Art 12(3): 17.60 Arts 21 to 22: 17.60 Universal Declaration of Human Rights Art 1: 19.20 Art 2: 19.60 Art 7: 19.60 Workers with Family Responsibilities Convention: 19.60

Table of Abbreviations ABC … Australian Bankruptcy Cases. 1929-1964. ABC (ns) … Australian Bankruptcy Cases (New Series). 1999 onwards. AC …Law Reports, Appeal Cases. 1891 onwards. ACLC … Australian Company Law Cases. 1971 onwards. ACLR … Australian Company Law Reports. 1974-1989. ACSR … Australian Corporations and Securities Reports. 1990 onwards. ACTLR … Australian Capital Territory Law Reports. 2007 onwards. ACTR … Australian Capital Territory Reports. 1973 onwards. AILR … Australian Industrial Law Reports. 1997 onwards. AILR … Australian Industrial Law Review. 1961-1996. AIPC … Australian Intellectual Property Cases. 1982 onwards. AJR … Australian Jurist Reports. 1870-1874. ALJ … Australian Law Journal. 1927 onwards. ALJR … Australian Law Journal Reports. 1958 onwards. ALLR … Australian Labour Law Reporter. 1977 onwards. Argus LR … Argus Law Reports. 1895-1973. ALR … Australian Law Reports. 1973 onwards. ALT … Australian Law Times. 1879-1928. ANZ Insurance Cases … Australian and New Zealand Insurance Cases. 1979 onwards. All ER … All England Law Reports. 1936 onwards. App Cas … Law Reports. Appeal Cases. 1876-1890. AR (NSW) … Industrial Arbitration Reports (New South Wales). 1902-1989. ASC … Australian Consumer Sales and Credit Law Reporter. 1997 onwards. ASTLR … Australian Succession and Trusts Law Reports. 2006 onwards. ATPR … Australian Trade Practices Reports. 1974 onwards. Aust Torts Reports … Australian Torts Reports. 1984 onwards. BCL … Building and Construction Law. 1985 onwards. BPR … Butterworths Property Reports. 1950 onwards. CAR … Commonwealth Arbitration Reports. 1905-1993. CLR … Commonwealth Law Reports. 1903 onwards. CPD … Common Pleas Division. 1875-1880. Ch … Law Reports. Chancery. 1891 onwards. Ch D … Law Reports. Chancery Division. 1876-1890. Ch App … Chancery Appeal Cases. 1865-1875.

DCR (NSW) … New South Wales District Court Reports. 1963-1976. 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. FCR … Federal Court Reports. 1984 onwards. Fed Appx … Federal Appendix. 2001 onwards. FLR … Federal Law Reports. 1956 onwards. FSR … Fleet Street Reports. 1975 onwards. F Supp … Federal Supplement. 1932 onwards. HLC … House of Lords Cases (Clark). 1847-1866. IPR … Intellectual Property Reports. 1982 onwards. IR … Industrial Reports. 1982 onwards. KB … Law Reports. King’s Bench. 1901 onwards. LJ Ch … Law Journal Reports. Chancery. 1831-1946. LJ Ex … Law Journal Reports. Exchequer. LJKB … Law Journal Reports. King’s Bench. 1831-1946. LJPC … Law Journal Reports. Privy Council. 1865-1946. LJQB … Law Journal Reports. Queen’s Bench. 18311946. LR (NSW) Eq … Law Reports. NSW Equity. 1880-1900. LR App Cas … Law Reports. Appeal Cases. 1876-1890. LRCP … Law Reports. Common Pleas. 1865-1875. LR Eq … Law Reports. Equity. 1865-1875. LR Ex … Law Reports. Exchequer. 1865-1875. LR Ex D … Law Reports. Exchequer Div. 1876-1880. LRPC … Law Reports. Privy Council, Appeal Cases. 1865-1875. LRQB … Law Reports. Queen’s Bench. 1865-1876. LT … Law Times. 1859-1947. Lloyd’s Rep … Lloyd’s List Law Reports. 1951 onwards. NSW Conv R … New South Wales Conveyancing Reports. 1980 onwards. NSWLR … New South Wales Law Reports. 1800-1900, 1971 onwards. NTLR … Northern Territory Law Reports. 1992 onwards. NTR … Northern Territory Reports. 1978 onwards. NZLR … New Zealand Law Reports. 1883 onwards. P … Law Reports. Probate Division. 1891-1971. PD … Probate Division. 1875-1890.

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

SR (NSW) … New South Wales State Reports. 19011970.

RPC … Reports of Patent Cases. 1884 onwards.

US … United States Reports. 1790 onwards.

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

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

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

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

Glossary ab initio From the beginning.

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

bona fide In good faith; honestly without fraud, collusion

lex mercatoria The law merchant.

made. 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 action. 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. intra vires Within the powers (of). ipso facto By that very fact. ipso jure By the law itself.

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. res ipsa loquitur The thing speaks for itself. This maxim 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.

xxxvi

Business Law for Managers restitutio in integrum Restoration to the original position. 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). uberrimae fidei Of the fullest confidence. A contract is said

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. 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 1: INTRODUCTION

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

chapter 1

An Introduction to Law and the Australian Legal System [1.20] The nature and concept of law .......................................................................................................................... 4 [1.30] The Australian constitutional system............................................................................................................ 5 [1.200] Sources of law....................................................................................................................................................... 16 [1.210] Statute law ............................................................................................................................................................. 16 [1.440] Judge-made law ................................................................................................................................................... 27 [1.540] The doctrine of precedent and the hierarchy of Australian courts........................................... 28 [1.775] Classification of law and legal proceedings .......................................................................................... 40 [1.840] Alternative methods of dispute resolution............................................................................................ 43

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 book, 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 and concept of law.

2.

The Australian constitutional system.

3.

Sources of law.

4.

Judge-made law.

5.

The doctrine of precedent and the hierarchy of the courts.

6.

Classification of law and legal proceedings.

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The nature and concept of law [1.20] We begin our study of business law by briefly considering the nature of “law” itself. What is “law”? Since the ancient Greeks in the Classical period, almost 2500 years ago, legal writers and philosophers have debated this question. Their responses would be enough to fill this book and would merely confirm that there is not a simple answer. When we refer to “law”, we may refer to “natural law” (a universal understanding of what was right and wrong, fair and unfair, just and unjust — one that underpins universal human rights law today), “religious law” (codes of conduct often recorded in holy texts that are followed by believers), “customary law” (rules of conduct widely observed as part of the tradition of a particular race or culture) and “positive law” (those rules that the government recognises as “laws” because they have been properly made). It is this positivist definition of “law” that we use in this book — “law” as the body of rules of conduct, made by parliaments and/or the courts, that regulates or controls the behavior or relations between individuals or groups. Accepting this “positivist” definition of “law”, we can then ask what is the role of law? What is the “law” supposed to do? Generally speaking, the role of law is to regulate the way we live: laws inform us what we may do and, if we do, how we should do it (eg, make contracts, own and transfer property, get married or divorced, adopt children, register a company), what we cannot do without incurring sanctions (break contracts, take someone else’s property without consent, kill or injure another person without lawful excuse, marry more than one person at a time, practice law or medicine or accounting without a licence or certificate), and what we must do, if we wish to avoid sanctions (pay our taxes, educate our children, vote in general elections). In making laws that the community endorses (or, at least, respects) as being the product of a fair and proper process, untainted by corruption or improper interference, the law and the legal system facilitates peace, order and social cohesion. This is reinforced to the extent that it provides fair, prompt and equal access to justice when a dispute or violation of the law occurs, and adequate sanctions and remedies designed to properly punish offenders and/or compensate victims. One essential feature of a democratic, law-abiding, cohesive and functioning society is the adherence to the “rule of law”. This is the idea that no person or institution — not the Crown, not the Prime Minister or Cabinet Ministers, not Members of Parliament, not the judiciary — is above the law. As Thomas Fuller a British churchman and historian famously put in the early 17th century: “Be ye so ever high, still the law is above you”. The World Justice Project, an independent organisation working to advance the rule of law around the world, has defined the rule of law as a system in which the following four universal principles are upheld: 1.

The government and its officials, including Heads of Government and Ministers, as well as individuals and private entities, are accountable under the law.

2.

The laws are clear, publicised, stable and just and applied evenly.

3.

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

4.

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

The “rule of law” should not be considered as an abstract concept: each of the above principles has particular relevance to commercial life. The truth is that without adherence to the rule of law, commercial life becomes dysfunctional. Systemic bribery and corruption in a society, particularly in its commercial sector, erodes the certainty and stability, confidence and trust that is essential for a flourishing commercial environment. Where the rule of law exists, proper processes are followed, laws and regulations are

chapter 1 An Introduction to Law and the Australian Legal System

accessible and transparent, the bureaucracy implements those laws and regulations in a fair and efficient manner and, in the event of a dispute or infraction, the wheels of justice turn equally for all parties.

The Australian constitutional system Pre-European history [1.30] Aboriginal and Torres Strait Islander peoples have inhabited most areas of the Australian continent for approximately 50,000 years. They spoke one or more of hundreds of separate languages and dialects, and their lives and cultural traditions differed from region to region. They each occupied and hunted a recognised tract of land where sacred sites were protected, and boundaries, designed in the Dreamtime, were crossed only by invitation. Their complex social systems and highly developed traditions reflected a deep connection with the land. They had their own laws — a customary system — with “laws” passed down orally from one generation to the next. The classification of this body of customary rules, values and traditions as “law” has caused difficulty, in part because most systems of customary laws include customs or rules that may appear to be more like social or cultural norms or religious beliefs (as well as other more conventional rules and procedures that would be regarded as “laws”). It is significant that in Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141, one of the first cases to consider the status of customary law, Blackburn J had no difficulty in treating the institutions and traditions of the indigenous plaintiffs as a system of law. It had been argued (by positivist thinkers) that for a legal system to exist, there must be a definable community of people and some recognised authority that gave the “law” a capacity to be enforced. Justice Blackburn disagreed: Where, it was asked (by the defendant company), was there any indication of authority over all the clans, and where, beyond the influence of the elders, was the authority within each clan? Feuds were admitted to be common: did not this show that law was absent? None of these objections is in my opinion convincing...The specialization of the functions performed by the officers of an advanced society is no proof that the same functions are not performed in primitive societies, though by less specially responsible officers. Law may be more effective in some fields to reduce conflict than in others, as evidently it is more effective among the plaintiff clans in the field of land relationships than in some other fields ... the same is patently true of our system of law. Not every rule of law in an advanced society has its sanction.

European colonisation [1.40] The first recorded European contact with Australia was in March 1606, when a Dutch explorer arrived at the coastline of the continent. Over the next 200 years, European explorers and traders continued to explore and chart the coastline of “New Holland”. It was not until 1770, when another Englishman, Captain James Cook claimed it for King George III of England. Cook reached the southern coast of New South Wales on 20 April 1770. He sailed north, landing at Botany Bay one week later, before continuing to chart the Australian coast all the way north to the tip of Queensland. There, just before sunset on Wednesday 22 August 1770, he declared the entire eastern half of New Holland a British possession. By 1786, Britain had decided on a use for its far-flung colony. At home, it had lost the US as a potential dumping ground and with its own prisons, hulks and poor houses full, Britain was desperate to find a new destination for its convicts. It decided to use its new colony as a penal colony and, by January of the following year, the First Fleet of 11 ships under the command of Arthur Philip, set sail, carrying about 1,500 people — half of them convicts. The fleet arrived in Botany Bay between the 18th and 20th of

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January 1788. However, this area was deemed to be unsuitable for settlement so they moved north arriving at Port Jackson on the Australian East coast on 26 January 1788, just three days before the French explorer La Perouse arrived. About 160,000 men and women were brought to Australia as convicts from 1788 until penal transportation ended in 1868. From the mid-18th century, labour shortages, the vast expanses and new wealth based on farming and mining made Australia an attractive land for immigrants seeking “to start a new life and flutter with a new hope”. (DH Lawrence, Kangaroo)

Settled or invaded? The terra nullius question [1.50] Under international law, the rights of the coloniser depended on whether it was “occupying” or “conquering” the colony. When a country was “occupied” the conquering country could impose its laws only with the consent of the conquered peoples. On the other hand, if the land was “unoccupied”, the colony could be peacefully “settled” — no invasion required — and all the laws of the settling nation were regarded as coming into force insofar as they were relevant to the new circumstances. Despite the fact that indigenous people had arrived at least 50,000 years earlier, the British view was that in 1788 New South Wales, as the colony was called, was “unoccupied” land, land belonging to no-one — “terra nullius”. In what sense was the land “unoccupied” when Cook had personal contact and indigenous people were there to “meet” Arthur Philip when the First Fleet sailed in? The answer turns on the narrow legal definition of “occupied”: according to the English common law, to be an “occupier” one “had to be present and to manifest a will to possess the land as one’s own”. The indigenous people had transient possession only, so when they left the land, any other person could take it and become permanent owners. In this sense, the land could be “settled” as it was “inhabited by no-one”. The legal consequence of that decision was that neither the sovereignty nor the land rights of indigenous inhabitants were recognised.

The Mabo story: from terra nullius to compensation [1.70] In the following landmark case the High Court of Australia declared terra nullius to be a fiction. Although its effect has subsequently been modified by statute, it remains a pivotal case in Australia’s development.

Mabo v State of Queensland (No 2) [1.80] Mabo v State of Queensland (No 2) (1992) 175 CLR 1 (Mabo). In May 1982, Eddie Mabo and four other Murray Islanders, who were members of the Meriam people, instituted legal proceedings in the original jurisdiction of the High Court, claiming rights to their traditional lands (the Murray Islands) in the Torres Strait off the North Queensland coast. The Murray Islanders commenced proceedings in the High Court in 1982, in response to the Queensland Amendment Act of that year which established a system of land grants on trust for Aboriginals and Torres Strait Islanders, grants which the Murray Islanders refused to accept. The action was brought as a test case to determine the legal rights of the Meriam people to their traditional islands which Queensland took over in 1879. Prior to European settlement, the Meriam people had lived on the islands in a subsistence economy. Land on the islands was not the subject of public or general community ownership, but was regarded as belonging to individuals or groups. The plaintiffs sought declarations that the Meriam people were entitled to the islands “as owners; as possessors; as occupiers; or as persons entitled to use and

chapter 1 An Introduction to Law and the Australian Legal System

enjoy the said islands”. The Queensland Government argued that when the territory of a settled colony became part of the Crown’s dominions, the law of England became the law of the colony and, by that law, the Crown acquired the “absolute beneficial ownership” of all land in the territory. In 1992, 10 years after the case began and, sadly, just a few months after Eddie Mabo died, the High Court held in a 6–1 decision that the common law of Australia recognized a form of native title, namely, the rights of the indigenous inhabitants to their traditional land in accordance with their laws and customs. Native title in Australia is sourced in the “traditional laws and customs” of the Aboriginal peoples. Brennan J (at 58) 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.” In their joint judgment, Deane and Gaudron JJ said (at 82): “The acts and events by which that dispossession in legal theory was carried into practical effect constitute the darkest aspect of the history of this nation. The nation as a whole must remain diminished unless and until there is an acknowledgement of, and retreat from, those past injustices.” The decision meant that 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 so that a grant of a fee simple (that is, freehold title) would extinguish any native title and would do so without creating any right to compensation. The “darkest aspects” sentiment of Gaudron and Deane JJ was reflected shortly after in then Prime Minister Keating’s Redfern speech. 1 “[reconciliation] begins, I think, with the act of recognition. Recognition that it was we who did the dispossessing. We took the traditional lands and smashed the traditional way of life. We brought the disasters. The alcohol. We committed the murders. We took the children from their mothers. We practised discrimination and exclusion. It was our ignorance and our prejudice. And our failure to imagine these things being done to us. With some noble exceptions, we failed to make the most basic human response and enter into their hearts and minds. We failed to ask — how would I feel if this were done to me? … The Mabo judgement should be seen as one of these. By doing away with the bizarre conceit that this continent had no owners prior to the settlement of Europeans, Mabo establishes a fundamental truth and lays the basis for justice. It will be much easier to work from that basis than has ever been the case in the past… Mabo is a historic decision — we can make it an historic turning point, the basis of a new relationship between indigenous and non-Aboriginal Australians … It seems to me that if we can imagine the injustice then we can imagine its opposite. And we can have justice.”

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1

P Keating, “Redfern Speech (Year for the World’s Indigenous People)” (Speech delivered at Redfern Park,10 December 1992 at Redfern Park, Sydney). View at http://www.antar.org.au/issues_and_campaigns/self-determination/paul_keating_redfern_speech.

Native title legislation [1.90] The Commonwealth Government’s legislative response to the High Court’s decision in Mabo v State of Queensland (No 2) (1992) 175 CLR 1 was to enact the Native Title Act 1993 (Cth). 1 This legislation gave statutory effect to much of the decision in the Mabo Case 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 the Mabo Case was the decision of the High Court in Wik Peoples v State of Queensland (1996) 187 CLR 1. The High Court held by a majority that native title was not necessarily extinguished by certain pastoral leases. The response of the Howard Government 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). One of the most important changes was to permanently extinguish native title rights if they interfere with the rights of the agricultural or pastoral leaseholder. Activities other than farming and grazing would be allowed on pastoral leases, even if Native Title exists, provided the dominant purpose of the lease remains primary production. Not surprisingly indigenous leaders called for the negotiation of co-existing rights and rejected the upgrading of pastoral leases. They also rejected the upgrading of pastoral leases and the compensation for loss of native title rights because such compensation did not take account of the fact that, as a result of the policy changes, pastoral leases would become virtually freehold land. These amendments also incorporated overdue amendments in relation to the Commonwealth of Australia Constution Act 1900 and functions of the National Native Title Tribunal. The Native Title Amendment Act 1998 (Cth) came into operation on 30 September 1998. 1

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).

Griffiths v Northern Territory of Australia (No 3) [2016] FCA 900 [1.95] On 24 August 2016, in Griffiths v Northern Territory of Australia (No 3) [2016] FCA 900, the Federal Court handed down the first ever assessment of native title compensation in Australia. It is the first decision that orders a State or Territory to pay compensation for loss or impairment of native title rights and interests pursuant to the provisions of the Native Title Act 1993(Cth). The decision relates to areas within and surrounding the township of Timber Creek in the Northern Territory which had previously been the subject of a native title determination in 2007 by the Federal Court recognising that native title rights and interests continued to exist for the township of Timber Creek and were held by the Ngaliwurru and Nungali Peoples. After that 2007 determination, the native title holders made an application for compensation for areas where native title had been extinguished as a result of previous grants of the Northern Territory or public works construction.

chapter 1 An Introduction to Law and the Australian Legal System

The Ngaliwurru and Nungali Peoples’ native title claim over the town of Timber Creek was successful in 2007, paving the way for a compensation claim. The Northern Territory’s liability was determined in 2014, leaving the assessment of compensation to be determined by the Federal Court. The Court ordered the Northern Territory to pay $3.3 million in compensation for the loss or impairment of non-exclusive native title rights and interests.

The reception of law into Australia [1.97] Legal independence from Great Britain was a long-drawn out process. A legal system, based on the British common law system, was established from the earliest days of the new colony. In 1823, the UK government passed the New South Wales Act that gave NSW the status of a colony, able to pass laws provided they did not conflict with English law. With the passing of the Australian Courts Act 1828, 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 apply to Australia unless they were specifically passed for the colonies. Australian statute law thus had a solid foundation in English law but was able to adapt to local circumstances. Until the Statute of Westminster Adoption Act 1942 (Cth), the Commonwealth Parliament could not legislate contrary to the provisions of Imperial Acts applying to the Commonwealth. And only with the passage of the Australia Act 1986 (UK) could the States legislate contrary to Imperial Acts. In other words, it was not until 1986 that Australia achieved full independence.

A federal system [1.100] 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 that 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. In addition to the Commonwealth Constitution, each of the States making up the federation also has its own Constitution that determines the system of government for that State. The law-making power of each of the territory legislatures is constrained by the federal statute that provides for the territory’s self-governance. 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.

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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 [1.110] 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 [1.120] 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 [1.130] The UK Parliament passed the Constitution Bill in 1900 in the Commonwealth of Australia Constitution Act 1900 and the Commonwealth of Australia came into being on 1 January 1901. The Australian Constitution is a very pragmatic document. It created a federal Parliament, called the Commonwealth Parliament, consisting of the Queen, the Senate and the House of Representatives: Constitution, s 1. Provision was also made for a Governor-General to be the Queen’s representative in Australia: s 61. The Constitution gave the Commonwealth Parliament certain defined legislative powers but left the Australian States (as the former colonies were now called) as self-governing political units each with its own Constitution, Parliament, and courts: Commonwealth of Australia Constitution Act 1900, ss 51, 106, 107. There is no grandiloquent preamble in the Australian Constitution and no recognition or acknowledgement of Aboriginal and Torres Strait Islander peoples. 1 Far from it. The first words of the Australian Constitution read as follows:

chapter 1 An Introduction to Law and the Australian Legal System

“WHEREAS the people of New South Wales, Victoria, South Australia, Queensland, and Tasmania, humbly relying on the blessing of Almighty God, have agreed to unite in one indissoluble Federal Commonwealth under the Crown of the United Kingdom of Great Britain and Ireland, and under the Constitution hereby established: … Be it therefore enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: …” According to Lowitja O’Donoghue, former Chair of the Aboriginal and Torres Strait Islander Commission: “The Constitution says very little about what it is to be Australian. It says practically nothing about how we find ourselves here — save being an amalgamation of former colonies. It says nothing of how we should behave towards each other as human beings and as Australians.” 2 It is bland and functional in comparison to the famous “We the people… ”preamble to the US Constitution (1789): “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.” There is nothing to match the idealistic Preamble to the Indian Constitution (1947): WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure all its citizens: JUSTICE, social, economic and political; LIBERTY of thought , expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among them all; FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation; IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949, do HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION. Or the healing and aspirational rhetoric in the Preamble to the South African Constitution (1996): We, the people of South Africa, Recognise the injustices of our past; Honour those who suffered for justice and freedom in our land; Respect those who have worked to build and develop our country; and Believe that South Africa belongs to all who live in it, united in our diversity. We therefore, through our freely elected representatives, adopt this Constitution as the supreme law of the Republic so as to — Heal the divisions of the past and establish a society based on democratic values, social justice and fundamental human rights; Lay the foundations for a democratic and open society in which government is based on the will of the people and every citizen is equally protected by law; Improve the quality of life of all citizens and free the potential of each person; and Build a united and democratic South Africa able to take its rightful place as a sovereign state in the family of nations.

May God protect our people. Nkosi Sikelel’ iAfrika. Morena boloka setjhaba sa heso. God seën Suid-Afrika. God bless South Africa. Mudzimu fhatutshedza Afurika. Hosi katekisa Afrika. In Australia, unlike most similar liberal democracies, Australia has no Bill of Rights to protect human rights in a single document. Human rights are protected in different ways — in the Constitution, under common

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law and in legislation. Australia has been urged by international human rights monitors to rethink the implementation of human rights in Australia. Many Australians have come to the same conclusion. 3 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 [1.150] and [1.180], that separation is stronger between the judiciary and the other two branches, than between the executive and the legislature. 1

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

2

L O’Donoghue in F Brennan, Securing Bountiful Place for Aborigines and Torres Strait Islanders in a Modern Free and Tolerant Australia, (Constitutional Centenary Foundation, 1994), p 18.

3

Former Chief Justice Sir Anthony Mason, for example, wrote in 1997: “Australia’s adoption of a Bill of Rights would bring Australia in from the cold, so to speak, and make directly applicable the human rights jurisprudence which has developed internationally and elsewhere. That is an important consideration in that our isolation from that jurisprudence means that we do not have what is a vital component of other constitutional and legal systems, a component which has a significant impact on culture and thought, and is an important ingredient in the emerging world order that is reducing the effective choices open to the nation state”. See A Mason, “Rights Values and Legal Institutions: Reshaping Australian Institutions” (1997) 13 Australian International Law Journal 1.

Separation of Powers Figure 1.1 – Separation of powers

chapter 1 An Introduction to Law and the Australian Legal System

The executive [1.140] 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: Commonwealth of Australia Constution Act 1900, s 61. The Governor-General 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.

[1.150] 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.

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The legislature Figure 1.2 – Sources of legislative power

[1.160] 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 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. Most of the legislative powers of the Commonwealth Parliament enumerated below are concurrent powers — either the Commonwealth or the States can exercise them. 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. 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));

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(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).

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. Power to make laws on all other matters resides exclusively in the State Parliaments. These are called residual powers. In this way the States are responsible for important areas of law-making including education and health, water policy, transport tourism, police and the courts. However, as the Federal Government controls the purse-strings a significant measure of control is often ceded to the Federal Parliament.

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

Amending the Constitution [1.190] A referendum is a vote by Australians over the age of 18 to change the Constitution. Section 128 of the Constitution provides the mechanism for amending the Constitution. It is a complex process that involves the Parliament and the electorate. Once both Houses of Parliament have passed the proposed amendment to the Constitution, there is a referendum of all eligible voters who are asked to vote “yes”” or “no”. If the proposal is approved of by a majority of voters in a majority of States, the Constitution is amended. It is difficult to amend the Constitution: of the 44 referenda put to the people since 1901 only eight have passed. The most significant amendment to the Constitution occurred in the 1967 referendum when over 90% of Australian voters agreed to change s 51(xxvi) of the Constitution (Cth) to give the federal parliament the power to make laws in relation to Aboriginal and Torres Strait Islander people (previously people of “the Aboriginal race in any State” were excluded) and to allow for Aboriginal and Torres Strait Islander people to be fully included in the census (formerly, indigenous people had not been included in the census for the purposes of Commonwealth funding grants to the states or territories. From 1967, indigenous people were counted in the census and included in base figures for Commonwealth funding granted to the states and territories on a per capita basis).

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Sources of law Figure 1.3 – Sources of Law

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

Statute law [1.210] Until the assertion of democratic power by the parliament in Britain (a process which began with the Bloodless Revolution in 1688) judges were the principal law-makers. However, certainly over the past 200 years, it has been the parliament, the heart of representative democracy, that has become the dominant law-making institution. There has been a massive increase in the amount and scope of legislation considered by the Parliament: so much so that a relevant statute affects virtually every aspect of our lives. If you are renting a house, getting married or divorced, buying or selling a car, taking out insurance, working part-time or studying at a university, migrating to Australia or seeking protection as a refugee — you are affected by a statute. If you are assaulted, defamed, injured at work, discriminated against because of your race or religion or sexual preference, misled by false advertising or injured by a faulty product — a statute will be relevant to any claim for compensation.

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In the federal arena alone there are now over 1,400 statutes and 600 regulations. Each year the number of Acts passed by the Federal Parliament is around 180. In the middle of the 20th century the figure was around 60 per year. 1 In addition State legislators are active law-makers. Parliament passes Bills which, on receipt of the royal assent, are called “statutes”, or Acts of Parliament. These statutes become part of the body of law known as “statute law”. Statutes may: (a)

bring new laws into existence;

(b)

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

(c)

codify the law, that is, 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 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”. 1

http://www.aph.gov.au/Parliamentary_Business/Statistics.

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The making of statutes Figure 1.4: The Making of Statutes

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[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 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, 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. 1 Problems may arise where an Upper House refuses to pass a Bill that has been passed by a Lower House. With respect to the Commonwealth Parliament, this situation is provided for in s 57 of the Constitution, which sets down the following procedure for resolving such “deadlock”: (a)

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

(b)

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

(c)

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

1

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

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Parts of a statute Example: the Corporations Act 2001 [1.230] The various parts of a statute are illustrated here with reference to the Corporations Act 2001 (Cth) (Corps Act) or the Australian Consumer Law which is a Schedule to the Competition and Consumer Act 2010 (Cth). We discuss the Corps Act and the duties and liabilities of the directors and officers of a company in Chapter 18. We have used s 180 of the Corps Act as an example. Section 180 imposes a duty on directors and officers of companies to take reasonable care and act with reasonable diligence. We will also discuss similar concepts of reasonable care when considering the tort of negligence in Chapter 14. The following examples are drawn from 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.

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 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 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] 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”.

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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. For example, see s 3 of the Australian Consumer Law: 3 Meaning of consumer Acquiring goods as a consumer (1)

A person is taken to have acquired particular goods as a consumer if, and only if: (a) the amount paid or payable for the goods, as worked out under subsections (4) to (9), did not exceed: (i)

$40,000; or

(ii)

if a greater amount is prescribed for the purposes of this paragraph—that greater amount; or

(b)

the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or

(c)

the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

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”. 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)”.

Chapters, Parts or Divisions [1.320] An Act with a large number of provisions is generally divided into Chapters, Parts and Divisions, each composed of a number of individual provisions. 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] Matters of detail are often incorporated into one or more Schedules that appear at the end of the Act. The Australian Consumer Law is contained in Schedule 2 of the Competition and Consumer Act 2010.

Interpretation of statutes [1.340] All statutes consist of words, which, as we all know, may mean different things to different people. There are frequently conflicting views as to the precise meaning of a particular clause or section of an Act that may ultimately have to be resolved by the courts. The decisions that the courts make in relation to the meaning will, consistent with the doctrine of precedent, bind or guide courts in the future.

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Example Section 3 of the Immigration Restriction Act 1901 – one of the first pieces of legislation passed by the first Federal Parliament was an Act that established the racist White Australia Policy. It provided: The immigration into the Commonwealth of (certain) persons is prohibited: (a)

any person who fails to pass the dictation test: that is to say, who when an officer dictates to him not less than fifty words in any prescribed language, fails to write them out in the presence of the officer.

In Potter v Minahan (1908) 7 CLR 277 the respondent had entered into Australia from China. His mother was British, his father was Chinese. He had lived in Victoria until he was five when his father left Australia with him and returned to China. Many years later, after his father died, he decided to return to Australia. When given the dictation test he could not do it. The Immigration Department then prevented him from entering Australia. The issue to be decided by the court was whether he was an “immigrant”. Minahan argued he was not an ‘immigrant’ within the meaning of s 3. He argued that an immigrant is one who is leaving an old home to settle in a new one. He argued he was “returning home” after a considerable stay in China. He argued his “domicile” was always Victoria, never China. The High Court agreed and, in so deciding, interpreted the word “immigrant” in a way that did not include people of British parentage who had physically left Australia but had continued to call Australia “home”. There are a number of aids to assist a court when it is called upon to interpret a statute. The principal ones are the Commonwealth and State Acts Interpretation Acts, and certain rules and maxims of statutory interpretation developed by the courts.

The Acts Interpretation Acts [1.350] The Commonwealth, State and Territory Parliaments have passed Acts Interpretation Acts 1 that 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. 1

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 1983 (Tas); Legislation Act 2001 (ACT); Interpretation Act 1978 (NT).

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. 1 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

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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 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. 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”. Other than in “extremely limited circumstances”, the judiciary may thus not “fill a gap” in legislation: Director of Public Prosecutions v Walters [2015] VSCA 303. 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]. 1

Interpretation Act 1987 (NSW), s 33; Interpretation of Legislation Act 1984 (Vic), s 35; Acts Interpretation Act 1954 (Qld), s 15AA; Acts Interpretation Act 1915 (SA), s 22; Interpretation Act 1984 (WA), s 18; Acts Interpretation Act 1931 (Tas), s 8A; Legislation Act 2001 (ACT), s 139; Interpretation Act 1978 (NT), s 62A.

Extrinsic materials [1.370] The Commonwealth Acts Interpretation Act 1901 (Cth) (s 15AB) now allows the court to take into consideration certain extrinsic material in interpreting, for example, an ambiguous or obscure provision in an Act. Section 15AB(1) provides, in part, that:

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[I]n the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material: (a)

to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or

(b)

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

the provision is ambiguous or obscure; or

(ii)

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

This provision allows “but does not require” a court to refer to extrinsic materials in interpreting a statute. The material which may be referred to includes: relevant Law Reform Commission reports; relevant parliamentary committee reports; the explanatory memorandum for the Bill; the second reading speech of the Minister on the Bill; and relevant material in parliamentary debates: Acts Interpretation Act 1901 (Cth), s 15AB(2). The section is essentially an aid to interpretation of a statutory provision. As the following case demonstrates, extrinsic materials can only be referred to when the “ordinary” rules of statutory construction have been exhausted. It is the words of the statute rather than the extrinsic materials that have primary importance for statutory interpretation.

Saeed v Minister for Immigration and Citizenship [2010] HCA 23 [1.375] In Saeed v Minister for Immigration and Citizenship [2010] HCA 23, the High Court considered an amendment to the Migration Act 1958 (Cth) that would have excluded the operation of the common law rules of natural justice (that would, in this instance, mandate that a visa applicant be given a right to respond to adverse information before making a decision on her visa application). The relevant amendment (s 51A) stated that the statutory code was “an exhaustive statement of the requirements of the natural justice hearing rule in relation to the matters it deals with”. Notwithstanding the clear and obvious parliamentary intention expressed in the Explanatory Memorandum 1 and the Minister’s Second Reading Speech, 2 the High Court held that the precise words of s 51A did not, in fact, oust the operation of the common law rules of natural justice in the case of offshore visa applicants. If Parliament intended to do that it must say so with “irresistible clearness”. The High Court said: The question whether s 51A in its operation has the effect contended for, of excluding the natural justice hearing rule, is to be answered by having regard, in the first place, to the text of s 51A. The result was that the decision of the delegate (Immigration Department officer) was quashed. The officer was obliged to provide the appellant with an opportunity to respond before making a decision on her visa application. 1

Explanatory Memorandum: “The purpose of this amendment, and the amendments in items 2 to 6, is to provide a clear legislative statement that certain ’codes of procedure’ in the Act are an exhaustive statement of the requirements of the natural justice hearing rule

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in relation to the matters they deal with”. House of Representatives, Migration Legislation Amendment (Procedural Fairness) Bill 2002, Explanatory Memorandum at 5. 2

In his second reading speech the Minister, after discussing the same background, said “Therefore, the purpose of this [B]ill is to make it expressly clear that particular codes in the Migration Act do exhaustively state the requirements of the natural justice or procedural fairness hearing rule. This will have the effect that common law requirements relating to the natural justice or procedural fairness hearing rule are effectively excluded, as was originally intended.” House of Representatives, Parliamentary Debates, (Hansard), 13 March 2002 at 1107.

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. 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.”: Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 305.

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” 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.

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 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. 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 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

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(b)

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

The power given by the particular Act may be quite specific as to the regulations which may be made under it, or it may confer a broad power to make delegated legislation. An example of the latter is the power given to local governments by the Queensland Local Government Act 2009 (Qld), s 28(1): “A local government may make … any local law that is necessary or convenient for the good rule and local government of its local government area.” This situation has the appearance of a considerable violation of the principle of the separation of powers, the principle that laws should be made by the elected representatives of the people in Parliament and not by the executive government. The principle has been largely preserved, however, by a system for the parliamentary control of executive law-making. Parliament maintains some control over delegated legislation through the requirement that regulations be tabled or laid before the Parliament 1 and by retaining the option of disallowing such regulations within specified periods after their tabling. 2 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. There are thousands of legislative instruments (as delegated legislation is called) currently in force in Australia, covering a wide range of subject matter, including laws about food standards, fisheries, civil aviation, corporations, superannuation, taxation and migration, to name only a few subjects. For example s 65 of the Atomic Energy Act 1953 (Cth) says: The Governor-General may make regulations, not inconsistent with this Act, prescribing matters: (a)

required or permitted by this Act to be prescribed; or

(b)

necessary or convenient to be prescribed for carrying out or giving effect to this Act.

1

Legislation Act 2003 (Cth), s 38.

2

Legislation Act 2003 (Cth), s 42.

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.

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Development of the common law and equity [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. [1.460] Equity developed to soften the harsh consequences that often flowed from strict application of the common law rules. Where persons were unable to obtain a remedy for their grievances in the Common Law courts because of the deficiencies in the common law, they would petition the King for relief. The increase in the number of these petitions asking the King as a matter of conscience or justice to redress the petitioners’ grievances led to them being dealt with by the Chancellor, one of the King’s principal advisers. Eventually, aggrieved petitioners would send their petitions directly to the Chancellor. The Chancellor was also the head of the Chancery, the body responsible for issuing writs to those seeking a remedy in one of the Common Law courts. The hearing of petitions by the Chancellor led to the emergence during the 15th century of the separate jurisdiction of the Chancery as a court of equity, later known as the Court of Chancery. The system of law administered by the court, which came to be known as equity, was not seen as a rival system to the common law but as supplementing the common law by providing remedies that the common law could not supply and by acknowledging rights not recognised by the Common Law courts. For example, the recognition and enforcement of trusts was exclusively a development of equity since the common law made no provision for the legal owner of property holding it on behalf of another. Further, the remedy of the Common Law courts was to award monetary compensation called “damages” to a person who had suffered injury, whereas the Court of Chancery could grant specific performance (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 – but all the Australian States have followed the United Kingdom Judicature Act 1873 model, so that both common law and equitable principles are applied in the one proceeding.

The doctrine of precedent and the hierarchy of Australian courts 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 (stare decisis) or, to put it another way, that the legal principles applied in similar situations should be consistent. The common law gives effect to this notion by what is called the doctrine of binding precedent. In simple terms, the doctrine requires that the decision of a court in a decided case binds judges lower in the same court hierarchy in deciding cases of a similar

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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. The precedential value of the decisions of the appellate courts of other states is very strong. A further question that arises is whether an appellate court in a particular hierarchy is bound by a previous decision of the same court. The High Court “has never regarded itself as bound by its own previous decisions, which is all the more appropriate now that it is a court of last resort for all purposes”. In practice, the High Court will normally follow its own earlier decisions and will only depart from them where there is a strong reason for so doing. However, a State or Territory court of appeal will normally follow its own previous decisions and the circumstances in which it determines not to do so will be comparatively rare.

The ratio decidendi of a case [1.550] 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]. 1 A lower court must determine precisely what was the ratio of the higher court which is binding, a task which is often more complex than might at first appear. Furthermore, it might be found that there is some differentiating feature between the fact situations in the two cases so that the earlier case can be distinguished from the later, in other words, held not to apply because of the differing circumstances of the later case. 1

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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Shields v Deliopoulos [2016] VSC 500 [1.555] An example of the doctrine of precedent (and statutory interpretation) at work: In Shields v Deliopoulos [2016] VSC 500, the Supreme Court of Victoria made law. Its decision establishes a precedent that is binding on all courts and tribunals lower in the Victorian hierarchy and, because courts on the same level will normally follow its own previous decisions, only the Court of Appeal or the High Court of Australia can overrule the decision. The case concerns a fundamental aspect of the law governing the relationship between landlords and tenants in Victoria: the nature and content of the obligation of a landlord under the Residential Tenancies Act 1997 (Vic)(“RTA”). It is of considerable importance in determining the rights and obligations of landlords who let premises at the bottom end of the rental market. The case also provides an excellent example of the courts doing what they are constantly engaged in doing — statutory interpretation: in this case, the critical section of the RTA is s 68 which provides as follows: 68. Landlord’s duty to maintain premises (1)

A landlord must ensure that the rented premises are maintained in good repair.

Facts: In June 2014, the plaintiff tenant issued a proceeding in the Residential Tenancies List of the Victorian Civil and Administrative Tribunal (“VCAT”) against the defendant landlord seeking, among other things, compensation under s 452 of the RTA for the landlord’s alleged breaches of s 68 of the RTA. The plaintiff seeks damages equivalent to $50 per week for the five and a half years she rented the house. The rent was $125 per week for the entire rental period. There was no real dispute that the premises were in very poor condition when the plaintiff rented the property. There were holes in walls and floors and water damage to the front balcony area. Flooding, dampness and rot caused by the location of property and multiple flood events on the land. The house was also sinking in the right hand corner. The bath was sinking due to the rotten floor. Proper maintenance was not done on the house to minimise the impact or effects of the flooding. At the start of the tenancy, the property had significant mould on the ceiling and walls. Due to the poor state of repair of the property, there was constant access to the property by rats and other pests. The cupboards in the kitchen were unusable due to a constant presence of rats. There were a number of concerns with the electrical wiring. There were numerous faults with doors and windows and many of the appliances and fixtures were not in working order. At the conclusion of the VCAT hearing, the Tribunal Member dismissed the application. “Section 68(1) cannot, either logically or equitably, impose an obligation on a landlord to upgrade the standard of the premises, during the course of a tenancy, without there being a commensurate increase in rental.” The tenant appealed, asking the Supreme Court whether the Tribunal erred in its interpretation of section 68.

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Held: The tenant succeeded. His Honour Daly AsJ set out his reasons (the ratio decidendi) clearly. First, his Honour said that the duty imposed upon a landlord by s 68 of the RTA entails an obligation to put the premises into good repair at the commencement of the tenancy, and then to maintain them in good repair throughout the duration of the tenancy. The duty imposed upon a landlord to “ensure that rental premises in good repair” is strict and absolute, and imposes an obligation upon a landlord to identify and rectify any defects of which they are aware or ought to be aware. The strict obligation imposed by s 68 of the RTA is consistent with the presence of the word “ensure” in s 68 of the RTA, which the authorities (previous decisions in similar cases that were not binding on him) suggest is synonymous with “make sure”. Second, the RTA does not allow the parties to a residential tenancies agreement to “contract out” of their rights and obligations under the RTA. This proposition is evident from the terms of s 1 of the RTA, which states that one of the main purposes of the RTA is to define the rights and duties of landlords and tenants of rented premises, and s 27(1) of the RTA, which invalidates any term of a tenancy agreement which purports to exclude, restrict or modify the application of any or all of the terms of the RTA to a tenancy agreement, or the exercise of a right under the RTA. Therefore the fact that the plaintiff remained at the house did not amount to a consent to waive her rights under s 68(1) of the RTA.

[1.556] In this way, the law is made and statutes interpreted.

The hierarchy of courts and law reporting [1.557] The application of the doctrine of precedent depends, in part, on the hierarchy of the court system and a system of authoritative law reports. No system of law-making through precedent is possible without an acceptance that one court is superior or inferior to another and a reliable system of law reporting is essential in order for courts to be able to examine the reasons that a court had for making the decisions it did.

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Hierarchy of the Australian courts Figure 1.6: 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 s 75 of the Constitution the court has original jurisdiction in matters: (i) arising under any treaty; (ii) affecting consuls or other representatives of other countries; (iii) in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party; (iv) between states, or between residents of different states, or between a state and a resident of another state. The Parliament may make laws conferring original jurisdiction on the High Court in a range of matters

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

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

(b)

any federal court or court exercising federal jurisdiction; and

(c)

the Supreme Court of any state.

Litigants generally need to obtain special leave to appeal to the High Court: 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.

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; and

(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.

Federal Circuit Court [1.590] A new federal 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.

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

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). Where higher amounts are involved proceedings must be taken in the Supreme Court.

Local or Magistrates Courts [1.630] The lowest courts in the hierarchy of State courts are those presided over by magistrates. These courts are variously known as Local Courts (in New South Wales; and also in South Australia, when exercising civil jurisdiction); Magistrates Courts (in Victoria, Queensland, Western Australia and Tasmania); 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 (usually approximately $100,000).

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

Federal tribunals and commissions [1.660] 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.

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 below.

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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 traders, involving comparatively small sums of money. 1 The parties normally present their own case and the dispute is heard before a referee. 1

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

Law reports [1.720] 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 intellectual property, trade practices, torts, insurance, consumer credit, industrial law, trusts and so on.

Form of a law report [1.730] 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 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;

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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: Figure 1.7: Example of a Law Report

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Citation of cases [1.740] 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. [1.750] 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. [1.760] 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.

Classification of law and legal proceedings Public law and private law [1.775] Law can be classified as either public law or private law. Public law is concerned with the organisation of government and with the relationship between the government and the people. It includes constitutional law, administrative law and criminal law. Constitutional law defines the structure of government and the rights of individuals under that government. Administrative law regulates the exercise of powers and duties by government administrative officers and authorities. Criminal law defines offences against the State and provides punishment for their commission.

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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. Figure 1.8: Public Law and Private Law

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Substantive law and procedural law [1.780] A distinction is made between substantive law and procedural law. Substantive law refers to actual rights and duties under the law. Procedural law refers to the formal steps to be followed in the enforcement of those rights and duties, in particular, the rules of procedure and evidence.

Civil law and criminal law [1.790] The civil law is that law under which a person (the plaintiff) may sue another (the defendant) to obtain redress for a wrong committed by the defendant. The usual purpose of a civil action is to obtain monetary compensation or damages for the loss suffered by the plaintiff as a result of the defendant’s wrongful act, for example, for a breach of contract or the commission of a tort. In some cases damages are an inadequate remedy and the plaintiff might seek specific performance of a contract or an injunction to restrain some unlawful act or threatened act. In civil proceedings, the plaintiff has a lesser standard of proof than in criminal proceedings and so in order to succeed must prove their case on the balance of probabilities. The criminal law defines offences against the State and provides punishment for their commission. Crimes are defined by statute, delegated legislation or the common law and are prosecuted in the name of the Crown on behalf of the State. Criminal offences are of two types, namely summary offences and indictable offences. Summary offences are criminal offences triable summarily, that is, offences which are heard and determined by a magistrate without a jury; they usually comprise minor offences. Indictable offences are criminal offences triable before a judge and jury; they are generally the more serious offences. In the case of indictable offences, there is a preliminary or committal hearing before a magistrate who conducts an inquiry to see if there is sufficient evidence to put the defendant on trial. The magistrate must determine whether a prima facie case has been made out and, if he or she so decides, the defendant is committed for trial before a judge and jury. In criminal law, the prosecution must prove their case beyond reasonable doubt.

Commercial law [1.795] 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-making in particular cases over a long period of time. For example, much of the law of contract is still largely based on common law principles.

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

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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.

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. Leading barristers in each State may apply to “take silk”, that is, be appointed a Senior Counsel (or SC).

Alternative methods of dispute resolution [1.840] 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. 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.

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

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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. 1 1

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

PART 2: LAW OF CONTRACT

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

chapter 2

Introduction to the Law of Contract [2.15] [2.17] [2.30] [2.50]

The evolution of the law of contract ............................................................................................................. 49 Definition of a contract ........................................................................................................................................ 49 Essential elements of a contract ................................................................................................................... 50 Classification of contracts ................................................................................................................................. 51

Introduction [2.10] Contracts are the hub of all commercial life. People and organisations enter into contracts virtually every day: when they purchase the daily necessities of life or larger consumer items, buy or lease property, purchase shares, borrow money, buy insurance,enter into mortgages, sign guarantees, agree to play for or coach a football club, see an accountant or a doctor, advertise in the newspapers or buy goods on eBay. When studying the law of contract we focus, by definition, on the contracts where something has gone wrong and the parties have ended up in court. But the truth is that the vast majority of contracts work perfectly well and even those where there is a dispute, almost all are resolved peacefully. As we embark on a journey through the world of contractual disputes, we should remember that, fundamentally, contracts set out what the parties can expect from one another with a view to guiding their behaviour so that they can enjoy a successful relationship. To put it more formally, the basic functions of a contract are as follows: To secure expectations – that the promises made will be kept or, compensation or other remedies will be paid to the innocent party; To facilitate planning – parties can more confidently plan for the future, knowing what is expected of them and what they can expect of the other party; To establish market value for goods and services – the contract fixes the price (or provides mechanisms to adjust the price); To allocate risk – the economic risks (for example, regarding pricing or supply of goods) are allocated in advance by the parties; and To provide for a more formal dispute-resolution process when required. Obviously some contracts are more complex than others (for example, a contract for the sale of iron ore to China or Japan is a different order of magnitude to a contract for the purchase of a car); some contracts are made and executed in an instant (for example, buying a daily newspaper) whereas others are designed for a longer term (for example, the LNG (liquid natural gas) contract with China is a 50 year contract); some are for domestic purposes (for example, buying a television) whereas others are commercial (for example, large construction contracts in the CBD);

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some involve international trade (for example, contracts to purchase tractors from Germany); some contracts are controlled or subject to statutes (for example, residential tenancy agreements) whereas others are a mix of common law and statute (for example, a contract for supply of consumer goods or services); some have no requirements as to the form in which they must be expressed (for example, most sales of goods may be oral or written) whereas others have strict requirements as to form of the contract (for example, a contract for the sale of land which must be evidenced in writing or a transfer of shares which must be in writing). The original source of the principles that make up the law of contract was the English common law courts. Even today, many of the early English cases are still cited as authority for one principle or another. Of course we now have a substantial body of Australian case law and in addition, over the past 50 years or so, both state and federal parliaments have passed statutes that affect a wide spectrum of commercial agreements.

chapter 2 Introduction to the Law of Contract

The evolution of the law of contract [2.15] In the 19th century, as industrial capitalism and the market economy came to dominate the economic and political landscape, the emerging law of contract became the main tool that facilitated and concluded market transactions. George Jessel MR, in Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 at 465 captured the prevailing political and economic mood in England in the mid-19th century when he said: “If there is one thing more than another which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty in contracting and their contracts, when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts … therefore you have this paramount public policy to consider in that you are not lightly to interfere with this freedom of contract.” The law of contract that emerged in the 19th century reflected the individualistic, self-reliant ethic of the times. The courts stressed the virtues of freedom and sanctity of contract: parties had the freedom to negotiate and consent to the terms of their contract and, once this was done the courts ensured the sanctity of the contract by strictly enforcing the terms of the contract (except where there was no genuine consent (such as where the agreement was affected by vitiating elements, for example, mistake, fraud, duress or misrepresentation). The mass production of goods in the 20th century signalled a growing gap between those with bargaining power, and those without such power. The complex nature of many consumer goods inevitably produced means that there is an information gap between sellers and buyers which affects a buyer’s ability to meaningfully assess the quality of the goods. Responding to the demands for protection of the vulnerable, the courts and legislatures have made laws designed to protect individuals (eg employees, tenants, consumers, borrowers) and small businesses from conduct that is, for example, unfair, misleading or unconscionable. The Competition and Consumer Act 2010 (Cth) is an excellent example. There are other examples of statutes that affect specific kinds of contracts: Insurance Contracts Act 1984 (Cth), Credit Act 1984 (Vic) and Residential Tenancies Act 1997 (Vic).

Definition of a contract [2.17] The terms “contract” and “agreement” are frequently used interchangeably. Every contract involves an element of agreement; however, not every agreement is a contract. For this reason it is necessary to define what constitutes a “contract”. [2.20] A contract is an agreement between two or more parties under which legal rights and obligations are created which are enforceable in the courts. More succinctly, a contract is a promise or a set of promises that the law will enforce. It is the possibility of enforcement that distinguishes a contract from other kinds of agreements. The law of contract is concerned with the principles applicable to the formation, performance, interpretation and breach of contracts.

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Essential elements of a contract Figure 2.1 – Elements of a valid 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 indicating the parties have reached agreement;

(b)

the intention of the parties to create legal relations;

(c)

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

(d)

legal capacity of the parties to act;

(e)

a genuine consent by the parties; and

(f)

legality of the objects of the agreement.

The requirement (see (a) above) 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 the notion of agreement or consensus. Where there is a dispute as to whether an agreement has occurred, the courts generally apply the offer and acceptance analysis – that is, they ask whether there has there been a clear indication from one party of a willingness to enter into a contract with another without further negotiation (“the offer”) and, in response, an unqualified statement or act that indicates that the other party accepts the terms of the offer (“the acceptance”).

chapter 2 Introduction to the Law of Contract

In the event of a dispute as to whether a contract has come into existence, the court considers whether a reasonable person looking objectively at what the parties have said and looking at their conduct would say that there was an agreement. As the High Court has recently said: “Regardless of the subjective intentions of the parties, the question of whether the parties had made contracts of the kinds described was to be determined by taking an objective view of the agreements”: Forrest v ASIC [2012] HCA 39 at [34]. However, not all agreements are enforceable at law. For example, a social agreement (say, where A agrees with B to play cards at B’s house on a certain night) does not give rise to contractual rights since the parties do not intend their agreement to be legally binding. Hence, the requirement (in (b) above) that for a contract to come into existence, the parties must intend their agreement to create legal relations. A further essential element in the formation of a contract is that some value must have been given in exchange for the other party’s promise. That is, in a simple contract the agreement must be supported by valuable consideration: see (c) above. This requirement means that the law will not enforce a 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: (see (d) above). To be enforceable, the agreement must have been the product of a genuine consent by each of the parties. Factors affecting genuine consent such as mistake, misrepresentation, duress and undue influence may affect the enforceability of the agreement: (see (e) above). The subject matter of the agreement must be legal: (see (f) above). 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.

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

Simple contracts [2.60] All contracts (other than contracts under seal) are termed “simple contracts”. In general, a simple contract may be oral, 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([5.10]).

Contracts under seal [2.70] A contract under seal (or formal contract) is referred to as a deed. It derives its validity from its particular form. A contract under seal must be in writing and signed, sealed and delivered. The basic distinction between a simple contract and a contract under seal is that the latter does not require consideration: see Chapter 5 ([5.10]).

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

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

chapter 3

Offer and Acceptance [3.20] The offer ...................................................................................................................................................................... 54 [3.330] Acceptance............................................................................................................................................................. 66 [3.600] Regulation of Electronic Transactions..................................................................................................... 74

Introduction [3.10] In this and the next three chapters, we discuss the essential elements that must exist in order to establish a legally binding contract. The first is that there must be an agreement. For an agreement, in this context, to arise it must be shown that one person has made an offer and there has been an acceptance of that offer by the person to whom the offer was directed. This methodology works well enough in many straightforward contractual negotiations (for example, the purchase of a car or a television or where a retailer orders goods from a regular supplier) but in many cases – complex, protracted or disjointed commercial negotiations as well as common occurrences such as purchasing an air ticket or buying goods on eBay – it becomes a rather artificial exercise. However, whether there are simple or complex negotiations, there can be no agreement unless it is clear that negotiations have finished and the parties are prepared to enter into a contract on these particular terms. The courts may be prepared to fill in gaps in the agreement provided the parties have agreed on all major terms. According to the traditional analysis, a legally binding agreement requires three elements: 1.

two parties at least;

2.

an offer; and

3.

an acceptance of that offer.

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The offer Figure 3.1: Rules as to 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 the terms are clear. The person making the offer must intend that it can be converted into a binding obligation by acceptance. When the courts are required to determine whether a statement amounts to an offer, for the purposes of determining whether the parties have ultimately concluded a legally enforceable contract, we will see that the courts distinguish offers from other statements such as puffs, invitations to treat and statements supplying information. It is not always an easy matter to decide whether a statement amounts to an offer.

Offers distinguished from mere puffs, invitations to treat and statements supplying information Mere puffs [3.30] A mere puff is a statement containing exaggerated claims and assertions about products or services that no reasonable person would take seriously. It has no contractual significance and cannot constitute an offer. It is the common currency of the advertising world.

chapter 3 Offer and Acceptance

Carlill v Carbolic Smoke Ball Co [3.40] Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The flu epidemic of 1891 was responsible for many deaths in Britain and no shortage of medical quackery followed in its wake. One famous example, concerning a carbolic smoke ball, has made its way into contract law folk history. In an advertisement published in an English newspaper (see below) the Carbolic Smoke Ball Company, manufacturers of the “carbolic smoke ball”, claimed it would prevent the onset of influenza and other maladies and offered to pay £100 to any customer who, despite using the ball as directed, caught influenza. The company deposited £1,000 with its bankers, “showing our sincerity in the matter”. Mrs Carlill saw the advertisement, bought a smoke ball and used it as directed. She nevertheless contracted influenza. When she requested that the company pay her the £100 it refused and she sued the company for breach of contract. The company denied liability. The case involved a number of issues – the first was whether the advertisement was an offer or a “mere puff” which no reasonable person would regard as a binding contractual promise. The court held that the advertisement was more than a “mere puff”. The Carbolic Smoke Ball Co made a serious offer to the whole world that could be accepted by anyone coming forward and satisfying the conditions. The court relied on the statement in the advertisement, “£1,000 is deposited with the Alliance Bank showing our sincerity in the matter” as evidence that it was not engaging in mere puffery. Lindley LJ said: “Now for what was that money deposited or that statement made except to negative the suggestion that this was a mere puff and meant nothing at all? The deposit is called in aid by the advertiser as proof of his sincerity in the matter – that is the sincerity of his promise to pay this £100 in the event which he has specified. I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise, as plain as words can make it. Then it is contended that it is not binding. In the first place, it is said that it is not made with anybody in particular. Now that point is common to the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anybody who performs the conditions named in the advertisement and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay £100 to anybody who will perform these conditions, and the performance of these conditions is the acceptance of the offer”: at 261–262.

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Figure 3.2: Carbolic Smoke Ball Advertisement

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

Leonard v PepsiCo [3.60] Leonard v PepsiCo 88 F Supp 2d 116 (1999). PepsiCo ran an advertising campaign in which consumers were encouraged to collect “Pepsi Points” from specially marked packages of Pepsi. A television commercial for “Pepsi Stuff” showed a series of products with the Pepsi logo and the number of Pepsi Points that were required to purchase them. (It was possible to purchase additional Points for 10 cents each, if a person wanted an item for which he or she had insufficient points.) In the final scene from the advertisement, a young boy is seen flying a Harrier jet fighter to school. After he parked the jet on the school playground he emerged with a Pepsi in hand, and the words “HARRIER FIGHTER 7,000,000 PEPSI POINTS” appeared on the screen. After seeing the commercial, Leonard (and his syndicate) decided to purchase a jet fighter by “buying” the 7,000,000 points. He submitted an order form (though the jet was not included in the catalogue) with a cheque for $700,008.50. When PepsiCo rejected his order and returned his cheque Leonard sought specific performance of the unilateral contract that he alleged had been formed when he performed his obligations. The court decided that the advertisement was not “clear, definite and explicit” enough to constitute an offer. Because of the comical nature of the commercial, a reasonable person could not conclude that PepsiCo was offering a Harrier Jet to

chapter 3 Offer and Acceptance

anyone who collected 7,000,000 points. It was a mere puff.

Invitations to treat and statements supplying information [3.70] It is important to distinguish an offer that will give rise to binding obligations on acceptance from an “invitation to treat”. An invitation to treat is essentially an indication that a person is prepared to negotiate. 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. In the following two cases the plaintiffs failed because they wrongly interpreted the communication of the defendant to be an offer when, in fact, it was an invitation to treat.

Gibson v Manchester City Council [3.80] Gibson v Manchester City Council [1979] 1 All ER 972. Manchester City Council adopted a policy that allowed its housing tenants to purchase their flats. Gibson, one of the tenants, was sent a letter in which the Council said it “may be prepared to sell” him the flat for a particular price and outlining other terms and conditions. It went on, “If you would like to make a formal application to buy your Council house please complete the enclosed application form and return it”. Gibson completed an application form but before formal contracts were signed, the Council policy changed and it only proceeded with those contracts that had already been executed. Gibson argued that the Council’s letter was an offer and his response was an acceptance of that offer. On the other hand, Council argued that its letter was an invitation to treat, that Gibson’s response was an offer that had not been accepted by Council. Held: The House of Lords decided that there was no enforceable agreement. The Council’s letter was an invitation to treat, not an offer. Lord Diplock said, “the words (of the letter) … make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by Mr Gibson’s written acceptance of it. The words ‘may be prepared to sell’ are fatal to this; so is the invitation … ‘to make formal application to buy’ on the enclosed application. It is … a letter setting out the financial terms on which it may be the council would be prepared to consider a sale … in due course”: at [974] A statement that provides information but does so without indicating that the person intended to make an offer is not an offer.

Harvey v Facey [3.90] Harvey v Facey [1893] AC 552. Harvey sent a telegram enquiring, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price”. (Bumper Hall Pen was a property.) Facey replied, “Lowest price for Bumper Hall Pen £900” to which Harvey

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replied, “We agree to buy Bumper Hall Pen for the sum of £900 asked by you”. When Facey refused to sell, Harvey sued for breach of contract. Harvey argued that Facey’s telegraphed reply was an offer to contract and that an agreement to contract was made when Harvey sent his second telegram “agreeing to buy” Bumper Hall Pen. Held: No contract existed. The third telegram (Harvey’s “acceptance” of Facey’s “offer”) was, in fact, an offer to buy at the price stated. The second telegram was simply a precise answer to a precise question – the lowest price that Facey would accept if he were to sell. A contract would be made only if Facey accepted the offer from Harvey to buy Bumper Hall Pen at £900. This he did not do. The decision may have been different if Facey had replied by saying, “I am interested in selling. My price is £900”. This communication is more likely to be regarded as an offer because it indicates a willingness by Facey to enter into a contract.

[3.100] Window displays, catalogues, price lists circulars and advertisements are usually invitations to treat and not firm offers by the seller.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [3.110] Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795; affirmed Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 (CA). Boots Cash Chemists opened the first large self-service pharmacy in England. Pharmaceutical supplies, including medicines and pharmaceutical drugs, were displayed on the shelves for customers to select and take to the cash register where a qualified pharmacist was always in attendance near the cash registers. The Pharmaceutical Society objected to this new method of retailing pharmaceuticals and attempted to close down the self-service part of the business by having Boots prosecuted under the Pharmacy Poisons Act 1933 (UK). The Act required prescribed drugs to be “sold” under the supervision of a pharmacist. The Society argued that an offer was made when the chemist placed the drugs on the shelves and the offer was accepted and a contract was made when the customer placed the drugs in the basket. If the sale was effected in this way it breached the Act as the sale was “unsupervised”. Boots argued that its placing of the goods on the shelf was an invitation to treat and the customer made the “offer” by taking it to the cashier who “accepted” the offer under the watchful gaze of a registered pharmacist. The court accepted Boots’ argument. In the words of the Lord Chief Justice, cited by Birkett LJ: “the mere fact that a customer picks up a bottle of medicine from the shelves … does not amount to an acceptance of an offer to sell. It is an offer by the customer to buy and there is no sale effected until the buyer’s offer to buy is accepted … the sale takes place under the supervision of the pharmacist…it would be wrong to say that the shopkeeper is making an offer to sell every

chapter 3 Offer and Acceptance

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’”: at [802].

[3.115] However, an advertisement may be regarded as an offer if it is sufficiently definite in its terms (quantity, quality and price) and is communicated in a way that a reasonable person would say that the advertiser intends to enter into a contract if the response from the person receiving the communication is positive

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

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

Harris v Nickerson [3.140] Harris v Nickerson (1872–73) LR 8 QB 286. The defendant advertised that an auction of certain goods would take place at a stated time and place. The plaintiff travelled to the auction only to find that items that he was interested in had been withdrawn. He claimed compensation for breach of contract, arguing that the advertisement constituted an offer, and his travelling to the auction, an acceptance by conduct. The court held that the advertisement was not an offer: it was merely a declaration of intention or an invitation to treat.

The position is Australia is unclear where the auction is advertised as one “without reserve” or where the reserve has been withdrawn. However it is likely that in either of these circumstances the auction is still regarded as an invitation to treat and not as a collateral warranty to sell to the highest bidder. Thus there is

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no sale until the property is knocked down to a bidder and, conversely, the auctioneer may withdraw the goods or property from the auction at any before a bid is accepted. See AGC v McWhirter (1977) 1 BPR 9595.

Online auctions and sales [3.150] Auctions conducted online, such as on eBay, raise interesting questions about the process of contract formation. So too does internet shopping. In both situations, the traditional contractual formation process can be applied. In the following case, the seller auctioned an aircraft with what was effectively a collateral promise to sell to the highest bidder once the bid is accepted.

Smythe v Thomas [3.155] Smythe v Thomas [2007] NSWSC 844. The seller listed a Wirraway aircraft on eBay with an effective disclosed reserve of $150,000. Smythe made a bid of $150,000 in accordance with eBay rules and was the highest bidder. Both parties received a notification that Smythe had won the “auction”. Thomas, however, refused to complete the transaction, arguing that no contract had been made between Smythe and himself. He argued there were only contracts between eBay and the buyer, and eBay and the seller. The court decided that the eBay terms and conditions created a framework for the auction in which Thomas and Smythe were willing participants. A binding contract was formed between the buyer and seller that the court would specifically enforce.

Tenders [3.160] A statement that goods are to be sold by tender is usually regarded as an invitation to treat. A party submitting a tender makes the offer and there is no contract until the person who called for tenders accepts the tender. Further, unless it says so in the original document calling for tenders, the person calling for tenders is not obliged to accept the lowest (or any) tender: Spencer v Harding (1870) LR 5 CP 561 at 564.

Harvela Investments Ltd v Royal Trust Co of Canada Ltd [3.170] Harvela Investments Ltd v Royal Trust Co of Canada Ltd [1986] AC 207. The House of Lords indicated that those inviting tenders had an obligation to abide by the undertakings given in the tender document. The Royal Trust Co owned shares in a company, and invited bids for them from two parties. The letter of invitation said, “… we confirm that if any offer made by you is the higher offer … we will bind ourselves to accept [it]”. Harvela bid $2,175,000 and its competitor bid “$2,100, 000 or $101,000 in excess of any other offer … expressed as a fixed monetary amount, whichever is higher.” The Royal Trust accepted the competitor’s bid as being $2,276,000. Harvela sued for breach of contract, saying a referential bid (not a fixed bid, but one that refers to and increases a competitor’s bid) was invalid. The House of Lords agreed. It held that Harvela’s bid should have been accepted. The parties had been invited to put in a tender, they had invested time and effort in preparing the tender and it was reasonable for the tender selection process to be carried out in the way Royal Trust had impliedly promised – that is, it would accept

chapter 3 Offer and Acceptance

the higher of the two “fixed” bids. It therefore could not accept a referential bid.

Persons to whom an offer may be made [3.180] An offer can be made to a specific person or persons, to a particular class of persons, or to the world at large. The person or persons for whom it was intended are the only ones who can accept it. However, if the offer is made to the world at large, for example by way of a general advertisement, then it may be accepted by anyone who reads the advertisement.

Communication of offer [3.190] 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 [3.200] 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.

Options [3.210] A promise to keep an offer open for a period of time is not enforceable unless the offeree provides consideration. The consideration is usually a relatively small amount of money. Without the consideration the promise to keep the offer open is unenforceable. If consideration is provided, an enforceable option contract is made. Thus, for example, if A promises B that, if he pays her $100, she will keep her offer to sell her house to B open for seven days, A’s promise is enforceable (assuming B accepts). If B exercises the option, and agrees to buy A’s house, unless the parties agree otherwise, the price of the option is neither refundable nor is it included in the sale price.

Goldsbrough, Mort & Co Ltd v Quinn [3.220] Goldsbrough, Mort & Co Ltd v Quinn (1910) 10 CLR 674. The defendant offered to the plaintiff that the plaintiff would have the right to purchase certain property within one week at a stated price. (That is, the plaintiff promised to keep the offer open for the defendant for one week.) The plaintiff paid the defendant the sum of 5 shillings in consideration for this option. Before the week agreed for the plaintiff to accept the offer to purchase the property, the defendant repudiated the offer. The plaintiff 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.

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

Byrne & Co v Leon Van Tienhoven & Co [3.240] Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344. Van Tienhoven wrote on 1 October from Cardiff offering to sell 1000 boxes of tinplates to Byrne in New York. Byrne received the offer on 11 October and accepted it by telegram on the same day, and by letter on 15 October . Meanwhile, on 8 October, Van Tienhoven had posted a letter withdrawing the offer (because the price of tinplates had risen by 25%). The letter did not reach Byrne until 20 October. The withdrawal of the offer was ineffective. While an offer could be revoked at any time before its acceptance, a revocation of the offer was not effective until it had been communicated to the offeree. A contract binding both parties had been entered into on 11 October when Byrne accepted by telegram the offer of 1 October. Lord Lindley said: “There is no doubt an offer can be withdrawn before it is accepted, and it is immaterial whether the offer is expressed to be open for acceptance for a given time or not…It may be taken as now settled that where an offer is made and accepted by letters sent through the post, the contract is completed the moment the letter accepting the offer is posted although it never reaches its destination. When, however, those authorities are looked at, it will be seen that they are based upon the principle that the writer of the offer has expressly or impliedly assented to treat an answer to him by a letter duly posted as a sufficient acceptance and notification to himself, or, in other words, he has made the post office his agent to receive the acceptance and notification of it. But this principle appears to me to be inapplicable to the case of the withdrawal of an offer. In this particular case I find no authority in fact given by the plaintiffs to the defendants to notify a withdrawal of their offer by merely posting a letter, and there is no legal principle or decision which compels me to hold, contrary to the fact, that the letter of the 8th of October is to be treated as communicated to the plaintiff on that day or on any day before the 20th, when the letter reached him.”

[3.250] 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, the general rule does not work so well in relation to unilateral contracts. In the now famous Brooklyn Bridge hypothetical Professor Wormser said: “Suppose A says to B, ‘I will give you $100 if you walk across the Brooklyn Bridge’. Let us suppose that B starts to walk across the Brooklyn Bridge and has gone about one-half of the way across. At that moment A overtakes B and says to him, ‘I withdraw my offer’. Has B then any rights against A? It is elementary that an offeror may withdraw his offer until it has been accepted. It follows

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logically that A is perfectly within his rights in withdrawing his offer before B has accepted it by walking across the bridge – the act contemplated by the offeror and the offeree as the acceptance of the offer. Until this act is done, therefore, A is not bound, since no contract arises until the completion of the act called for”. 1 If this analysis is correct, it would mean that, in Carlill, for instance, the company could have revoked after Mrs Carlill had commenced using the smokeball but before she had completed the prescribed two week course of treatment. Unfortunately there is no clear case authority on this point. However, in the following case, the Full Federal Court held that, on the facts, Mobil could revoke an offer to its franchisees, even though some had begun to perform the acts required in the offer. 1

Wormser, “The True Conception of Unilateral Contracts” (1916) 26 Yale LJ 136, 137.

Mobil Oil Australia Ltd v Wellcome International Pty Ltd [3.270] Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475. The Mobil franchisees were invited to attend a convention where the general manager of retail marketing made a number of statements suggesting that any franchisee who performed at a set “standard of customer service excellence” level for six years would be given an extension of their franchise at no cost. Mobil followed up with a report of the convention and video containing the manager’s statements. Relying on the manager’s representations some of the franchisees undertook to enter the customer service program believing that their participation would qualify them for the extension of the franchise agreements. Mobil subsequently discontinued the scheme and a number of dealers alleged breach of contract. The Full Federal Court held that Mobil had made no unilateral offer. The statements were exploratory – the precise terms of the offer had not been finalised. On the point concerning revocation of unilateral offers the Full Court said there was “no universal proposition” that an offeror cannot revoke the offer once the offeree begins to perform the act that has been requested by the offeror.

Lapse of offer [3.275] 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. The essential characteristic of a counter-offer is that it changes one or more of the material terms of the offer (such as price or quantity or quality). There is a difference between a counter-offer and a request for information or clarification of the terms of the offer. The following case illustrates this point:

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Hyde v Wrench [3.280] Hyde v Wrench (1840) 49 ER 132. Wrench offered to sell land to Hyde for £1,200. Hyde rejected the offer. He then offered to sell for £1,000. Hyde responded by offering to purchase the land for £950. The defendant refused to sell at this price. The plaintiff then said that he would accept the earlier offer to sell at £1,000. When Wrench refused to sell, Hyde brought an action for specific performance (that is, Hyde asked the court to find that a contract existed and order Wrench to perform it and hand over title to the property). Held: The court refused. It held there was no agreement – the earlier offer to sell at £1000 was terminated by Hyde’s counter-offer of £950 and it could not subsequently be revived. In effect, Hyde, in purporting to accept Wrench’s offer was, in fact, making an offer to buy it at that price. Of course, Wrench was free to reject the offer.

A request for information is not a counter-offer [3.290] It is not unusual for the offeree to want to clarify or seek more information about the terms of the offer. He or she may want to know if the offeror is prepared to modify one or more terms. Such a response is not a counter-offer so the offer does not lapse. It is a question of fact in each case whether the offeree’s response is a counter-offer or whether it is an attempt to clarify or seek additional information about the offer. In the above example, if B had enquired whether A would accept a cheque or credit card as payment for the television, this would be regarded as an enquiry or a request for further information and not a counter-offer because B is not seeking to impose a different term to the offer.

Stevenson Jaques & Co v McLean [3.300] Stevenson Jaques & Co v McLean [1880] 5 QBD 346. The parties were operating in a volatile iron ore market where price fluctuated quickly. McLean, an iron merchant, offered to sell iron to Stevenson Jaques, a buyer, for “40 shillings net cash”. Stevenson Jaques responded by asking whether McLean would accept 40 shillings “for delivery over two months or if not the longest limit you would give”. McLean, without answering, sold to another buyer. When it did not get a response, Stevenson Jaques, purported to “accept” the offer but then discovered that McLean had sold the iron elsewhere. Stevenson Jaques sued for breach of a contract that it argued came into effect when it accepted the offer. It argued its initial response was not a counter-offer but a request for information. If the latter, McLean’s offer was still able to be accepted as its revocation had not been communicated. If it was construed as a counter-offer, Stevenson Jaques could no longer accept (as a counter-offer kills the offer). The court decided that McLean was liable for breach of contract. The response from Stevenson was merely seeking to clarify the terms of the offer, not impose new or different terms. Lush J said: “The form of the telegram is one of inquiry. It is not ‘I offer 40 shillings for delivery over two months’ which would have likened the case to Hyde v

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Wrench. Here there is no counter proposal … There is nothing specific by way of offer or rejection, but a mere inquiry, which should have been answered and not treated as a rejection of the offer”: at 349–350.

[3.310] An offer will lapse: (d)

on the death of either party before acceptance. The death of either party before acceptance generally causes the offer to lapse. There are, however, circumstances in which the death of the offeror does not cause the offer to lapse. For instance, in relation to option contracts for the sale of property, the grantee of the option could exercise his rights under the option against the grantor’s executor. Again, where the offeree accepts the offer, unaware of the death of the offeror, and the offer does not involve the personal skill or expertise of the offeror, it is likely that acceptance would be effective and the agreement would be enforceable against the executor. The death of the offeree normally causes the offer to lapse. However where the offer is made to the offereee or his or her heirs and successors or where an option contract has been signed and has yet to expire, the offer may be accepted by the deceased offeree’s estate. The following case illustrates this point.

Carter v Hyde [3.320] In Carter v Hyde (1923) 33 CLR 115, Carter had leased Hyde’s hotel for a five year period. He offered to assign the lease back to him, and, for $1, granted him an option for three months. Before the option had expired, Hyde died. His executors sought to exercise the option but Carter argued the option had lapsed on Hyde’s death. The High Court decided that Hyde’s estate could exercise the option. It made an order for specific performance. Isaacs J said: “There was nothing of a purely personal nature in the bargain … and consequently it was … a right in the nature of property to endure for the expressed period of three months, and passed as part of his estate to his executors”: at [125].

An offer will lapse: (e)

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

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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Acceptance Figure 3.3 Rules as to acceptance

[3.330] An agreement is concluded when the offeree communicates an unconditional acceptance of the offer to the offeror. The form of the acceptance will vary according to whether it is a unilateral offer (performance of the act is acceptance) or bilateral (a verbal or written response communicated to the offeror or by conduct, such as commencing to build the house). The requirement that acceptance of the offer is clear, absolute and unconditional is consistent with the mutual assent theory of contract - only when the parties have, objectively speaking, given their mutual consent will law lend its weight to enforcing the agreement if a dispute arises. However, it must be understood at the outset that the courts have a long history of trying to make bargains work, if that is possible. They will make an effort to find their way through some uncertainty, ambiguity or lack of completeness in order that the apparent agreement be enforceable (see below at [3.720]).

Rules as to acceptance [3.340] The following points illustrate the primary basis for the rules as to acceptance. 1.

The general principle is that acceptance of an offer must be communicated to the offeror for there to be a binding contract between the parties. Acceptance can be communicated by express words or in writing, by conduct or by performance of an act requested by the offeror.

2.

Acceptance can be implied from the conduct of the parties, particularly where the traditional “offer and acceptance” approach does not work as well.

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Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [3.350] Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. A property developer, Empirnall, hired architects, Machon Paull, to act as a project manager, to draw plans and to obtain permits for a property development. Machon Paull forwarded a contract for signature and a progress payment claim to Empirnall, which paid on the claim and asked Machon Paull to submit progress claims. However, Empirnall did not sign the contract because its director “does not sign contracts”. Later, when Machon Paull sent another progress claim, it forwarded a contract for signature. Again the contract was not signed. Some two weeks later they wrote saying: “we are proceeding on the understanding that the conditions of the contract are accepted by you and works are being conducted in accordance with those terms and conditions”. It was important for Machon Paull that the court infer acceptance of the written contract (and not simply infer an agreement) because the written contract contained a clause that gave Machon Paull some security over the land in question. A dispute subsequently arose and Empirnall denied that the written contract had ever been accepted. The issue was whether a reasonable bystander would regard the Empirnall’s conduct as signalling that it it had accepted that the work was to be done according to the printed contract. McHugh J said it was not so much a case of acceptance by conduct but one where Empirnall had taken the benefit of the work done so that an objective bystander would say that it had accepted the offer.

[3.360] 3. Acceptance cannot be inferred from the silence or inaction of the offeree

Felthouse v Bindley [3.370] Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037. Felthouse offered to buy a particular horse from his nephew and stated in a written offer that “if I hear no more about him, I consider the horse mine at £30 15s”. His nephew did not reply but instructed the auctioneer, Bindley, not to sell the horse. Unfortunately, Bindley forgot to withdraw the horse from sale and sold it to another buyer. Felthouse sued the auctioneer in the tort of conversion (selling property belonging to the plaintiff). To succeed in an action for conversion Felthouse needed to demonstrate that he, Felthouse, was the owner of the horse at the time of the sale – as he would be if there were a valid contract between himself and his nephew. The Court held that Felthouse could not impose on his nephew a duty to respond if he did not wish to sell on those terms. There was no communication of acceptance before the sale; consequently the nephew was not bound to sell the horse to his uncle on the day of the auction and could sell the horse at auction.

[3.380] 4. There can be no acceptance if the offeree is unaware of the offer.

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It may happen that a person carries out certain acts in ignorance of the fact that an offer exists. 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.

R v Clarke [3.390] R v Clarke (1927) 40 CLR 227. A proclamation offered a reward of £1,000 for information that would lead to the arrest and conviction of the person who had murdered two policemen. Clarke and an associate were arrested and charged with the murder of one of the policemen. Clarke gave evidence that led to the conviction of two men for the murder. Clarke was subsequently released from custody and claimed the reward of £1,000. It was revealed in evidence that Clarke volunteered the information in order to clear himself of a false charge of murder. The High Court held that because Clarke did not act in reliance upon the offer, there was no acceptance of the offer and therefore there was no contract between the parties. Clarke was unable to claim the reward.

[3.400] 5. In a unilateral contract the offeror has waived its right to communication of acceptance. An example is Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (see [3.40]). The Smoke Ball Co could not argue that Mrs Carlill had not communicated her acceptance of the unilateral offer because the company had waived its rights in this respect. Mrs Carlill accepted by performing the acts (buying the ball and using as directed) requested by the company. [3.410] 6. Acceptance must be unconditional. A qualified or conditional acceptance would amount to a counter-offer. For example, if the offeree said she would accept the offer “provided you deliver the goods to my place of business” this is not an unqualified acceptance but a counter-offer. There is scope for legal uncertainty where parties reach an agreement during negotiations but use the expression “subject to contract” or “subject to a formal contract to be drawn up by our solicitors” or similar expression. This is increasingly common where business people negotiate using emails in which they express informal agreement on the terms but say “it is subject to a contract being executed”. A dispute may arise because one of the parties thinks that they will not be bound until a formal contract is executed whereas the other thinks that a binding agreement is immediately in place but it just needs to be put in a formal document. Whether or not a contract has been formed requires an objective determination of the intention of the parties. What effect, in this case, do the words “subject to contract” have? In the final analysis, were the offer and the acceptance unconditional? In the following case, the High Court considered the alternatives:

Masters v Cameron [3.420] Masters v Cameron (1954) 91 CLR 353. Masters signed an agreement to purchase Cameron’s rural property. The agreement included the following clause: “This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions”.

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Masters also paid the agent £1,750 when he signed the agreement. When Masters refused to proceed with the purchase, both parties claimed the deposit moneys. Masters argued there was no binding agreement and he was entitled to a refund. Cameron argued that there was a binding agreement and the moneys, being a deposit, were forfeited when the purchaser refused to proceed. The High Court decided that no binding agreement had been made. On the evidence, the court said that the parties had not intended that a legally binding agreement would exist until or unless a formal contract acceptable to Master’s solicitors had been signed. Therefore the £1,750 had to be returned to Masters. In the course of the judgment, the High Court noted that where parties reach agreement on the terms of a contract but also agree that the agreement shall be expressed in a more formal way, one of three alternatives is possible: the parties intend to be immediately bound by the agreement but agree that the agreement should be restated in a more precise way. Thus a contract exists and the parties are bound to perform it whether the formal document is signed or not; the parties have agreed on all the terms but have made performance conditional on the execution of a formal document. Again, as in the first alternative, a contract exists but here the parties have agreed that a formal document must be executed before they perform the agreement; and the intention of the parties is not to conclude an agreement at all unless or until a formal contract is executed. The High Court then said: … in each of the first two cases there is a binding contract: in the first, a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second, a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own … there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape”: at [360]–[363].

In all of the following cases, business people frequently conduct commercial negotiations using emails. In both of the following cases, the agreements were found to be binding even though some of the terms had not been finally negotiated. They are a warning that, in a world where written communications using email is easy and convenient, business people need to be clear about their intentions at every stage of the negotiations.

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Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119 [3.430] Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119. A buyer offered to purchase a roadhouse business and property for $1.6m. The seller’s agent emailed the buyer, setting out the basis on which the seller would sign a contract. The email included all the main terms – price, deposit, settlement date and other conditions – attached in a draft. There were further negotiations by phone and email. The buyer confirmed its offer by email, “subject to contract and due diligence as previously discussed”, and asked for the offer to be accepted immediately so that it could begin its investigations. The seller accepted the offer by email, “subject to execution of the contract provided”. The buyer sought further amendments to the form of contract but in the meantime the seller found another buyer for a higher price (in fact, the seller was playing one buyer off against the other) and refused to execute the contract. The Court found that the seller intended to be immediately bound by the initial offer, despite no formal contract being signed. The broader context of the emails strongly suggested that the parties intended to be immediately bound immediately by the terms they had agreed upon, with the intention that they would be formally recorded later.

Godecke v Kirwan (1973) 129 CLR 629 [3.440] Godecke v Kirwan (1973) 129 CLR 629. Godecke (buyer) and Kirwan (vendor) entered into a written agreement for the sale of land for $110,000 which included a clause that said if Kirwan required it, Godecke would execute a further agreement containing the terms of that agreement and any other as determined by Kirwan’s solicitors (within reason). Kirwan subsequently refused to proceed with the sale. The court held that a binding agreement may be made leaving some important matter to be settled by a third party or even by one of the parties. The parties had set out all the principal terms governing the sale of land, including “an obligation to execute a formal contract” and a promise by the seller to “execute, if required …, a further agreement”. The court said that although the clause gave the vendor the choice of inserting additional terms to those already agreed upon, the vendor could not insert terms that were inconsistent with those in the document and any such additional conditions needed to be “reasonable”. This was not an “agreement to agree” or a “conditional acceptance” but an agreement by Godecke to accept additional provisions if reasonably required. A binding agreement had been made.

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Vantage Systems v Priolo Corporation [3.450] In Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21, the parties negotiated a lease, mainly by email. The landlord emailed the tenant with a proposal for a new lease, “subject to formal lease documents being signed”. Amendments were then negotiated by email and the essential terms were agreed upon. The tenant asked the landlord to prepare lease documents although some minor terms had not been agreed upon. However, the tenant then refused to sign the lease. The Western Australian Court of Appeal held that when the tenant accepted the revised proposal, the parties, objectively speaking, intended to be bound immediately by an agreement to lease that would later be superseded by a formal lease.

Souter v Shyamba Pty Ltd [3.460] Souter v Shyamba Pty Ltd (2002) 11 BPR 20,369. 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. The parties had intended that the document would conclude the negotiations between them. The document included all essential terms, including “the parties, the property, the price and the promises”.

[3.470] 7. In order to be valid, an acceptance must follow the conditions or the form stated in the offer. Where the offeror does not specify any particular form of acceptance, there is a presumption that acceptance will be in the same form as the offer. [3.480] 8. Acceptance can be made only by the party to whom the offer was made. As we have seen an offer may be made to one or more people or to the world at large: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. [3.490] 9. Acceptance can be revoked at any time prior to acceptance being communicated. [3.500] 10. Acceptance must be made within the time prescribed or, if no time has been prescribed, within a reasonable time: Ramsgate Victoria Hotel Co v Montefiore (1866) LR 1 Ex 109. [3.510] 11. Communication of acceptance must be made in a regular and authorised manner.

Powell v Lee [3.520] Powell v Lee (1908) 99 LT 284. Powell applied for the position of headmaster of a school. The school board passed a resolution appointing him. The resolution was not communicated to Powell officially. One of the board members privately informed him of it. Subsequently the resolution was rescinded. It was held

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that Powell’s offer had not been accepted as the resolution was never communicated to him in an authorised manner.

[3.530] 12. The postal acceptance rule. As we have seen, the general principle is that an acceptance must be communicated to the offeror. However, the postal acceptance rule is an exception. According to this rule, where acceptance by post is contemplated by the parties, acceptance is complete as soon as a properly addressed letter of acceptance is properly posted: Henthorn v Fraser [1892] 2 Ch 27. An offeror can stipulate the required method of acceptance of their offer. Accordingly, the postal acceptance rule is excluded where the offeror requires actual communication of the acceptance. This may arise, for example, where there is an express stipulation in the offer requiring receipt by the offeror of the offeree’s acceptance for it to be effective. In such a case, the mere act of posting the letter of acceptance would not create a binding contract: Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74. In effect, the postal acceptance rule shifts the risk that a letter of acceptance sent by post may be delayed or lost onto the offeror. As we have noted above, the offeror is able to stipulate the method of acceptance (or specify that an acceptance by post will not be effective until the offeror receives it) so it is reasonable that if he or she fails to do so and the postal rule comes into effect, the offeror bears the risk. With the reduction in the use of the regular post and the rise in the number and legitimacy of electronic communications (as to which see [3.610] below), the postal acceptance rule is in imminent danger of obsolescence.

Adams v Lindsell [3.540] In Adams v Lindsell (1818) 106 ER 250, Adams were manufacturers of wool products and Lindsell were wool brokers. Lindsell posted a letter to Adams on 2 September offering to sell them a quantity of wool, requiring a reply “in the course of post”. This letter was misdirected and was not received until 5 September. Adams posted an acceptance on the same day. This letter reached the offeror on 9 September. On September 8, unaware that the offer letter had been misdirected and in the belief that the manufacturers were not replying, Lindsell sold the goods to a third party. Adams sued for breach of contract. Held: The defendant brokers were liable. The postal rule applied because, on the facts, the parties expected that the post would be used as a method of acceptance. Therefore the contract had been made on 5 September when Adams posted the letter of acceptance. As Lindsell was not able to supply the wool, it was in breach of contract.

Holwell Securities Ltd v Hughes [3.550] In Holwell Securities Ltd v Hughes [1974] 1 All ER 161, the court came to a different conclusion on the applicability of the postal acceptance rule:

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On 19 October, Hughes granted Holwell a six-month option to purchase property. The option could be taken up “by notice in writing to the intending vendor at any time” within the option period. On 14 April 1972, Holwell’s solicitors wrote to Hughes advising that their client wished to take up the option. The letter was never received. The issue was whether the words “by notice in writing to” had the effect of negating the postal acceptance rule. Held: Although the parties clearly contemplated that the post would be used, the use of the words “by notice in writing to the intending vendor” indicated that their intention was that actual communication was required. Therefore, as the option had not been properly exercised, Hughes was not required to enter into a contract of sale.

Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd [3.560] In Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1995) 63 SASR 235, Corralyn sent a letter by ordinary post to Elizabeth City Centre (ECC) giving notice within the specified time that it wished to exercise an option to renew its sub-lease. ECC claimed that it never received the letter. A clause in the sub-lease provided that a notice mailed by registered or certified letter was deemed to be served on ECC on the third business day following that on which it was posted. The court held the postal acceptance rule could not be relied upon as its operation was impliedly excluded by the clause regarding notification by certified mail. In the circumstances, the ordinary rule requiring communication of acceptance applied. Since Corralyn’s notice had not been actually communicated to ECC, Coralyn had not effectively exercised its option to renew.

[3.570] Where the postal acceptance rule applies, a person who makes an offer cannot revoke the offer once the offeree has posted a letter of acceptance. This is because the letter of acceptance creates a binding contract at the time of its posting. Thus a revocation must be communicated to the offeree before the latter posts the acceptance letter. Where the postal acceptance rule does not apply, the normal rule applies: an offer can be revoked provided it is communicated to the offeree before the acceptance is communicated. [3.580] 13. Electronic or instantaneous communications Where instantaneous or electronic communication is used as a method of acceptance, the usual rule applies – acceptance is effective only when it is communicated to the offeror. In the following case the critical question was where the contract had been made and the answer turned on whether the acceptance had to be communicated to the offeror.

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Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-gesellschaft mbH [3.590] In Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels-gesellschaft mbH [1983] 2 AC 34, Brinkibon was a London company that sold steel from Stahag, a seller based in Vienna, Austria. Brinkibon sent their acceptance to a Stahag offer by telex, a now almost obsolete form of electronic communication to Vienna. Brinkibon later wanted to issue a writ against Stahag but because of the rules of civil procedure would only be able to do so if the contract had been formed in England. Thus the issue was where the contract had been formed. The general principle is that a contract is formed where the acceptance is communicated and the court decided that, in this particular case, where a form of electronic communication (a telex) had been used, the usual rule applied: the contract was formed in Vienna where communication of the acceptance occurred. However, somewhat presciently, Lord Wilberforce did not see the rule as applying in all circumstances: “Since 1955 the use of telex communication has been greatly expanded … The senders and recipients may not be the principals to the contemplated contract … The message may not reach, or be intended to reach, the designated recipient immediately: messages may be sent out of office hours, or at night, with the intention, or on the assumption that they will be read at a later time. There may be some error or default at the recipient’s end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variants may occur. No universal rule can cover all such cases; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie”: at [296].

Regulation of electronic transactions Introduction [3.600] 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 arising in an electronic commerce context.

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Electronic Transactions Acts — Main Features Validity of electronic transactions [3.610] 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. 1 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. 1

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.

Writing [3.620] 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. 1 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. 1

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

Signatures [3.630] 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. 1 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. Finally the recipient must consent to the use of this method. 1

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.

Production of documents [3.640] A person who is required or permitted by law to produce a document in hard copy may instead produce the document in electronic form. 1 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

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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. 1

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.

Consent [3.650] The inclusion of a consent provision for electronic writing, signature and production provisions has been regarded as a serious weakness. Parties must reach an agreement in advance as to the use of the particular electronic communication. Consent includes consent that can reasonably be inferred from the conduct of the person concerned.

Retention of information and documents [3.655] 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. 1 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. 1

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.

Time of dispatch of electronic communications [3.660] 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”. 1 1

Electronic Transactions Act 1999 (Cth), s 14; Electronic Transactions Act 2000 (NSW), s 13; Electronic Transactions (Victoria) Act 2000 (Vic), s 13; Electronic Transactions (Queensland) Act 2001 (Qld), s 23; Electronic Transactions Act 2000 (SA), s 13; Electronic Transactions Act 2011 (WA), s 13; Electronic Transactions Act 2000 (Tas), s 11; Electronic Transactions Act 2001 (ACT), s 13; Electronic Transactions (Northern Territory) Act 2000 (NT), s 13. See Explanatory Note to the UN Convention on the use of Electronic Communications in International Contracts (INT) paras 177–178.

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Time of receipt of electronic communications [3.670] An electronic communication is taken to have been received by the addressee when it becomes “capable of being retrieved” by the addressee at an electronic address designated by the addressee. Where the addressee has not designated an electronic address, the time of receipt is when the electronic communication has become capable of being retrieved by the addressee and, when the addressee has become aware that the electronic communication has been sent to that address. 1 This is presumed to be when the electronic communication reaches the addressee’s electronic address whether or not it is opened or read. 2 1

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.

2

See Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123 where the email was caught by the recipient spam filter.

Reed Constructions Pty Ltd v Eire Contractors Pty Ltd [3.680] 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.

[3.690] The expression “received” has been judicially equated with statutory requirements for the expressions “lodged”, “serve”, “provide”, “notice”, “receipt”, “give” and “made”.

Place of dispatch and receipt of electronic communications [3.700] 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. 1 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.

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1

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.

Place of dispatch and receipt of electronic communications [3.710] A person is not bound by an electronic communication unless the communication was sent by, or with the authority of, that person. 1 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. The Acts provide that the purported originator is only bound by a communication if the communication was sent by them or with their authority. 1

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.

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. 1 1

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).

The question of certainty [3.720] The courts endeavour to uphold commercial agreements wherever possible. 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.

Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [3.730] Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429. The Council signed a contract to supply Australian Chilling & Freezing with electricity. Clause 5 of the contract stated “if the Supplier’s costs shall vary in other respects than has been herein before provided the Supplier shall have the right to vary the maximum demand charge and energy charge …”. Council sought to increase its charges, but Australian Chilling & Freezing said the contract was unenforceable because of the lack of certainty about the term “supplier’s costs”. The parties had made no attempt to define what those costs might be. The High Court said the contract was not uncertain. The Court said that a contract is not automatically void for uncertainty just because it may be construed in more than one way: “As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The

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question becomes one of construction, of ascertaining the intention of the parties, and of applying it.” He observed that a “narrow or pedantic approach” to interpretation should not be taken – it is clear that in this case there was no uncertainty even though there may be scope for disagreement about what constituted suppliers costs in individual cases. Where no contract exists, the use of an expression such as “to be agreed” in relation to an essential term is likely to prevent any contract coming into existence, on the ground of uncertainty.

ANZ Banking Group v Frost [3.740] ANZ Banking Group v Frost [1989] VR 695. Frost submitted a proposal to the ANZ that the Bank accepted “in principle” but there was absence of agreement “concerning the style, size, quality and price of the proposed calendar”. ANZ subsequently advised Frost it did not wish to proceed. Frost sued for breach of contract. The Supreme Court of Victoria held that there was no agreement on essential terms. Where a “relevant or critical term” requires future agreement it is not an enforceable contract.

Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [3.750] Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53. Booker leased to Wilson a service station and car park. A clause of the lease gave an option for a further 3 years at a rent “to be mutually agreed. Failing such agreement the lease provided for rent to by set by an arbitrator appointed by the President of the Law Society”. Wilson purported to exercise the option but Booker refused, arguing that an essential term had not been agreed to and, it sought recovery of possession. The High Court said that the courts will not enforce an incomplete agreement or “an agreement to agree”. If the lease had said the option could be exercised but at a “rental to be agreed”, there would be no enforceable agreement. Here, however, the parties provided a mechanism that allowed an essential term (the rent) to be determined by a third party with no further agreement required of the parties. Thus there is a valid agreement to renew.

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Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [3.760] Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. Crown is the owner of the Melbourne Casino and Entertainment Complex. Cosmopolitan held two leases limited to a term of 5 years. The leases required the tenants to undertake extensive refurbishments. The landlord did not renew the tenants’ leases following a tender process and gave notice requiring the tenants to vacate the premises on the expiration of the leases. The tenants subsequently became insolvent due to write-downs of more than $2 million in the value of the refurbishments. The tenants alleged that, in order to induce them to enter into the leases with a short 5-year term, an oral statement made by Crown that Cosmopolitan would be “looked after at renewal time” amounted to a collateral contract that the landlord would renew the leases for a further 5 years if they undertook the extensive refurbishments. The High Court upheld the Court of Appeal’s finding that the statement was no more than “vaguely encouraging” and did not amount to a collateral contract as a reasonable person in the position of the parties could not have understood the statement to amount to a binding contractual promise to renew the leases. The High Court affirmed that even if the statement were considered to be a promise, it was illusory and unenforceable because it left the essential terms and conditions of the renewed leases to the landlord’s discretion. As a result, even if the statement was incorporated into the tenants’ leases, it would have been unenforceable as it was not sufficiently certain. The decision reinforces the basic principle that there can be no enforceable agreement to renew a lease, breach of which will result in damages, unless at least the essential terms of the lease have been agreed.

chapter 4

Intention to Create Legal Relations [4.20] Intention and social and domestic agreements..................................................................................... 83 [4.140] Intention and commercial agreements................................................................................................... 85

Introduction [4.10] An agreement will not of itself create a contract. The parties must also have intended to create a legally binding contract – that is, they must intend that the agreement be enforceable in the courts, if necessary, in the event of a breach. However because it is unusual for the parties to expressly state that it is their intention to be legally bound, two loose presumptions have evolved to assist the court in the determining whether such an intention exists: parties who make social or domestic agreements do not intend that the agreement will be legally binding; whereas parties involved in commercial agreements do intend their agreement to be legally binding. It must be emphasised that these presumptions are merely an aide – the fact that a contract constitutes a family arrangement or a commercial relationship does not raise a strict presumption regarding the parties’ intention; rather this forms part of the surrounding circumstances from which it will be determined whether the contract was formed: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 (see [4.15]).

Ermogenous v Greek Orthodox Community of SA Inc [4.15] Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95. When Archbishop Ermogenous resigned after more than 20 years employment with the Greek Orthodox Church he made a claim for payments for annual and long service leave. The Church refused, arguing that his employment with the Church was not “contractual”. The Archbishop eventually took his case to the High Court and succeeded. The High Court said it would be both difficult and wrong to use strict rules in relation to “presumptions” to determine whether or not intention exists in any particular case. The majority of the Court said it was wrong to make a presumption that there was no intention to create legal relations simply because it was a matter concerning the engagement of a minister of religion. Kirby J said (at 76): “… It would be contrary to basic principle to suggest that his spiritual calling somehow placed him outside the rights and duties of the law ... a proved agreement with a body such as the respondent to provide for the necessities of life of a minister of religion ... is not one which Australian law will refuse to enforce because the law presumes a lack of intention to enter legal relations.” Bearing in mind the High Court’s advice in Ermogenous v Greek Orthodox Community of SA

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Inc we will consider the question of whether there is an intention to create legal relations by looking at the presumptions that may arise in relation to social/domestic agreements and commercial agreements.

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Intention and social and domestic agreements [4.20] The circumstances surrounding social and domestic agreements usually indicate that the parties did not intend to create legal relations. However, there are circumstances where this is not true.

Agreements between a husband and wife [4.30] In normal circumstances the courts will regard domestic arrangements between a husband and wife as not intended to give rise to legally enforceable obligations.

Balfour v Balfour [4.40] Balfour v Balfour [1919] 2 KB 571. The defendant was a civil engineer employed by the Government of Sri Lanka (or Ceylon as it was then called) as Director of Irrigation. He and his wife lived in Sri Lanka together until they returned to England for his leave. When he returned to Sri Lanka she was unable to accompany him because of her ill health. At this point, he promised to pay her £30 a month as maintenance during the time that they were forced to live apart. When the relationship deteriorated she commenced divorce proceedings. She claimed she was entitled to the amount she and her husband had agreed upon. Her action failed. The Court held that the agreement was an ordinary domestic arrangement which was not intended to give rise to a legally binding contract. As Atkin LJ said: “The common law does not regulate the form of agreements between spouses. Their promises are not sealed with seals and sealing wax. The consideration that really obtains for them is that natural love and affection which counts for so little in these cold courts ... the plaintiff has not established any contract.”: at 579-580.

[4.50] Agreements made where the marital/de facto relationship has broken down are more likely to be enforceable.

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

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Other family or social agreements [4.70] Although the surrounding circumstances in many family arrangements may suggest the parties did not intend to create a binding agreement, the court is more inclined to find an intention to create legal relations where one of the parties has significantly changed their position in reliance on the agreement.

Todd v Nicol [4.75] Todd v Nicol [1957] SASR 72. Mrs Nicol was living in South Australia by herself after her husband died. She wrote to her sister-in-law, Margaret Todd, and Margaret’s daughter, Gracie, who lived in Scotland, and invited them to come and live with her on the understanding that they would live rent-free and that she would leave her house to them when she died. As she said: “I must have company at my age – it is not good to live alone... The house is big enough, I will do all I can to make it comfortable for you, and we could change it around when you arrive ... I will help with emigration and jobs ... You would share my home ... and no rent at all.” The Todds replied, accepting her invitation. They terminated the lease on their home and sold their furniture and surplus belongings. Margaret resigned from her job, and they bought tickets to travel by sea to Australia. After hearing this, Mrs Nicol wrote to say that she had varied her will so that if anything were to happen to her, “when I sign it the house is yours for life Margaret without expense, also you Gracie (unless you marry)”. In a following letter she said that she was “doing her darndest to think things out for their protection – just in case.” Shortly after they arrived in Australia the parties argued and Mrs Nicol sought to remove the plaintiffs from her house. The plaintiffs sued, claiming a contract had been formed, giving them the right to live in the house rent-free for life (or in Gracie’s case, until she married). The court decided that although there was a presumption that in a family arrangement of this kind there would be no intention to create a legal relationship, it was rebutted by evidence of the cost and inconvenience to the plaintiffs. Certainly, where there are significant commercial consequences that flow from a social or domestic agreement the presumption may be rebutted. Note: although the plaintiffs succeeded in establishing that there was a contract, Mayo J held there was an implied term in the agreement that obliged the Todds to behave in a reasonable manner. In behaving badly towards Mrs Nicol they had breached this implied term and the court refused to order Mrs Nicol to allow them to live in her home. In similar circumstances the presumption was also rebutted in the following case but, in this instance, the plaintiff son succeeded in an action against his mother.

Ashton v Pratt [4.80] Ashton v Pratt [2015] NSWCA 12. Around November 2003 the late Richard Pratt, described as a man of “exceptional wealth”, offered Ms Madison Ashton the position of his “mistress” in exchange for a trust of $2.5 million to be set up for each of her children, a payment of $500,000.00 per year for her services, a car and certain allowances – some of which were to encourage Ashton not to return to her work in

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the escort industry. This agreement was never reduced to writing. From this time until approximately December 2004, Ashton was Pratt’s “mistress”. She received the use of a car and certain allowances but the entire agreement, including the establishment of a trust, was never carried out. After Pratt’s death, Ashton sued the estate seeking damages for breach of the agreement including the trust. The Court of Appeal was unanimous in finding that there was no intention to create a legally binding agreement between Mr Pratt and Ms Ashton. This was because the conversation was “not cast in the language of obligation”. There was also an absence of attention in the conversation to matters of detail. Those matters included: the duration of any arrangement; how it might be terminated; what should happen upon its termination; the definition of the services which Ms Aston was required to provide in return for the payments to be made; when the trust was to be established and whether there was to be any qualifying period before the obligation to establish it arose. The absence of attention by either party to these matters, or at least some of them, would have conveyed or confirmed to a reasonable person that the promises or statements of intention made were not to be legally enforceable.

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.

Trevey v Grubb [4.100] Trevey v Grubb (1982) 44 ALR 20. Where a Tattslotto 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 a lot of money at stake, systematic behaviour over time, and statements such as “more chance to win with more people” – 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. The circumstances surrounding the purchase of tickets by members of a syndicate would strongly suggest that the syndicate members intended to enter into a legally binding contract with one another. In truth, more commonly the issue is whether a particular person was, at the critical time when a winning ticket was bought, a member of the syndicate.

Intention and commercial agreements [4.140] Where an agreement is reached in the course of business dealings the circumstances will generally indicate that the parties intended to create legal relations. It has been said that:

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“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”: Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 at 523.

Price v Southern Cross Television (TNT9) Pty Ltd [4.145] Price v Southern Cross Television (TNT9) Pty Ltd [2015] Aust Torts Reports 82-208; [2014] TASSC 70. A tour boat operator agreed to take the plaintiff to an island without charge if she took part in a television program 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”: at [62].

Malago Pty Ltd v AW Ellis Engineering Pty Ltd [4.150] Malago Pty Ltd v AW Ellis Engineering Pty Ltd [2012] NSWCA 227. Following a mediation the parties entered into Heads of Agreement. The Agreement provided that: “[w]ithout affecting the binding nature of these Heads of Agreement the parties within 7 days [are] to execute a formal document or documents as agreed between their respective solicitors to carry out and express in more formal terms and additional terms as these Heads of Agreement”: 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.

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.

Rose & Frank Co v JR Crompton & Bros Ltd [4.190] Rose & Frank Co v JR Crompton & Bros Ltd [1925] AC 445. An agreement contained a clause which stated: “This arrangement is not entered into … as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts …, but it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence – based on past business with each other – that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation”. It was held that the agreement was not a legally binding contract. It was clear from the clause that the agreement was intended to be binding in honour only and not

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intended to create legal obligations. The use of words in the agreement such as “not ... a formal agreement” and “honourably pledge” indicated that the parties did not have the intention to create a legally binding agreement. As Atkin LJ said: “In this document, construed as a whole ... the clause in question expresses in clear terms the mutual intention of the parties not to enter into legal obligations ... I see nothing necessarily absurd in businessmen seeking to regulate their business relations by mutual promises which fall short of legal obligations, and rest on obligations of either honour or self-interest ....”: at 293.

[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 the following case:

Jones v Vernon's Pools Ltd [4.210] Jones v Vernon’s Pools Ltd [1938] 2 All ER 626. The plaintiff alleged that he had sent in a completed football coupon to the defendant pools company. It would have been a winning coupon but could not be traced by the defendant. When sued by the plaintiff, the defendant relied on the following clause included on its coupons: “It is a basic condition of the sending in and acceptance of this coupon that it is intended and agreed that the conduct of the pools and everything done in connection therewith … shall not be attended by or give rise to any legal relationship, rights, duties or consequences whatsoever or be legally enforceable or the subject of litigation, but all such arrangements, agreements and transactions are binding in honour only.” It was held that in view of the 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.

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. 1 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, or there may be other reasons why the parent company does not want to enter a formal contract of guarantee in respect of its subsidiary’s loan, for example, to avoid accounting requirements that would require the parent to include a contingent liability in respect of the guarantee on the parent company’s balance sheet. Where the parent company is a substantial company of good reputation, a letter of comfort that it issues in respect of its subsidiary may be regarded by the lender as a sufficient alternative to a guarantee or other form of security for the loan. The courts will determine whether the parties intend a letter of comfort to be legally binding by looking objectively at the words used in the letter and the surrounding circumstances

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A letter of comfort tends to be phrased in general terms and will typically include: (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; ATCO Controls Pty Ltd (In liq) v Newtronics Pty Ltd (In liq) (2009) 25 VR 411 at [54]; contrast the following case: 1

See generally M Seddon, “Letters of Comfort” (1998) 26 Australian Business Law Review 309; L Thai, “Comfort Letters – A Fresh Look?” (2006) 17 Journal of Banking and Finance Law and Practice 15.

Banque Brussels Lambert SA v Australian National Industries Ltd [4.222] Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502. When Banque Brussels was negotiating a loan of $5 million to Smedley Securities, ANI (which had a controlling interest in Smedley’s parent company) provided a letter of comfort to the bank in which ANI agreed to inform the bank if it decided to dispose of its holding in Smedley’s parent company. The letter also said: “We take this opportunity to confirm that it is our practice to ensure that Smedley Securities Ltd will at all times be in a position to meet its financial obligations ... (including) repayment of all loans made by your bank.” ANI disposed of its holding without giving notice and Smedley went into liquidation. When the bank could not recover its loan it sued ANI, arguing that the letter of comfort contained a contractual promise that it would in effect guarantee the loan made to Smedley. ANI argued that the letter was not intended to create a legal relationship between it and the bank. The court began with the presumption that parties to commercial arrangements intend their agreements to have legal effect and found that ANI had not adduced enough evidence to rebut the presumption. Rogers CJ said: “There should be no room in the proper flow of commerce for some purgatory where statements made by businessmen, after hard bargaining and made to induce another business person to enter into a business transaction would, without any express statement to that effect, reside in a twilight zone of merely honourable engagement. The whole thrust of the law today is to attempt to give proper effect to commercial transactions. If the statements are appropriately promissory in character, courts should enforce them when they are uttered in the course of business and there is no clear indication that they are not intended to be legally enforceable”: at 532.

chapter 4 Intention to Create Legal Relations

Government policy proposals [4.225] The courts have traditionally kept out of political fights, in much the same way, as we saw earlier, that they have been reluctant to decide family disputes. Where promises made by government are in the nature of policy commitments (for example, the promise to build a national broadband network or a school hall or subsidise solar panels), the courts have been reluctant to say that these promises create contractual obligations between the government and some of the citizenry. Broken policy commitments may have political consequences; they do not generally have legal ones. However, where the government enters into normal commercial agreements to buy or sell goods or services (for example, it signs a contract with Toyota to purchase a fleet of cars or signs a contract with a builder to construct a school hall or signs a contract to build an $8 billion tunnel) it is bound by the normal law of contract. In other words, there is a presumption that the parties to such a contract intended to make a binding contract and it is enforceable by and against the government.

Australian Woollen Mills Pty Ltd v Commonwealth of Australia [4.227] Australian Woollen Mills Pty Ltd v Commonwealth of Australia (1954) 92 CLR 424: After World War II the Commonwealth Government announced that it would pay a subsidy for wool that was bought by manufacturers for the purpose of manufacturing within Australia. Acting on the policy, Australian Woollen Mills (AWM) bought wool and received a subsidy for one year. However when AWM purchased wool the next year and then applied for the subsidy they were refused, as the government announced the scheme would be terminated. The question arose as to whether the Commonwealth had intended to enter into a contract to continue the subsidy. The High Court found that there were a number of factors that indicated that this was more in the nature of an administrative scheme rather than a contractual obligation to pay a subsidy. For instance, the Commonwealth expressly reserved the right to vary the amount of the subsidy and there was no formal agreement between the government and the manufacturers. The court decided that these factors, combined with the courts’ general reluctance to regard policy commitments as contractual obligations, meant that there was no binding contract to subsidise wool purchases.

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Consideration, Promissory Estoppel and Formalities [5.20] Consideration ........................................................................................................................................................... 92 [5.230] Promissory or equitable estoppel ........................................................................................................... 100 [5.290] Formalities........................................................................................................................................................... 106

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

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Consideration The requirement of consideration [5.20] Broadly speaking, the requirement of consideration means that a promise can only be legally enforced by the promisee (the person to whom the promise is made) if the promisee can show that he or she has given or promised to give something of value in return for the promise. For example a promise by A to give B her car is not enforceable because nothing of value (for example, a promise to pay A $10,000 or a promise to allow A to use his holiday house) has been given or promised by B.

The definition of consideration [5.30] In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 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”: at 855. Consideration was described in the New South Wales Court of Appeal as follows: “Without consideration, a promise is unenforceable at law. The modern theory of consideration has arisen from the notion that a contract is a bargain struck between the parties by an exchange. By that modern theory, consideration must be satisfied in the form of a price in return for the promisor’s promise. The price can be in the form of an act, forbearance or promise”: Beaton v McDevitt (1987) 13 NSWLR 162, 168 per Kirby P. The following rules have been developed by the courts in cases where the dispute concerned whether the promisee had provided value (in one form or another) for the promise he or she was seeking to enforce.

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Essential rules regarding consideration Figure 5.1: Rules of consideration

[5.40] 1. Consideration must be sufficient but need not be adequate. The consideration provided by the promisee must have some recognised legal “value” but it need not be a “fair” exchange. The courts are disinclined to assess whether the deal was a good one for both parties. Thus a promise to lease premises in exchange for a promise to pay a “peppercorn rental” (say $1 per annum) is of sufficient value to make an enforceable contract. If the promise is too vague or uncertain or does not oblige the promisor to do anything, it will have no legal value and cannot be consideration for the promise that the promisee is seeking to enforce.

Thomas v Thomas [5.45] Thomas v Thomas (1842) 2 QB 851: Just before he died, John Thomas orally expressed a desire for his wife to have their house. After his death, the executors of his estate entered into an agreement with his wife “in consideration of John’s desires” pursuant to which she would stay in the house and, in return, pay one pound per year. After a certain time, she would be entitled to have the title conveyed to her. She lived in the house for some time but the executor refused to complete the conveyance claiming the agreement was unenforceable because no valuable consideration had been provided. The court decided in favour of the wife. It said that the court will not look into the adequacy of consideration or the motivation for entering the agreement (honouring Thomas’ dying wish) provided that there is a real bargain between the parties. Motive is irrelevant; consideration is not. In this case, there is sufficient consideration

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(the token rental) coming from Thomas’ wife, and for this reason alone (and quite independent of the moral feeling that motivated the executors to enter into the agreement) the agreement is enforceable.

[5.50] 2. Consideration must not be illusory. This occurs when there is no objective way of evaluating the promise

White v Bluett [5.55] White v Bluett (1853) 23 LJ Ex 36. Bluett had loaned his son some money. After Bluett died, the executor, White, sued the son when he refused to repay the loan money. In his defense, the son argued that his father had said the son need not repay if the son would stop complaining about how his father would distribute his property in his will (he was anxious about his siblings getting more than him). White succeeded. The Court held there was no consideration provided by the son to his father for any discharge of the obligation to repay. The son had “no right to complain” anyway. Not complaining was, therefore, an entirely intangible (and not valuable) benefit and so did not amount to consideration.

Chappell & Co Ltd v Nestle Co Ltd [5.60] Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87. Nestle were the manufacturers of chocolate products. To promote sales of its chocolate bars, Nestle entered into a contract with Chappell that allowed it to sell copies of the song “Rockin’ Shoes” (Chappell owned the copyright) for 1s 6d plus three chocolate bar wrappers. The Copyright Act 1968 (Cth) s 8 said a 6.25% royalty needed to be paid on the “ordinary retail selling price” to the owners of copyright. Nestle said 1s 6d was the “ordinary retail selling price”, but Chappell argued that the consideration should include the value of the wrappers. The House of Lords held that the wrappers formed part of the consideration. Lord Somervell said: “I think they are part of the consideration. They are so described in the offer. ‘They..will help you to get smash hit recordings.’ They are so described in the record itself – ‘all you have to do to get such new record is to send three wrappers from Nestlé’s 6d. milk chocolate bars, together with postal order for 1s. 6d.’…It is said that when received the wrappers are of no value to Nestlé’s. 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 not like pepper and will throw away the corn. As the whole object of selling the record was to increase the sales of chocolate, it seems to me wrong not to treat the stipulated evidence of such sales as part of the consideration”: at 114.

chapter 5 Consideration, Promissory Estoppel and Formalities

[5.65] 3. Consideration may be executed or executory but cannot be past consideration. (Certain exceptions exist to the rule that past consideration will not support a simple contract: see [5.75]). Consideration is executed where one party performs an act in exchange for the other party’s promise. For example, A offers a $100 reward for the return of his lost wallet. B, on finding and returning the wallet, has performed her part of the bargain. It remains for A to fulfil his obligation by paying the reward. Consideration is executory where one party has given a promise to do, or refrain from doing, something in exchange for the other party’s promise. For example, A agrees to sell B one ton of coal on the basis that B is to pay for it on delivery. In this case both promises are not yet performed and each provides consideration for the other. If a person performs an act (B drives A from Melbourne to Adelaide) and then after the act is performed the other person makes a promise (A promises B $200) the promise is unenforceable because the act was not done in exchange for the promise. This is called past consideration. Since “consideration” is defined as the price paid in exchange for a promise, acts that are done prior to the promise can never in law amount to consideration sufficient to support a subsequent promise. In the following case, the promise to increase Anderson’s wage in the future is enforceable (it is an example of executory consideration – a promise to pay exchanged for a promise to work). However, it is a different story for the promise to pay him for work already done:

Anderson v Glass [5.70] Anderson v Glass (1868) 5 WW & AB (L) 152. Glass 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.

[5.75] 4. Exception to the “past consideration” rule. Where the consideration amounts to some past act or forbearance it may not constitute past consideration. In Pao On v Lau Yiu Long [1980] AC 614 the House of Lords said: “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.” [5.83] As an example, assume Jane, a law faculty administrative officer, is asked to assist at a law conference to be held at the weekend. The conference is very successful and, on the following Monday, the Dean promises her a bonus of $1000. Later, after they argue about an unrelated matter, he informs her that he has changed his mind and will not give her the bonus. She sues him. In this case the consideration may appear to be “past” because the promise to pay came after the act (working at the weekend) but the three criteria mentioned in Pao On v Lau Yiu Long have been met: Jane worked at the promisor’s (the Dean’s) request;

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there would have been an understanding that she would not work for nothing (why would an administrative officer work on the weekend for no reward?); and the promise would have been enforceable if it had been made before the act in question. [5.85] 5. 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 reasonable, not vexatious or frivolous.

Wigan v Edwards [5.90] Wigan v Edwards (1973) 47 ALJR 586. Mr and Mrs Edwards agreed to buy a house from Wigan for $15,000. Before settlement, the plaintiffs said they had found defects and were not going to proceed. In return for their promise to proceed with the purchase, Wigan promised to remedy minor defects within one week of finance being approved and to correct any major defects occurring within five years. Wigan subsequently did not honour his promise. The Edwards sued him and sought to recover the cost of the work. The main issue was whether the Edwards had provided consideration for Wigan’s promise. The general rule is that a promise to perform an existing duty is no consideration. Here the Edwards were already obliged to complete the contract so a promise to do so in exchange for the promise to fix the defects is not consideration. An important qualification to this general principle is that a promise to do what the promisor is already bound to do is sufficient consideration when it is a bona fide compromise of a disputed claim. What is meant by bona fide? It is not required that the promisor’s (the Edwards’) claim would have succeeded had it been litigated. It must just be a reasonable one. Here the Edwards honestly believed that they did not have to complete the contract and although they may have been wrong regarding this, their claim cannot be described as frivolous or vexatious.

[5.95] 6. Performing an existing obligation (at law or under contract) is not good consideration.

Collins v Godefroy [5.100] 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.

Glasbrook v Glamorgan County Council [5.115] Glasbrook v Glamorgan County Council [1925] AC 270: In this case the Court held that the police had done more than their public duty required. A miners’ strike at a coal mine resulted in the police being called. In discussions as to how best to protect the mine, the company asked for police to be stationed permanently at the coal mine. However the police felt that a mobile patrol would be sufficient. The mine

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company then offered to pay £2200 for the police to have a presence on the premises and the police accepted. The mine company later refused to pay arguing that the police had not provided consideration for the promise – they were doing no more than their public duty. The House of Lords decided that valuable consideration had been provided by the police. The police were under a public duty to provide protection for the mine but they had formed the view that a mobile patrol was adequate and a promise to provide more protection was consideration for the promise by the company to pay for these services.

Foakes v Beer [5.120] Foakes v Beer (1884) 9 App Cas 605. An example of the second class of case arose in Foakes v Beer. 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. The defendant ultimately paid the whole amount of the judgment debt but the plaintiff sought to issue execution for the interest that 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.

[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.

Stilk v Myrick [5.132] Stilk v Myrick (1809) 2 Camp 317: The plaintiff contracted to work as one of 11 seamen on a return voyage from London to the Baltic at the rate of £5 per month. During that voyage two seamen deserted and the captain promised the remaining seamen they could divide the deserters’ wages between them if they continued to sail the ship. The plaintiff sued for his share when the captain returned to London and refused to honour his promise. The court decided that Stilk was already under a contractual duty to provide his services, including the duty to cover for others in an emergency. As he had done nothing more than what he was obligated to do under the existing contract, the court held that he had not provided valuable consideration for the captain’s promise. There may have been public policy reasons for the court’s insistence on a strict adherence to the original contract (not the least of which would be that the law did not want to encourage mutiny on the high seas).

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[5.132A] Compare Stilk v Myrick (1809) 2 Camp 317 with the following case.

Hartley v Ponsonby [5.133] Hartley v Ponsonby (1857) 7 E & B 872. Hartley signed on as a crew member of the sailing ship The Mobile. When the ship reached Port Philip (in Victoria) 17 of the 36 crew deserted, leaving only 19 to sail back to India. Of those 19, only five were qualified mariners. To encourage the remainder to continue, the captain, Ponsonby, promised them additional wages. Hartley sued Ponsonby when he refused to honour his promise. The court concluded that Hartley had done more than his existing contractual duty (and therefore had provided value). In the wake of the desertion of so many men, the ship had become unseaworthy, thus allowing Hartley to terminate the contract, if he elected to do so. In agreeing to sail on, Hartley had provided valuable consideration for the modified contract.

A modern approach: the practical benefit test [5.134] In recent times, some courts have adopted a different, perhaps more commercially realistic, but controversial approach to disputes of this kind. They have broadened the concept of valuable consideration to include the so-called “practical benefit” test.

Williams v Roffey Bros & Nicholls (Contractors) Ltd [5.135] Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512: The unfairness of the rule in Stilk v Myrick (1809) 2 Camp 317, if strictly applied, has led to a more generous interpretation of the idea of what can be considered to be valuable consideration. Roffey Bros and Nicholls Ltd (Roffey), a construction company, had contracted with a housing association to renovate a block of flats. There was a penalty clause in the main contract compelling Roffey to pay significant damages to the purchaser of the flats if it finished late. Some of the carpentry work was subcontracted to Williams for £20,000. Williams performed some of the work and received £16,200. However, it then became clear that he had under-quoted for the job and would not be able to fulfil his obligations on time. When Roffey became aware of this, he promised to pay Williams an extra £10,300. Only £1,500 was paid to Williams before a dispute arose and Roffey refused to pay any more money. The court decided that Williams could enforce the contractual variation. Although he had not done more than he was obliged to do under the original contract, the court decided that the promise to pay the extra money was enforceable. The court said that the traditional common law rule (Stilk v Myrick) does not apply when: A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B;

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at some stage before A has completely performed his obligations under the contract, B has reason to doubt whether A will be able to complete his side of the bargain; B promises A an additional payment in return for A’s promise to perform his contractual obligations on time; as a result of A giving his promise, B obtains in practice a benefit, or obviates a disbenefit; B’s promise is not given as a result of economic duress or fraud on the part of A; and the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding. The first three criteria had been met. But what “practical benefit” had Roffey received as a result of the variation? Williams continued on the project, relieving Roffey of the need to find another subcontractor; second, Roffey avoided having to pay penalty damages under the head contract for failing to complete on time; and third, he did not have to sue Williams for breach of contract (litigation is expensive, lengthy and uncertain). Furthermore, there was no suggestion that Williams had applied any duress to Roffey. Had Williams sensed that he had Roffey “over a barrel” and could refuse to work until assured of extra payment, the variation would not have been enforced (as it would encourage opportunistic or bullying behaviour by a party in a stronger position).

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

Musumeci v Winadell Pty Ltd [5.140] Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723. Musumeci leased a shop in a shopping mall owned by Winadell. He sold fruit and vegetables. Winadell subsequently leased another shop in the centre to another fruit and vegetable business. Musumeci asked for a 30% rent reduction to compensate for this and, rather than lose a tenant, Winadell agreed. When a dispute later arose Winadell changed his mind about having Musumeci as a tenant. He terminated the lease, arguing the new one (with the reduced rental) was not binding because Musumeci had not provided sufficient consideration for the promise to reduce the rental. The NSW Supreme Court held that the promise to reduce the rent was properly supported by consideration and therefore legally binding. Santow J said that the “practical benefit” exception as explained by Glidwell LJ in Roffey Bros should be accepted in Australia. His Honour then indicated that he would add an element to Glidewell LJ’s criteria in Roffey Bros. The fourth element should make it a

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requirement that as a result of giving this promise, A (the promisee) puts himself in a worse position than if he were to breach the contract by non-performance and, on the flip-side, B, the promisor, obtains a practical benefit. Either way – whether it be the benefit to B or the detriment to A – there is sufficient consideration to make the promise of additional payment by B binding.

Contracts under seal [5.180] A contract under seal must be in writing and signed, sealed and delivered. Contracts under seal obtain their binding force from their form alone, there is no need for consideration. Every deed must now be signed 1 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 482 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] 1 Ch 109. 1

Conveyancing Act 1919 (NSW), s 38(1); Property Law Act 1958 (Vic), s 73; Property Law Act 1974 (Qld), s 45; Property Law Act 1969 (WA), s 9; Conveyancing and Law of Property Act 1884 (Tas), s 63; Law of Property Act 1936 (SA), s 41; Civil Law (Property) Act 2006 (ACT), s 219. In 1972, the latter section was amended to further provide that where it appears in any proceedings: (a) that a deed has not been duly executed by, or on behalf of, a party to the deed; or (b) that the signature or mark of a party to a deed, or a person acting on his behalf, has not been duly attested, but that the party to the deed, or person acting on his behalf, purported or intended to execute the deed and has taken a benefit under it, then the deed is deemed to have been duly executed by, or on behalf of, that party and the execution deemed to have been duly attested.

Promissory or equitable estoppel The general nature of promissory estoppel Figure 5.2 Criteria for promissory estoppel

[5.230] Conduct during commercial negotiations may have unintended consequences. Your representation by statements, actions, even silence may give rise to expectations and assumptions in the other party.

chapter 5 Consideration, Promissory Estoppel and Formalities

Where you induce the other party to expect or assume that something will occur, and the other party relies on that expectation or assumption, you may be required to fulfil it or to compensate another party for its reliance on it. As we saw in Chapter 1, the courts of equity developed to soften the harsh consequences that flowed from a rigid application of common law rules. One example has been the development of the equitable doctrine of promissory estoppel, designed to ameliorate the rule that a promisor is not bound to honour a promise for which consideration has not been paid, even though the promisor intended the promisee to rely on it and he or she did rely on it. For example, we have seen that if Abe owes Bert $1000 and Bert promises to accept $750 in full satisfaction of the debt he may later claim the balance of $250. The effect of this rule was “commercially inconvenient” (to use the phrase from Foakes v Beer) because it failed to respect the view of the parties at the time the promise was made that $750 was sufficient value. The doctrine of promissory estoppel operates to ameliorate the effect of this rule. The modern doctrine of promissory estoppel began with the following English decision.

Central London Property Trust Ltd v High Trees House Ltd [5.243] Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. The plaintiff/landlord promised to reduce the rent paid by the defendant for a block of flats because wartime conditions in London at the time were such that only a few of them were occupied. However, towards the end of the war, when conditions had improved and people began to return to London, the plaintiff gave notice to the defendant that it wished to return to the rental to which the parties originally agreed. Held: The plaintiff was entitled to give notice that it wished to return to the original rental. However, Denning LJ indicated that if the landlord had gone further and claimed the arrears of rent back to 1940, it would have been “estopped” from doing so. Denning LJ said that, although the parties have not formally varied the lease, and notwithstanding that the promise by Central London was not supported by any consideration from High Trees, it would have been unconscionable for Central London to be allowed to break its promise once High Trees could show it had relied on the promise and would suffer detriment if the promise was broken.

[5.245] It will be seen from the above decision 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 reasonable 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.

Je Maintiendrai Pty Ltd v Quaglia [5.250] Je Maintiendrai Pty Ltd v Quaglia (1980) 26 SASR 101. The defendant tenant leased a shop in the plaintiff landlord’s shopping centre. On the expiry of the first three-year lease for the shop in 1976 the tenant signed a new lease at a substantially increased rental. Some months later, the landlord orally agreed to a reduction of rent for an indefinite period. The tenant continued to pay the reduced rental for the next 18 months. The landlord then found that the tenant was about to

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vacate the premises and demanded the accumulated “arrears” of rent, that is, the difference between the rental stipulated in the lease and the amount the tenant had actually been paying in consequence of the landlord’s oral agreement to a rent reduction. The landlord brought an action to recover the alleged “arrears” of rent. It was held by a majority of the court that the tenant had so altered his position, that is, had suffered a detriment, by continuing in possession at the reduced rental on the basis that the landlord’s promise would not be resiled from, that it would be inequitable to allow the landlord to go back on his promise. Accordingly, the landlord was estopped in the circumstances from claiming the alleged “arrears” of rent.

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

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

Figure 5.3 Six requirements for promissory estoppel

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

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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. The trigger for estoppel is detrimental reliance – not merely unconscionable conduct. In the following case the High Court explained the notion of detrimental reliance.

Sidhu v Van Dyke [5.282] Sidhu v Van Dyke (2014) 88 ALJR 640. Ms Van Dyke had rented the Oaks Cottage from Mr Sidhu and his wife, who lived 100 metres away, in the main homestead on Burra Station. Sidhu and his wife jointly owned the property. Van Dyke and Sidhu commenced a sexual relationship that led to the breakdown of Van Dyke’s marriage. Sidhu told Van Dyke not to worry about getting a property settlement in the divorce, as he would subdivide the land belonging to him and his wife, and give the cottage to Van Dyke. However, when his relationship with Van Dyke ended some eight years later, Sidhu reneged on his promises (and his wife refused to consent to a subdivision). The Court concluded that Van Dyke had made out detrimental reliance – essentially because she had improved Oaks Cottage and worked on Burra Station in reliance on the promise by Sidhu – and found that Sidhu was estopped from denying his promise to Van Dyke. The High Court explained the rationale for estoppel: “It is not the breach of promise, but the promisor’s responsibility for the detrimental reliance by the promisee, which makes it unconscionable for the promisor to resile from his or her promise”: at [58]. The Court then posed a hypothetical scenario to demonstrate the unfairness of Sidhu’s argument that there was no detrimental reliance by Van Dyke: “The extent to which it is unconscionable of the appellant to seek to resile from the position expressed in his assurances to the respondent may be gauged by reflecting on the likely response of the respondent if the appellant had told her in January 1998: ‘I am happy for you to remain at Oaks Cottage, but only for so long as it suits me and my wife to have you here; and, while you remain on the property, you must care for it as if you were the owner of the property and do unpaid work on parts of Burra Station other than the property. Until I make the property over to you, you must pay rent … Should you choose to leave, you will leave with nothing in return for the value of your work here’”: at [77]. Note: As the cottage had burned down and the subdivision had never taken place, Van Dyke was awarded equitable compensation reflecting the value of what she had lost.

Austotel Pty Ltd v Franklins Selfserve Pty Ltd [5.285] Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582. Austotel (a property developer) negotiated with Franklins (a supermarket chain) for the lease of a supermarket in one of its shopping complexes. During the negotiations Franklins agreed to lease an area larger than in its earlier written agreement. Austotel built the supermarket to Franklins’ specifications, Franklins ordered equipment and Austotel used Franklins’ intended presence as a means of getting the extra finance it needed. No lease was executed and exchanged. When Franklins learnt that Austotel

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was negotiating with another supermarket, it sought an order for specific performance of the lease, arguing on the basis of Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 that Austotel should be estopped from resiling from its position, even though no contract had been signed. The Court refused to grant the order. Although the parties had equal bargaining power and had engaged in some tough commercial negotiating, it was no more than that: Austotel had not behaved unconscionably.

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [5.287] Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. Crown is the owner of the Melbourne Casino and Entertainment Complex. Cosmopolitan held two leases in the complex limited to a term of 5 years. The leases required Cosmopolitan to undertake extensive refurbishments. Crown did not renew either of the leases following a tender process. Cosmopolitan subsequently became insolvent due to write-downs of more than $2 million in the value of the refurbishments. It alleged that, in order to induce it to enter into the leases with a short 5 year term, Crown made an oral statement (that Cosmopolitan would be “looked after at renewal time”) that amounted to a collateral contract that the landlord would renew the leases for a further 5 years if they undertook the refurbishments. In the alternative, Cosmopolitan argued that the Crown was estopped from denying the existence of the collateral contract. The primary judge and the Court of Appeal of the Supreme Court of Victoria held that the statement did not give rise to an enforceable obligation pursuant to a collateral contract. In addition, the primary judge held that no estoppel arose. However, on appeal, the Court of Appeal held that promissory estoppel was made out and that Crown could not resile from it. A majority of the High Court decided that the Victorian Court of Appeal was wrong in finding that a statement made by a commercial landlord to a commercial tenant that it would be “looked after at renewal time” could give rise to a promissory estoppel claim. Nettle J emphasised what he called the foundational principle of estoppel, “that equity will not permit an unjust or unconscionable departure by a party from an assumption or expectation … which that party has caused another party to adopt for the purpose of their legal relations”. However, the statement that Cosmopolitan would be “looked after at renewal time” was not capable of conveying to a reasonable person that the tenants would be offered a further lease at renewal time. The High Court considered that Cosmopolitan could not establish they had acted on the basis of the expectation and, therefore, the claim in estoppel could not succeed. Justice Keane considered it would reduce “the law to incoherence if a representation, too uncertain or ambiguous to give rise to a contract or a variation of contractual rights and liabilities, were held to be sufficient to found a promissory estoppel.” His Honour said commerce needed for certainty as to the terms on which parties have agreed to be bound at the conclusion of the negotiations.

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In Crown, a majority of the High Court held that the statement made by the landlord’s representative, that the tenant would be “looked after at renewal time” did not give rise to an estoppel because the representation was not capable of conveying to a reasonable person that the tenant would be offered a further lease on the same terms as the original lease. The High Court also made it clear that a party invoking promissory estoppel must establish actual reliance on the relevant assumption or expectation said to be induced. The High Court affirmed the finding of the Court of Appeal that the statement also did not give rise to a collateral contract (on this point, see [9.110]).

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, 89.

2.

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

3.

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

4.

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

5.

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

6.

An acknowledgment of a debt barred by the State Limitation Acts.

7.

Most forms of consumer credit contract.

Contracts to be evidenced in writing [5.310] 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

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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. 1 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. 1

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 and Sch 3; 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 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.

(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. 1 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. 1

Conveyancing Act 1919 (NSW), s 54A; Instruments Act 1958 (Vic), s 126; Property Law Act 1974 (Qld), s 59; Law of Property Act 1936 (SA), s 26; Mercantile Law Act 1935 (Tas), s 6 and Conveyancing and Law of Property Act 1884 (Tas), s 36; Law of Property Act 2000 (NT), s 62; Civil Law (Property) Act 2006 (ACT), s 204. The 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) and the Property Law Act 1969 (WA), s 34(1) also contains a provision to similar effect.

(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. 1

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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. 2 1

The Statute no longer applies in the following States and Territories: 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.

2

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 over a certain price: this now only affects contracts in Western Australia (Sale of Goods Act 1895 (WA), s 4 and Tasmania (Sale of Goods Act 1896 (Tas), s 9).

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 in reliance on the contract. The application of the doctrine of part performance has, in practice, generally been confined to contracts for the sale or other disposition of an interest in land.

Riley v Osborne [5.370] Riley v Osborne [1986] VR 193. The deceased had orally agreed with the defendant that he would build a house for her and her family if she would take care of him as part of her family for the rest of his life. After the house was built the defendant and her family moved in with the deceased who was looked after by the

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defendant for some 23 years before he died. The deceased’s administrator brought an action to recover possession of the house from the defendant for the benefit of the deceased’s estate. It was held that the contract indicated by the defendant’s acts of performance was one in which, in consideration of her making her home with the deceased and caring for him for the remainder of his life, the deceased had agreed to transfer the title of the property to her. Accordingly, the court granted a decree of specific performance of the agreement and a declaration that the defendant was the beneficial owner of the property.

Watson v Delaney [5.380] In Watson v Delaney (1991) 22 NSWLR 358, 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. An oral grant of a tenancy for life could not take effect at common law because of the absence of writing. 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.

[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. In that case Gibbs J said: “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”: at 684. 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.

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Contractual Capacity [6.20] Minors ....................................................................................................................................................................... 112 [6.170] Corporations ....................................................................................................................................................... 115 [6.180] Mentally incapacitated and intoxicated persons............................................................................ 115 [6.190] Married women ................................................................................................................................................ 116 [6.200] Bankrupts ............................................................................................................................................................ 116

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

Minors.

2.

Corporations.

3.

Mentally incapacitated and intoxicated persons.

4.

Married women.

5.

Bankrupts.

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Minors [6.20] Formerly, a minor 1 was a person who had not reached the age of 21 years. However, in all States and Territories the age of majority has been reduced to 18 years. 2 In New South Wales and South Australia the legal position of minors differs markedly from that in the other States. The position in these States will be considered separately at the end of this section. With the exception of New South Wales and South Australia, contracts with minors may be considered under three headings depending on their legal effect. Such contracts may be: (a)

valid;

(b)

voidable; or

(c)

void.

1

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”.

2

Minors (Property and Contracts) Act 1970 (NSW), s 6(1); Age of Majority Act 1977 (Vic), s 3(1); Law Reform Act 1995 (Qld), s 17; Age of Majority (Reduction) Act 1971 (SA), s 3(1); Age of Majority Act 1972 (WA), s 5(1); Age of Majority Act 1973 (Tas), s 3(1); Age of Majority Act 1974 (ACT), s 5; Age of Majority Act (NT), s 4.

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”. 1 In any given case there are two questions involved: (a)

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

(b)

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

It follows that no hard and fast rules can be laid down as to what a minor will be made liable to pay for, as the position must vary in every case. Thus, in Scarborough v Sturzaker (1905) 1 Tas LR 117, it was held that a minor who was accustomed to cycle a distance of some 12 miles to his daily employment was liable to pay for a new bicycle. By contrast, in Bojczuk v Gregorcewicz [1961] SASR 128, a minor who lived in Poland and had a permanent job there, but who wished to emigrate to Australia, was held not to be liable to repay to a relative, who had paid for her passage to Australia, the cost of the passage. If the court finds that the goods or services are not within the classes of necessaries, or were not in fact necessary, then the minor is not liable to pay nor, unless he or she obtained them by fraud, to return the goods. Even where the goods are found to be necessaries, the minor is not bound to pay the contract price but only a reasonable price.

chapter 6 Contractual Capacity

1

Goods Act 1958 (Vic), s 7; Sale of Goods Act 1896 (Qld), s 5; Sale of Goods Act 1895 (SA), s 2; Sale of Goods Act 1895 (WA), s 2; Sale of Goods Act 1896 (Tas), s 7; Sale of Goods Act 1954 (ACT), s 7; Sale of Goods Act 1972 (NT), s 7. In New South Wales the position is now governed by the Minors (Property and Contracts) Act 1970 (NSW).

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

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

[6.70] In contrast, if the contract is substantially detrimental to the interests of the minor, it will not be enforced against her or him.

De Francesco v Barnum [6.80] De Francesco v Barnum (1890) 45 Ch D 430. A girl aged 14 years entered into a seven-year apprenticeship with the plaintiff to be taught stage dancing. She agreed that she would not marry during the apprenticeship and would not accept professional engagements without the plaintiff’s permission. The plaintiff did not bind himself to provide her with engagements nor was he obliged to maintain her while she was not working. The pay he agreed to give in the event of her employment was less than generous. The plaintiff was entitled at his own discretion to terminate the contract if, after a fair trial, he decided that she was unfit for stage dancing. It was held that the terms of the apprenticeship deed were unreasonable and unenforceable.

[6.90] The question of whether the contract is beneficial to the minor is the crucial issue in determining the validity of this type of contract. On the other hand, this does not mean that any contract which benefits the minor will be enforced against her or him. Thus, it is well-established that a trading contract is not binding on a minor, notwithstanding that it may be financially beneficial. For example, a minor who carried on business as a haulage contractor agreed to purchase a lorry under a hire-purchase agreement. When he was

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sued for arrears under the agreement, it was held that the contract was a trading contract by which the minor could not be bound: Mercantile Union Guarantee Corp Ltd v Ball [1937] 2 KB 498.

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

Those binding unless repudiated by the minor during their minority or within a reasonable time after attaining their majority

(b)

Those not binding unless ratified within a reasonable time after attaining the age of majority:

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

shares in a company;

(b)

leases;

(c)

partnerships; or

(d)

marriage settlements.

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

Those not binding unless ratified within a reasonable time after attaining the age of majority [6.120] These are contracts which are not of a continuing nature, for example the purchase of goods which are not necessaries. These contracts require the express ratification of the minor after coming of age to make them binding. In Victoria these contracts, that is those not binding unless ratified within a reasonable time after attaining the age of majority, are not effective, as in that State legislation makes such contracts absolutely void and incapable of ratification by the minor after attaining majority. 1 1

Supreme Court Act 1986 (Vic), s 49.

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. 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.

chapter 6 Contractual Capacity

In Victoria a contract made by a minor, after he or she comes of age, to repay a loan contracted during minority is void. 1 1

Supreme Court Act 1986 (Vic), s 51.

Misrepresentation by minors [6.140] Minors are not liable for a tort 1 directly connected with any contract upon which no action will lie against them. It is impossible indirectly to enforce such a contract by changing the form of action to one in tort. Thus an action of deceit does not lie against minors who, by falsely representing themselves to be of full age, have fraudulently induced another to contract with them, since to enable a plaintiff to convert a breach of contract into a tort would destroy the protection that the law affords to minors: Leslie v Sheill [1914] 3 KB 607. 2 1

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.

2

This is no longer the position in New South Wales: see Minors (Property and Contracts) Act 1970 (NSW), s 48.

Corporations [6.170] Corporations are created by the Corporations Act 2001 (Cth) and are referred to as “bodies corporate”. Many businesses are conducted through corporations. However, it is to be noted that the Corporations Act 2001 gives corporations all of the legal capacity of a natural person: s 124. This legal capacity allows a corporation to enter contracts, own assets, and sue and be sued (for example, for negligence or breach of contract). In some respects, a company has greater capacity than a natural person as it also has the capacity to issue shares in itself: s 124. A corporation is able to enter a contract either directly (by using the company seal, or by the directors signing) or by using an agent: ss 126 and 127. Most people would be familiar with corporations through the transactions they engage in with businesses in daily life, for example, banking, purchasing food in a supermarket, education services. In most of these routine, everyday interactions, the corporation often acts through an agent (usually an employee) rather than acting directly itself. Although the Corporations Act 2001 gives corporations full legal capacity, a corporation may specify in its company constitution that its legal capacity is restricted in certain ways. For example, a corporation may state in its constitution that it will not borrow money, or, that it will not sell off its main business venture, or, that contracts must be signed by all of the members of the board. Such statements in the constitution will not affect the corporation’s capacity to contract with third parties and the corporation will be bound (providing the contract is valid in other respects): s 125. Under the revisions to the Corporations Act 2001, such restrictions in the corporation’s constitution will be binding internally on the members and directors and officers of the corporation. The constitutional restrictions will not be binding on third parties dealing with the corporation – unless the third party is aware of the restriction: s 128.

Mentally incapacitated and intoxicated persons [6.180] 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.

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Accordingly, a person of unsound mind will not be able to avoid a contract where the other party was unaware of their mental incapacity: Hart v O’Connor [1985] AC 1000. The onus of proving the existence of both incapacity and the knowledge of the other party of that incapacity rests with the mentally incapacitated or intoxicated person. The effect of mental incapacity or intoxication is to make the contract voidable at the option of the person suffering the disability and does not entitle the other party to set aside the contract: Gibbons v Wright (1954) 91 CLR 423. A voidable contract can be ratified on the intoxicated person regaining sobriety, or the mentally incapacitated person recovering their sanity, and the ratified contract will then become binding: McLaughlin v City Bank of Sydney (1912) 14 CLR 684. Both mentally incapacitated and intoxicated persons are bound to pay a reasonable price for necessaries obtained while incapable of knowing what they were doing. 1 1

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.

Married women [6.190] Formerly, married women lacked legal capacity. Women were regarded as losing their legal capacity on marriage when the “very being or legal existence of the women is suspended during the marriage and … consolidated into that of the husband”. 1 This concept was known as “coverture” and theoretically provided the woman, upon marriage, with the protection of her husband. The position of married women is now much the same as that of a single woman or a man and this is enshrined in legislation throughout Australia. 2 1

Sir William Blackstone, Commentaries on Laws of England (Chapter 15), (1765-1769), Co Lit 112.

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 (Equality of Status) Act 1989 (NT), s 3.

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.

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Genuine Consent [7.20] Mistake..................................................................................................................................................................... 118 [7.475] Misrepresentation........................................................................................................................................... 129 [7.570] Innocent misrepresentation ...................................................................................................................... 133 [7.690] Negligent misrepresentation .................................................................................................................... 137 [7.740] Duress ................................................................................................................................................................... 137 [7.800] Undue influence................................................................................................................................................ 139 [7.870] Unconscionable contracts .......................................................................................................................... 142

Introduction [7.10] Agreement or consent remains the cornerstone of the law of contract. As we have seen, the law of contract, both in principle and in practice, is about allowing parties to enter arrangements on terms they choose (“freedom of contract”) which the courts will then enforce (“sanctity of contract”). However, the consent must be genuine. If the consent of one of the parties has been affected by a mistake or induced by a misrepresentation or extracted under duress or by the use of undue influence or unconscionable conduct, the agreement may not be enforceable. It should be noted at the outset that much of the common law in relation to mistake and misrepresentation has been overtaken by the “misleading and deceptive conduct” (s 18) and “unfair practices” (ss 29 – 34) provisions of the Australian Consumer Law (ACL). In addition, unconscionable conduct, a creation of equity, has been subsumed by ss 20 – 22 of the ACL and the common law action for duress is now, at least in part, covered by s 50 of the ACL. The statute is broader in scope and has better and more varied remedies than the common law was able to provide. Nevertheless, the common law and equitable principles provide background and context and may still need to be relied upon where a victim is not able to use the ACL.

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Mistake Figure 7.1: Mistake

[7.20] It is not unusual for a party to say that he or she made a mistake during the pre-contractual negotiations and would not have entered into the contract if the true facts were known. For instance, the purchaser of a unit in a booming inner city precinct mistakenly believes the council will continue its ban on new high-rise developments. It does not. A purchaser of a café in a rural community mistakenly believes McDonalds will not open next door. It does. An investor purchases shares in a wind farm company believing they will rise in value. The shares plunge when the government drops its support for renewables. Is it relevant to the law of contract and, if so, what is the remedy? Generally speaking, the courts are reluctant to allow a person to avoid a contract simply because one or both of the parties has entered into the contract on the basis of a mistake (particularly a mistaken assumption or a mistake about the qualities of the subject-matter of the contract). The view of the courts has traditionally been that to widen the scope of operative mistake so that contracts could more easily avoid contracts would undermine confidence in the sanctity, certainty and reliability of contracts. The following discussion concerns the situations in which a mistake of fact is said to be operative and may vitiate the apparent consent between the parties.

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:

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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 that 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.

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

Unilateral mistake [7.60] A unilateral mistake occurs 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 [7.130]). 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.

Scott v Coulson [7.80] Scott v Coulson [1903] 2 Ch 249. A contract for the assignment of a life insurance policy was made upon the basis of a belief common to both parties that the assured was alive. In fact, he had died before the contract of assignment was made. It was held that there was a common mistake, and therefore the contract was one that could not be enforced.

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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. 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.

Leaf v International Galleries [7.100] Leaf v International Galleries [1950] 2 KB 86. The plaintiff purchased a painting of Salisbury Cathedral from the defendants which both parties mistakenly believed had been painted by John Constable. When the plaintiff attempted to resell the painting, he discovered that it was not a Constable. The plaintiff sought rescission of the contract for the defendant’s innocent misrepresentation that the painting was a Constable: at 86-87. 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”: 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:

McRae v Commonwealth Disposals Commission [7.120] McRae v Commonwealth Disposals Commission (1951) 84 CLR 377. 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

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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”: at 407-408.

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.

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.

Scott v Littledale [7.140] Scott v Littledale (1858) 8 El & Bl 815; 120 ER 304. 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.

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.

Smith v Hughes [7.160] 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.

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[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:

Taylor v Johnson [7.180] Taylor v Johnson (1983) 151 CLR 422. The vendor granted to a purchaser an option to purchase two adjoining blocks of land. The option was exercised and the parties entered into a written contract of sale for the land. In both the option and the sale agreements the purchase price stipulated was $15,000. The vendor later refused to complete the purchase on the ground that she had mistakenly believed that the option and sale agreements provided for a price of $15,000 per acre which would have amounted to a total purchase price of $150,000, the two blocks comprising 10 acres: 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”: at 432.

[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 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.

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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.

Cundy v Lindsay [7.210] 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 linen handkerchiefs. 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. Blenkarn disposed of the goods to an innocent third party Cundy. When Blenkarn failed to pay, Lindsay & Co sued Cundy for the goods. It was held that the contract whereby Lindsay purported to sell the goods to Blenkiron was void (and therefore no title passed to him). In these cases, it is always a case of which of two innocent parties (Lindsay or Cundy) should bear the loss. Because Blenkarn received no title he could not pass good title to Cundy the handkerchiefs were restored to Lindsay. 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.

[7.240] 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 the contract would not be void because normally the personality of the supplier of the goods would not be important to the offeror. 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.

Phillips v Brooks Ltd [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.

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Lewis v Averay [7.260] 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.

Papas v Bianca Investments Pty Ltd [7.280] 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 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 [7.260]–[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

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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 throughout 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”). 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. 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. [7.320] The same basic approach was adopted by the Australian High Court in Petelin v Cullen (1975) 132 CLR 355:

Petelin v Cullen [7.330] Petelin v Cullen (1975) 132 CLR 355. 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

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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.

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 reason of 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.

Kelly v Solari [7.370] Kelly v Solari (1841) 9 M & W 54; 152 ER 24. 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: 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 ([12.10]).

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Mistake of law [7.390] A person is entitled to recover monies paid under a mistake if they paid because they believed there was a legal obligation to do so and the receiver was legally entitled to the payment.

David Securities Pty Ltd v Commonwealth Bank of Australia [7.400] David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353. The appellants entered into an agreement with the Commonwealth Bank for a foreign currency loan. The loan agreement required the appellants to pay the bank in respect of its withholding tax liability. Subsequently, the appellants suffered considerable financial losses owing to adverse fluctuations in exchange rates and claimed damages against the bank and the accountants who had advised them in relation to the loan. The bank cross-claimed for recovery of moneys due under the loan. The High Court held that money paid under a mistake of law is prima facie recoverable in the same way as payments made under a mistake of fact. However, the recipient of money paid under a mistake will not be liable to repay the money if, in reliance upon receipt of the payments, the recipient, in good faith, changed its position to its detriment (eg, can point to expenditure or financial commitment which can be ascribed to the mistaken payment). 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.

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 the parties’ intention. This is the remedy of rectification: Slee v Warke (1949) 86 CLR 271. The contract is actually rewritten to accord with the intention of the parties: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603. 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.

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Pukallus v Cameron [7.440] Pukallus v Cameron (1982) 180 CLR 447. 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: 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 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. 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].

Tutt v Doyle [7.460] 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. 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.

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Misrepresentation Figure 7.2: Misrepresentation/Misconduct

[7.475] Statements made by parties when negotiating a contract may be terms of the contract, collateral contracts, representations or puffs. 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. Not all statements made by the parties during contractual negotiations become terms of the contract. Those statements that are not “promissory” are referred to as representations – while not contractual, they induce or persuade the person to whom they are made to enter into the contract. Therefore, it is understandable that if the representation proves to be untrue, the innocent party (who was, at least in part, persuaded to enter into the contract because of the representation) would be entitled to a remedy. There is another class of statements called “mere puffs”, often simply exaggerated sales talk, that has no legal effect because a reasonable person would not be persuaded to enter into a contract on the strength of such statements.

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Figure 7.3: Pre-contractual statements

Distinguishing terms and representations [7.480] There is an important distinction to be made between statements that are terms and those that are representations. This issue is explored more thoroughly at [9.30] but, at this point, it is important to understand the basic approach. The courts ask the question, “would a reasonable person, in the position of the parties and aware of the surrounding circumstances, believe that the statement was intended to be promissory, and therefore contractual?” If so, the statement is a term; if not it is a representation only.

An example to illustrate the difference between representations and terms [7.485] Assume that in February 2016, James decided to move onto a small farm where he could develop a commercial fish farm. He went to Bert, a real estate agent, who took him to a property that seemed suitable – it had a cottage, a river and a dam. The agent took him around the property telling him that the cottage was “an absolute gem, one of the best I’ve ever had the privilege of selling. They simply do not come better than this”. He went on, “There is a current permit for fish farming issued by the Department of Wildlife and Fisheries. It is renewed automatically each year on payment of a fee. The river flows all year, filling the dam with trout – I really think your venture will succeed”. James was impressed by these statements and signed the contract the next day. The contract contained the usual terms – names of the purchaser and vendor, the price, a description of the land, settlement date and a number of other standard conditions. No mention was made in the contract of any of the matters mentioned by Bert. Settlement occurred on July 1, 2016. James discovered the house was full of termites soon after moving in. By January 2017 the river had dried up (as it did most years, according to neighbours), he had not seen one fish and the Council demanded certain commitments concerning the maintenance of the dam and waterways before it would renew the permit. Before advising James, it is necessary to examine each of the statements made by Bert. As mentioned earlier, the statements could fall into one or more of the following categories:

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Mere puffs – these are exaggerated statements that a reasonable person would not take seriously. Bert’s statement that the cottage is “an absolute gem…” is an example of a “mere puff”. Representations – a representation is a statement of fact made during pre-contractual negotiations with the intention to induce the other party to enter into the contract. Bert’s statements about river flows, fish in the dam and permits automatically issued by the Department are likely to be regarded as representations. The statement that “I really think the venture will succeed” is a statement of opinion and, unless Bert did not actually hold that opinion, it is unlikely to be a misrepresentation. These statements may also constitute misleading or deceptive conduct: see Chapter 13. Terms are the legally binding promises that become part of the contract. In the above example, the names of the parties to the contract, the price, the settlement date, the standard conditions and the promise regarding the permit may all be regarded as express terms. We consider the terms of the contract in Chapter 9. In this chapter we consider each of the categories of representations – fraudulent, innocent, and negligent.

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. 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 false.

3.

The party who makes such representation must know that what they are stating is false, or they must have no belief in its truth, or be reckless about whether it is true or false.

4.

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

5.

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

6.

The person claiming must have suffered damage.

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

1. Statement of fact [7.500] To be a misrepresentation, a person must make a representation of a past or present fact. For example, “we have a contract with Chinese investors to build a railway and a port”. That is a statement of fact that is either true or false when made. A statement of opinion or intention or a prediction about the future cannot be true or false at the time the statement is made. However, they may be misrepresentations if the representor does not, in fact, hold that opinion or have that intention or does not have reasonable grounds for making the prediction. In our earlier example, if Bert did not hold the opinion that the venture would succeed, the statement could be a statement of fact.

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Although a misrepresentation will generally consist of a statement or some overt conduct, silence (or inaction) may also constitute a misrepresentation. In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 the Federal Court summed up the position in relation to silence or non-disclosure: “[T]here is no such thing as ‘mere silence’ because the significance of silence always falls to be considered in the context which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed”: at 32. Thus, although there is in general no duty to disclose information or facts known by one side but not known to the other, there are two recognised situations where there is a positive duty to disclose: (1)

Where the statement may be literally true but, left alone, creates a false impression. For example, a statement that “the shopping centre is fully let” may be true but if, in fact, one-third of the tenants have given notices of intention to terminate their leases because of a dispute with the landlord, the statement may be a misrepresentation. (However, if the matter had not arisen during the negotiations, the landlord would not have had a duty to disclose.)

(2)

Where the statement is true at the time it is made but circumstances change so that it becomes untrue. For example, in With v O’Flanagan [1936] Ch 575, a doctor made a true statement about the number of patients he had but, before the contract was signed, there was a significant decline in the numbers. Similarly, where the representor believes the statement to be true at the time it is made but subsequently discovers it is false, he or she may be guilty of fraudulent misrepresentation unless the true facts are disclosed.

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.

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 relied 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 relied upon [7.535] 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

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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. In Redgrave v Hurd (1881) 20 Ch D 1, Hurd, the purchaser of a legal practice, relied on a misrepresentation concerning the takings of the practice. The vendor argued that as the purchaser could have discovered the correct earnings figure he should not be able to say the misrepresentation induced the contract. The court held that the fact that Hurd had an opportunity to investigate whether a representation was true or false but did not do so was insufficient to prevent reliance upon that misrepresentation.

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: 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. 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 occurs when a person makes an untrue statement of fact which was intended to, and did in fact, induce the other party to enter into the contract but without any fault on the part of the speaker. There are many instances of innocent misrepresentations in commercial life. The following is a classic example:

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Oscar Chess Ltd v Williams [7.580] Oscar Chess Ltd v Williams [1957] 1 WLR 370. Mr Williams bought a new Hillman Minx from Oscar Chess, a car trader. He traded in a used Morris as part payment. It was described as a 1948 Morris and was therefore valued at £290. In fact it was a 1939 model worth £175. Mr Williams honestly believed it was a 1948 model, relying on the car’s registration papers. The papers, unknown to him, were a forgery. The error was discovered when the chassis and engine numbers were sent to Morris Motors Ltd. As no damages could be awarded for an innocent misrepresentation and rescission was not available (see [7.630]), Oscar Chess had no remedy. Its argument that Mr Williams’ statement was a term of the contract failed (see Chapter 9 for a further discussion of this point).

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

Redgrave v Hurd [7.600] Redgrave v Hurd (1881) 20 Ch D 1. As noted above, Hurd was induced to enter into a contract to purchase Redgrave’s legal practice and house on the basis of a misrepresentation as to the revenue of the business. When he discovered the misrepresentation, Hurd refused to proceed. Redgrave sought an order for specific performance (that is, an order directing Hurd to complete the contract). The court held that the statement was an innocent misrepresentation and rescinded the contract. However, as the misrepresentation was an innocent misrepresentation Hurd was refused damages for any loss he suffered.

Remedies for innocent misrepresentation [7.610] The common law provided no remedy for an innocent misrepresentation (where the representation was not made a term of the contract); it neither awarded damages nor regarded the contract as void or liable to be rescinded. [7.620] Subject to very limited exceptions, only the courts of equity provided a remedy for the victim of innocent misrepresentation. A person who was induced to enter a contract by an innocent misrepresentation has the right: (a)

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

(b)

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

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 later in this chapter (see below at [7.680]).

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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. The following points are relevant to this remedy: 1.

The right is lost if the party entitled to rescind affirms the contract after becoming aware of the falsity of the representation. A contract is affirmed if the representee, after full knowledge of the facts, declares their intention to proceed with the contract, or does some act from which such an intention may be inferred. A representee will not generally be taken to have affirmed a contract unless they were also aware of their right to rescind. Where the contract is affirmed, the representee retains a right to sue for damages only if the representation was fraudulent.

2.

The right is lost if third parties acting in good faith acquire rights in the subject matter of the contract before the right to rescind is exercised. This occurred in Lewis v Averay [1972] 1 QB 198 (see above at [7.260]).

3.

The right to rescind is lost if by reason of the changes that have occurred to the subject matter it is no longer possible to restore the parties 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 (see below at [7.640]).

4.

In the case of innocent misrepresentation, the court will not order rescission if the contract has been completed.

Alati v Kruger [7.640] Alati v Kruger (1955) 94 CLR 216. Kruger purchased a fruit business from Alati for £700. Kruger alleged that he had been induced to enter into the contract of purchase by fraudulent misrepresentations as to the takings of the business made respectively by A and others. He also alleged that Alati had warranted in clause 21 of the contract that the average takings of the business were approximately £100 per week. The takings proved immediately to be much less than £100 per week. In fact, during the two weeks he was in possession of the business, the takings were less than half of the warranted amount. The Court noted Kruger had three options: first he could sue for damages for breach of the warranty contained in clause 21, but he could not do this and rescind the contract for misrepresentation. Second, he might sue to recover as damages for fraud the difference between the price he had paid and the fair value of the property at the time of the contract but, again, he could not do this and rescind the contract. Or, third, provided that he was in a position to restore to A substantially that which he had received under the contract, he might avoid the purchase and sue to recover his purchase money back from A, with interest and also with damages for any loss which he may have suffered through carrying on the business in the meantime. This is what he did. The High Court affirmed the decision to rescind the contract, order the return of the purchase money and award damages for losses Kruger suffered.

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Misrepresentation under the Australian Consumer Law [7.680] The Australian Consumer Law 1 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;

(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;

(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;

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(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 13. 1

The Australian Consumer Law is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13.

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 an innocent or fraudulent misrepresentation made by the latter. However, a person may enter into a contract as a result of negligent advice or information given to them by a third party. Misrepresentations are negligent if: (a)

the representor owed the representee a duty of care – often this will happen where professional advice is being given;

(b)

there was a breach of that duty – the representor was negligent in failing to do what a reasonable person would have done; and

(c)

the representee suffered loss as a result of the negligent misrepresentation.

We will examine this area of law in depth in Chapter 14.

Duress [7.740] 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.

Barton v Armstrong [7.750] Barton v Armstrong [1976] AC 104. The plaintiff claimed that he had executed a deed for the purchase of the defendant’s shares in a company because of the defendant’s threats against his life. At trial it was held that the plaintiff had also been motivated to execute the deed for business reasons. The Privy Council, held that: “[T]hough it may be that [the plaintiff] would have executed the documents even if [the defendant] had made no threats and exerted no unlawful pressure to induce him to do so the threats and unlawful pressure in fact contributed to his decision to sign the documents”: at 120.

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Economic duress [7.770] The courts have also recognised a category of duress known as “economic duress”. That expression refers to a situation where one party is induced to enter into a contract because of threats to that party’s economic interests. It has been said that in determining whether there has been economic duress the proper approach is to ask: (a)

whether any applied pressure induced the party to enter into the contract; and

(b)

whether that pressure went beyond what the law is prepared to countenance as legitimate, for example unlawful threats or unconscionable conduct.

Where economic duress is established the contract will be voidable at the option of the person threatened.

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [7.780] North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] 1 QB 705. A shipbuilding company threatened to terminate a contract for the building of a tanker unless the shipowner paid increased payments following a currency devaluation (payments which were not required under the contract). The shipowner agreed because it required the vessel for a lucrative charter it was negotiating. Sometimes, after delivery of the vessel the shipowners sought to recover the increased payments they had been compelled to make. It was held that the shipbuilder’s threat to break the contract without any legal justification unless the owners agreed to the increased payments amounted to economic duress. The contract for the increased payments was therefore voidable and the moneys prima facie recoverable. However, it was held that because of their delay in seeking recovery of the excess payments, the owners had affirmed the contract and could not recover the payments.

Alternative actions under the Australian Consumer Law [7.795] It is more likely that allegations of duress, particularly economic duress, will be dealt with under s 21 (which prohibits unconscionable conduct in relation to goods and services) or s 50 of the Australian Consumer Law (which prohibits the use of physical force, or undue harassment or coercion in connection with the supply of or payment for goods, services or land). The Australian Competition and Consumer Commission (ACCC) has indicated a preference for using s 21 when businesses allege unfair pressure/ duress by large corporations in relation to the buying and selling of goods and services.

ACCC v Coles [7.796] Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405. The proceedings related to Coles’ Active Retail Collaboration (ARC) programme designed to improve Coles’ earnings. The ACCC alleged that Coles engaged in unconscionable conduct in the implementation of its

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ARC programme in respect of certain suppliers by taking steps, when those suppliers declined to make payment of the ARC rebate, including threats that Coles would: cease giving support to the supplier from Coles’ replenishers; not acquire new products from the supplier; not meet with the supplier about its business; and not continue contractual negotiations then on foot with the supplier in circumstances where: Coles had a greater bargaining position relative to the supplier; and suppliers were not being provided with adequate information, and were being pressured to consider or assess the value, if any, of the purported benefits of the ARC programme to their business within a short period of time. The ACCC alleged that in 2011 Coles pursued some suppliers for a variety of payments, including payments for “profit gaps”, waste and fines or, penalties for alleged short or late deliveries by suppliers. By consent (ie, Coles did not contest the allegations), the Federal Court ordered Coles pay penalties of $10 million and costs. Coles also entered a court-enforceable undertaking to the ACCC to establish a formal process to provide options for the redress of over 200 suppliers referred to in the proceedings. In her judgment, Gordon J said: “Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its conduct was ‘not done in good conscience’. It was contrary to conscience. Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand. Coles withheld money from suppliers it had no right to withhold. Coles’ practices, demands and threats were deliberate, orchestrated and relentless.”

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. 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:

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(a)

parent and child; until the child has withdrawn from the influence of the parent (Lancashire Loans Ltd v Black [1934] 1 KB 380);

(b)

guardian and ward;

(c)

trustee and beneficiary;

(d)

solicitor and client;

(e)

religious adviser and devotee; or

(f)

doctor and patient.

However, the list of relationships that may give rise to a presumption of undue influence is not closed. Thus, it is open to a person to establish that a special relationship of trust and confidence has arisen such as to give rise to a presumption of undue influence against the person in the dominant position. Where a special relationship of confidence exists between the parties to a contract such as to raise a presumption of undue influence, the onus is on the person in whom the confidence is reposed to establish that the transaction in question was the “pure voluntary and well-understood” act of the person reposing the confidence, that is, that the latter’s mind or intention was not subject to any undue influence. The relationship of husband and wife does not give rise to a presumption of undue influence. However, in an appropriate case a special relationship of control and dominance may be established giving rise to such presumption:

Johnson v Buttress [7.810] Johnson v Buttress (1936) 56 CLR 113. Johnson, three years before he died, gave his land and cottage to Buttress, a woman whom he had known for 20 years, who had been very good to his wife and who had helped him out in various ways. After his death, the administrator of his estate challenged the gift on the basis that the relationship was one of trust and confidence. In the view of the administrator, Johnson was illiterate, ignorant of commercial matters and did not understand the irrevocable nature of what he had done. The finding of the trial judge was more colourful – the deceased was “highly excitable, very stupid and mentally unstable”. Held: The High Court agreed with the administrator. Having established that a relationship of trust existed, the onus then shifted on to Buttress to prove that she had not exercised undue influence on Johnson. In the words of Latham CJ: “The learned judge found that a relation of trust and confidence obtained between the deceased and the defendant of such a character that he relied upon her for advice on any matter of business ... This being so, I agree with the learned judge that, in order to maintain the transaction, it was necessary for the defendant to show affirmatively that the deceased knew what he was doing when he made the transfer, in the sense that he understood its effect and significance in relation to himself, and further to show that the transfer was the result of his own will ... (T)hough it has not been affirmatively proved against the defendant that she exercised undue influence, yet she has not displaced the presumption of undue influence which arises in the circumstances of this case ...”: at 122-3.

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[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.

Spong v Spong [7.830] Spong v Spong (1914) 18 CLR 544. X brought an action against Y, who was his son, for rescission of a voluntary transfer of land by X to Y on the ground that X, when he executed the transfer was, as Y knew, incapable of knowing or understanding the contents or effect of the transfer, and of undue influence. The trial judge found that X was to Y’s knowledge feeble-minded, weak and incapable of transacting business and therefore gave judgment for X. Y appealed against this judgment but the High Court dismissed the appeal, holding that the evidence established the existence of a fiduciary relationship between X and Y and that in the absence of independent advice to X the transfer should be set aside.

Lloyd's Bank Ltd v Bundy [7.840] Lloyd’s Bank Ltd v Bundy [1975] QB 326. The defendant, an elderly farmer, and his only son had been customers of the plaintiff bank for many years. The son formed a company that banked at the same branch of the bank as the defendant. The defendant guaranteed the company’s overdraft and charged the whole of his farm, his sole remaining asset, to secure the amount under the guarantee. It was held that there was such a relationship of confidentiality between the bank and the defendant that the court could intervene to prevent the relationship being abused. Since the effect of the guarantee and charge could have resulted in the defendant being left penniless in old age and the defendant had had no independent advice as to the wisdom of what he was doing, there was a breach by the bank of its fiduciary duty of care and the guarantee and charge should be set aside for undue influence.

Effect of undue influence [7.860] 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.

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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.

Commercial Bank of Australia Ltd v Amadio [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: it was in fact in serious financial difficulty. 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. Having obtained the plaintiffs’ signatures, the manager left without leaving them a copy of the agreement. The son’s company ultimately went into liquidation and the bank claimed nearly $240,000 from the plaintiffs under the terms of the mortgage/guarantee. The plaintiffs sought to have the contract set aside. It was held by a majority of the High Court that the mortgage/guarantee should be set aside on the ground of unconscionable dealing. The plaintiffs were in a position of special disadvantage in that they were mistaken as to the extent of their liability under the agreement and as to the financial circumstances of their son’s company, 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

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the position of the bank. Their age and background and reliance on their son’s misleading advice contributed to their position of special disadvantage. Although the bank may not have had full and actual knowledge of the plaintiffs’ disability, it knew enough to be put on inquiry as to whether Mr and Mrs Amadio appreciated the nature of the contract they were being asked to sign and the bank’s failure to make further inquiry as to whether the transaction had been properly explained to them amounted to wilful ignorance. 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”. The general principle to be applied in such cases is, this: “[I]f A, having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same”: per Mason J, 466-7. The High Court in Amadio’s case recognised that it was impossible to definitively describe all circumstances which would give rise to a situation of special disadvantage which if unfairly taken advantage of may lead to relief being granted by the court on the ground of unconscionable dealing.

The following case is a further example of relief being granted for unconscionable conduct:

Louth v Diprose [7.910] Louth v Diprose (1992) 175 CLR 621. Louis Diprose was “utterly infatuated” with Carol Louth. She, on the other hand, was indifferent to him and never changed. In 1984 Louth was in financial difficulties and was living in a house owned by her sister’s husband. Louth told Diprose she was going to be asked to leave the house and that if this happened she would commit suicide. This was untrue. She was under no immediate pressure to vacate the house. In this atmosphere of crisis in May 1985, Diprose agreed to buy the house for Louth for $58,000 and, at her insistence, put it in her name. For the next three years Diprose’s infatuation continued but was not reciprocated. For various reasons Diprose moved into the home he had bought for her but their relationship deteriorated. Diprose told Louth he wanted the house transferred to him. She refused and Diprose sued to recover the gift.

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Deane J said: “[T]he relationship between the respondent and the appellant at the time of the impugned gift was plainly such that the respondent was under a special disability in dealing with the appellant. That special disability arose not merely from the respondent’s infatuation. It extended to the extraordinary vulnerability of the respondent in the false “atmosphere of crisis” in which he believed that the woman with whom he was “completely in love” and upon whom he was emotionally dependent was facing eviction from her home and suicide unless he provided the money for the purchase of the house. The appellant was aware of that special disability. Indeed, to a significant extent, she had deliberately created it. She manipulated it to her advantage … the appellant deliberately used that love or infatuation and her own deceit to create a situation in which she could unconscientiously manipulate the respondent to part with a large proportion of his property. The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimisation ...” at [13]–[14].

Kakavas v Crown Melbourne Ltd [7.925] Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392. Kakavas lost over $20 million while gambling at a Victorian casino over a 14 month period. He had a compulsion to gamble, though he was able to control that compulsion. The High Court rejected his unconscionability claim against the casino. Gambling is a rare commercial activity in which each party inherently seeks to cause financial damage to the other party. Equity did not characterise as victimisation the ordinary operation of a lawful commercial activity. If a casino encouraged a pensioner to cash their pension cheque for gambling purposes, that would constitute victimisation. If a gambler was drunk or under an incapacity, that could also constitute victimisation. By contrast, Kakavas was a wealthy “high roller”. He did not suffer a constant compulsion that would have prevented him from staying away from the casino. He was able to stay away from the casino when he so wished. He had gone to great lengths to persuade the casino that his previous gambling problems were now past. Equitable intervention required “proof of a predatory state of mind”, which had not been established here. Indifference to the welfare of the other party to an arm’s length commercial transaction was not enough. Victimisation or exploitation was required.

chapter 7 Genuine Consent

Under the Australian Consumer Law [7.960] The Australian Consumer Law 1 contains important provisions prohibiting persons from engaging in “unconscionable conduct” (ss 20 – 22). These provisions are discussed in Chapter 13. 1

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13.

Under the National Credit Code [7.970] The National Credit Code (set out in Sch 1 of the National Consumer Credit Protection Act 2009 (Cth)) provides for the reopening of a credit transaction where the court is satisfied that in the circumstances relating to the credit contract, mortgage or guarantee at the time it was entered into, it was unjust: National Credit Code, s 76(1). “Unjust” includes “unconscionable, harsh or oppressive”: National Credit Code, s 7(8). The provisions apply to all personal (that is, non-business credit).

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Legality of Object [8.20] Illegality under statute law ............................................................................................................................ 148 [8.170] Illegality at common law .............................................................................................................................. 152 [8.520] Consequences of illegal contracts and void contracts................................................................. 164

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.

Re Mahmoud & Ispahani [8.40] Re Mahmoud & Ispahani [1921] 2 KB 716. A statutory order provided that a person was not to buy or sell or otherwise deal in linseed oil without a licence issued by a government official. The defendant told the plaintiff, untruthfully, that he had the necessary licence and contracted to purchase a quantity of linseed oil from the plaintiff. The defendant later refused to take delivery and the plaintiff sued him for damages for breach of contract. It was held that the plaintiff’s action failed. The order clearly prohibited the sale of linseed oil to an unlicensed purchaser and therefore expressly prohibited the contract in question. Accordingly, the contract was illegal and unenforceable: “The contract was absolutely prohibited; and in my view, if an act is prohibited by statute for the public benefit, the Court must enforce the prohibition, even though the person breaking the law relies upon his own illegality”: at 729 per Scrutton LJ; see also Chitts v Allaine [1982] Qd R 319

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.

chapter 8 Legality of Object

On the other hand, the statute may be construed as limiting the sanction for non-compliance to the penalty or fine specified in the statute but otherwise leaving the validity of a contract involving the conduct unimpaired. The issue arose for consideration by the High Court in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410:

Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [8.60] Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410. The respondent company lent the first appellant $132,600, repayment of which was secured by a mortgage which incorporated a guarantee given by the other appellants. Default having been made in repayment of the loan, the respondent sued the appellants on the personal covenants in the mortgage. The appellants contended that the mortgage (including the guarantee) was illegal and void on the ground that the respondent had been carrying on the business of banking without authorisation under the Banking Act 1959 (Cth). The Act provided that a corporation was not to carry on a banking business unless it was authorised to do so and provided a penalty of $10,000 per day for contravention of this provision. It was agreed between the parties that the lender was carrying on the business of banking in contravention of the Act. The question to be determined was whether such offence rendered the contract between the parties illegal and unenforceable. The High Court held that having regard to the scope and object of the provision prohibiting the carrying on of any banking business without authority, and in particular to the heavy penalty provided for its contravention, the provision did not upon its proper construction either expressly or impliedly prohibit such a loan on mortgage. Accordingly, the respondent lender was entitled to enforce the mortgage.

[8.70] The validity of the contract is determined by statutory interpretation: Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at [11]. In determining the effect on a contract of conduct proscribed by statute, the courts have regard to the intention of the legislation, that is, what it was intended to achieve. This is particularly so where it is apparent that the statute was aimed at protecting the public, or furthering some public policy objective.

Buckland v Massey [8.80] Buckland v Massey [1985] 1 Qd R 502. A Queensland statute provided that it was an offence to sell a second-hand motor vehicle without a certificate of roadworthiness. It was agreed between the seller of a second-hand vehicle and the buyer that the seller need not obtain the requisite certificate but that the buyer would do so. The seller sought to recover the balance of the purchase price. The court said that the whole of the statute was concerned to ensure that motor vehicles for use on the road are roadworthy. The clear implication of the Act was to prohibit contracts for the sale of second-hand vehicles where a roadworthiness certificate had not been obtained. Accordingly, it was held that the contract was impliedly prohibited by the

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Act and therefore unenforceable.

Gaffney v Ryan [8.90] Gaffney v Ryan [1995] 1 Qd R 19. Another statute provided that it was an offence for a registered builder to perform general building construction when not registered as a general builder and a monetary penalty was prescribed for non-compliance. A registered builder performed work in breach of this provision. It was held that non-compliance with the statutory provision by the builder did not render void and unenforceable his contractual liability for the loss caused by his defective workmanship. The builder was liable for damages for his faulty workmanship. To have decided otherwise would not have been consistent with the statutory purpose of protecting those for whom building work is performed.

[8.100] It was held that representations that constituted misleading or deceptive conduct in contravention of s 52 of the former Trade Practices Act 1974 (Cth) did not render a contract entered into as a result of such conduct illegal and unenforceable. The reason was that the Act itself provided a wide range of remedies for contravention of s 52, particularly s 87 which empowered the court to declare a contract which had come into existence as a result of such conduct to be void: Bank of America Australia Ltd v Ceda Jon International Pty Ltd (1988) 17 NSWLR 290. It is likely that the court will give a similar construction to the corresponding provisions in the Australian Consumer Law, ss 18 and 243 respectively.

Gnych v Polish Club Ltd [8.105] Gnych v Polish Club Ltd (2015) 255 CLR 414. The State liquor legislation provided that a licensee must not lease any part of licensed premises except with the approval of the liquor authority. Violation of this provision was punishable by a fine. A licensee leased part of its premises to a restaurant without obtaining the approval of the authority. The High Court held that this provision of the liquor legislation was directed at the licensee’s conduct in granting a lease, not the rights under the contract between the licensee and the restaurant. The “adverse consequences” for the innocent party (the restaurant) was a factor weighing against attributing to the legislature an intention to render the contract void. The offence under the liquor legislation occurred when the licensee granted the lease. Carrying out the lease was not prohibited. The punishment for the transgression was a fine. While the authority had power to cancel a liquor licence, it could leave the existing situation unchanged. If the violation of the statute “automatically” voided the lease, that would “pre-empt” the authority’s power of supervision of licensees.

chapter 8 Legality of Object

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].

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.

Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [8.140] Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828. The plaintiff manufacturers contracted with the defendant hauliers for the transportation of a large piece of engineering equipment. Subsequently, the lorry on which the equipment was being carried toppled over and the equipment was damaged. The plaintiffs sued the defendants for their loss. The relevant motor vehicle legislation provided that it was unlawful to use on the road a motor vehicle weighing more than 30 tons when loaded. Both the plaintiffs and the defendants were aware that the load exceeded the legal limit. It was held that the plaintiffs could not recover. Although the contract for the carriage of the equipment may have been lawful when it was made, it was illegal as performed and therefore unenforceable by either party.

[8.150] 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; 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,

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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 J. 1

Unlawful Gambling Act 1998 (NSW), s 56 (“has no effect”); Gambling Regulation Act 2003 (Vic), s 2.4.1; Racing Act 2002 (Qld), s 341; Lottery and Gaming Act 1936 (SA), ss 50 and 50A; Racing Regulation Act 2004 (Tas), s 103; Unlawful Gambling Act 2009 (ACT), s 47; Racing and Betting Act (NT), s 135; Gaming and Betting (Contracts and Securities) Act 1985 (WA), s 4.

2

Unlawful Gambling Act 1998 (NSW), s 56(2); Gambling Regulation Act 2003 (Vic), s 2.4.2; Racing Act 2002 (Qld), s 342; Lottery and Gaming Act 1936 (SA), s 50; Racing Regulation Act 2004 (Tas), s 103(2); Unlawful Gambling Act 2009 (ACT), s 47; Racing and Betting Act (NT), s 135(1); Gaming and Betting (Contracts and Securities) Act 1985 (WA), s 5; Betting Control Act 1954 (WA).

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: 1.

contracts described as illegal because of their more reprehensible character; and

2.

those simply described as void, rather than illegal, because of their less serious nature.

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. 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.

chapter 8 Legality of Object

Community standards of “immorality” are susceptible to change: Andrews v Parker [1973] Qd R 93.

Seidler v Schallhofer [8.210] 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 to the defendant of her half share as joint tenant in the property. It was held that the agreement was not void as being contrary to public policy.

Contracts prejudicial to the administration of justice [8.220] 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: 1.

agreements to stifle a prosecution; and

2.

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:

Public Service Employees Credit Union Co-operative Ltd v Campion [8.240] Public Service Employees Credit Union Co-operative Ltd v Campion (1984) 56 ACTR 39. The defendant guaranteed repayment of a loan advanced by the plaintiff credit union to his son on the understanding that the credit union would not report his son to police for misappropriation of moneys from the credit union. It was held that the guarantee was void for illegality as an agreement to stifle prosecution for an indictable public offence.

[8.250] 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:

Scolio Pty Ltd v Cote [8.260] Scolio Pty Ltd v Cote (1992) 6 WAR 475. An auditor’s report disclosed evidence of misappropriation of moneys by the respondent, a manager of the appellant company. The manager signed a deed to repay the moneys by instalments, being given to understand that if he did not do so the auditor’s report would be referred to the police. The court held that it was not established that the manager had signed the deed under duress and there was no evidence of an implicit agreement to stifle a prosecution. Accordingly, judgment was entered against the respondent

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manager for the amount of the deed.

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. 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. 1 1

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).

Contracts tending to promote corruption in public life [8.280] A contract with a person to use their official position to obtain a benefit for another is illegal. For example, a contract to procure a title of honour for reward is illegal.

Parkinson v College of Ambulance Ltd [8.290] Parkinson v College of Ambulance Ltd [1925] 2 KB 1. The secretary of a charity made an arrangement with the plaintiff that if he would make a donation to its funds it would take steps on his behalf and procure him at least a knighthood. He paid £3,000 and undertook to pay more when the knighthood was forthcoming. However, he did not receive a knighthood and sued for the return of the money. It was held that he was unable to recover because the contract was illegal as being contrary to public policy.

Wilkinson v Osborne [8.300] Wilkinson v Osborne (1915) 21 CLR 89. In a further example, 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. It was held that the agreement was illegal as being

chapter 8 Legality of Object

contrary to public policy.

Contracts prejudicial to the public safety [8.310] Agreements in this category are of two types. First, trading agreements between a national and an enemy alien in wartime. Secondly, agreements which might rupture the existing friendly relationships between one country and another: Regazzoni v KC Sethia (1944) Ltd [1958] AC 301. Such agreements are illegal and unenforceable.

Contracts to defraud the revenue [8.320] A contract which is designed to defraud the revenue whether national or local is illegal as being contrary to public policy: Alexander v Rayson [1936] 1 KB 169.

Contracts void at common law [8.330] There are three categories of contract usually regarded as being void (rather than illegal) at common law as being contrary to public policy. These are: 1.

contracts to oust the jurisdiction of the courts;

2.

contracts prejudicial to the status of marriage; and

3.

contracts in restraint of trade.

Contracts to oust the jurisdiction of the courts [8.340] A provision in a contract which purports to prevent recourse to the courts in the event of dispute between the parties is void as being contrary to public policy. It has been stated in the High Court that: “No contractual provision which attempts to disable a party from resorting to the Courts of law was ever recognised 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. 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, 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. 1 The most widely accepted definition of “restraint of trade” is that enunciated in Petrofina (Great Britain) Ltd v Martin [1966] 1 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”.

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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 is considered separately below. 1

See generally C Arup et al, “Restraints of Trade: The Legal Practice” (2013) 36 University of New South Wales Law Journal 1.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [8.370] Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535. The vendor of a business is frequently restrained from competing with the purchaser for a specified period and, usually, within a defined area. Such a restraint is enforceable if it is reasonable in the circumstances for the protection of the purchaser’s goodwill in the business.

Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd [8.380] Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505. Where a contract for the sale of a shipbuilding business, specialising in the construction of luxury motor vessels, contained a restraint of trade clause restraining the vendors from engaging in “the business of shipbuilding of any description or any other business of a similar nature”, it was held that the clause constituted an unreasonable restraint of trade as not being reasonably necessary to protect the interests of the purchaser.

Positive Endeavour Pty Ltd v Madigan [8.390] Positive Endeavour Pty Ltd v Madigan (2009) 105 SASR 109. A contract for the sale of a finance broking business provided that the vendor must not “solicit, canvass or secure the custom of a person who is at completion, or was within twelve

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months before completion, a customer”: 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.

Contracts of employment [8.400] Contracts of employment sometimes contain covenants restraining the employee from exercising their profession or trade in a certain area or for a certain time after the termination of their employment. Covenants in restraint of trade contained in contracts of employment will only be enforced so far as is necessary to prevent the employee using the knowledge, trade secrets or connections of their past employer in competition with that employer, and not to prevent the employee from using their own skill and knowledge in their trade or profession, even if acquired in the previous employer’s service: Attwood v Lamont [1920] 3 KB 571. The law does not readily allow a person to contract out of their means of livelihood: Lindner v Murdock’s Garage (1950) 83 CLR 628. A certain number of restraints rest on the employee, however, quite independently of any express covenant. For example, a person can be restrained from disclosing a secret process belonging to their employer which they have memorised: Amber Size Chemical Co v Menzel [1913] 2 Ch 239. A person can be prevented from using a list of their employer’s customers for the purpose of soliciting business for themselves: Robb v Green [1895] 2 QB 315. A person acquiring special skills with access to their employer’s secrets can be restrained from working for a competitor in their spare time: Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169. Such covenants will be construed more strictly in the case of an employer ((vis a vis an employee) than in the case of a vendor (vis a vis a purchaser of a business): 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:

Herbert Morris Ltd v Saxelby [8.410] Herbert Morris Ltd v Saxelby [1916] 1 AC 688. Saxelby had been employed by the appellant company for 12 years. He had made a covenant with the company that he would not, for seven years after the termination of his employment with the company, either in the United Kingdom or Ireland, carry on or engage in by himself or with others any business of a like nature to that of the appellant company: at 690. He left the company and joined the staff of competitors of the company. The House of Lords held that the covenant was void as a person should not be restrained from using their own skill in any particular trade. A person has a right to engage in competition with others engaged in that trade and the law will not enforce a covenant in restraint of employment if it is imposed on the former employee only to protect the employer against competition per se.

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[8.420] A restraint which is imposed simply for the purpose of preventing an ex-employee from using their own skill and knowledge in competition with their former employer will not be enforceable. However reasonable restraint designed to protect trade connections, confidential information, or trade secrets acquired by the employee in the course of their employment will be enforceable: Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472.

Jardin v Metcash Ltd [8.422] Jardin v Metcash Ltd (2011) 285 ALR 677. Jardin was the CEO of a subsidiary of Metcash, IGA Distribution, which distributed groceries to independent retailers 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].

Seven Network (Operations) Ltd v Warburton [8.424] Seven Network (Operations) Ltd v Warburton [2011] NSWSC 386. James Warburton was the Chief Sales and Digital Officer at Network Seven and was seen as its next Chief Executive Officer. However, on March 2, 2011, he defected to Network 10 taking up a position as its CEO, commencing on July 14, 2011. After Warburton informed Seven, they asked him to take leave immediately and sought to enforce a restraint of trade clause in his contract. Under the clause, he could not work for Network 10 for a period of 12 months from the date he left Seven. The Court first decided that the restraint, if valid, would start from March 2. The Court then held that the restraint was necessary for the reasonable protection of the employer’s legitimate interests including the need to reduce the risk of devaluation of the business caused by the departure of any executives to competitors and to reduce the risk of the misuse of confidential information by competitors. The Court decided that 12 months was not an unreasonable restraint period because it was tied to the advertising contract cycle – beyond that period Warburton’s knowledge of the advertising rates etc would be past its use-by date. However the judge, underscoring

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the principle that a restraint will only be enforced to the extent necessary to protect the employer’s legitimate interests, then decided that the restraint would expire on January 1, 2012 because by December 31, 2011, Seven would have finalised its major advertising contracts.

Pearson v HRX Holdings Pty Ltd [8.425] Pearson v HRX Holdings Pty Ltd (2012) 205 FCR 187. Pearson was employed in a senior role in a human resources firm, marketing the firm to possible clients: 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 were 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: at [63].

Birdanco Nominees Pty Ltd v Money [8.426] Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341. Money was employed by a firm of accountants. His employment contract provided that for a period of three years after leaving employment with the firm he may not provide accounting services to any client of the firm for whom he had worked within the three years before leaving the firm’s employment: 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.

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NE Perry Pty Ltd v Judge [8.430] NE Perry Pty Ltd v Judge (2002) 84 SASR 86. A chiropractor was appointed to work at a chiropractic practice. The chiropractor agreed that for two years after the termination of a contract, he would not 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.

[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:

Buckley v Tutty [8.450] Buckley v Tutty (1971) 125 CLR 353. T, a professional footballer, contracted to play with the Balmain Rugby League Club. Under his contract, T could not transfer to any other club except with the consent of the Balmain Club which had refused to give its consent. Further, even if the Balmain Club agreed to put T on a transfer list, the amount of transfer fee which it could fix was within its own discretion. The High Court held that the rules relating to the retention and transfer of players were in restraint of trade and that appropriate orders could be granted to prevent the club from continuing to observe them. The Court stated: “[T]he rules … go beyond what is reasonable in two main respects. In the first place, they enable a club to prevent any professional who has played in one of its teams from playing with another club, notwithstanding that he has ceased to play for the club which retains him and no longer receives any remuneration from that club. There is no time limited for the exercise of this power … A second objection to the rules … is in relation to the question of transfer fees. Although a club does not wish to retain a player, and is prepared to see him go to another club, it may fix a transfer fee, most of which goes to the club itself, although it may be quite unrelated to any benefit which the player has received from his membership of … the club … The transfer fee may not only prevent a player from reaping the financial

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rewards of his own skill but it may impede him in obtaining new employment”: 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.

A Schroeder Music Publishing Co Ltd v Macaulay [8.470] A Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308. A young songwriter entered into an agreement with a music publishing company on one of the company’s standard forms. Under the contract the company engaged his exclusive services as a songwriter for a period of five years, with provision for automatic extension for another five years if royalties exceeded £5,000. Copyright in all compositions created by the songwriter during the term of the contract was to be assigned to the company. The songwriter received no payment (apart from an initial £50) unless his work was published but the company was under no obligation to publish or promote his work. If the company did not publish, the songwriter had no right to terminate the agreement or to have copyright in his compositions reassigned to him. The company could terminate the agreement by giving one month’s notice but there was no corresponding provision for the benefit of the songwriter. The company also had complete power to assign its rights under the contract but the songwriter could not do so without the publisher’s written consent. The House of Lords held that the contract was in unreasonable restraint of trade and void as being contrary to public policy. In determining whether the court would relieve the songwriter of his legal duty to fulfil his obligations it was necessary to “assess the relative bargaining power of the publisher and the songwriter at the time the contract was made and to decide whether the publisher had used his superior bargaining power to extract from the songwriter promises that were unfairly onerous to him”. The relevant question to be answered is: “‘Was the bargain fair?’ The test of fairness, is … whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract.” On the facts, the contract did not satisfy this “test of fairness”.

[8.480] 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]. 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].

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Other restrictive trading agreements [8.490] 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].

BB Australia Pty Ltd v Karioi Pty Ltd [8.492] BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105. Karioi operated two video rental stores under a Blockbuster franchise: 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

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confidential information: at [96].

EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [8.494] EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd [2010] 2 Qd R 517. 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 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].

[8.500] 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)). 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. [8.510] In some cases, the first question to be determined is whether the clause is a restraint of trade clause – does the clause restrain trade? Only if the clause is a restraint of trade does the question of whether the restraint is reasonably necessary in the circumstances arise. The House of Lords in the case of Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] 2 AC 269 discussed three alternative tests to determine whether a clause was a restraint of trade: the “pre-existing freedom” test; the “sterilisation” test; and the ‘trading society’ test. The pre-existing freedom test essentially asks whether a party has given up freedoms that they had prior to the agreement. If not, then there is no restraint. The sterilisation test essentially asks whether the clause sterilises (stops) the person’s ability to work or trade, or, is it directing the person’s work or trade to the activities covered by the contract. Lord Reid asked whether “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. 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. (and hence will not be invalid): at [105], developed by Lord Wilberforce in the case of Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] 2 AC 269. Determining whether a clause is in restraint of trade requires the courts to consider both public policy and commercial and competition issues. The “structure of a trading society” test recognises

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that some issues occur commonly in the course of business activities, that these issues have thus been subject to much negotiation amongst many parties and through this process, over time, some “standard” or usual contract clauses have developed. The development of such clauses tends to show that the clauses “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 restrictive they are accepted as part of the structure of a trading society”: at 335. Accordingly, such clauses will not be in restraint of trade and thus invalid. 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. 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 above under the headings “Contracts for the sale of a business” and “Contracts of employment” 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.

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 the person whom the statute was designed to protect: Kiriri Cotton Co Ltd v Dewani [1960] AC 192.

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The parties are not “in pari delicto”, and accordingly recovery is allowed, where a person is induced to enter into the illegal contract by the exercise of fraudulent misrepresentation, duress or oppression.

Shelley v Paddock [8.570] Shelley v Paddock [1980] QB 348. The plaintiff, an English resident, agreed to purchase a house in Spain from the defendants who were English nationals resident in Spain. The defendants said that they were selling the house as agents for the owner. In fact they had no authority to sell the house. The plaintiff paid the defendants the purchase price. On discovering the true situation, the plaintiff sued the defendants. However, the defendants contended that the moneys paid by the plaintiff were irrecoverable on the ground that the transaction was illegal since it contravened the Exchange Control Act 1947 (UK). It was held the plaintiff could recover since the parties were not in pari delicto. Tthe defendants “were guilty of a swindle. It is only fair and just that they should not be allowed to keep the benefit of their fraud”: at 357.

[8.580] 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. 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.

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] WASCA 24 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 general test for determining whether terms that are void are severable was stated by Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337 at 345:

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“When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature. … If the elimination of the invalid promises changes the extent only but not the kind of contract, the valid promises are severable”: at 345. A common situation in which the question of severance has arisen is in relation to restraint of trade clauses. This led to the inclusion of clauses imposing harsh restraints but also providing that if that restraint was unenforceable some lesser restraint should be adopted. The object was to ensure that if the court struck down the more onerous clause, 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: see Fleming Bros (Monaro Agencies) Pty Ltd v Smith [1983] ATPR 40-389; IRAF Pty Ltd v Graham [1982] 1 NSWLR 419. 1 1

See generally A Moses, “Restraint of Trade in New South Wales” (2004) 1 University of New England Law Journal 199.

Severance and illegal contracts [8.620] The courts have held that severance also applies to contracts which are illegal in the strict sense: Carney v Herbert [1985] 1 AC 301 at 317. In practice, the scope of severance in the case of illegal contracts tends to be limited, since the usual effect of failure to comply with a statutory prohibition is to make the whole contract illegal and void: Humphries v Proprietors “Surfers Palms North” Group Titles Plan 1955 (1994) 179 CLR 597; Day Ford Pty Ltd v Sciacca [1990] 2 Qd R 209 at 236.

Money paid recoverable [8.630] Money paid under a contract which is merely void (rather than illegal) is generally recoverable. It appears that this is so whether or not the party who has paid it can prove a total failure of consideration. This is illustrated by the case of a marriage brokerage contract:

Hermann v Charlesworth [8.640] Hermann v Charlesworth [1905] 2 KB 123. The defendant agreed that he would introduce certain gentlemen to the plaintiff (an unmarried woman) with a view to matrimony for an initial fee of £52 and a later payment of £250 should a marriage take place. He introduced certain gentlemen to her but no marriage resulted. It was held that the plaintiff was entitled to the return of her £52 since the payment had been made under a void contract and was recoverable.

chapter 9

Contents and Interpretation of the Contract [9.20] Express terms....................................................................................................................................................... 169 [9.180] How are the terms incorporated into the agreement?................................................................ 177 [9.300] The interpretation issue: what do the terms mean? .................................................................... 179 [9.340] Interpretation of exclusion clauses........................................................................................................ 184 [9.460] Online contracting ........................................................................................................................................... 184 [9.510] Implied terms..................................................................................................................................................... 191

Introduction [9.10] In this chapter, we examine how the courts determine what the terms of a contract are and, once that has been done, we examine how the courts determine what those terms mean. The rights and obligations of parties to a contract are determined by the terms of that contract. These terms may be express (specifically agreed to by the parties) or they may be implied (a term that is not directly stated but is introduced into the contract by the courts or by a statute). If the dispute concerns the meaning to the terms, the court determines the intention of the parties based on the words used (oral and/or written), the conduct of the parties and the surrounding circumstances.

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Express terms Figure 9.1: Terms

Figure 9.2: Sample Contract of Sale CONTRACT FOR THE SALE OF GOODS Paragraph 1. _______________________(Seller) of_____________________ (address) and ____________________(Buyer) of __________________________, hereby agree on /__/__ to the following terms. A. Description of the Goods Paragraph 2. Seller agrees to transfer and deliver to Buyer, on or before ________________________ [date], the below-described goods: ____________________________________________________________________________ __________________________________________________________________________ ______________________________________________________________ C. Buyer’s Rights and Obligations

Paragraph 3. Buyer agrees to accept the goods and pay for them according to the terms further set out below. Paragraph 4. Buyer agrees to pay for the goods: q In full, upon receipt q In installments, as billed by Seller, and subject to the separate installment sale contract of __________________[date] between Seller and Buyer.

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Paragraph 5. Goods are deemed received by Buyer upon delivery to Buyer’s address as set forth above. Paragraph 6. Buyer has the right to examine the goods upon receipt and has ____ days in which to notify seller of any claim for damages based on the condition, grade, quality or quality of the goods. Such notice must specify in detail the particulars of the claim. Failure to provide such notice within the requisite time period constitutes irrevocable acceptance of the goods. D. Seller’s Obligations

Paragraph 7. Until received by Buyer, all risk of loss to the above-described goods is borne by Seller. Paragraph 8. Seller warrants that the goods are free from any and all security interests, liens, and encumbrances. E. Entire Agreement clause.

Paragraph 9. This contract is the whole contract. No representations made by either party have any effect unless included in this contract. F. Paragraph 10 Exclusion clause.

The seller is not responsible for any loss or damage suffered by the Buyer that are caused by the goods except where the loss or damage is caused by the Seller’s negligence Attestation Paragraph 10. Agreed to this _____ day of _____, in the year ____________. Signed ___________________________________Seller Signed ___________________________________Buyer

[9.20] Determining what constitutes the express terms of a contract may or may not be straightforward. It is straightforward when the contract is entirely in writing and signed by the parties. This is not uncommon: many contracts (eg sale of land contracts, mortgages, credit contracts, leases, partnership agreements, professional employment contracts and other significant commercial contracts) are in writing and signed by the parties. In such a situation, all the express terms are in the document and the only dispute may be about their meaning. Where the contract appears to be entirely in writing, there is a rule of law - the parol evidence rule – that states that where the parties intended their written contract to contain all the agreed terms evidence of other terms (oral or written on some other document) will not be allowed. So, for example, where the agreement appears to be complete (see the specimen contract Fig 9.2) the buyer will not be allowed to introduce evidence that the seller orally agreed to a lower price. There are numerous exceptions or qualification to the parol evidence rule, the most important of which is that evidence of a collateral contract (see [9.70]) can be introduced. If proven, the parol evidence rule does not apply because the existence of the oral collateral promise demonstrates that the written contract was not the entire agreement. The position is not so clear where the contract is partly written and partly oral or entirely oral. This is because, in the negotiations leading up to the point at which the contract is made, the parties may have made many statements (oral or in writing) and it may not be clear what was actually said, and which of those statements were intended to be terms of the contract and which were representations (or mere puffs).

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Ashton v Pratt [2015] NSWCA 12 (see [4.80]) is an excellent example. Where the contract is oral (or partly oral) establishing the oral term is obviously more difficult. The plaintiff bringing the action for breach of the oral contract has the burden of proving what was promised. Evidence (such as notes or other documents) or any witnesses to the events, including the plaintiff and defendant, must be produced by the plaintiff in an effort to prove that his or her version of what was said is more likely to be true than the defendant’s version. Figure 9.3: Express terms

Identifying the terms of a contract; distinguishing between mere puffs, representations and promises [9.30] Not every statement made by a party in the course of negotiating a contract will be regarded as a term of the contract. Therefore, it is important to distinguish between puffery, representations which induce the contract and statements that are regarded as terms of the contract itself. The importance of the distinction is that damages cannot be awarded for a statement that constitutes an innocent (as opposed to a negligent or a fraudulent) misrepresentation inducing the contract, 1 whereas damages and termination may be available for a 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

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bargain. The courts look objectively at the circumstances to determine whether or not an express pre-contractual statement was a promise (a contractual term) or a representation (non-contractual). There are, however, guidelines that may assist a court: the time that has elapsed from the making of the statement to the formation of the contract may be a factor. The less time, the more likely it is to be a term of the contract; the longer gap, the harder it will be to argue that the statement was significant. objectively, the more important the statement in the context of the contract, the more likely it is to be a term of the contract. Where the party arguing that the statement is a term has reasonably relied on the statement and has placed importance on the statement it is more likely to be a term. if a statement is made during the negotiations and the agreement is subsequently reduced to writing, any statement not included in the written contract will be regarded as a representation. This is consistent with the parol evidence rule. It may however constitute a collateral contract (see below [9.70]). the relative knowledge and expertise of the parties. If the person making the statement was an expert or had more knowledge about the matter than the other party, the statement is more likely to be a term. The cases discussed below illustrate these points. 1

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 ( ACL) contained in Sch 2 of the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13 ([13.10]).

Oscar Chess Ltd v Williams [9.40] Oscar Chess Ltd v Williams [1957] 1 WLR 370. 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 registration papers. 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. 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, the Court of Appeal held that the plaintiff’s claim failed. Williams did not promise that the car was a 1948 model; it was an innocent misrepresentation for which damages could not be awarded. Denning LJ said that much depends on the precise words used: “If the seller says, ‘I believe it is a 1948 Morris. Here is the registration book to prove it’, it is a statement of belief, not a contractual promise. But if the seller says ‘I guarantee that it is a 1948 Morris …’ there is clearly a warranty (promise). The seller is making himself contractually responsible, even though the registration book is wrong … What is the proper inference from the known facts? It must have been obvious to both that the seller had himself no personal knowledge of the year when the car was made … It is unlikely that such a person would warrant the year of manufacture.

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The most he could do was state his belief”: at 375-376.

Compare the following cases:

Dick Bentley Productions Limited v Harold Smith (Motors) Ltd [9.50] Dick Bentley Productions Limited v Harold Smith (Motors) Ltd [1965] 1 WLR 623: The purchaser of a motor car was told by the vendor during negotiations that the car had travelled only 20,000 miles since being fitted with a replacement engine and gearbox. In fact, it had done approximately 100,000 miles. If the statement were a term of the contract, the purchaser could get damages for breach of contract, whereas if it were a representation he could only rescind the agreement (and a right of rescission is easily lost). The court held that the statement was a term of the contract. The court was influenced by the fact that the vendor was a car dealer who was possessed of superior knowledge and expertise.

Ross v Allis-Chalmers Australia Pty Ltd [9.60] Ross v Allis-Chalmers Australia Pty Ltd (1980) 32 ALR 561. Ross was negotiating to buy a harvester for commercial use. To be successful, he needed to be able to harvest around 120 to 130 acres per day. He was looking at a harvester and asked the salesman what its capacity was. The salesman, who was experienced in this kind of work, said, “In my experience the best this one could do is 90 acres per day.” Ross bought the machine but found it could not even do this. He sued for breach of contract, arguing the salesman’s statement was a term of the contract. The court held that the salesman’s statement was not a term of the contract. It was merely a statement of opinion, based on experience, and was not intended to be promissory.

Collateral contracts [9.70] A further possibility is that a statement, although not an actual term of the contract, may be treated by the court as a collateral contract, that is, collateral to the main contract, and damages may be recovered for breach of that collateral contract. This device has been used particularly where the main contract has been reduced to writing. In such a case, it may not be possible for an oral statement to take effect as an actual term of the contract because of the parol evidence rule. However, where it can be shown that (a) the statement was promissory and intended to have contractual effect, (b) is not inconsistent with the main contract and (c) the promisee provided consideration for the collateral contract (usually by entering into the main contract) the courts will treat it as a collateral contract.

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Van Den Esschert v Chappell [9.80] Van Den Esschert v Chappell [1960] WAR 114; see also [9.30]. A purchaser, before signing a contract for the purchase of a house, asked the vendor whether there were any termites in the house. On receiving an assurance that there were none, the purchaser signed the contract that contained no reference to termites. Some months after taking possession, the purchaser discovered termites in the house and had the premises treated to eradicate them. The court held that the purchaser could recover the cost of treatment and necessary repairs for breach of the vendor’s collateral agreement. It said that there were two parts to the agreement – a written contract and a collateral one that consisted of one term – a promise that the house was free of termites. The three criteria for a collateral contract were present: the statement was promissory; it was not inconsistent with the main contract and consideration was present the promisee agreeing to enter into the main contract). Although the purchaser was successful in this case, he would have been better advised to include the promise in the main contract in the first place. It should also be noted that a purchaser faced with a similar issue in the current environment would probably take action under s 18 of the Australian Consumer Law for misleading or deceptive conduct.

Hoyt's Pty Ltd v Spencer [9.90] Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133. 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.

[9.100] 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. That is, it was a promise. This is clearly demonstrated by the following decision of the High Court.

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [9.110] Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26. Crown is the owner of the Melbourne Casino and Entertainment Complex. Cosmopolitan held two leases limited to a term of 5 years. The leases required Cosmopolitan to undertake extensive refurbishments. Crown did not renew the leases following a tender process and gave notice requiring Cosmopolitan to vacate

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the premises on the expiration of the leases. Cosmopolitan, subsequently, became insolvent due to write-downs of more than $2 million in the value of the refurbishments. Cosmopolitan alleged that, in order to induce them to enter into the leases that were for a relatively short period of time (5 years), Crown promised, in an oral statement, that Cosmopolitan would be “looked after at renewal time”. Cosmopolitan argued that this amounted to a collateral contract that Crown would renew the leases for a further 5 years if they undertook the extensive refurbishments. In the alternative, Cosmopolitan argued that the Crown was estopped from denying the existence of the collateral contract. The primary judge and the Court of Appeal of the Supreme Court of Victoria held that the statement did not give rise to a collateral contract. On this issue, the High Court upheld the Court of Appeal’s finding that the statement was no more than “vaguely encouraging” and did not amount to a collateral contract. A reasonable person in the position of the parties could not have understood the statement to amount to a binding contractual promise to renew the leases. The decision affirms that statements made in pre-contractual negotiations that are vague, ambiguous or simply encouraging will not be enforceable in contract (as a collateral contract) or, in respect of the other major issue in the case, in equity (as an estoppel). Notwithstanding that the collateral contract argument failed in this case, the lesson for commercial people is that they need to be cautious about providing and relying upon encouragement and assurances made outside the terms of an agreement. Even if representations are not a collateral part of the contract there is a still a risk of breaching the general prohibition on misleading and deceptive conduct in the Australian Consumer Law.

Classifying express terms: conditions, warranties and innominate terms [9.120] A distinction is made between conditions (terms that are of fundamental importance to the contract) and warranties (terms that are of lesser importance). The reason for distinguishing between the significance of terms is that breach of a condition entitles the innocent party to terminate the contract and/or claim damages, whereas a breach of warranty only entitles the innocent party to damages for the loss they have suffered; there is no right to terminate for a breach of warranty. A condition is a term which “goes to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract … a thing different in substance from what the defendant has stipulated for”: Bettini v Gye (1876) 1 QBD 183, 188. It is sometimes described as a term without which the party for whom the term was included would not have entered the agreement without an assurance of compliance.

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Associated Newspapers Ltd v Bancks [9.130] Associated Newspapers Ltd v Bancks (1951) 83 CLR 322. Bancks contracted to prepare a weekly drawing relating to a cartoon character, “Ginger Meggs”, for the plaintiff newspaper company which in turn undertook to present the drawing each week as a full page feature on the front page of the comic section of its Sunday newspaper. As a result of problems arising from a newsprint shortage, Bancks’ “Ginger Meggs” cartoon appeared on page three of the comic section of the newspaper instead of on page one as provided by the contract between the parties. This occurred on three consecutive Sundays, whereupon Bancks wrote to the plaintiff company to the effect that he no longer regarded himself as bound by the contract because of the plaintiff’s breach. In other words, Bancks terminated the contract for breach of a condition. The plaintiff company argued that Bancks in wrongfully terminating the contract had, himself, repudiated the agreement. The High Court held that the plaintiff company’s undertaking to publish Bancks’ cartoon on the front page of the comic section constituted a condition of the contract, breach of which entitled him to treat the contract as at an end. In a unanimous decision the Court said: “He was employed as a comic artist and his true work was to produce this weekly drawing … It was what he was really engaged to do … Obviously it was of prime importance to the defendant that there should be continuity of publication so that his work should be kept continuously before the public … and that it should be published on the most conspicuous page … (T)he undertaking … formed a condition a substantial failure in the performance of which would enable the defendant to treat the contract as at an end … [S]uch a failure to perform the condition went to the root of the contract and gave the defendant … the right immediately to treat the contract as at an end”: at 337–338.

[9.140] A warranty is a term of lesser significance than a condition.

Bettini v Gye [9.150] Bettini v Gye (1876) 1 QBD 183. Gye, 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. 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. The court said that clause 7 did not go to the root of the contract. Blackburn J said: “… the failure to attend at rehearsals during the six days immediately before 30 March could only affect the theatrical performances and, perhaps, the singing in duets or concert pieces during the first week or fortnight of this

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engagement, which is to sing in theatres, halls, and drawing rooms for fifteen weeks”: at 189.

[9.160] Recently, the High Court of Australia has approved of a third category – the innominate term. After some uncertainty about the status of this third category, the innominate term was declared part of Australian law in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115. Whether a term of a contract is a condition or warranty depends on determining the intention of the parties to the contract. Ascertaining that intention, and thus deciding whether the term is to be treated as a condition or warranty, is often no easy matter as the above cases demonstrate. In some cases it may be more appropriate to look at the nature and effect of the breach in deciding what remedy should be available to the innocent party, rather than simply asking whether the term is a condition or warranty. The innominate term began life in the following case.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [9.170] Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1952] 2 QB 26. The plaintiffs chartered a ship for a period of two years. A term of the contract required the shipowners to provide a seaworthy ship that was “in every way fitted for ordinary service”. They also promised to “maintain her in a thoroughly efficient state in hull and machinery during service”. There was a 57–day delay in delivering the ship in seaworthy condition because of the incompetence of the engine room personnel. A further 91 days were likely to be lost because of the need to repair the vessel’s engines. In all, it would be 20 weeks before the charterers could sail the ship. They terminated the contract, arguing that this was a breach of the “seaworthiness” condition. The plaintiffs argued that the defendants’ actions were a repudiation of the contract (that is, a wrongful termination) and sued for damages. The court decided that not all contractual undertakings were easy to classify. The breach of some undertakings would always deprive the innocent party of substantially the whole benefit of the contract, enabling the innocent party to terminate. The breach of others would never deprive the innocent party of substantially the whole benefit of the contract, allowing the innocent party to sue for damages only. However, in the words of Diplock LJ: “There are … many contractual undertakings … which cannot be categorised as being ‘conditions’ or ‘warranties’ (at the start) … all that can be predicted is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit (of the contract) … (the undertaking to deliver a seaworthy ship) is one of that large class of contractual undertakings (that could be either a condition or a warranty)”: at 69–70. The court decided that, although the plaintiffs were obviously in breach of their promise to provide a seaworthy ship, this was not a condition because the delays caused by the breach, in the context of a two-year charter, were not so great as to

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deprive the defendant charterers of the substantial part of the benefit of the contract.

How are the terms incorporated into the agreement? [9.180] We will now consider how terms are incorporated into contracts that are (a) in writing and signed by the parties and (b) contracts that are in writing but not signed. In the following cases, the particular term in question is usually an exclusion clause (a clause that purports to limit or exclude one party’s liability for loss incurred by the other). However, the same analysis applies in relation to any other term in the document or, indeed, it could be raised in relation to the whole document.

1. Incorporation by signature [9.190] When a person signs a document known to contain contractual terms, they will, prima facie, be bound by their signatures, regardless of whether they have read or understood the document before signing it. The test is an objective one – would a reasonable person in this situation conclude that the person signing the document was agreeing to the terms contained therein?

L'Estrange v F Graucob Ltd [9.200] L’Estrange v F Graucob Ltd [1934] 2 KB 394. L’Estrange bought a cigarette vending machine from Graucob and signed a document headed “Sales Agreement”. The agreement, which L’Estrange did not read, contained a number of clauses, including an exclusion clause that said: “This agreement contains all the terms and conditions under which I agree to purchase the machine specified above and any express or implied condition, statement or warranty, statutory or otherwise not stated herein is excluded.” The machine failed to work properly. L’Estrange sued for breach of the implied term that goods should be fit for their purpose. The issue was whether she was bound by a term of which she was unaware. Held: The exclusion clause was effective because L’Estrange had signed the contract. The fact that she had not read the contract was irrelevant. In the words of Scrutton LJ: “When a document containing contractual terms is signed, then, in the absence of fraud, or, I might add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not … (T)he plaintiff has signed a document headed ‘Sales Agreement’, which she admits had to do with the intended purchase, and which contained a clause excluding all conditions and warranties. That being so, the plaintiff, having put her signature to the document and not having been induced to do so by any fraud or misrepresentation, cannot be heard to say that she is not bound by the terms of the document because she has not read them”: at 402.

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Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [9.210] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52: Alphapharm Pty Ltd, entered into a freight and storage agreement with Toll, a transport company with fleet of refrigerated vans. Alphapharm had purchased a large quantity of flu vaccine and planned to sell and distribute it throughout Australia. The vaccine was perishable unless stored at a temperature between 2-8 degrees centigrade. The transport and storage agreement was formed by a series of written communications. On 20 January 1999, Alphapharm sent a letter to Toll by fax requesting refrigerated transport for the vaccine as well as details of its insurance arrangements. Toll replied attaching a quotation of its freight rates. The fax relevantly stated: Following acceptance to our quotation, it would be very much appreciated if you would complete the Credit Application and sign the Freight Rate Schedule accepting our Rates and Conditions and fax back to our office at your earliest convenience. An employee of Alphapharm, signed the Schedule and later signed the “Application for Credit” referred to in Toll’s fax above. Above the space for signature were the words: “Please read ‘Conditions of Contract’ (Overleaf) prior to signing.” On the reverse side of the Application for Credit were a number of “Conditions of Contract”. Clause 6 excluded Toll’s liability for “any loss, injury or damage suffered by the Customer in respect of any goods being carried or stored on its behalf”. Alphapharm’s employee did not read the Conditions of Contract before signing the Application for Credit. Alphapharm directed Toll to deliver shipments of the vaccine but it did not maintain the consignments within the specified temperature range during the transport. As a result, the laboratories rejected them. Alphapharm submitted that in order for those terms and conditions to be made part of the contract, Toll had to establish that it had done what was reasonable to give Alphapharm notice of the terms and conditions (and it had not, in fact, done so). In effect, it argued that the rule in L’Estrange does not apply when exclusion clauses, or at least harsh or onerous ones, are in issue. The High Court rejected this approach. It held that the ordinary rule in L’Estrange applied and the employee’s signature was binding. The High Court said: “… to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, … whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it (at [45]) … There may be cases where the circumstances in which a document is presented for signature, or the presence in it of unusual terms, could involve a misrepresentation. No such problem exists in the present case. There could also be circumstances in which one party would not reasonably understand another party’s signature to a document as a manifestation of intent to enter into legal relations, or of assent to its terms. Again, that is not this case. It was reasonable of Toll to treat (the employee’s) signature as a

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manifestation of assent to the conditions he had been invited to read before signing”: at [63] [emphasis added].

But is the document “contractual” in nature? [9.220] If the document containing the clause 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 exclusion clause contained in it cannot be relied upon to exclude liability.

Causer v Browne [9.230] Causer v Browne [1952] VLR 1. Causer (C) took a dress for dry cleaning to Browne (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: 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; 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.

Le Mans Grand Prix Circuits Pty Ltd v Illiadis [9.240] Le Mans Grand Prix Circuits Pty Ltd v Illiadis [1998] VSC 331: Le Mans carried on the business of providing for hire to the public “go-karts and a go-kart racing track”. A local radio station had booked the track for a corporate promotion night. Illiados attended the promotion night. When he arrived at the track he was told “… to sign a particular form so you can register your name to be able to do a lap of the go-kart race and once I did that I was qualified to drive the faster vehicle”. He signed the form but was not given enough time to read the form. He treated the form as a marketing or registration type of form. He qualified to race and in the course of a race his vehicle overturned, and he fractured his arm. Le Mans argued that, because the document which was signed and was clearly contractual on its face, I bound himself by it. The court held there was no evidence that, before participants were asked to sign the form, they were given any notice or other indication that any contract was to exist between them and the appellant, save for a licence to drive.

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2. By giving reasonable notice [9.250] The party seeking to rely on the clause must show that, in the absence of a signed document, the exclusion 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 exclusion 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. The basic principle in these situations is that the exclusion clause will form part of the contract if the party seeking to rely on it can show that they had taken steps that were reasonably sufficient in the circumstances to give notice of the exclusion clause to the other contracting party.

3. Notice must be given before contract made [9.260] The exclusion clause must be brought to the notice of the contracting party before or at the time the contract is made. If notice of the exclusion clause is given after the contract has been made, it will have no effect.

Olley v Marlborough Court Ltd [9.270] Olley v Marlborough Court Ltd [1949] 1 KB 532. The plaintiff and her husband booked into the defendant’s hotel. They went up to their room where on one of the walls a notice was displayed stating that: “The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody”. The plaintiff’s 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 exclusion 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.

Alameddine v Glenworth Valley Horse Riding Pty Ltd [9.280] Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219. The plaintiff, Alissa Alameddie, sued Glenworth Valley Horse Riding (Glenworth) in relation to an injury she suffered while participating in a quad bike trail ride at the defendant’s premises. The plaintiff’s mother organised and paid for the quad bike activity in advance, after reading about it on the defendant’s website. Shortly after, the plaintiff’s family went to Glenworth’s facility. The plaintiff’s older sister completed an application form that included an exclusion of liability clause. The application form including the following statements: A. As a potential participant, you acknowledge and accept that recreational activities including…quad biking…constitute a dangerous recreational activity pursuant to the Civil Liability Act 2002 and that participation in the activity involves a significant risk of physical harm or personal injury... Any such injury may result not only from your actions including physical assertion but also from the action, omission or negligence of others.

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B. You further agree that GVOA…shall not be liable to any person whether in contract, tort, under statute or otherwise for any injury, loss, damage, death, economic loss whatsoever suffered by you, whether consequential, direct, indirect, caused by or connected with your participation in the activity. There was also a sign at the premises containing warnings that quad biking was “an inherently dangerous activity”, that participants were to travel at “a speed which [was] within [their] ability” and that engaging in the activity was “entirely at [their] own risk”. In addition, there was a safety briefing followed by a demonstration on how to operate, control and manage the quad bikes. After this, the plaintiff’s family and two of Glenworth’s instructors separated into two groups of four for the return trip. The plaintiff was in the rear group. When the other group began to get further ahead, the instructor in the plaintiff’s group accelerated to catch up and this led the plaintiff to accelerate, which caused her to lose control of the quad bike. She fell off and was injured. The NSW Court of Appeal agreed with the primary judge’s finding that Glenworth acted negligently. The court found the contract between the plaintiff’s mother and Glenworth was held to have been made when the plaintiff’s mother paid for the quad bike activity in advance via the website. As a consequence, the exclusion of liability clause contained in the application form that was completed on the day of the activity did not form part of the contract.

Thornton v Shoe Lane Parking Ltd [9.290] Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. Thornton was attending an engagement at the BBC. He drove to the defendants’ new automatic car park. He had not gone before. At the entrance was a notice that read “All Cars Parked at Owner’s Risk”. He drove in, was stopped by a red traffic light and took the ticket issued by the machine. When he took the ticket, the light turned green allowing him to proceed into the garage where his car was parked by mechanical means. The ticket contained in small print on the bottom left hand corner the words “issued subject to conditions … displayed on the premises”. A set of printed conditions displayed in a panel on a pillar opposite the machine included a provision exempting the defendants from liability for injury to a customer. Thornton was run down and severely injured when he returned to collect his car. In an action for damages, the defendants sought to rely on the exclusion clause. It was held that the clause did not exempt the defendants from liability since they had not done what was reasonably sufficient to bring the clause to Thornton’s notice. Denning LJ said: ... In the present case the offer was contained in the notice at the entrance giving the charges for garaging and saying “at owner’s risk”, that is risk of the owner so far as damage to the car was concerned. The offer was accepted when Mr Thornton drove up to the entrance, and, by the movement of his car, turned the light from red to green and the ticket was thrust at him. The contract was then concluded, and it could not be altered so as to exempt the company from liability for personal injury due to their

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negligence … this customer is (only) bound by the exempting condition if he knows that the ticket is issued subject to it; or if the company did what was reasonably sufficient to give him notice of it”: at 169–170.

The interpretation issue: what do the terms mean? Ambiguity and uncertainty [9.300] Many contractual disputes are about the meaning of the terms that the parties have agreed to. There is no dispute that a valid agreement has been made and no dispute about the terms of that agreement but there is a dispute about what those terms actually mean, what the particular rights and obligations of the parties are under the agreement they have made. The principles of contractual interpretation are well established: 1.

The most important and overriding principle is that the courts will look to give effect to the objective intention of the parties. The court will be slow to find ambiguity or uncertainty in a commercial contract where the intention of the parties can be reasonably inferred. In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J observed: We do not take into account the actual (subjective) intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

2.

In order to determine the meaning or legal effect of a particular contractual term, the court must construe the contract as a whole. Interpretation of a commercial document requires attention to the purpose of the transaction and the outcomes that it is intended to secure. Commercial documents of this kind are to be construed practically and so as to give effect to their “presumed commercial purposes”.

3.

Where the language of the commercial contract is ambiguous or susceptible of more than one meaning, evidence of the surrounding circumstances is admissible to assist in the interpretation of the contract. This includes evidence of the objective “genesis, aim and background” of the transaction.

4.

Where the language of a contract is open to more than one interpretation, the court should prefer a construction that does not lead to capricious or unreasonable results. The fact that a particular construction leads to an unreasonable result must be a relevant consideration, as it is unlikely that the parties intended such a result. In circumstances such as this, the language of the contract must be made to yield to “business common-sense”. What amounts to “business common-sense” must be gleaned from the commercial contract and its context and objective matters to which courts may have regard. A common sense approach is taken with an emphasis on the need to arrive at an interpretation that is practical and commercially sensible.

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The following case is another example of the courts looking to extraneous information and documentation to give business efficacy to a transaction, and also to uncover the real intentions and drivers of the conduct of parties.

North East Solutions Pty Ltd v Masters Home Improvement Australia Pty Ltd [9.310] North East Solutions Pty Ltd v Masters Home Improvement Australia Pty Ltd [2016] VSC 1. The case concerned the nature and extent of contractual obligations between parties with respect to the development and leasing of a site for a Masters store. It was acknowledged that, due to Woolworths’ expansionary plans for its Masters outlets, the transaction moved more quickly than would be the norm and some aspects that normally would have been negotiated in great detail, particularly with regards to costing of works and liability for various works, did not receive the attention they normally would. Because of this, the contract contained an express term that obliged the parties to “act reasonably and in good faith” to complete the incomplete contractual terms. Ultimately, Woolworths decided for strategic reasons not to proceed with the agreement for lease of the site and to pursue the acquisition of an alternative site and was sued by the plaintiff for breach of the agreement. The court held that Woolworths had breached its obligations to act in good faith in the way it dealt with the alleged costs of works dispute (and in fact found that it had acted in bad faith), that Woolworths had breached the agreement and that it was liable in damages ($10.875 million). It must be noted that “acting reasonably and in good faith” does not necessarily mean that a party s expected to act contrary to its own best interests. However, a party must act in a manner that is true to the deal.

Agreements to agree [9.320] Whilst it is understandable that parties may wish to conclude a contract leaving certain issues to be agreed at a later date, this might introduce the risk that the contract becomes void from uncertainty. However, particularly in commercial dealings between parties who are familiar with the trade in question, and particularly where the parties have acted in the belief that they had a binding contract, the courts are willing to imply terms, where that is possible, to enable the contract to be carried out. Where a contract has once come into existence, even the expression “to be agreed” in relation to future executor obligations is not necessarily fatal to its continued existence. Particularly, in the case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the courts will assist the parties to do so, so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain.

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Godecke v Kirwan [9.330] Godecke v Kirwan (1973) 129 CLR 629. Godecke (buyer) and Kirwan (vendor) entered into a written agreement for the sale of land for $110,000 which included a clause that said if Kirwan required it, Godecke would execute a further agreement containing the terms of that agreement and any other as determined by Kirwan’s solicitors (within reason). Kirwan subsequently refused to proceed with the sale. The court held that a binding agreement may be made leaving some important matter to be settled by a third party or even by one of the parties. The parties had set out all the principal terms governing the sale of land, including “an obligation to execute a formal contract” and a promise by the seller to “execute, if required …, a further agreement”. The court said that although the clause gave the vendor the choice of inserting additional terms to those already agreed upon, he could not insert terms that were inconsistent with those in the document and any such additional conditions needed to be “reasonable”. This was not an “agreement to agree” or a “conditional acceptance” but an agreement by Godecke to accept additional provisions if reasonably required. A binding agreement had been made.

Interpretation of exclusion clauses [9.340] In this section, we are examining one very important and very common type of express term – the exclusion clause (sometimes referred to as an exemption or limitation of liability clause but, for the sake of clarity, we will refer to them as exclusion clauses). Just as with any other term, a court may have to determine whether an exclusion clause has been properly incorporated into the contract. If so, it will have to interpret or give meaning to the term. It does this by applying the same principles as outlined in the preceding section but, for reasons explained below, the courts and the parliament have developed rules to regulate how exclusion clauses may be used in contracts, although their approach depends on whether the contract is a commercial or a consumer contract. [9.350] The function of exclusion clauses is to exclude (or limit) liability of one or both parties under the contract. Such clauses have traditionally been regarded in a negative light because parties who rely on them are often in a dominant position and abuse that dominance by incorporating unreasonably wide clauses into standard form contracts, aware that the other party cannot realistically read or object to the clause or, if he or she does, will face the same exclusion clause elsewhere. Therefore, the courts and the parliament have developed rules to regulate how exclusion clauses may be used in contracts, and their attitude depends on whether the contract is a commercial or a consumer contract. The use of exclusion clauses in consumer contracts is restricted or prohibited by the Parliament and the courts have used various strategies to restrict their impact on consumers. However, where the parties have negotiated an arms-length commercial contract, exclusion or limitation clauses are regarded as a conscious attempt to allocate risk. Thus, in Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827, Lord Diplock said: “In commercial contracts negotiated between businessmen capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be

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most economically borne (generally by insurance) it is, in my view, wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only”: at [851].

An exclusion clause will be construed strictly and any ambiguity resolved against the person seeking to rely on it [9.360] If the clause is properly incorporated into the contract, the second stage is for the court to interpret or construe the clause in an effort to ascertain whether its scope is sufficient to protect the person seeking to rely on it from the loss or injury suffered by the plaintiff as a result of the breach. Reflecting their longstanding antipathy to the use of exclusion clauses (particularly in consumer contracts) the courts interpret such clauses “contra proferentum” (against the party relying on it). For example, exclusion of liability for breach of warranty will not exclude liability for breach of condition: Wallis, Son & Wells v Pratt & Haynes [1911] AC 394. Furthermore, exclusion from liability for breach of implied conditions and warranties will not protect a party from breach of an express term of the contract: Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17. Thus, a party drafting an exclusion clause should be careful to ensure that it is carefully and precisely drafted - and, of course, complies with various consumer protection statutes that prevent or limit the use of exclusion clauses. 1 1

For example, see the Australian Consumer Law s 64(1) that declares void any clause that seeks to exclude or limit the effect of the consumer guarantees if included in consumer contracts (see Chapter 13 [13.1150]).

Insight Vacations Pty Limited v Young [9.370] Insight Vacations Pty Ltd v Young (2011) 243 CLR 149. Stephanie Young was on a tour bus in Europe, travelling from Prague to Budapest. When she got out of her seat to get something from her bag, the coach driver braked suddenly causing the plaintiff to fall backwards and suffer injury. The bus company attempted to rely on the following exclusion clause: “Where the passenger occupies a motorcoach seat fitted with a safety belt, neither the Operators nor their agents or co-operating organisations will be liable for any injury, illness or death or for any damages or claims whatsoever arising from any accident or incident, if the safety belt is not being worn at the time of such accident or incident.” The High Court decided that as a matter of interpretation the clause did not protect the defendant. Relying on the ordinary meaning of the words in the clause, the clause only applied “where the passenger occupies a motor coach seat fitted with a safety belt”. In the unanimous opinion of the High Court, the purported exclusion clause should, therefore, be read as referring only to times when the passenger was seated, and not to times when the passenger stands up to move around the coach or to retrieve some item from an overhead shelf as occurred on this occasion.

Elder Smith Goldsbrough Mort Ltd v McBride [9.380] Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631. 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”. It

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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.

An appropriately worded exclusion clause can exclude a party from liability for negligence [9.390] Exclusion clauses may limit or exempt liability for negligence: Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642. A properly worded exclusion clause need not expressly mention liability in negligence in order to exclude such liability. For example, a clause that excluded liability for “all claims and demands whatsoever in respect of the contract” was held to be exclude liability for negligence: MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575. In Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219 (see [9.280]) the exclusion clause (so far as is relevant to Glenworth’s attempt to exclude liability for negligence) said: “As a potential participant, you acknowledge and accept that recreational activities including… quad biking…constitute a dangerous recreational activity pursuant to the Civil Liability Act 2002 and that participation in the activity involves a significant risk of physical harm or personal injury... Any such injury may result not only from your actions including physical assertion but also from the action, omission or negligence of others.” The NSW Court of Appeal decided that even if the exclusion clause had formed part of the contract between the parties, it was not broad enough to extend to Glenworth’s negligence. The exclusion clause made reference to the “negligence of others”, which the court interpreted to include the negligence of other participants, not the negligence of Glenworth or its staff.

Exclusion clauses will not normally be construed as limiting or excluding liability for acts done outside the terms or scope of the contract [9.400] In Council of the City of Sydney v West (1965) 114 CLR 481, the High Court said that it is a question of interpretation of the contract as a whole whether or not a particular exclusion clause is wide enough to exclude liability for the alleged breach of contract.

Council of the City of Sydney v West [9.410] Council of the City of Sydney v West (1965) 114 CLR 481:. The plaintiff parked his car at a parking station and received a ticket which contained the following clause: “The council does not accept any responsibility for the loss or damage to any vehicle … however such loss, damage … may arise or be caused” together with a statement that the “ticket must be presented before taking delivery of the vehicle”. He put it in his pocket without reading it and parked the car where directed. What happened next is very unusual. A person who during the day had entered the parking station and claimed to have lost his parking ticket stole West’s vehicle. He did it in this way. He gave his name to an attendant as “Paul Robinson” and said that he had parked his car in the station and having given what proved to be a

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fictitious address obtained the issue of a duplicate parking ticket for a vehicle (that was not West’s). Having armed himself with the duplicate ticket which, on its face, related to another car, Robinson got into West’s vehicle and proceeded to drive it to one of the exits of the parking station where he was permitted to drive it away without any further inquiry. It was held that the clause did not protect the Council as the release of the car was not merely a negligent act but was a delivery not authorised by the contract. The Court said: “[T]he act of the attendant in permitting ‘Robinson’ to proceed after handing over the duplicate ticket which he had obtained constituted an unauthorized delivery of possession by him to ‘Robinson’ and not a mere act of negligence in relation to some act authorised by the contract of bailment. The fact that the attendant at the exit through which the car was driven was negligent is of no consequence in the case; the act of delivery was one which was neither authorised nor permitted by the contract and in our view the appellant was not entitled to be exonerated by the exempting clause.” In other words, whilst the clause may have protected the car park from the consequences of the employee’s careless actions (for example, if he had accidentally damaged the car whilst parking it) it did not protect it where the act was “unauthorised”, in the sense that the parties would not have contemplated it, (for example, giving a rogue the means to simply drive the car away).

[9.420] In Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827, the exclusion clause was properly incorporated into a commercial contract – it was the interpretation of that clause that was the issue.

Photo Production Ltd v Securicor Transport Pty Ltd [9.430] Photo Production Ltd v Securicor Transport Pty Ltd [1980] AC 827. Securicor contracted to provide a night patrol service to the plaintiff’s factory. While one of Securicor’s employees was on patrol at the factory one night, he deliberately started a small fire by throwing a match onto some cartons. The fire got out of control and ultimately destroyed a large part of the factory. The plaintiff sued Securicor for damages on the ground that they were liable for the act of their employee. Securicor relied on an exclusion clause in the contract which provided that “under no circumstances” were they to be: “responsible for any injurious act … by any employee of the company unless such act … could have been foreseen and avoided by the exercise of due diligence … nor … any loss suffered by the customer through … fire … except … as … solely attributable to the negligence of the company’s employees acting within the course of their employment.” The House of Lords held that the question whether an exclusion clause applied when there was a “fundamental breach” or any other breach turned on the construction of the whole contract including any exclusion clause. Although Securicor was in breach of their implied obligation to operate their service with due and proper regard to the safety and security of the plaintiff’s factory, the exclusion clause was clear and

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unambiguous and protected Securicor from liability.

[9.440] The Australian High Court reaffirmed the approach it had taken in Council of the City of Sydney v West (1965) 114 CLR 481 (above) in its decision in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500:

Darlington Futures Ltd v Delco Australia Pty Ltd [9.450] Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500. 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: “[T]he 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 that “shall not in any event (and whether or not such liability results from or involves negligence) exceed one hundred dollars”. 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.

Online contracting [9.460] The use of online contracting has increased massively in recent years but there have been relatively few disputes that have come before the Australian courts about the formation of the contract or testing the way in which terms are incorporated into the online agreement. The general principles of contract apply to online contracts. Thus, in Smythe v Thomas [2007] NSWSC 844 (see [3.155]) the court, after applying ordinary principles of the law of contract, held that the online agreements between the parties using eBay were legally binding As with any “normal” contract the terms on which the parties are contracting must be agreed to by both parties and incorporated into the contract before or at the time of contracting. So when dealing with customers through a website, the seller must ensure that the ordering process requires the customers to agree to the seller’s terms. Certainly, merely placing the terms on a website would not be sufficient to show the website user has agreed to the terms and thus incorporate them into the contract. In order to consider agreement and incorporation in the context of online agreements, it is helpful to consider the two broad categories of online agreements, “click-wrap” and “browse-wrap”. Click-wrap agreements generally present the terms of contract that are offered (almost always by the website provider, a supplier of goods, services or information) and ask the website user to indicate that they acknowledge and agree to the website provider’s terms by clicking an online “button”, usually with words such as “I agree”

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on the button. The website user clicks on the acceptance button immediately following the terms and this would usually indicate that the website user has seen the terms, or at least has clear notice of them, and has accepted those terms. Extending the principle in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 and L’Estrange v F Graucob Ltd [1934] 2 KB 394 clicking on the acceptance button operates in the same way as a signature and indicates that the person accepts the terms, whether they have read them or not. Browse-wrap agreements are similar except that the terms of contract are not on the page where the website user indicates their agreement – the terms of the contract are on another webpage or website and the website user is able to access those terms through visiting, or linking, to that other page or site. These agreements are more difficult to enforce because there are often questions about whether or not the website user has agreed to the terms and the terms are incorporated into the contract. In contrast to click-wrap agreements, in browse-wrap agreements there is often no evidence that the website user is aware of the terms as the terms are located on another webpage or site. In these circumstances, the question revolves around whether reasonable notice was given of the terms such that the website user can be said to have agreed to the terms. Again, the common law principle established in Olley v Marlborough Court Ltd [1949] 1 KB 532 should apply, requiring the court to consider whether the website provider has taken reasonable steps to draw the terms to the notice of the website user. This will require the court to review the facts as to how and when the notice of the terms located on another webpage or site was drawn to the web user’s attention.

Specht v Netscape Communications [9.470] 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”.

Meyer v Kalanick [9.480] Meyer v Kalanick No 15 Civ. 9796, 2016. In July 2016, a US District Court in New York refused to enforce the online terms of service of Uber, an online transportation network company that allows users to locate, request and pay for car services from their smartphones using the Uber app. Interestingly, the particular term that Uber was attempting to rely on was not a typical exclusion clause – it was a dispute resolution clause that compelled the parties to arbitrate any dispute:

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Dispute Resolution You and Company agree that any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof…will be settled by binding arbitration… You acknowledge and agree that you and Company are each waiving the right to a trial by jury The court, after engaging in a detailed analysis of Uber’s complex contract formation process, concluded that Uber had not provided reasonable notice of the term. First users had to register using either Google or Facebook and they had to enter their name and password. They then had to click “Next” before they were directed to another screen to make a payment and register to use the service. The registration and payment fields were prominent at the top of the screen, but, in contrast, a smaller button accompanied by the critical words of acceptance - “By creating an Uber account, you agree to the terms of service” – was in “considerably smaller font” and “barely legible”. From a contract formation perspective, it was important that a user could click on the “register” button without clicking on the hyperlink to the terms and conditions and users were not required to click “I accept”. From the Court’s point of view, Uber’s problems did not stop there. Even if a user did click on the hyperlink to the terms and conditions, they were taken to a screen containing a further button that provided access to the terms. Finally, when users eventually found the terms, they found “nine pages of highly legalistic language that no ordinary consumer could be expected to understand” and, in relation to the term in question, users were only given notice of the arbitration term in question after they had scrolled down several pages of text. What should Uber do in the wake of this decision? It should ensure that the user’s assent is clear and unambiguous, perhaps more like the clingwrap process where a user checks the box affirming that they have read and agreed to the terms. Alternatively, Uber should make the user scroll through the terms before clicking on the “I agree” button. It would then be harder for a user to argue that it was not given a reasonable opportunity to read the terms.

[9.490] The decisions in Meyer and Specht and other similar cases do not call into question the power of corporations to enter into electronic contracts with their users. Rather, they indicate that courts are prepared to closely examine the precise contract formation process to ensure that the consumer receives reasonable notice of the agreement or provides evidence of consent. The court in Meyer resisted any rigid test for determining whether an electronic contract is enforceable. Instead it said that “electronic agreements fall along a spectrum in the degree to which they provide notice, and it is difficult to draw bright line rules because each interface differs from other in distinctive ways”. Each case, in other words, will turn on its own particular facts.

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Australia [9.500] The expressions “clickwrap” and “browsewrap” have not been used in any Australian case to date. However in eBay International AG v Creative Festival Entertainment Pty Ltd (2006) 170 FCR 450 the Federal Court accepted the position that contracts are binding when the user clicks the appropriate icon. In this case, users entered into contracts by clicking a series of icons to purchase tickets for 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.

Implied terms [9.510] In addition to the express terms agreed upon by the parties, other terms may be implied in the contract. In appropriate circumstances terms may be implied by: (a)

the court;

(b)

custom or trade usage; or

(c)

statute.

Terms implied by the court [9.520] Terms which may be implied by the court can be subdivided into two categories: (a) those implied to give “business efficacy” to the contract, and (b) those implied in specific kinds of contract.

Terms implied to give “business efficacy” to the contract [9.530] The courts will “readily imply” a term that the parties must cooperate to “ensure the performance of their bargain”: Famestock Pty Ltd v Body Corporate for No 9 Port Douglas Road Community Title Scheme 24368 [2013] QCA 354 [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.

The Moorcock [9.540] The Moorcock (1889) 14 PD 64. 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: “[I]n business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen”: at 68.

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[9.550] 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, 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.

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [9.560] BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1978) 180 CLR 266. A wholly owned subsidiary of BP Australia Ltd had entered into an agreement with the State of Victoria to build and maintain an oil refinery on a site within the municipal district of the respondent council. The appellant was empowered under the agreement to dispose of its rights under the agreement to a company in which BP Australia Ltd held at least 30 per cent of the issued capital. The appellant company was granted preferential rate concessions by the respondent council under the provisions of the Local Government (Decentralised Industries) Act 1963 (Vic). The preferential rating agreement was expressed to cover a period of 40 years but contained no express provision enabling the appellant to assign the benefit of the agreement to any other company. Some five years later, following a decision to reorganise the corporate structure of BP Australia Ltd, the appellant company went into a members’ voluntary liquidation. The appellant’s liquidator transferred the refinery site and plant to BP Australia Ltd. The respondent council contended that the preferential rating agreement with the appellant lapsed on such reorganisation and assessed normal rates on the site on the basis that the preferential rating agreement did not apply to BP Australia Ltd. The liquidator of the appellant company subsequently obtained a court order for the winding up of the appellant to be stayed. BP Australia Ltd then leased the refinery to the appellant for three years at no rent, the appellant agreeing as lessee to carry out such refinery processes on the site as would be directed by BP Australia Ltd as lessor. The appellant company then claimed the benefit of the preferential rate agreement with the council which refused the claim and levied rates at the normal level. The appellant brought an action claiming it was entitled to the preferential rate concessions in accordance with the original agreement with the respondent council.

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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. 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. Such an implied term would be: “[B]oth reasonable and equitable. It is capable of clear expression. It does not contradict any express term of a contract, but adds to it; and it gives business efficacy to the contract. In the light of the provisions of the refinery agreement it was something so obvious that it went without saying, and if an officious bystander had asked whether that was the common intention of the parties the answer would have been ‘Of course’”: at 286.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [9.570] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. Codelfa Constructions contracted with the State Rail Authority to build tunnels for a new railway. Under the agreement, Codelfa had to complete the contract in 130 weeks. The parties contracted on the common assumption that the company would be able to work three eight-hour shifts per day, six days a week. This in fact occurred until an injunction was obtained by a resident restraining the company from working from 10pm to 6am (with no work to occur at all on Sundays). As a result, Codelfa asked the court to imply a term in the agreement granting a reasonable extension of time. Held: The High Court declined to imply such a term. Codelfa had to prove that the term was necessary to make the contract work (and not just rescue Codelfa from a difficult position) and was “so obvious that it goes without saying” (that is, if the parties had known what was to happen when making the contract, they would have agreed to the term now sought to be implied). Codelfa could not establish this. Mason J said: “… there remains an insurmountable problem in saying that ‘it goes without saying’ that had the parties contemplated the possibility that their legal advice was incorrect and that an injunction might be granted to restrain noise or other nuisance, they would have settled upon the term implied by the Court of Appeal … This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances, negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution”: at 355-6.

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However, the High Court found that the changed circumstances were such as to frustrate the contract: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337: on the latter point see Chapter 11 ([11.430]). 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 [9.580] Certain terms are implied in various types of contract at common law. For example, in a contract for the hire of goods, there is an implied condition that the goods will be reasonably fit for the purpose for which they are hired: Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633. Similarly, in a contract for skill and labour and the supply of materials, as in the case of a contractor who carries out repairs, there are implied terms that reasonable care and skill will be exercised in the performance of the work and that the materials used will be reasonably fit for the purpose intended: Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1. The Australian Consumer Law 1 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. 1

The is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13 at [13.10].

Terms implied by custom or trade usage [9.590] 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.

chapter 9 Contents and Interpretation of the Contract

Terms implied by statute [9.600] In certain classes of contract, terms are implied by statutory provision. For example, the Australian Consumer Law provides for statutory guarantees in contracts for the supply of goods and services to consumers. These include guarantees as to title, correspondence with description, acceptable quality and fitness for purpose. Conditions as to title, quality and fitness of the goods are implied into contracts for the sale of goods by the State and Territory Sale of Goods Acts. These will be considered in Chapter 13.

Implied term to act in good faith/use best endeavours [9.610] Although there is no High Court authority, there is considerable case law that establishes that a duty of good faith will, in certain limited circumstances, be implied into commercial contracts. Although it generally affects the circumstances in which one party can exercise its rights to terminate a contract, it may be a more general obligation.

Renard Constructions (ME) Pty Ltd v Minister for Public Works [9.620] Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234: It was in this case that the idea that a duty to act in good faith may be implied into a commercial contract took root in Australia. A clause in a building contract empowered the principal to take over the work or cancel the contract upon the contractor’s default, if the contractor failed to show cause as to why the contract should not be terminated. When the contractor defaulted the principal purported to terminate the contract and take over the construction even though the contractor indicated that it was willing and able to complete the contract within a reasonable time. The contractor sued, arguing that the Minister’s decision to terminate was unreasonable and lacking in good faith. The NSW Court of Appeal agreed. It concluded that the contract included an implied term that the principal would give reasonable consideration to the question of whether the contractor had failed to show cause and, if it had failed, to the question of whether its power to terminate should be exercised. The power to terminate was not absolute: it implied a duty to act reasonably. In the event that it did not, the principal’s decision was “an invalid exercise of the power (to terminate)”. The requirements of the implied obligation of good faith that can be extracted from Renard Constructions are as follows: • obligations to act honestly and with a fidelity to the bargain; obligation not to undermine the bargain entered or the substance of the contractual benefit bargained for; an obligation to act reasonably and with fair dealing having regard to the interests of the parties and to the aims and purposes of the contract. There have been other decisions that clearly point to the existence of a duty of good faith. However, as the following cases indicate, the contract itself is paramount. If the existence of a duty of good faith would be inconsistent with terms in the contract itself, no duty of good faith will be implied.

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Vodafone Pacific Ltd v Mobile Innovations Ltd [9.630] Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15. The contract provided that Vodafone had the “sole discretion” to determine the number of new subscribers it would provide to Mobile Innovations to manage. In determining that there was no implied duty to act in good faith or reasonably, the Court was influenced by the fact that Vodafone had “sole discretion” and could exercise this power in accordance with its own interests rather than those of Mobile Innovations.

Solution 1 Pty Limited v Optus Networks Pty Ltd [9.640] Solution 1 Pty Limited v Optus Networks Pty Ltd [2010] NSWSC 1060. A contract gave Optus the right to terminate for any reason and at any time in its absolute discretion by giving 120 days’ notice. To imply a duty to act in good faith in these circumstances would be inconsistent with this “absolute discretion” and with a clause in the contract that expressly excluded any implied terms.

chapter 10

Operation of the Contract [10.20] Privity of contract ............................................................................................................................................ 198 [10.80] Liability for inducing a breach of contract........................................................................................... 200 [10.100] Assignment of contracts.......................................................................................................................... 201

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 1

This is no longer the position in Queensland where by virtue of the Property Law Act 1974 (Qld), s 55 a promise by A to B for valuable consideration, to do something for the benefit of a third party beneficiary X is, on acceptance by X, enforceable by X against A. There is a similar provision in Western Australia (Property Law Act 1969 (WA), s 11(2), (3)) and the Northern Territory (Law of Property Act 2000 (NT), s 56(6)).

Tweddle v Atkinson [10.22] Tweddle v Atkinson (1861) 1 B & S 393. The plaintiff was engaged to the daughter of William Guy. Guy promised the plaintiff’s father that he, Guy, would pay the plaintiff a sum of money upon the marriage. Guy did not do so and when he died Tweddle sued the executor. Held: Tweddle failed because of the doctrine of privity: he was not entitled to enforce a promise which had not been made to him. Wrightman J said: … it is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit..

[10.25] However, although a third person, X, cannot sue A on her or his promise to B, B may have a remedy against A for breach of contract. The application of these principles can be seen in the leading case of Beswick v Beswick [1968] AC 58.

Beswick v Beswick [10.30] Beswick v Beswick [1968] AC 58. B transferred his coal merchant business to his nephew who promised in return to pay B an annuity during B’s lifetime and after B’s death to pay a slightly smaller annuity to B’s widow. Following B’s death, the nephew failed to make the promised payments to B’s widow. The widow brought an action against the nephew both in her personal capacity and as administratrix of B’s estate. The House of Lords held that the widow could not succeed in her personal capacity as she was not a party to the contract between B and his nephew.

chapter 10 Operation of the Contract

However, it was further held that she could succeed in her capacity as B’s administratrix, that is, as the legal representative of B who would have been entitled to sue the nephew for breach of contract. Accordingly, in her capacity as administratrix of B’s estate, B’s widow obtained an order for specific performance of the nephew’s promise to B to pay her the annuity.

The agency and trust “exceptions” to the doctrine of privity [10.40] 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 an agent of a third party principal. Once the contract is made, the agent acting within his or her authority drops out and the contract is in fact between the principal and the third party with the agent having no rights or obligation under the contract. This is not a true exception to the privity doctrine because the agent has, at all times, when acting within his or authority, been acting for the third party principal: Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300 at 304–305 (Privy Council Appeals). A further exception is where a contracting party is a trustee for a third party beneficiary of the rights given by the contract: Vandepitte v Preferred Accident Insurance Corp of New York [1933] AC 70 (PC) at 79 (AC).

The insurance exception to the doctrine of privity: the Trident case [10.50] 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. 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. 1 However, the real importance of the case lies in its potential application to other kinds of contract. The facts were as follows: 1

The Insurance Contracts Act 1984 (Cth), s 48 effectively abrogated the common law doctrine of privity of contract in its application to insurance contracts to which the Act applies. However, the facts of Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 occurred before the coming into operation of the Act, and hence the Act did not apply to the facts of the case.

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [10.60] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. T Ltd entered into an insurance contract with B Ltd, to provide cover against liability in respect of alterations being carried out at the latter’s limestone crushing plant. The public liability policy was expressed as extending not only to B Ltd and all its related companies but also to all contractors, subcontractors and suppliers. M Ltd, the principal contractor at the plant, was held liable for injuries sustained by a crane driver employed by one of its subcontractors. M Ltd sought an indemnity under the insurance policy between T Ltd and B Ltd. T Ltd refused the claim on the ground that M Ltd was not a party to the contract and had given no consideration. It was held by a majority of the High Court, affirming the decision of the New South Wales Court of Appeal, that T Ltd was bound to indemnify M Ltd

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under the insurance policy with B Ltd.

[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. The exception to the privity doctrine in relation to insurance has been incorporated into the Insurance Contracts Act 1984 (Cth). Section 48(1) provides: Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of his loss from the insurer in accordance with the contract notwithstanding that he is not a party to the contract.

Property law exception to the doctrine of privity: land covenants [10.75] Another exception to the doctrine of privity exists in the law of property. Benefits and liabilities attached to the land by way of restrictive covenants “run with the land” and may benefit or bind successors in title to that land. Thus A may sell land to B who covenants not to develop a high rise building on the land. Provided the covenant is properly registered, anyone who subsequently purchases the land will be bound by the covenant, even though he or she was not a party to the original contract.

Liability for inducing a breach of contract [10.80] 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. 1 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 43; Australian Development Corporation Pty Ltd v White (2001) 189 ALR 266. “Wilful blindness” or “reckless indifference” will satisfy the knowledge requirement: LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 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. 1

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

chapter 10 Operation of the Contract

Inducing Breach of Contract: An Australian Perspective” (December 2010-February 2011) 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.

Zhu v Treasurer of the State of New South Wales [10.90] Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530. Z had entered into an agency agreement with TOC. Under the agreement, Z was required to sell memberships in an “Olympic Club”. The Organising Committee for the Sydney Olympics (SOCOG) induced TOC to terminate its contract with Z. SOCOG sought to justify its inducement of the termination on the ground that it was required by contract to protect intellectual property rights relating to the Olympics. Z had used that intellectual property without authorisation. The High Court held that to justify inducement of a breach of contract the defendant must show that they were protecting a “superior legal right”. That superior right must be of a proprietary nature (such as real or personal property) or be conferred by statute. A right to contractual performance is not a superior legal right but is merely an equal right. An equal right will not provide justification. An inducement is only justified where the defendant’s actions go no further than is reasonably necessary to protect its rights. On the facts, SOCOG’s actions in inducing the breach went further than would have been reasonably necessary, since less drastic alternative courses of action had been available.

Assignment of contracts [10.100] 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. 1 1

See generally GJ Tolhurst, The Effıcacy 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.

Relevant definitions [10.110] The relevant definitions are: Assignor: An assignor is the one who assigns or transfers to another. Assignee: An assignee is the one to whom an assignment is made. Assignment: An assignment of a contract is the act by which one party to a contract substitutes another person for themselves as a party to that contract either for some or all the purposes of the contract.

Assignment of liabilities [10.140] 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”.

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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. 1 1

See J Bailey, “Novation” (1999) 14 Journal of Contract Law 189.

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 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 1 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. 1

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.

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.

chapter 10 Operation of the 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. 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 or she gave notice but not if he or she knew of the earlier assignment when he took his assignment. Verbal notice is sufficient but it is advisable for it to be in writing.

2.

The assignee takes “subject to equities”, that is, subject to such defences that the debtor might have raised against the assignor. In other words, the assignee can only receive such title as the assignor is able to give and cannot be in a better position.

Assignment by operation of law [10.200] 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 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.

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Termination and Breach of a Contract [11.20] Termination by performance..................................................................................................................... 206 [11.30] Termination by agreement......................................................................................................................... 210 [11.160] Termination by breach............................................................................................................................... 213 [11.310] Termination by frustration ...................................................................................................................... 218 [11.510] Termination by operation of law........................................................................................................... 227

Introduction [11.10] In this and the following chapter, we examine the contractual end-game. Having established in earlier chapters the requirements for contractual agreement; the various factors that may affect that agreement; the various kinds of terms, both express and implied and their significance, in this chapter we consider how a contract may be terminated or discharged and, in the next chapter, conclude by examining the remedies that may be available for a failure to perform the contract as promised. A contract may be terminated in the following ways: by performance of the parties’ obligations under the contract; by an agreement between the parties that they no longer wish to continue with the contract and release each other from their obligations; by breach of a condition or a repudiatory breach of the contract that gives the innocent party the right to terminate; by frustration because an unforeseen event has made performance of the contract radically different from what it was before the event; and by operation of law where the contract is terminated independently of the wishes of the parties by operation of law.

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Termination by performance Figure 11.1: A contract may be terminated

Exact performance [11.20] The most obvious and natural form of termination is when the parties perform fully and exactly their obligations to one another. In the event that one party has not performed exactly as promised, that party is not discharged from his or her obligations under the contract and may be sued for breach of contract. The corollary of this rule is that exact performance is a condition precedent to recovery of the contract price (that is, the full price agreed to in the contract). Figure 11.2: Termination by performance

chapter 11 Termination and Breach of a Contract

Cutter v Powell [11.21] Cutter v Powell (1795) 101 ER 573. Cutter agreed to work for wages on a merchant ship on a voyage from Jamaica to Liverpool. It was agreed that he would be paid 30 guineas “provided he proceeds, continues and does his duty as a second mate in the said ship from hence to the Port of Liverpool”. The ship left on 31 July 1793 and Cutter carried out his duties until his death on 20 September. The ship arrived in Liverpool on 9 October. Cutter’s widow claimed wages for the work and labour done by her husband. Powell refused to pay for that part of the journey that Cutter had performed. Held: Cutter was only entitled to claim once his obligations were strictly performed. The court took into account that merchant seamen who were paid on a monthly basis (or pro rata) were paid half the amount promised to Cutter. Thus, the court said the risk of non-completion was allocated to Cutter – if he did complete the journey, he would receive a handsome wage; if not, he would receive nothing.

Entire and divisible contracts [11.22] Under an “entire” contract, exact performance of the whole contract is required before the other party’s obligations are triggered. For example, if Y is contracted to paint X’s house for $5000 and is being paid a lump sum at the end of the job, it is an “entire” contract. Y would not be entitled to sue for the contract price ($5000) until he had completed the job exactly as required. Similarly, a contract for the supply of goods that provides for a lump sum payment at the completion of the contract would be an entire contract and no payment could be demanded until all goods are delivered. A “divisible” contract, on the other hand, is one that provides, either expressly or impliedly, that performance by one party (eg, payment of the price) is due after the other has performed particular stages of the contract. Most construction contracts are structured in this way. For example, if A’s obligation is to build B’s house, the contract may be divided up into stages – footings, frame, lock-up and completion – with progress payments being made at the completion of each stage. Similarly, a contract for the sale of 10,000 tonnes of uranium to Russia over 10 years would be a divisible contract. In both instances, if there is a breach, the builder or supplier would have a right to be paid for each stage or instalment that has been exactly performed. As a general rule, the courts regard contracts as not divisible. As was said in Re Hall & Barker [1878] 9 Ch D 538, “if a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay one half the price” (at 545). However, it is a question of fact in each case.

The “substantial performance” rule [11.23] The exact performance rule is subject to considerable qualifications. In fact, unless exact performance is a condition of the contract, contracting parties who “substantially” perform their obligations will be able to claim the contract price, subject to the right of the innocent party to deduct the amount required for exact performance against the full contract price. The question of what may be

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regarded as “substantial performance” is one of fact, depending upon all the circumstances, including the nature of the contract, the nature of the defects and the relative cost involved in rectifying or completing the contract.

Hoenig v Isaacs [11.24A] Hoenig v Isaacs [1952] 2 All ER 176. The plaintiff, an interior decorator, agreed to decorate and furnish the defendant’s flat for £750. The terms of payment were “net cash as the work proceeds, and balance on completion”. Hoenig made two payments of ₤150. Some time later, Isaacs advised that the work had been completed and claimed the balance of ₤450. Hoenig paid ₤100 but refused to pay the balance alleging faulty design and workmanship. He argued this was an entire contract that had not been exactly or substantially performed and therefore Isaacs was not entitled to recover any money. It would have cost £55 to bring the work up to the exact performance level. Held: The Court accepted this was an entire contract but, as there had been substantial performance, Isaacs was entitled to recover the contract price less the amount required to finish it exactly.

Compare the outcome in the following case.

Bolton v Mahadeva [11.24B] Bolton v Mahadeva [1972] 2 All ER 1322. The plaintiff agreed to install central heating and to perform certain other work in the defendant’s house. The contract price for the installation and work was a lump sum of £560. The central heating was installed but there were defects and the cost of remedying the defects was £174. Held: The Court of Appeal held that the plaintiff was not entitled to recover anything. The Court said that the main question was whether the defects in workmanship were of such a character and amount that the plaintiff could not be said to have substantially performed his contract. In other words, the governing considerations were the nature of the defects and the proportion between the cost of rectifying them and the contract price. Cairns LJ said: “I find it impossible to say that the judge was right in reaching the conclusion that ... the contract had been substantially performed. The contract was a contract to install a central heating system. If a central heating system when installed is such that it does not heat the house adequately and ... further, that fumes are given out, so as to make living rooms uncomfortable, and if the putting right of those defects is not something which can be done by some slight amendment of the system, then I think that the contract is not substantially performed.”

chapter 11 Termination and Breach of a Contract

Acceptance of partial performance [11.26] It may happen that the innocent party voluntarily accepts the partial performance of the other party. If this happens, the parties have effectively abandoned the original contract and substituted a new one under which the innocent party agrees to accept partial performance on agreed terms. A person who voluntarily accepts a benefit under contract (eg, where, in a contract for the sale of goods, the innocent party accepts some of the goods) must pay a reasonable amount for the benefit received. The basis of the rule is that otherwise the innocent party is unjustly enriched. To refer back to the example concerning the pair of shoes, if, for whatever reason, the buyer accepted the one shoe that the shoemaker had made, the buyer would have to pay a reasonable price for it. The following case shows that the innocent party must have a choice about whether to retain the benefit.

Sumpter v Hedges [11.26A] Sumpter v Hedges [1898] 1 QB 673. Sumpter agreed to build two houses for Hedges for a lump sum of £565. It was an entire contract (though some progress payments had been made for work completed). However, when Sumpter ran out of money he abandoned the contract leaving Hedges to finish the project. Hedges used materials left by Sumpter. Sumpter claimed payment on a quantum meruit (that is, he did not claim the contract price but wanted compensation for the value of the work he had carried out and materials used). Held: Sumpter was not entitled to a quantum meruit payment because he had abandoned the project. Nor was he entitled to further payment on the basis of his part performance – this was an entire contract that had been abandoned and there was no evidence that the parties had entered into a fresh contract to pay for the work done. Hedges therefore retained the benefit of the work done (though, as noted above, he had made some progress payments). Collins J said: “Where, as in the case of work done on land, the circumstances are such as to give the defendant no option whether he will take the benefit of the work or not, then one must look to other facts than the mere taking of the benefit of the work in order to ground the inference of a new contract … the mere fact that a defendant is in possession of what he cannot help keeping, or even has done work upon it, affords no ground for such an inference. He is not bound to keep unfinished a building which is in an incomplete state which would be a nuisance on his land”: at 676.

[11.28] Time for performance: As a general rule, performance should take place within the time specified in the contract (eg, “within 60 days from the contract date” or “on 1 January 2013”) or, if none is specified, within a reasonable time, taking into account the particular circumstances. If the parties have stipulated a time for performance, the rule is that if the time clause is not precisely kept, damages will be the usual remedy (not termination for breach of condition). If, however, it is expressly or impliedly agreed by the parties that “time should be of the essence” or notice is given by the innocent party that “time is of the essence”, the breach would be a breach of condition allowing the innocent party to terminate the contract.

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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. 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.

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 subsequent agreement may be: (a)

to cancel the original contract; or

(b)

to vary the terms of the original contract through substitution.

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.

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.

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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.

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 Chapter 10 at [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.

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.

By way of example:

Sandra Investments Pty Ltd v Booth [11.120] Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153. 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. 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. 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. Accordingly, the purchaser had the option to choose to allow the contract to remain on foot when the condition was not satisfied, and because he had elected to waive the condition, he was entitled to specific performance of the contract.

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Whittle v Parnell Mogas Pty Ltd [11.130] Whittle v Parnell Mogas Pty Ltd (2006) 94 SASR 421. 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. The respondent was not prepared to enter into a lease until the assessment was provided. Provision of the assessment was a condition precedent to the formation of a contract. This condition was never satisfied and therefore there was no contract.

[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 that 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, a contract between a Barcelona Football Club and Lionel Messi may contain a term that says that “in the event that player Messi is injured and unable to play for two calendar months, the contract may be terminated at the option of the Club”.

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Termination by breach Figure 11.3: Termination by breach

[11.160] A breach of contract can occur in various ways, not all of which will give the innocent party the right to terminate the contract. There are two basic situations to consider: (a)

where one party repudiates the whole contract by act or deed; and

(b)

where one party breaches a term of the contract.

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.

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For example, on 1 August 2012, Jack signs a contract of employment with IT Pty Ltd and is due to begin on 1 January 2013. If he were to inform them on 1 November 2012 that he no longer intends to work for them, this is an anticipatory breach (because the breach anticipates the time for commencement of the contract). The innocent party may either elect to accept the breach and terminate the contract, or elect to keep the contract “on foot”. If the innocent party elects to terminate, he or she is able to sue for damages immediately (rather than wait for the date of performance to fall due). If the anticipatory breach is not accepted by the innocent party, it may, in time, become an actual breach. In the example above, IT may accept the repudiation by Jack and immediately sue for any losses it can show were caused by his breach. On the other hand, it can wait for the contract date and, when Jack fails to perform, sue for actual losses sustained.

Conduct amounting to repudiation [11.190] The most obvious case of repudiation is for non-performance, where a party to a contract expressly states that they are unwilling or unable to perform the contract. In the absence of an express statement, a party’s words or conduct may indicate that they are repudiating the contract. Furthermore, a party may repudiate a contract by putting it out of their power to perform the contract, for example where the seller of an antique car sells the car to a third person. In such a case, the original buyer can treat the seller as having repudiated the contract for the sale of the vehicle. Renunciation may not be express but has to be implied from fragmentary acts and omissions. In Shevill v Builders Licensing Board (1982) 149 CLR 620, 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”: at 625. Repudiation is determined by an objective test. It is concerned with the conduct of the repudiating party not their subjective state of mind.

Laurinda Pty Ltd Capalaba Park Shopping Centre Pty Ltd [11.193] Laurinda Pty Ltd Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. In October 1985, Capalaba agreed to lease a shop in a shopping mall to Laurinda for six years. Under the contract, Capalaba agreed to do what was necessary to put the lease into registrable form and then register it (or forward to Laurinda for registration) by the time Laurinda went into possession “or so soon thereafter as is practicable”. Laurinda went into possession in December 1985. In March and again in August of 1986, Laurinda sought the lease but did not receive it. Finally in September, Laurinda terminated the lease, arguing that the inordinate delay in registration amounted to a repudiation of the lease. The High Court agreed that Capalaba’s conduct was repudiatory because it showed an intention to perform the contract in a manner that was substantially inconsistent with its obligations. Laurinda therefore had the right to terminate.

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Progressive Mailing House Pty Ltd v Tabali Pty Ltd [11.195] Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17. The High Court considered whether a lessee’s conduct amounted to a repudiation of the lease. The lessee had committed a number of breaches of the lease including the failure to pay rent. The Court held that although the failure to pay the rent would not, on its own, “evince an intention not to be bound by the contract”, the cumulative effect of the breaches amounted to a repudiation of the lease, thus allowing the lessor to terminate.

It is irrelevant that the party repudiating the contract believed that their action was justified under the contract.

Effect of repudiation [11.200] Repudiation gives to the other party to the contract an option either to ignore the breach and to insist upon performance when due, or to accept the repudiation and treat themselves as discharged from any further obligation under the contract. If the innocent party elects to treat themselves as discharged, he or she can immediately sue the defaulting party for damages whether or not the time for performance is due. On the other hand, if the innocent party does not elect to treat themselves as discharged, then the contract remains and continues for the benefit of both parties. The innocent party remains subject to all their own obligations and liabilities under the contract. The defaulting party has an opportunity not only to complete the contract but also, notwithstanding their previous repudiation of it, to take advantage of any intervening circumstance which would entitle her or him to decline to complete it: Avery v Bowden (1855) 5 E & B 714.

Breach in fulfilling terms of contract Breach of an essential term: conditions, warranties and innominate terms [11.260] Not all breaches in the performance of a contract give the innocent party the right to terminate the contract. It is only a breach of a term that is of fundamental importance to the contract (a condition) that termination may result. A breach of a lesser term (a warranty) only allows the innocent party to sue for damages. [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. 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

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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 [11.275] L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. Wickman were the exclusive selling agents in the for Schuler’s goods. The agency agreement provided that it was a “condition” that the distributor should visit six named customers once a week to seek orders (approximately 1,500 visits during the length of the four year contract). Wickman committed some minor breaches of this term and Schuler terminated the agreement, arguing that they were entitled to do so because the breach was of a condition. The House of Lords held that the parties could not have intended that Schuler should have the right to terminate the agreement if Wickman failed to make one of the required number of visits. The House had regard to the fact that the relevant clause was the only one referred to as a condition. The use of such a word was a strong indication of intention but it was not conclusive.

Where these guides to 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. For further discussion of conditions and warranties, see Chapter 9 at [9.120].

Innominate terms [11.300] In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, it was said that not all contractual undertakings fell into one of the two categories of “condition” and “warranty”. The more basic test was whether the breach had given rise to a situation where the party not in default had been deprived of substantially the whole benefit which they were entitled to expect from the contract. The Australian High Court adopted this approach in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549: “… 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”: at 561–562. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the majority of the High Court described the Hongkong Fir Shipping doctrine as being part of the “mainstream law of contract” in Australia: at [50].

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Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [11.305] Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115. Koompahtoo Local Aboriginal Land Council (Koompahtoo) and Sanpine entered into a joint venture agreement for the commercial development of land. Koompahtoo contributed the land and Sanpine was the manager of the development. Sanpine breached a number of non-essential terms. In 2003, an Administrator was appointed. In December 2003, on behalf of Koompahtoo, he terminated the Agreement. Sanpine sought a declaration that the termination was invalid. The trial judge dismissed the application finding “gross and repeated” departures by Sanpine from its contractual obligations under the Agreement. The High Court agreed. It held that the breaches by Sanpine “went to the root of the contract” and “as a matter of construction of the contract … deprived Koompahtoo of a substantial part of the benefit for which it contracted”: at 71. The Court summarised the law as follows: “For present purposes, there are two relevant circumstances in which a breach of contract by one party may entitle the other to terminate. The first is where the obligation with which there has been failure to comply has been agreed by the contracting parties to be essential. Such an obligation is sometimes described as a condition ….The second relevant circumstance is where there has been a sufficiently serious breach of a non-essential term …. we rest our decision in the appeal not upon the ground of breach of an essential obligation, but upon application of the doctrine respecting intermediate terms” [emphasis added].

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Termination by frustration Figure 11.4: Termination by frustration

[11.310] The doctrine of frustration provides a lawful excuse for breach of contract. The parties may trigger the doctrine only where some unforeseen event occurs which results in a fundamentally different situation from that contemplated at the time of entering into the contract. For the unforeseen event to have this effect, it must have been of such a serious nature as to make further performance of the contract illegal, impossible, or radically different. The courts have traditionally been reluctant to conclude that a contract is frustrated and it remains the case that performance of a contract is not excused merely because it involves more hardship, inconvenience or material loss. The difference between a frustrating event and a mistake (such as that in Commonwealth Disposals Commission v McRae (1951) 84 CLR 377) is essentially one of timing. For an event to be frustrating, it must occur after the contract is made; for mistakes to be operative, the mistake must have occurred prior to the contract being formed. Thus, in Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 (see [11.355] below), if the hall in Surry had burned down before the contract was made, it would have been an example of a common mistake.

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Davis Contractors Ltd v Fareham Urban District Council [11.313] Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. Davis Contractors tendered for a contract with the council to build 78 houses within a period of eight months. The tender was accompanied by a letter, which stated that the tender was “subject to adequate supplies of material and labour being available as and when required to carry out the work within the time specified”. The contract was to build the houses at a fixed price subject to certain adjustments. For various reasons, mainly the lack of skilled labour, the work took 22 months (instead of the agreed eight months) to complete. The appellants contended that the contract price was not binding as the contract had been frustrated. Held: The lack of material and labour was not enough to frustrate the contract. The classic statement from Lord Radcliffe reflects the general disinclination of the courts to allow much scope to the operation of the doctrine of consideration: “... frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do ... it is not hardship or inconvenience or material loss itself which calls the principle into play. There must be as well such a change in the significance of the obligation that the thing undertaken would if performed be a thing different from that contracted for”: at 723-9.

[11.315] In essence, frustration will only occur where the following conditions are met: there must be an event that occurs after the contract has been made that causes a fundamental change to the nature of the contract and the obligations of the parties under the contract the event was not the fault of either party the event was not foreseeable by either party, so that it would be unfair to enforce the contract under the changed circumstances.

Application of the doctrine [11.320] 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.

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.

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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.

Taylor v Caldwell [11.355] Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309. Caldwell agreed to hire Surrey Gardens and Music Hall to Taylor for five days for a series of concerts. However, six days before the first concert, fire destroyed the hall through no fault of either party. Taylor sued Caldwell for breach of contract because Caldwell had not done what he promised – provided a hall for the concerts. The issue was whether Caldwell’s breach was excused by frustration. Held: The contract was frustrated by the event that occurred through no fault of either party. In a classic statement, Blackburn J said: “There seems no doubt that where there is a positive contract to do a thing … the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible … But … where from the nature of the contract it appears that the parties must have known that it could not be fulfilled unless when the time for fulfilment of the contract arrived some particular specified thing continued to exist … the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor … The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance … We think, therefore, that the Music Hall having ceased to exist, without the fault of either party, both parties are excused.”

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.

Krell v Henry [11.370] Krell v Henry [1903] 2 KB 740. Henry booked Krell’s apartment in London for two days on £25 deposit. Henry intended to use the apartment to watch the coronation of Edward VII. That was the sole reason for Henry booking the room. Although this objective did not appear in the agreement itself both parties were aware that many other flats in the area had been rented for the same purpose. The coronation had originally been scheduled for 26 June, but two days before on 24 June, the future King Edward was diagnosed with appendicitis. Surgeons performed a then-radical operation of draining the infected abscess through a small

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incision. The next day, Edward was sitting up in bed, smoking a cigar. Two weeks later, it was announced that the King was out of danger and he was crowned at Westminster Abbey on 9 August 1902. Krell sued for £50, the balance of the rent. Held: Performance will be excused when (a) the purpose of a contract is frustrated by an unforeseeable supervening event and (b) the purpose was within the contemplation of both parties when the contract was made. A contract’s purpose may be inferred from surrounding circumstances. Where a contract indicates that the parties knew that it could not be fulfilled unless some particular specified thing continued to exist, the parties must have contemplated the continued existence of that thing as the foundation of the performance. The parties understood that the sole purpose of the contract was to allow Henry to view the coronation. When it was cancelled, the contract, although possible to perform, became futile and, as a consequence, was frustrated.

Contrast with the latter case the following decision by the same court:

Herne Bay Steamboat Co v Hutton [11.390] Herne Bay Steamboat Co v Hutton [1903] 2 KB 683. 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. It was also held that the contract was not frustrated (so Hutton was not discharged from performance) because the naval review was not the sole reason for him entering into the contract.

Governmental intervention [11.400] 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:

Metropolitan Water Board v Dick, Kerr & Co Ltd [11.410] Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119. 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.

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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 is, as a result of an unforeseen event that occurred after the contract was made, radically different from what the parties intended when they entered into the contract.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [11.430] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. Codelfa contracted to excavate tunnels and do concrete work in connection with a railway. Various stages of the work were to be completed by certain dates. The whole of the work was to be completed within 130 weeks of the date of notice to proceed. Time was made of the essence of the contract. The work generated 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: the contract was frustrated. Codelfa was released from further work on the project. As the contract was now terminated, Codelfa was not able to recover any further payments under the contract. However Codelfa was entitled under equity to recover monies for work completed (on a quantum meruit basis – the amount earned). The dispute was referred to arbitration under the terms of the contract. The arbitrator found that the work could not be carried out as agreed except on the basis of three shifts per day, and that neither party foresaw the possibility of the restrictions that were imposed on the hours of work as a result of the injunction. A majority of the High Court held that the situation produced by the grant of the injunction was such as to make it impossible lawfully to perform the contract in a manner that would have complied with its requirements. Accordingly, performance had become a thing radically or fundamentally different from that undertaken by the contract resulting in frustration of the contract.

Changes in circumstances not amounting to frustration [11.440] 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.

Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd [11.445] Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671. An environmentally concerned building union imposed a “work ban” (that is where a union prevents its members from working on a particular site) on land owned by the defendants. This meant that the purchaser of

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the land could not develop the land in the way envisaged as workers were banned from working on the site. The ban was placed on the site after it had been sold but before settlement. The purchaser claimed the contract was frustrated. Held: The fact that the work bans had been placed on the site was not, without more, a frustrating event – at the time the contract was entered into, the court held that the risk of such bans being placed on the site had shifted to the purchaser.

Scanlon's New Neon Ltd v Tooheys Ltd [11.450] Scanlon’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169. The appellants entered into a number of contracts with the respondents for the installation of neon advertising signs on the respondent’s hotels and the respondent agreed to hire the signs for a period, and to pay the rentals whether or not the signs were used or operated. The signs were conspicuous even when not illuminated. During the currency of the contract and after the signs had been operated for a substantial period, the use of lighted signs outside any building was prohibited by State order because of the outbreak of war with Japan. The High Court held that the making of the State order did not frustrate the contracts and that the respondent remained liable for the rental payments. In the court’s view, there was no ground for concluding that the lighting of the signs was the basis on which the parties had contracted. The court also rejected the contention that a term should be implied providing for the termination of the contract in the events which had happened.

[11.460] 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.

Tsakiroglou & Co Ltd v Noblee Thorl GmbH [11.470] Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93. On 4 October 1956, the appellants agreed to sell to the respondents Sudanese groundnuts for shipment from Port Sudan to Hamburg during November–December 1956. On 2 November, the Suez Canal was closed. The alternative route via the Cape of Good Hope would have increased the length of the voyage by four weeks and also increased the appellant’s costs of shipment. 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. 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.

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oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd [11.472] oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255. 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. 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.

Limitations on the doctrine of frustration [11.475] 1.

The contract itself covers the event If the parties make specific provision for the event in the contract – by, for instance, agreeing that the obligation to perform is “absolute” or by inserting a force majeure clause that covers the event – this will prevent the contract being frustrated.

Claude Neon Ltd v Hardie [11.477] Claude Neon Ltd v Hardie [1970] Qd R 93. The parties signed a five-year contract that contained a clause that said that if Hardie’s leasehold interest in the property was “extinguished or transferred”, Neon would become immediately entitled to the remaining rent. Two years later, the owner of the premises took possession of the premises and demolished them. Neon claimed the rent to which it was entitled under its contract with Hardie. Hardie argued that the owner’s action in going back into possession of the property had frustrated the contract. Held: The contract was not frustrated because the parties had foreseen the event (the owner re-taking possession) and had made provision for it in the contract.

[11.478] 2.

The frustrating event must not have been one that the parties could reasonably have foreseen A frustrating event must not have been foreseen or must not have been reasonably foreseeable by the parties. If it were foreseeable, the courts presume that the parties have allocated the risk of the event occurring in the contract. This limitation is not as easy as it may appear. For instance, it is not clear how foreseeable the event needs to be, nor is it clear how foreseeable the effects of the event need to be. It is not, for example, difficult to say that hurricanes are a foreseeable event in the Gulf of

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Mexico. It is another matter to say that the particular damage wrought on the north-east coast of the USA by Hurricane Sandy in 2012 was foreseeable. 3.

Fault or self-induced frustration The frustrating event (or its effect) must not have been caused by the acts or omissions of the party seeking to rely on the frustration. The reason for this limitation is that a party should not be able to plead frustration in respect of an event that he or she could have prevented. For example, a contract for the carriage of goods may not be frustrated by the sinking of the vessel if the sinking was caused by the negligence of the shipper of the goods: J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyds Rep 1. Again, the eruption of hostilities in and around a port may not allow the captain of a cruise liner to plead frustration if he or she deliberately allowed the vessel to sail into the port knowing that the likelihood of hostilities erupting was high.

Effect of frustration [11.480] At common law the effects of frustration were: 1.

When frustration of a contract occurs it automatically terminates the contract: Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154. 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.

2.

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.

3.

This rule that the contract is not void ab initio (ie, from the beginning) 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 or instalment) under a contract and, when the frustrating event occurs, there is a total failure of consideration (ie, nothing exchanged by the other party for the money paid), the other party is under a duty to refund the whole of the money paid. This may cause hardship where a party to a contract has performed part of the work preparatory to performing their promise (eg, the party has built 50% of an engine but has not delivered anything when the frustrating event occurs).

Fibrosa Spolka Akcyjna v Fairbairn, Lawson, Combe, Barbour, Ltd [11.482] Fibrosa Spolka Akcyjna v Fairbairn, Lawson, Combe, Barbour, Ltd [1943] AC 32. Fairbairn contracted to sell textile machines to a Polish company to be delivered to Gydnia. The contract price was £4800 of which £1000 was paid in advance. The English company completed most of the work but before it was finished, Germany invaded Poland and occupied Gydnia. The law made it illegal to trade with the enemy. Fibrosa sued for repayment of the £1000 it had paid in advance. Held: The lower courts followed the so-called “rule” in Chandler v Webster principle – where a contract has been frustrated by a supervening event, “the loss lies where it falls”, with the result that sums paid or rights accrued before that event are not to be surrendered, but that all obligations falling due for performance after that event are discharged. Consequently, the lower courts rejected Fibrosa’s claim to recover the £1,000.

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The House of Lords reversed the decision. It found in favour of Fibrosa and restricted the Chandler decision to where there had not been a failure of consideration. In these circumstances, there was a total failure of the consideration as Fibrosa had not received any part of the machinery that was ordered in exchange for the payment. Consequently, Fibrosa was entitled to a refund. 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: at 49.

[11.484] Legislation has been passed which provides for a fairer distribution of loss than that found under common law. The Victorian legislation (the Australian Consumer Law and Fair Trading Act 2012 (Vic)) is replicated in all jurisdictions. The key provisions are referred to below.

Victoria [11.485] The Victorian Australian Consumer Law and Fair Trading Act 2012 provides that all sums paid to any person before the time of the discharge through frustration are recoverable: s 36(1). 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 charterparty, 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).

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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.

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.

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Remedies [12.30] Remedies depend on the nature of the breach................................................................................ 230 [12.70] The remedy of damages .............................................................................................................................. 231 [12.290] Penalties and liquidated damages...................................................................................................... 241 [12.340] Specific performance.................................................................................................................................. 244 [12.400] Injunction .......................................................................................................................................................... 245 [12.430] Restitution........................................................................................................................................................ 245 [12.440] The basis of restitution.............................................................................................................................. 246

Introduction [12.20] The contractual narrative ends with a discussion of the remedies that may be available where the contract is not performed in the way the parties expected. This chapter is divided into two main parts. The first part is concerned with the remedies available to an innocent party where there has been a breach of contract that does not permit the innocent party to terminate. In the previous chapter, we considered the circumstances in which a breach – either by repudiation or breach of a term – allowed the innocent party to terminate the contract. We will briefly touch on this remedy but will not repeat that discussion in detail. In this chapter we focus on (a) the usual common law remedy for a breach of contract – an award of damages; and (b) the equitable remedies of specific performance and injunction. The second part of this chapter discusses restitution. An action in restitution is usually brought either because there is no express contract between the parties or such contract is void or unenforceable. Accordingly, an action in restitution may provide a remedy where otherwise there would be none. Before beginning a discussion on common law and equitable remedies for breach of contract, it is worth remembering that the statutory remedies contained in the Australian Consumer Law (discussed in Chapter 13) and the remedies for mistake and misrepresentation (discussed in Chapter 7) may also be relevant. Finally, it must be acknowledged that litigation is an expensive, time-consuming and uncertain business. Even victory may not be sweet – there are significant costs that are not met by the losing party and, perhaps more importantly, in a commercial dispute there is the risk that litigation may adversely affect the business (who wants to do business with someone who sues them?). Litigation also involves airing all the evidence relevant to the dispute (and much commercial information) in public, something that a business may not want to do. The fact is that the great majority of contractual disputes are settled out of court – the parties themselves find a solution or they seek the assistance of negotiators, conciliators or, more formally, arbitrators. However, even though the parties may not seek legal remedies, the fact that each party knows what remedies might be awarded is often enough to concentrate the minds of the parties (or at least one of them) and will provide the context for the settlement negotiations.

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Remedies depend on the nature of the breach Remedies where the contract is terminated for breach Figure 12.1: Remedies for breach

[12.30] As we saw in the previous chapter, in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, the High Court recognised three situations that provided a right to terminate: 1.

repudiation - either anticipatory or when the contract is being performed;

2.

breach, in performance, of a condition; or

3.

breach of an innominate or non-essential term that has the effect of denying the innocent party of a substantial part of the benefit of the contract.

If the innocent party does elect to terminate the contract for the breach, then the contract comes to an end and the parties are released from further performance of their obligations under the contract. In such a case, the innocent party can also seek damages for the losses that were caused by the breach.

Remedies where the contract is not terminated for breach [12.60] There are two situations in which the contract remains valid and enforceable despite a breach having occurred. The first in where the breach is of a warranty or of an innominate term that does not deprive the other party of a substantial part of the benefit of the contract and the second is where the breach was of a condition but the innocent party has opted not to terminate the contract. In both

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situations, whilst the contract remains on foot and the parties remain liable to perform their obligations under the contract, the innocent party is entitled to sue for damages for the breach of contract. In other words, at common law, any breach of an obligation under a contract by one party entitles the innocent party to seek compensation by way of an award of damages for the loss or damage caused by the breach.

The remedy of damages Figure 12.2: The principles of damages

[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 caused by the breach.

Principles applying to the assessment of damages [12.80] Three broad questions arise in the assessment and award of substantial damages for breach of contract: 1.

What is the measure of damages?

2.

Was the loss caused by the breach and is the loss too remote from the breach?

3.

Is the loss one that the innocent party should have taken steps by way of mitigation?

The measure of damages [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) 154 ER 363 at 365. To put this another way, it is a fundamental expectation of the courts that contracts are performed, and if they are not, damages will, as far as possible, put the innocent party in as good a position as if it had been. The decisions of the High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 established the following propositions:

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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.

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”).

3.

If a plaintiff’s expenditure would not have been fully recovered while 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. 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.

4.

In Tabcorp, the Court decided that where a breach of contract has caused property damage, the proper measure of assessing of damages is the cost of reinstatement rather than the diminution in the value of the property. Reinstatement damages put the innocent party in the position it would have been in if the contract had been performed, but diminution in value damages do not.

Commonwealth v Amann Aviation Pty Ltd [12.100] Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. Amann entered into a three year contract with the Commonwealth to conduct aerial coastal surveillance. To enable it to perform the contract, it spent a substantial amount of money acquiring and fitting out specially equipped aircraft. However, on the day performance was due to begin, only seven of the eleven planes were ready to fly. As a result of this (admitted and obvious) failure to have all eleven planes ready on time, the Commonwealth terminated the contract for what it considered to be a repudiatory breach. However, the Commonwealth did not terminate the contract according to the procedure set out in the agreement. Therefore, Amann argued that the Commonwealth’s wrongful termination was itself a repudiation by the Commonwealth, which then allowed it to terminate the contract and sue for damages. The trial judge agreed but awarded only $410,000 damages because the plaintiff’s expectation loss on the three year contract was low. The Federal Court agreed with the trial judge on the liability issue but awarded damages of approximately $6 million based on Amann’s reliance loss – in effect, its wasted expenditure. By the time the matter reached the High Court, the only question was the measure of damages. The High Court affirmed the decision of the Full Federal Court. It agreed that Amann assumed it would either make a loss or just recover its expenditure on the first three year contract (given that its significant start up costs) and that its prospects of making a substantial profit rested on its prospect of securing a renewal of the contract. The prospect of this occurring was strong because it would be fully equipped with the cost of its aircraft written down. It would be very difficult for a competitor to match this advantage. Thus the contract with the Commonwealth enabled Amann to recoup part, if not all, of its expenditure and placed it in a favourable position to secure a renewal and earn substantial profits under any renewed contract.

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For these reasons the High Court agreed that Amann was entitled to recover as damages an amount commensurate with what it had expended in reliance upon the Commonwealth’s promise to perform its contractual obligations and which was wasted because of the Commonwealth’s breach. The Court said: “In a case where a plaintiff has incurred expenditure either in procuring the contract or in its performance but it is impossible or difficult to establish the value of any benefits which the plaintiff would have derived from performance by the defendant, considerations of justice dictate that the plaintiff may rely on a presumption that the value of those benefits would have been at least equal to the total detriment which has been or would have been sustained by the plaintiff in doing whatever was reasonably necessary to procure and perform the contract”: [emphasis added] at 126.

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [12.110] Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272. A tenant of an office building carried out substantial renovations to the foyer without the consent of the landlord as required under the lease. The High Court held that the landlord had a contractual right to the preservation of the leased building against alterations to which it had not given its consent. The issue was what damages the landlord was entitled to. The tenant argued that the landlord was only entitled to be compensated for the depreciation in the value of the premises (assessed at approximately $33,000) not the amount that it would take to put the landlord in the position it would have been in had the lease been performed (reinstatement damages – $1.34 million). The High Court reaffirmed that contracts must be performed. It held that the landlord was entitled to the cost of restoring the foyer to the state it would have been in had the tenant performed its part of the deal.

Clark v Macourt [12.115] Clark v Macourt (2013) 304 ALR 220. Clark bought the assets of a fertility company controlled by Macourt for approximately $400,000. The sale included a stock of frozen donated sperm, which the vendor warranted was compliant with relevant regulations. Macourt guaranteed the vendor’s obligations, including the warranties, under the contract. Upon delivery, it was clear that the frozen sperm was not compliant as warranted and was unusable. Clark was subsequently required to buy replacement stock from the US at a cost of approximately $1 million. Judgment was entered against the vendor for the breach of warranty, and against Macourt as guarantor, with damages to be assessed. The primary judge awarded damages for breach of contract in the amount of $1.24 million, being the amount that it cost Clark to buy the replacement stock. This

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award was set aside by the Court of Appeal which said that it could not be demonstrated that anything had in fact been paid for the stock and accordingly Clark had suffered no loss. The High Court reaffirmed the principle of Robinson v Harman that when a contract is breached the innocent party should be put in the position he would have been in had it been performed as expected. The measure of damages in this unusual set of facts was the value of what the purchaser would have received if the contract had been performed. 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. It was irrelevant that the damages were thereby higher than the contract price.

The damage must have been caused by the breach and must not be too remote from the breach [12.120] Causation: The innocent party must establish that the damages it seeks were “caused” by the breach. The courts use the “but for” test: “but for” the breach would the loss have occurred. As the High Court has put it, the question is “whether a particular act or omission…can fairly and properly be considered a cause of the accident”: Fitzgerald v Penn (1945) 71 CLR 637 at 649. Where there are more than one causes of the loss, it is sufficient that the breach is “causally contributed” to the loss. Remoteness: The common law considered that it would be neither just nor practicable for the party in breach to be liable for every loss that might have been caused by the breach. Therefore, a fundamental principle is that damages are not recoverable for losses that are too remote. That is, they are not reasonably foreseeable. What is a reasonably foreseeable loss? The classic test for remoteness has been well established since Hadley v Baxendale (1854) 9 Exch 341. Reasonably foreseeable losses are (a) those that arise naturally from the breach or (b) those that are in the reasonable contemplation of the parties at the time the contract is made as the probable result of the breach.

Hadley v Baxendale [12.123] Hadley v Baxendale (1854) 9 Exch 341. The plaintiffs were millers in Gloucester. They worked the mills with a steam-engine. The crankshaft of the engine broke, preventing the steam engine from working. They contracted with a firm called Joyce and Co to make a new shaft. Before they could make the new shaft, the firm required the broken one to be sent to them, to be used as a template. So the plaintiffs contracted with the defendants to deliver the broken shaft to Joyce. However, the defendants took 7 days to deliver it instead of the expected 2 days which prevented the plaintiffs working their steam-mills for five days, which prevented them from running their milling business and thereby causing them to lose profits. The Court held that in this case the rule should be that the damages were those fairly and reasonably considered to have arisen naturally from the breach itself, or such as may be reasonably supposed to have been in the contemplation of both parties at the time the contract was made.

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The Court held the loss of profits did not arise naturally from the delay in delivering the shaft (first limb): “[F]or such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances …”. The Court said that the fact of sending a shaft for repair did not mean that the mill would probably not be able to operate until that shaft was returned (allowing for the possibility of spare parts). The Court held that if there were special circumstances and these circumstances were known to both parties at the time they entered into the contract, then any breach of the contract would result in damages that would naturally flow from those special circumstances (second limb). However, in this case, Baxendale did not know that the mill was shut down and would remain closed until the new shaft arrived. Unless Hadley communicated the special circumstances to Baxendale, the loss of profits could not fairly or reasonably have been contemplated by both parties if a breach such as this occurred. The court ruled that the jury should not have taken the loss of profits into consideration.

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [12.125] Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528. The plaintiff operated a laundry. It contracted to buy a boiler from Newman Industries which knew of the plaintiff’s desire to expand the business quickly and that it was “most anxious” to have the boiler installed on time. However, Newman Industries did not know that Victoria Laundry had negotiated lucrative dyeing contracts with the government. The boiler was damaged during manufacture and as a result was installed 20 weeks late. The issue was whether the launderers could recover their loss of “ordinary business” and, in addition, the loss of the “special lucrative dyeing contracts”. Held: The plaintiff was entitled to recover the profits that would have been made on the ordinary work but not on the special lucrative government dyeing contracts. Newman should have foreseen the likelihood that the ordinary business would be lost but it could not have foreseen the government dyeing contract as a serious possibility as this work was not normal work. Asquith LJ summarised the approach to the issue of remoteness as follows: the governing purpose of damages is to put the innocent party in the same position as if his or her rights had not been violated; it is too harsh to completely indemnify for all his or her losses; the plaintiff is therefore only compensated if the loss is “reasonably foreseeable as liable to result” from the breach; this depends on “the knowledge then possessed by the parties” or at least the defendant;

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this knowledge is two types: imputed (because a reasonable person would understand that this particular loss would occur naturally in the usual course of things) and actual (because the defendant has been given notice of the particular loss that might be suffered in the event of a breach); and there is no need to have actually considered the issue but if a reasonable person had considered the issue he or she would have thought it “liable to result” or “not unlikely”.

[12.127] The effect of these rules on the question of the remoteness of damage was explained by the House of Lords in Koufos v Czarnikow Ltd [1969] 1 AC 350. In that case, it was held that damage in the reasonable contemplation of the parties must be “a serious possibility”, “a real danger”, “liable to result” or “not unlikely” to occur.

H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [12.130] H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] 1 QB 791: The plaintiffs ordered a bulk food storage hopper from the defendants for the purpose of storing pignuts for feeding their pig herd. When the defendants installed the hopper they failed to ensure that the ventilator at the top of the hopper was open. The result was that the pignuts became mouldy and caused the outbreak of an intestinal infection in the pigs and 254 of them died. The plaintiffs brought an action for substantial damages. The court held that the plaintiffs were entitled to recover their loss. The court said that damages for breach of contract were recoverable in respect of injury or loss where the parties, at the time of the contract, would have contemplated as a serious possibility the type of consequence (although not necessarily the specific consequence) that would ensue in the event of a breach of the contract. On the particular facts, it must have been within the contemplation of the parties that injury to the pigs was a serious possibility if, in breach of the contract, the hopper was unfit for storing nuts suitable to be fed to the plaintiffs’ pigs.

Day v O'Leary [12.140] Day v O’Leary (1992) 57 SASR 206. In an Australian example, 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. However, the respondents’ claim for loss of rent was rejected since the appellants had never been informed of the respondents’ intention to let the house; such loss neither flowed naturally from the breach nor was one which should have been reasonably contemplated by the appellants.

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The duty to mitigate the loss [12.150] The law imposes a duty upon a person claiming damages to take all reasonable steps to mitigate, that is minimise, the loss caused by the breach of contract. A person who fails to mitigate his or her loss cannot recover any part of the loss that is attributable to their failure to do so. The question whether a person claiming damages has failed to take reasonable steps to mitigate their loss is one of fact dependent upon the particular circumstances. The burden of proving that there has been a failure to mitigate the loss rests upon the person from whom the damages are claimed.

Payzu Ltd v Saunders [12.160] Payzu Ltd v Saunders [1919] 2 KB 581. Under a contract to deliver goods by instalments, payment to be made within one month of each delivery, less 2.5 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. It was held that the seller was liable for damages since the failure to make a punctual payment in respect of the first instalment did not amount to a breach on the part of the buyers sufficient to entitle the seller to treat the contract as repudiated. On the other hand, it was held that the buyers should have mitigated their loss by accepting the seller’s offer, and that the damages recoverable were not to be measured by the difference between the contract and market price but by the loss that would have been suffered had the offer been accepted.

[12.170] A person suing for damages for breach of contract is only required to act reasonably in mitigating their loss and is not required to take undue steps, expose himself or herself to risk, or spend money which they cannot afford simply to reduce the amount of their loss. 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.

Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 [12.180] Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648. A purchaser of land terminated the contract for breach of a contractual provision regarding time for completion. The vendor offered to complete the contract under judicial supervision. The New South Wales Court of Appeal held that the purchaser had failed to mitigate its loss by accepting the vendor’s offer: at [54]. An innocent party who was entitled to terminate may act unreasonably by not mitigating its loss by completing the contract.

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Figure 12.3: Damages

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]. For instance, damages may be awarded for the loss of a chance or an opportunity to secure a benefit where there is a legal obligation to provide the chance or opportunity. In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 the High Court took into account the likelihood (assessed by Deane J at 80%) that Amann would be offered a renewal of the contract.

Howe v Teefy [12.200] Howe v Teefy (1927) 27 SR (NSW) 301: The defendant leased a racehorse to the plaintiff trainer for three years. Three months later, in breach of the contract, the defendant retook possession of the horse. The plaintiff brought an action claiming damages for the loss of profits he would have made from his own bets on the horse and supplying information for reward to other persons. The jury awarded the plaintiff £250 damages. The defendant appealed on the grounds that the prospective winnings of the plaintiff from bets and stable commissions were too remote to be recovered as damages, and that there was no evidence on which the jury could have assessed such winnings. The Court dismissed the defendant’s appeal. In the court’s view, the plaintiff had been deprived of his right to make what profit he could from the use of the horse and that right was capable of assessment in monetary terms. Street CJ said: “[I]f a plaintiff has been deprived of something which has a monetary value, a jury is not

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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.

Falko v James McEwan & Co Ltd [12.220] Falko v James McEwan & Co Ltd [1977] VR 447. The defendant retail merchant contracted with the plaintiff, a householder, to supply and install an oil heater in the plaintiff’s home. The defendant installed the heater and engaged an electrician to connect it. The electrician informed the plaintiff that a new power point was necessary and that it would cost an extra $5. The plaintiff refused to pay and so the electrician did not complete the wiring. Some months later, the plaintiff ran a temporary lead from a power point in the kitchen to provide electricity to the heater. The plaintiff sued the defendant claiming damages for the cost of the electrical installation and for the inconvenience he had suffered. It was held that the contract was an ordinary commercial contract for breach of which the plaintiff was not entitled to recover damages for inconvenience and mental distress. The measure of damages was limited to the cost involved in remedying the breach by the defendant to fully install the heater (by then, $11).

[12.230] An exception to the general rule is that damages are recoverable for distress or disappointment arising from breach of an express or implied term that the promisor will provide the promisee with pleasure, enjoyment or personal protection, or where the distress or disappointment is consequent upon the suffering of physical injury or physical inconvenience.

Jarvis v Swans Tours Ltd [12.235] Jarvis v Swans Tours Ltd [1973] 1 QB 233. Jarvis booked a holiday in Switzerland through the defendant, Swans Tours. The brochures were tantalising, leading Jarvis to believe he would be part of a large house party that would have excellent skiing and social activities. However, as Denning LJ said in his judgment: [H]e found there were only 13 (guests) there in the first week. In the second week … he was the only person there … He was very disappointed, too, with the skiing. It was some distance away … There were only mini-skis … In the second week he did get longer skis for a couple of days, but then, because of the boots, his feet got rubbed and he could not continue even with the long skis. There were many other matters, too … He did not have the nice Swiss cakes, which he was hoping for. The only cakes for tea were potato crisps

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and little dry nut cakes. The yodeller evening consisted of one man from the locality who came in his working clothes for a little while, and sang four or five songs very quickly. The Court awarded damages, a part of which was calculated to compensate Jarvis for the disappointment he felt.

Baltic Shipping Co v Dillon [12.240] Baltic Shipping Co v Dillon (1993) 176 CLR 344. The respondent paid $2,205 in advance for a 14-day cruise in the South Pacific. The object of the contract was to provide an enjoyable and relaxing holiday experience and there was an implied term to this effect. However, after eight days the ship struck a rock and sank. In an action against the appellant owners and operators of the vessel, the respondent was awarded $5,000 for disappointment and distress in addition to compensatory damages for loss of belongings and personal injuries including the trauma she suffered in the shipwreck. The High Court affirmed the $5,000 damages awarded for the respondent’s disappointment and distress. The High Court further held that the respondent was not entitled to recover the whole of the cruise fare since there had not been a total failure of consideration, the respondent having enjoyed the benefits of the first eight days of the cruise. In the court’s opinion, to award full restitution of the fare in addition to damages for breach of contract would have been to give the respondent excessive compensation.

Boncristiano v Lohmann [12.245] Boncristiano v Lohmann [1998] 4 VR 82. The parties were involved in a building dispute. After reviewing a number of cases the court concluded that it appears now to be accepted in England and Australia that awards of general damages can be made to building owners who have suffered physical inconvenience, anxiety and distress as a result of a builder’s breach of contract, “but only for the physical inconveniences and mental distress directly related to those inconveniences which have been caused by the breach of contract”.

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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. The apportionment legislation of the other States was in similar terms. Consequently, the case would have been of application throughout Australia. However, all jurisdictions have now amended their apportionment legislation to permit the apportionment of damages for breach of contractual duty of care in cases of contributory negligence. 1 1

See Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9; Wrongs Act 1958 (Vic), s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Amendment Act 1947 (WA), s 4; Wrongs Act 1954 (Tas), s 4; Civil Law (Wrongs) Act 2002 (ACT), s 102; Law Reform (Miscellaneous Provisions) Act (NT), s 16.

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.

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] Normally, in a breach of contract case, damages are “unliquidated”, that is, no amount is specified in the contract - the matter is left for the court to determine, according to accepted principles. It is possible, however, for the contracting parties to insert a clause in the contract that specifies the amount of damages that will be paid to the innocent party in the event of a breach. For example, in a house building contract, the parties may agree that in the event the builder does not finish the house on or before the date in the contract, the builder will pay the home owners $1000 per week. In such a case, damages are said to be “liquidated” provided that the amount fixed in the contract, to be paid in the event of a breach, is a genuine pre-estimate of the damages that the victim would suffer as a consequence of the breach.

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If it is not a genuine pre-estimate, it will be construed as a penalty, that is to say a sum inserted in order to punish and/or deter the other party from a possible breach and which bears little or no relationship to the loss actually suffered by the plaintiff as a result of the breach by the defendant. If the amount stated is held to be a penalty, then only the actual loss sustained can be recovered. If the sum named is held to be liquidated damages, then that sum is recoverable, whether it exceeds or is less than the actual loss. [12.330] Before the High Court’s decision in the following case, the accepted position was that the penalties doctrine was limited to situations where the relevant liability for the payment was triggered by a breach of the contract. On this approach, the doctrine would not apply to a fee imposed by a bank that was triggered by an event (for instance an overdue payment on a credit card) that was not technically a breach of contract. Thus a party could avoid the application of the doctrine of penalties by ensuring that what the client did (eg not pay the monthly amount of the credit card on time) was not a breach of contract. Thus any credit payable would not be subject to the penalties doctrine. However, in the wake of the following case, it will be necessary to re-evaluate this approach.

Andrews v Australia and New Zealand Banking Group Ltd [12.331] Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205. The High Court considered the enforceability of various fees and charges imposed by the ANZ bank, including charges for exceeding overdrafts. The action is part of a broader class action brought by 170,000 customers of eight banks. The customers contend that fees amounting to a total of AUD$223 million imposed by the banks were penalties and should be refunded. At first instance, the Federal Court found that these fees could not be treated as penalties, as ANZ’s customers were not under a contractual obligation to avoid overdrawing their accounts – as the fees were not triggered by a breach of contract they could not be characterised as penalties. The High Court reversed the judgment of the Federal Court. It decided that relief against penalties is potentially available even if a fee is not payable on breach of contract. According to the Court, the proper approach in determining whether a fee is a penalty is to consider whether the substantive purpose of the fee is to secure performance of a contractual obligation. The matter was referred back to the Federal Court to determine whether, in fact, the fees charged by ANZ should be treated as penalties on this basis.

Paciocco v Australia and New Zealand Banking Group Ltd [12.331A] Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28. The Federal Court held that the bank’s fees for late credit card payments constituted a penalty. The fee was payable upon a breach of contract by the customer. The fee was used in terrorem to deter a breach and was “extravagant and unconscionable” in amount in relation to the bank’s losses from the breach. Gordon J found that ANZ was likely to suffer a maximum loss of $0.50 to $5.00 in

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respect of each fee, whereas the actual fee levied was $20.00, regardless of whether the payment was one day later or longer. The Full Court reversed that decision. On appeal, the High Court reversed the decision of the Federal Court. On appeal to the High Court, the High Court accepted that the late payment fee was capable of constituting a penalty because it was imposed upon a breach of contract. Therefore, the relevant question for the High Court was the applicable test to determine whether a sum paid on default is to be characterised as a penalty. The majority held that the overarching test appropriate in a case of this kind is whether such a sum is “out of all proportion” to the interests of the party that the clause is intended to protect. The majority considered that ANZ’s legitimate interests were not confined to the reimbursement of the costs directly occasioned by the appellants’ default, but extended to the bank’s interest in maintaining or even enhancing its revenue stream in order to make a profit. Importantly, the test is not confined to loss in damages resulting directly from the breach. The majority considered that late payment affected ANZ’s operational costs, loss provisioning and increases in regulatory capital costs. As these costs were greater than the fee imposed, the fee was not a penalty.

Ringrow Pty Ltd v BP Australia [12.331B] 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’”.

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.

Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd [12.333] Fiorelli Properties Pty Ltd v Professional Fencemakers Pty Ltd (2011) 34 VR 257. 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. The Victorian Supreme Court held that the deposit had been forfeited by the property owner’s unilateral

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repudiation of the contract and the retention of the deposit by the manufacturer was not unconscionable.

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 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.

Ryan v Mutual Tontine Westminster Chambers Assoc [12.380] Ryan v Mutual Tontine Westminster Chambers Assoc [1893] 1 Ch 116. The lessor of a block of flats agreed to provide a porter who was to be “constantly in attendance” and perform specified duties. The porter appointed by the lessor was also employed as a chef in a nearby club and during his absence for several hours each day, his duties were performed by other persons. One of the tenants sought an order for specific performance of the obligation. It was held that specific performance could not be ordered since the court could not guarantee by its order that the porter would remain in constant attendance without constantly supervising such attendance.

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(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. Where the circumstances do not fall within one of the above exceptions, specific performance may be ordered. However, since it is an equitable remedy, the court has discretion whether or not to grant an application for the remedy. Accordingly, specific performance will be refused if its effect would be to cause unfairness or undue hardship to the defendant. Such circumstances include where there has been a mistake on the part of the defendant; undue delay in seeking the remedy; or breach by the plaintiff of her or his contractual obligations in circumstances where the grant of specific performance would be unjust to the defendant. 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. On the other hand, if the injunction sought would not necessarily have the effect of forcing the defendant to perform their contract for personal services, then an injunction may be granted if it is necessary to protect the plaintiff from negative consequences flowing from the defendant’s conduct in breaching the contract, for example where the defendant proposes to work with a competitor of the plaintiff. See for example Warner Bros Pictures Inc v Nelson [1937] 1 KB 209, 219–220, where the Court issued an injunction to prevent the actor Bette Davis performing for a theatrical company other than the plaintiff’s; and Warner Bros Pictures Inc v Ingolia [1965] NSWR 988, where the Court issued an injunction to prevent the actress and singer Connie Stevens performing a cabaret at the Chevron-Hilton while she was in breach of her exclusive performance contract with Warner Bros. Like a decree of specific performance, an injunction is a discretionary remedy and accordingly is likely to be refused where, for example, the plaintiff has been guilty of delay or is in breach of their obligations under the contract. Furthermore, again like an order of specific performance, an injunction will not usually be granted if in the particular circumstances, damages would be an adequate remedy.

Restitution [12.430] As we have seen in Chapter 11, a person is not entitled to any contractual remedy unless he or she has (at least) substantially performed the contract. However, the courts are prepared to order restitution if the part performance of the contract-breaker enriched the innocent party unjustly. In this context, the term

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restitution refers to the remedies provided by the law to compel the payment of money by the innocent party to the contract breaker where it would be unjust to allow A to retain the benefit of money, goods or services which he or she has received. An action in restitution is usually brought either because there is no express contract between the parties or such contract is void or unenforceable. Accordingly, an action in restitution may provide a remedy where otherwise there would be none.

The basis of restitution [12.440] The trend of High Court decisions is to regard 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 and just restitution for a benefit derived at the expense of a plaintiff”: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, 256-257. 1 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) 307 ALR 512 at [73]. 1

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.

Pavey & Matthews Pty Ltd v Paul [12.445] Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. Pavey & Matthews were builders who were licensed under the Builders Licensing Act 1971 (NSW). They carried out building work for Paul pursuant to an oral contract. Under s 45, a building contract was unenforceable unless it was in writing and signed by each of the parties. When the work was completed, a dispute arose and Paul refused to pay the balance of the contract price. The builders sued Paul for a reasonable amount, based not on the contract (which was unenforceable) but on a quantum meruit (the amount that he or she has earned). Although the contract was unenforceable, the High Court decided that the plaintiff was entitled to “reasonable remuneration” the basis of which was in “restitution or unjust enrichment”. Paul had accepted the benefit and therefore had to pay a reasonable price that may or may not be the same as the contract price. A person is not entitled to any contractual remedy unless he or she has at least substantially performed the contract. However, the courts will be prepared to order restitution to avoid the other party being unjustly enriched.

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Steele v Tardiani [12.446] Steele v Tardiani (1946) 72 CLR 386. Steele contracted Tardiani to chop wood on his farm. The contract stipulated that the wood should be chopped in lengths of between 4 and 6 inches. Tardiani, however, chopped the wood in lengths of 6 to 15 inches. This was clearly a breach of the contract. The court learned that Tardiani did not do this in malice, but because he had limited English language skills and misunderstood the verbal instructions given by Steele. Steele did not correct the mistake when it was discovered, but refused to pay Tardiani anything for his labour when the whole job was finished. Held: The court ordered Steele to pay a reasonable sum for Tardiani’s labour, as Steele would otherwise be unjustly enriched.

[12.448] 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.

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PART 3: CONSUMER PROTECTION

Chapter 13: Consumer Protection

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Consumer Protection [13.20] Overview of the Australian Consumer Law....................................................................................... 253 [13.40] Prohibition of misleading or deceptive conduct .............................................................................. 256 [13.200] Prohibition of unconscionable conduct ............................................................................................ 270 [13.290] Prohibition of unfair contract terms ................................................................................................... 277 [13.330] Specific false or misleading representation provisions ........................................................... 283 [13.460] Prohibition of other unfair practices................................................................................................... 289 [13.650] Enforcement and remedies for unfair practices .......................................................................... 294 [13.1000] Consumer guarantees............................................................................................................................ 306 [13.1170] Manufacturers' liability for defective goods................................................................................ 317

Introduction [13.10] The common law of contract and a patchwork of State and Territory legislation (such as the Sale of Goods Acts) offered the first protection for consumers. It was not until the enactment of Commonwealth legislation – the Trade Practices Act 1974 (Cth) (TPA) – that consumer protection law reflected the needs of the modern, complex and sophisticated consumer economy that had developed in Australia during the 1960s. The TPA provided a much greater level of protection for consumers, supported by a wide range of remedies and penalties designed to compensate consumers and/or deter those who engaged in unfair or unsafe commercial practices. However, because constitutional restrictions prevented truly national legislation, each of the States and Territories had to pass identical legislation in some areas, adding layers of complexity and difficulty. On 1 January 2011, the Australian Consumer Law (ACL), located in Schedule 2 of the new Competition and Consumer Act 2010 (CCA) that replaced the TPA, came into force replacing the consumer laws in earlier Commonwealth, State and Territories legislation. When the Australian Consumer Bill was being debated in the Federal Parliament on 17 March 2010, the Minister put the case for reform in his Second Reading Speech: “The complex array of 17 national, state and territory generic consumer laws, along with other provisions scattered throughout many other laws, must be rationalised. While these laws may work well for many purposes, each of them differs and that is to the cost of consumers and business. Australian consumers deserve laws which make their rights clear and consistent, and which protect them equally wherever they live. At the same time, Australian businesses deserve simple, national consumer laws that make compliance easier. A single national consumer law is the best means of achieving these results. Rather than relying on nine parliaments making piecemeal changes, the Australian Consumer Law will ensure responsive consumer laws with a truly national reach … This will enable,

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for the first time, all Australian consumers to enjoy the benefits of consistent rights wherever they may be, and will allow all Australian businesses to obtain greater efficiencies through a single, simplified national law.” 1 We will now examine the ACL in detail. 1

Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 Second reading.

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Overview of the Australian Consumer Law Objectives [13.20] The Australian Consumer Law has benefitted the Australian community by: (a)

giving Australian consumers the same rights and protections wherever they are in Australia;

(b)

simplifying the law and reducing business compliance burdens by replacing provisions set out in 20 existing national, State and Territory laws with a single national consumer law; and

(c)

creating a national enforcement regime, with consistent enforcement powers for Australia’s consumer protection agencies.

The main reforms introduced in the Australian Consumer Law were: a new single set of definitions and interpretive provisions; a new, national law on unfair contract terms; a new single set of provisions about unfair practices and fair trading, including amendments and additions which reflect existing provisions in State and Territory consumer laws; a new set of national consumer guarantees provisions; a new national regime for unsolicited consumer agreements, which will replace existing State and Territory laws on door-to-door sales and other direct marketing; a simple national set of rules for lay-by agreements; a new national product safety legislative regime; and national provisions on information standards.

Legislative framework [13.30] The Australian Consumer Law is a law of the Commonwealth. 1 It replaced the consumer protection provisions of the former Trade Practices Act 1974 and State and Territory consumer protection legislation, such as the Fair Trading Acts and the door-to-door sales legislation. It is administered by the Australian Competition and Consumer Commission (ACCC) and the State and Territory consumer law agencies 2 and enforced by all Federal, State and Territory courts and tribunals. 3 It has very broad application: it applies to conduct engaged in and outside Australia by Australian citizens or persons who are ordinarily resident in Australia, 4 to natural persons engaged in conduct involving postal, telegraphic or telephonic service, including the internet, 5 and to corporations. 6 1

Competition and Consumer Act 2010 (Cth), s 131. The section is in Part XI – Application of the Australian Consumer Law as a law of the Commonwealth. Pursuant to an intergovernmental agreement each State and Territory applies the Australian Consumer Law as the law of its jurisdiction. Competition and Consumer Act 2010 (Cth), ss 140 – 140K; Fair Trading Act 1987 (NSW), s 28(1); Australian Consumer Law and Fair Trading Act 2012 (Vic), s 11(1); Fair Trading Act 1989 (Qld), s 16(1); Fair Trading Act 1987 (SA), s 14(1); Fair Trading Act 2010 (WA), s 19(2); Australian Consumer Law (Tasmania) Act 2010 (Tas), s 6(1); Fair Trading (Australian Consumer Law) Act 1992 (ACT), s 7(1); Consumer Affairs and Fair Trading Act 1990 (NT), s 27(1).

2

NSW: Fair Trading; Victoria: Consumer Affairs Victoria; Queensland: Office of Fair Trading; Western Australia: Department of Commerce – Consumer Protection; South Australia: Office of Consumer and Business Affairs: Tasmania: Consumer Affairs and Fair Trading Tasmania; ACT: Office of Regulatory Services; Northern Territory: Consumer Affairs.

3

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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4

Ibid.

5

Competition and Consumer Act 2010 (Cth), s 6(3).

6

Ibid, s 131(1).

Organisation of the Australian Consumer Law Figure 13.1: Overview of the Australian Consumer Law (ACL)

[13.35] The Australian Consumer Law is organised into the following chapters: Chapter 1 – contains a single set of definitions and interpretive provisions about consumer law concepts. Chapter 2 – contains the general protections that create standards of business conduct in the market. These include a general prohibition on misleading and deceptive conduct and unconscionable conduct and specific prohibitions on unconscionable conduct in consumer and some business transactions; and a provision that makes unfair contract terms in consumer contracts void. Chapter 3 – contains specific protections which address identified forms of business conduct, including specific unfair practices; consumer transactions for goods or services; product safety; the making and enforcement of information standards; and the liability of manufacturers for goods with safety defects. Chapter 4 – contains the criminal offences that relate to some of the matters covered in Chapter 3. Chapter 5 – contains additional remedies – both civil pecuniary penalties and private remedies. This chapter broadly follows the Australian Consumer Law, although the provisions concerning enforcement and remedies are considered in their more appropriate context throughout the chapter.

Enforcement of the Australian Consumer Law The Australian Consumer Law provides a number of remedies and penalties that are designed to deter breach and ensure compliance with the various consumer protection provisions. The remedies available to individuals who wish to take action for a breach of one or more of the provisions of the Australian Consumer Law are varied. They include:

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Damages: to compensate for loss or damage caused by a breach of the Australian Consumer Law: s 236 Injunctions: a court order to stop or prevent a contravention: s 232 Compensation orders: an order to compensate a person who has suffered loss or damage or because of an unfair term in a consumer contract: ss 237–238. There are also penalties that may be imposed on individuals or corporations for contravening the Australian Consumer Law. These may be civil (pecuniary penalties) or criminal (fines). The maximum amount of pecuniary penalties and fines are $1.1m for corporations and $220,000 for individuals.

Prohibition of misleading or deceptive conduct Figure 13.2: The prohibition of misleading or deceptive conduct

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Figure 13.3: Summary of the features of section 18

Misleading or deceptive conduct [13.40] The statutory prohibition of misleading and deceptive conduct is to be found in s 18 of the Australian Consumer Law. Section 18 provides: “A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.” 1 Misleading or deceptive conduct is not defined in the legislation but has been given a very wide interpretation by the courts. The prohibition is not restricted to “consumers” in the traditional sense: 2 any person or corporation is also able to seek a remedy if the breach of s 18 has caused, or is likely to cause, loss or damage. Because of the potential breadth of that section and the uncertainty as to which business practices might fall within its ambit, no pecuniary fines or penalties may be imposed for its breach. However the full range of civil remedies is available. 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. 1

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.

2

There are a number of definitions of “consumers” in the Australian Consumer Law.

Meaning of “in trade or commerce” [13.50] 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”: Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134.

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The Court has held that the misleading conduct provision did not apply to an internal communication between a foreman and a worker about the safety latch on a manhole (which was misleading) because it was not made “in” trade or commerce: Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594. The Court said that “the conduct of a corporation towards persons (must) bear a trading or commercial character”. Thus a private one-off transaction such as the sale of one’s private residence will not be caught by s 18(1) because such as sale is not “in” trade or commerce: O’Brien v Smolonogov (1983) 53 ALR 107. In the same way, the New South Wales Court of Appeal held that representations made by a homeowner while selling their home were not made in trade 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.

Meaning of “engage” [13.51] Section 18(1) of the Australian Consumer Law provides that a person must not “engage” in misleading or deceptive conduct. In the Google case below 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.

Google Inc v Australian Competition and Consumer Commission [13.52] Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435. 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 advertiser chose the search terms that gave rise to sponsored results. 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. An intermediary such as the search engine would be liable if they adopted or endorsed the misleading content. However, the search engine had not adopted or endorsed the sponsored search results.

Meaning of “misleading or deceptive” conduct [13.60] Section 18(1) of the Australian Consumer Law concerns “conduct” that is “misleading or deceptive or is likely to mislead or deceive”. What is the meaning of “misleading or deceptive”? Conduct is misleading or deceptive or likely to mislead or deceive if it has the tendency to lead into error, if there is a sufficient causal link between the conduct and the error on the part of the person exposed to the conduct.

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Section 18 and the world of marketing and advertising Australian Competition and Consumer Commission v TPG Internet Pty Ltd [13.61] Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640. TPG Internet Pty Ltd (TPG) ran an advertising campaign. The advertisements involved a number of media to promote TPG’s new “$29.99 per month” unlimited ADSL2+ broadband internet plan. In much smaller print the advertisements stated that the customer was required to bundle the service with a landline rental for an additional $30 per month (for a minimum of six months) and pay an overall minimum of $509.89 including a set-up fee and deposit. His Honour found that the target audience included first time users of ADSL2+ services. The primary judge also found that, by virtue of the array of available internet options, the ordinary or reasonable consumer would not have any starting assumption as to whether TPG’s offering was of a separate or bundled service, and would rely on the advertisement for information as to the service offered. The High Court, restoring the decision of the trial judge, found that the advertisements conveyed a representation that the internet service was available without bundling and, at least in the first phase of the advertisement campaign, a representation that there would be no set-up fee or deposit. The Court held there were breaches of s 52 and s 53 of the Trade Practices Act 1974 (s 18 and s 48 of the Australian Consumer Law). On the question of the target audience the High Court decided that the “dominant message” was important. The dominant message was the statement that TPG would provide “unlimited ADSL2+ for $29.99 per month”. The qualifying information in the small print did not do enough to correct the false impression created by the dominant message. The Federal Court, in allowing the appeal from the trial judge, said that the misleading nature of the dominant message was “cured” by the knowledge of the more sophisticated consumer. But the High Court rejected this approach. The Court said: “[T]he circumstance that many consumers might know that ADSL2+ services are commonly offered as a ‘bundle’ was not apt to defuse the tendency of the advertisement mislead especially where the target audience is left only with the general thrust or dominant message after the evanescence of the advertisement”: at [53]. A pecuniary penalty of $2m was imposed on TPG for the breach of s 48. The implications of the decision are important: it is the overall impact of an advertisement and not just the dominant message which matters when determining if an ordinary consumer would be misled. To meet the statutory requirement to state the total “all inclusive price” prominently, an advertised single price needs to be very noticeable in the context of the overall message conveyed and not merely discoverable in the “small print”. Further, an advertiser cannot argue that some of its sophisticated consumers would not be misled if other “ordinary” consumers would be a misled. The High Court drew a clear distinction between this case and Puxu (see below at [13.100]). First, TPG’s target audience did not consist of potential purchasers

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focused on the subject matter of their purchase in the calm of the showroom to which they had come with a substantial purchase in mind. The advertisement was an intrusion on the consciousness of the target audience. As such they may have only paid perfunctory attention. Second the tendency of the advertisements to mislead was to be determined, not by asking whether they were apt to induce consumers to enter into contracts with TPG, but by asking whether they were apt to bring them into negotiation with TPG rather than with one of its competitors on the basis of an erroneous belief engendered by the general thrust of TPG’s message. Thirdly, this is not a case where the tendency of TPG’s advertisements to lead consumers into error arose because the target audience might be disposed, independently of TPG’s conduct, to attend closely to some words of the advertisement and ignore the balance. The tendency of TPG’s advertisements to lead consumers into error arose because the advertisements themselves selected some words for emphasis and relegated the balance to relative obscurity.

[13.62] The following Federal Court decision resulted from the crackdown by the regulator on suppliers of so-called “organic” or “free-range” or “free-roam” chickens. The court proceedings form part of an ongoing ACCC investigation into the egg industry after which the ACCC issued substantiation notices to several egg processors, demanding they prove their free range claims. The ACCC has several criteria to test if eggs are “free range”, including what time of day and how frequently barns are opened, whether the chickens have been trained to remain indoors and whether the size of the outdoor area is adequate and has shade, food and water available.

Australian Competition and Consumer Commission v Turi Foods Pty Ltd [13.65] Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2013] FCA 665. Poultry advertising and packaging claimed that their chickens were “free to roam around in large barns.” That was true at some stages of the chickens’ lives, but as the chickens grew their size and number made free roaming impossible. The Federal Court considered the natural meaning of “free to roam” when applied to chickens and agreed with the ACCC’s assessment that it means the “largely uninhibited ability of the chickens to move around at will in an aimless manner”. It also considered that this phrase would be so understood by a significant number of hypothetical consumers to whom the labels, advertising or websites were directed. The Federal Court recognised that consumers pay a premium for “free range” eggs so producers must not falsely represent that their eggs are from “happy” chooks. It held that this claim constituted misleading and deceptive conduct (s 18) and a false representation about the history of the goods: s 29(1)(a). The court subsequently imposed a joint penalty of $400,000 against the two poultry suppliers.

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Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [13.66] Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634. 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 and then frozen, often weeks earlier, and sometimes in a faraway place like Ireland. 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. It was also misleading to describe the bread as “baked fresh” as that suggested baking from fresh dough. This constituted misleading or deceptive conduct (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. As to the test of whether the conduct by Coles was misleading, the Court said: “Where conduct or representations is or are directed to members of the public at large, the conduct or representations must be judged by their effect on ‘ordinary’ or ‘reasonable’ members of the class of prospective purchasers. In a context such as the present, the purchasing of a staple such as bread in a supermarket, the ordinary or reasonable person may be intelligent or not, may be well educated or not, will not likely spend any time undertaking an intellectualised process of analysis, will often be shopping for many other items, and will be likely affected by an intuitive sense of attraction rather than by any process of analytical or logical choice. The dominant message of advertising for bread is likely to be simple, though intuitively diffuse. What is reasonable care by members of the public … must be judged in the above context. The purchase of bread from a baker or bread shop should not normally call for astute attention to disclaimers about the wares on sale at the counter … where, as in the present case, the advertisement is capable of more than one meaning … the advertisement will be misleading or likely to mislead or deceive if any reasonable interpretation of it would lead a member of the class, who can be expected to read it, into error”: at [46]. The Federal Court imposed significant fines and made the following orders designed to prevent the conduct from occurring again and to shame Coles into compliance with the ACL. It ordered: Coles be restrained for three years from making any representation anywhere that its bread products were entirely baked on the day on which they were offered for sale; or were entirely baked in a Coles Bakery Store on the day on which they were offered for sale; or were baked from fresh dough - when that is not the case. Coles display a Corrective Notice for 90 days in a prominent location clearly visible to customers at all times in each in-store bakery section admitting it: (a)

engaged in misleading or deceptive conduct (s 18)

(b)

made false or misleading statements as to the history of the goods (s 29(1)(a) and

(c)

engaged in conduct that was liable to mislead the public as to the nature, the manufacturing process, and the characteristics of goods in contravention (s 33). 1

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1

Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (No 2) [2014] FCA 1022.

Australian Competition and Consumer Commission v Reckitt Benckiser [13.67] Australian Competition and Consumer Commission v Reckitt Benckiser [2016] FCA 424. The Federal Court found that Reckitt Benckiser (Australia) Pty Ltd (Reckitt Benckiser) engaged in misleading conduct by representing that its Nurofen Specific Pain products were each formulated to treat a specific type of pain, when the products are identical. The Nurofen Specific Pain product range consists of Nurofen Back Pain, Nurofen Period Pain, Nurofen Migraine Pain and Nurofen Tension Headache. It also breached s 33 of the ACL that prohibits conduct that is likely to mislead the public regarding the nature of goods, their characteristics, manufacturing process or suitability for a specific purpose. Under s 224(1) of the ACL, pecuniary penalties can be imposed for contravening s 33 of the ACL. The Court found that Reckitt Benckiser made misleading representations on the packaging of each Nurofen Specific Pain product, and on its website that each product was formulated to treat a particular type of pain; and solely or specifically treated a particular type of pain. In fact, each product contains the same active ingredient, ibuprofen lysine 342mg, and is no more effective at treating the type of pain described on its packaging than any of the other Nurofen Specific Pain products. Reckitt Benckiser admitted that it had engaged in the contravening conduct and consented to the orders made by the Court. For the breach of s 33 the Federal Court ordered Reckitt Benckiser to pay penalties totalling $1.7 million. In determining what would be an appropriate pecuniary penalty, the Court considered the relevant factors under s s 224(2) of the ACL. These factors include: the duration of the contravening conduct; whether the conduct was deliberate; and the contravener’s cooperation with the ACCC. The ACCC had submitted to the Court that a penalty of at least $6 million was appropriate in order to send a strong deterrence message, taking into account the longstanding and widespread nature of the conduct, and the substantial sales and profit that was made by selling the product. It has appealed against the leniency of the penalty.

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Online marketing and advertising Disclaimers [13.68] The use of disclaimers in advertising raises interesting questions. A disclaimer that adds information to the main message will not generally offend the misleading advertising provisions of the Australian Consumer Law. However, where a disclaimer is used to contradict, restrict or negate the main message, the potential to mislead consumers increases. The cases clearly indicate that the general impression conveyed by a representation must be considered. The general impression test is not limited to determining whether the advertised price or quality of a product or service is misleading. With the proliferation of online sharing, modern businesses must consider how their message will be understood and processed by the consumer on a variety of platforms, including those on which they had no intention to distribute. As the form and distribution of consumer messages continues to evolve, and the ability to control the general impression of a message becomes more and more difficult, there is likely to be an increase in misleading advertising claims in the future.

Online endorsements Online reviews provide consumers with information about products, services and businesses based on the experiences of other consumers. Reviews may appear on a business’ own site, on social media or on a review platform. Review platforms are sites which specialise in presenting product reviews about a range of businesses. Consumers expect reviews to be independent and genuine to help them make more informed purchasing decisions. Businesses and review platforms that do not remove reviews that they know to be fake risk breaching the Australian Consumer Law Reviews may mislead consumers if they are presented as impartial, but were written by: the reviewed business a competitor someone paid to write the review who has not used the product someone who has used the product but written an inflated review to receive a financial or non-financial benefit.

Section 18 as a weapon for business [13.90] In the following cases, one competitor has taken action against another alleging conduct that misleads or is likely to mislead consumers. In this sense, such actions support the “consumer protection” agenda of the Australian Consumer Law.

McWilliam's Wines Pty Ltd v McDonald's System of Australia Pty Ltd [13.95] McWilliam’s Wines Pty Ltd v McDonald’s System of Australia Pty Ltd (1980) 33 ALR 394. McDonald’s (the fast food retailer) extensively advertised their “Big Mac” hamburgers. McWilliam’s, a well-known wine company, started to advertise its wines using the words “Big Mac” prominently displayed in the advertisements. McDonald’s sought an injunction to restrain McWilliam’s from

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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. 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 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.

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [13.100] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191. 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. The defendant always labelled its furniture stating that it was the manufacturer. 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 case was determined on the basis that potential purchasers of furniture costing substantial sums of money were able to inspect the furniture that was on display in the retailer’s showroom. The majority of the Court took the view that purchasers would, acting reasonably, pay attention to the label, brand or mark of the suite they were minded to buy and, as a result, would not be misled by similarities in the getup of rival products. Evidence that some members of the public had been misled because the defendant’s label was missing, apparently removed by the retailer, was not relevant since the defendant was not responsible for such conduct.

[13.110] 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).

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Apand Pty Ltd v The Kettle Chip Co Pty Ltd [13.120] Apand Pty Ltd v The Kettle Chip Co Pty Ltd (1994) 52 FCR 474. In 1989, the respondent began to market potato chips made by the batch-cooking method under the name “The Kettle Chip”. In 1992, the appellant (“Smith’s Crisps”), to counter loss of market share because of the success of the respondent’s product, began marketing a new line of potato chips under the name “Country Kettle”. The Full Federal Court held that at the time the appellant’s chips came onto the market, the name “Kettle” had obtained a secondary meaning distinctive of the respondent’s product. Accordingly, the court upheld the trial judge’s findings that the 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); see also Solahart Industries Pty Ltd v Solar Shop Pty Ltd (2011) 281 ALR 544 at [65]–[79].

Section 18 and pre-contractual representations [13.140] 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. In the following case, the ACCC alleged breaches of the general prohibition of misleading conduct in s 18 as well as three specific false representation provisions contained in s 29 of the Australian Consumer Law that can attract civil penalties.

Australian Competition and Consumer Commission v Metricon Qld Pty Ltd [13.145] In Australian Competition and Consumer Commission v Metricon Qld Pty Ltd [2012] FCA 797 the ACCC alleged that between July 2010 and January 2011, Metricon Qld Pty Ltd (Metricon), a construction company that builds and sells residential homes, distributed more than a million advertising brochures to potential buyers. The ACCC alleged the brochures contained representations that were misleading or deceptive and which contained specific false representations in breach of s 29(1)(a)(i) and (m). Metricon admitted that it engaged in the conduct and did so in a number of ways: Pictorial representations – each brochure contained advertising material that depicted various house designs and elaborate photographs. Metricon knew that many of the features and fittings depicted in the photographs of the particular house designs contained in the brochures were not included in the represented price. Build time guarantees – Metricon represented that it would guarantee build times and pay $300 per week if delays occurred. This guarantee was subject to terms and conditions which, apart from only being available on the website, were so broad that a majority of homes were not covered by the guarantee.

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Discount list price – in another brochure, Metricon nominated a discount price on certain houses, specifying an amount that could be saved if the house were purchased during the relevant promotion. Metricon admitted that each of the houses represented in the brochures had either never been offered for supply by Metricon at all or not been offered for supply at the listed (non-discount) price immediately before the start of the promotion. Upgrade packages – The “Upgrades Package” brochures advertised additional features and fittings available when purchasing a specific house design. It was intended to mislead the consumers into believing they would save the difference between the standard and the upgrades package. However, the fittings and features advertised were, in fact, usually offered at the promotional or discount price. Metricon admitted liability and was ordered by the Federal Court of Australia to pay fines of $800,000 plus costs and had to provide undertakings concerning the misleading material. Two points to note about the case: first, it illustrates that under s 18 of the Australian Consumer Law, the ACCC does not have to prove that a person was actually misled: it is sufficient that the conduct was “likely to mislead or deceive”. Second, individuals who were induced to purchase a Metricon home because of the company’s misleading conduct and/or false representations must themselves sue Metricon to recover any loss or damage. They may sue for breach of contract (if the statements were contractual) and/or for misleading conduct under the Australian Consumer Law s 18.

Bevanere Pty Ltd v Lubidineuse [13.150] Bevanere Pty Ltd v Lubidineuse (1985) 7 FCR 325. 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”: at 332.

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Byers v Dorotea Pty Ltd [13.155] Byers v Dorotea Pty Ltd (1986) 69 ALR 715. 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.

Brosnan v Katke [13.160] Brosnan v Katke [2016] FCAFC 1. 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. 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. 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.

What is “conduct”? [13.170] The concept of “conduct” is very broad. Section 2(2)(a) of the Australian Consumer Law states that “a reference to engaging in conduct shall be read as a reference to do or refusing to do any act” (emphasis added).

Can silence constitute misleading “conduct”? [13.170A] As we have seen, in most instances, the “act” referred to in s 2(2)(a) will consist of some oral or written statement or representation. However, s 2(2)(c) states that “refusing to do any act” includes “(i) refraining (otherwise than inadvertently) from doing the act”. It is clear from the way the courts have interpreted this sub-section that remaining silent may constitute “engaging in conduct”. In Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714 at 722–723, Finkelstein J said: “It is clear that a failure to provide information can be conduct which is misleading or deceptive. For the purposes of s 52 (now s 18 of the Australian Consumer Law) “engaging in conduct” is defined [s 2(2)(a)] as a reference to doing or refusing to do any act and by [the current s 2(2)(c)] a reference to refusing to do an act includes a reference to refraining (otherwise than inadvertently) from doing that act. However, when the complaint is that s 52 (now s 18 of the Australian Consumer Law) has been infringed by conduct that involves either refusing or refraining from doing an act before that conduct is actionable it must have been deliberately engaged in … [T]his [follows] from the use of the words “refuse” and “refrain” in [the current s 2(2)] and provided it is “otherwise than inadvertently” … Accordingly, to determine whether [one] has contravened [s 18(1)] … two questions arise for consideration. The first is whether the failure by [one] to inform [the other of the relevant matter] was misleading or deceptive conduct. The second question is whether that conduct was deliberate.

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Generally, in commercial dealings between parties the law does not impose any obligation upon one party to inform the other party of matters that might be important for the other party to know before that party enters into some agreement or embarks upon some transaction with the first party. Of course there are exceptions. There can be no fraudulent concealment of facts. Further, some relationships require facts to be disclosed”: at [722]–[723]. The cases have established that there are two situations where non-disclosure or silence may contravene s 18 of the Australian Consumer Law: (a)

Where the information provided is incomplete. This could involve either a half-truth, where a statement is literally true but is misleading when the full story is told (eg the shopping centre is fully let – but in fact more than half had given notice of intention to leave); or where something has changed so that what was once true is no longer true (eg if a vendor had a permit for a subdivision of property and the council subsequently revoked the permit), and

(b)

Where the applicant has a “reasonable expectation” that, in all the circumstances, disclosure will be made. The following two cases illustrate this principle.

Henjo Investments Pty Ltd v Collins Marrickville [13.171] Henjo Investments Pty Ltd v Collins Marrickville (1988) 79 ALR 83. Henjo Investments owned a licensed restaurant. During negotiations for its sale to Collins Marrickville its agent led the purchaser to believe that that restaurant seated 128 people and, indeed, the restaurant was set up to seat 128. In fact, the terms of the licence restricted the seating capacity to 84. The reduced seating capacity had an impact on the profitability of the restaurant. The Full Court of the Federal Court affirmed the decision of the trial judge. The vendor, in remaining silent as to the true position with respect to seating, had engaged in misleading conduct. In the words of Lockhart J (at 95): “[T]he vendor sold a business knowing that it was subject to serious limitations upon its lawful seating capacity … which vitally affected the business, its goodwill, takings and profitability and knowing that in fact the restaurant was being conducted contrary to law … (T)hese circumstances gave rise to a duty on the part of Henjo as vendor to reveal the position … before any contract was signed.”

Demagogue Pty Ltd v Ramensky [13.172] Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. Ramensky contracted to purchase land from Demagogue in a proposed development of several units. The plan, annexed to the contract, referred to a “driveway” that was, in fact, a public road. Demagogue had been negotiating with the relevant authority for the right to use the road as a driveway but to that point had not been successful. He did not inform Ramensky of this issue. When Ramensky discovered the problem he sought to rescind the contract. The Court held that Demagogue’s silence constituted misleading or deceptive conduct because there was a reasonable expectation that there should have been disclosure of the unusual circumstances surrounding access to the property. Black CJ said:

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“Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive … ‘there is in truth no such thing as “mere silence” because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case that if particular matters exist they will be disclosed’”: at [32].

[13.173] In relation to non-disclosure in commercial matters, s 18 does 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 does 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.

The issue of fault and intention [13.174] Section 18 of the Australian Consumer Law imposes a form of strict liability. A plaintiff must prove that the conduct was misleading and that there is a causal link between the misleading conduct and the loss or damage. However, there is no need to prove the defendant was at fault or intended to mislead or deceive. A corporation is not liable if it acts only as a conduit, passing on information that it received from another, in circumstances where it is clear that the corporation is not the source of the information. In Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661 at 666 the High Court affirmed that a corporation could contravene what is now s 18 of the Australian Consumer Law even though it acted honestly and reasonably: “That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.”

Exclusion clauses and section 18 [13.176] An exemption clause cannot be successfully relied upon as a defence to an action for contravention of s 18 of the Australian Consumer Law. Section 18 cannot be directly excluded by the presence of a term in a contract or by notice. In other words, a notice on a wall of an accountant’s practice or the insertion of a clause in a written contract stating very clearly that “Section 18 of the Australian Consumer Law does not apply” is of course void. However, an exclusion clause might be one factor that the court takes into account in deciding whether the misleading conduct was relied upon by the applicant. In Keen Mar Corp Pty Ltd v Labrador Shopping Centre (1989) ATPR 46-048, the presence of a disclaimer clause (which had been brought specifically to the

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attention of the applicant) was one factor that persuaded the court that the misleading conduct did not, in fact, induce the applicant to enter the lease agreement. In the following High Court case, the presence of the disclaimer was an important element in the decision.

Butcher v Lachlan Elder Realty Pty Ltd [13.177] Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592. In 1996, Mr Butcher and his wife made enquiries with a small suburban real estate agent, Lachlan Elder Realty, about the forthcoming auction of a waterfront property on the northern beaches of Sydney. The agent gave them a one-page double-sided colour brochure, telling them that it contained all the information they would need to know about the property. As well as photographs and a sales pitch, the brochure contained a reproduction of a 1980 survey diagram, which showed that a swimming pool between the house and the water was above the mean high-water mark which was the boundary between the land and the sea. The brochure contained two disclaimers on it, printed in a small font on the bottom of both sides of the brochure. The disclaimers were similar: “Lachlan Elder Reality Pty Ltd ACN 002 332 247. All information contained herein is gathered from sources we believe to be reliable. However, we cannot guarantee its accuracy and interested persons should rely on their own enquiries.” Mr Butcher advised the agent that he wished to relocate the pool to the western boundary. A builder who visited the property with Mr Butcher said that this would be possible, basing his opinion on the survey diagram. Mr Butcher subsequently purchased the property for $1.36 million. Soon after it emerged that the mean high-water mark had changed and now went through the middle of the pool, which meant that part of the pool was on Government land. When the Government refused to allow Mr Butcher to relocate the pool, Mr Butcher sued the agent, alleging that the agent had engaged in misleading and deceptive conduct in breach of what is now s 18 of the Australian Consumer Law when it gave the brochure to him. The trial judge and the New South Wales Court of Appeal dismissed the claim. The purchasers appealed to the High Court. The High Court dismissed appeal. The Court affirmed that s 18 imposed strict liability but the disclaimer put the purchasers on notice not to rely on the representations in the brochure. It was significant that the purchasers were intelligent and shrewd investors who had had the benefit of advice from experts, compared with the agent who ran a small suburban office and did not represent that he had expertise in verifying title details of a property.

Exemption of news media in respect of news and information [13.190] 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

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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 Figure 13.4: Statutory unconscionable conduct

Introduction [13.200] Unconscionable conduct does not have a precise legal definition. It is a concept that has evolved on a case-by-case basis, usually as part of the law of contract: see Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (discussed at [7.880]–[7.890]) and Taylor v Johnson (1983) 151 CLR 422 (discussed at [7.180])). Nevertheless it can be said that it generally refers to conduct that is more than simply unfair or harsh – it must have an element of “bad conscience”. For example, the courts, in cases such as those cited above, have found business transactions or dealings to be ’unconscionable’ when they involve conduct that is particularly harsh or oppressive and which is so unfair or unreasonable that it goes beyond hard commercial bargaining. It also includes conduct that may be described as “sharp practice”. Since Amadio, there have been a number of legislative initiatives responding to pressure from both the consumers and small business. The focus in this chapter is on ss 20–22 of the Australian Consumer Law. Section 20 deals with unconscionable conduct within the meaning of the common law. This incorporates the principles in the cases such as those cited above and entrenches into legislation the equitable doctrine of unconscionable conduct (as discussed in cases such as Amadio) and thereby extending the range of

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remedies available to parties affected by unconscionable conduct. Section 21 is a broad prohibition on unconscionable conduct in connection with the selling/supply or acquisition/purchase of goods or services. Section 20 is a safety net provision, designed to “catch” situations that may not be caught by s 21. It is important to recognise that the unconscionability provisions of the ACL protect small businesses from unconscionable conduct by other businesses. Conduct may be unconscionable if it is particularly harsh or oppressive and more than just hard commercial bargaining. It can occur between businesses or between businesses and consumers. 1 1

Unconscionable conduct in the supply of goods and services to consumers and unconscionable conduct in business transactions were formerly the subject of separate provisions in the Australian Consumer Law ss 21 and 22 respectively. The Competition and Consumer Legislation Amendment Act 2011 (Cth) repealed these separate provisions and replaced them with ss 21 and 22 that apply to both types of transactions.

Unconscionable conduct within the meaning of the unwritten law [13.210] 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 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].

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [13.220] 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. What the ACCC considered to be unconscionable was the exploitation of the weaker bargaining position in which the lessees found themselves. The High Court held that the centre owner’s conduct did not constitute unconscionable conduct under the former s 51AA of the Trade Practices Act 1974 (Cth) (now s 20 of the Australian Consumer Law). A person is not in a position of special disadvantage simply because of inequality of bargaining power. Many contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests: at [13], [63], [184]. The lessees were not at any “special” disadvantage, in that they did not lack an ability to judge their interests and they acted in accordance with their best interests. Thus there were no

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grounds for setting the contract aside for unconscionable conduct. Taking advantage of a superior bargaining position does not constitute unconscientious exploitation of a special advantage. 1 1

See R Bigwood, “Curbing Unconscionability: Berbatis in the High Court of Australia” (2004) 28 Melbourne University Law Review 203; N Dean, “Australian Competition and Consumer Commission v Berbatis Holdings” (2004) 26 Sydney Law Review 255.

Australian Competition and Consumer Commission v Samton Holdings [13.225] Australian Competition and Consumer Commission v Samton Holdings (2002)117 FCR 301. The ACCC took action against the lessors, Samton Holdings, alleging that they engaged in unconscionable conduct contrary to what is now s 20 of the Australian Consumer Law. The purchasers took an assignment of a lease over the premises but failed to exercise an option to renew the lease within the time permitted. The lessors demanded a payment of $70,000 from the purchasers for the privilege to renew the lease. The Full Federal Court decided that the purchasers were not at a “special” disadvantage. The court said that unconscionable conduct always had to be “at the extreme end of the scale of unreasonable conduct”. The conduct of the lessors, although avaricious and opportunistic, was not at the extreme end of the scale.

[13.230] The application of s 20 of the Australian Consumer Law involves consideration of the unconscionable dealings doctrine (see the cases discussed at [7.870]–[7.925]). “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. Section 20 does not apply where the conduct in question falls within the more specific provisions of s 21.

Unconscionable conduct in connection with goods or services [13.240] Section 21(1) of the Australian Consumer Law prohibits a person from engaging in “unconscionable” conduct in connection with goods or services. It provides: (1)

A person must not, in trade or commerce in connection with: (a) (b)

the supply or possible supply of goods or services to a person (other than a listed public company); or

the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable.

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(3)

(4)

For the purpose of determining whether a person has contravened subsection (1): (a)

the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and

(b)

the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

It is the intention of the Parliament that: (a)

this section is not limited by the unwritten law relating to unconscionable conduct; and

(b)

this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and

(c)

in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of: (i)

the terms of the contract; and

(ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract. The term “unconscionable” is not defined. Section 22(1) provides that in determining whether there has been unconscionable conduct by a supplier of goods and services in connection with the supply of goods or services to a customer, the court may have regard to the 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

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(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). Unlike s 20, s 21 does not limit unconscionable conduct to conduct that is unconscionable within the meaning of the unwritten law: s 21(4)(a). This provision can apply to a system of conduct or pattern or behaviour even where an individual is not identified as being disadvantaged by that conduct or behaviour: s 21(4)(b). Furthermore, in determining whether conduct is unconscionable the court may consider not only the s 22 factors but also the terms of the contract and the manner in which the contract is carried out: s 21(4)(c).

Australian Competition and Consumer Commission v Lux Pty Ltd [13.250] 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 court in Australian Competition and Consumer Commission v Lux Pty Ltd [2004] FCA 926 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]

Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [13.255] Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90. An employee of Lux, using its existing customer database or other telephone directory to contact a householder, rang a potential customer and ostensibly offered a free maintenance check of their existing vacuum cleaner. The indication given to the householder was that a representative of the respondent would call by for the purpose of making “a free maintenance check” on the householder’s existing vacuum cleaner. In this way, the representative gained entry to the homes of five elderly women (aged in their 80s or 90s). Each of the five elderly women agreed to have a Lux representative visit their home for the purpose of carrying out a free maintenance

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check. At each of the premises, the representative tested the customer’s existing vacuum cleaner and conducted a test that compared that vacuum cleaner with a near-new demonstration model. The representative used the results of the demonstration together with other selling techniques to show the superiority of the vacuum cleaner they sought to sell. The Federal Court decided that the conduct was not unconscionable. The Full Court upheld the appeal by the ACCC deciding that the seller’s deception about their purpose in entering the homes of the women constituted unconscionable conduct. The Court took the opportunity to describe the societal values that underpin conscionable conduct. “The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting … These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct”: at [23]. The decision emphasises the importance of considering the nature of the respondent’s conduct, rather than the consumer’s response to that conduct, in determining whether the respondent has engaged in statutory unconscionable conduct. It also establishes that the court must take a holistic view of the conduct: the court should not examine the individual circumstances of the impugned conduct (which may not, of itself, amount to unconscionable conduct) but which may in combination with other circumstances create a situation that does amount to such conduct. It also makes clear that businesses that rely on door-to-door sales (and similar sales strategies) must act in a manner that is “honest and fair and free of deception”.

NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [13.260] NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98. The ACCC took action under the unconscionable conduct and unfair contracts provisions against NRM Corporation Pty Ltd. The ACCC alleges that from 2008 to 2010 AMI (later NRM) engaged in unconscionable conduct. This includes claims that doctors engaged by AMI were conducting consultations with patients in a manner that did not provide an appropriate diagnosis and medical treatment of male sexual dysfunction.

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The Full Court of the Federal Court of Australia dismissed an appeal by NRM Corporation Pty Ltd and NRM director Jacov Vaisman, against the decision of the Federal Court that had found that NRM engaged in unconscionable conduct and used unfair contract terms in the way it promoted or supplied male sexual dysfunction products. In relation to the decision regarding unfair contract terms, see [13.317]. In relation to the unconscionable conduct, Justice North stated “It is immoral to seek to harness the fears and anxieties of men suffering from ED [erectile dysfunction] or PE [premature ejaculation] for the purpose of selling medical treatments. To target the patient’s vulnerability in this way is to use an unfair tactic and that is a possible marker of unconscionable conduct”. In dismissing NRM’s appeal, the Full Court noted that the vulnerability related to the particularly sensitive and personal nature of the services supplied by NRM and the sales techniques employed by the salespeople, and was well supported by the evidence. The Full Court upheld an order made permanently restraining NRM from making statements and representations to any patient or prospective patient as to the efficacy of NRM treatments unless they are made by a medical practitioner in a face to face or video consultation. The Full Court also dismissed Mr Vaisman’s appeal against orders restraining him from having a role in connection with training, supervising or counselling or terminating employees, agents or contractors of NRM for a period of seven years.

Unconscionable conduct and small business [13.265] Unconscionable conduct in the supply of goods and services to consumers and unconscionable conduct in business transactions was formerly the subject of separate provisions in the Australian Consumer Law, ss 21 and 22 respectively. The Competition and Consumer Legislation Amendment Act 2011 (Cth) repealed these separate provisions and replaced them with ss 21 and 22 that apply to both types of transactions. Thus s 21 also can be used to protect small business from larger businesses engaging in unconscionable conduct. The court may have regard to the same factors listed in s 22(1) including factors which may be particularly relevant to business to business transactions including: the relative bargaining strength of the parties; the use of undue influence, pressure or unfair tactics by the stronger party; the willingness of the stronger party to negotiate; and the extent to which the parties acted in good faith. Furthermore, as with any unconscionable conduct action, in determining whether conduct is unconscionable the court may consider not only the s 22 factors but may also the terms of the contract and the manner in which the contract is carried out: s 21(4)(c). The ACCC has shown a willingness to use s 21 to protect small business from the allegedly unconscionable conduct of landlords in shopping centres towards lessees and in the case of large supermarket chains and their suppliers. For instance, in October 2014 the regulator initiated action against a large supermarket alleging that, outside of its trading terms with the suppliers concerned, it:

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pursued agreements to pay the supermarket for “profit gaps” on a supplier’s goods, being the difference between the amount of profit the supermarket had wanted to make on those goods and the amount it had achieved; pursued agreements to pay the supermarket, both retrospectively and prospectively, for amounts the supermarket claimed as “waste” on a supplier’s goods which occurred after the supermarket had accepted the goods, and price reductions, or “markdowns” implemented by it to clear goods; imposed fines or penalties on suppliers for short or late deliveries. The supermarket maintains it did nothing more than drive a hard bargain which it is entitled to do in a market economy. [13.270] 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 536 282 ALR 571 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.

Remedies for contravention [13.280] Contravention of the unconscionable conduct provisions do not give rise to a criminal offence. However, a pecuniary penalty may be imposed (see [13.710]). Civil remedies, for example, an injunction, or damages for the loss suffered, discussed later in this chapter, may be sought for contravention of the unconscionable conduct provisions.

Prohibition of unfair contract terms Figure 13.5: Prohibition of unfair contract terms

Introduction [13.290] The unfair contract terms provisions of the ACL apply to standard form consumer contracts: s 23(1). The provisions apply to business to consumer transactions (as defined) and, after 12 November 2016, 1 to certain business to business transactions.

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Although the law does not define what a standard form contract is, it does outline a number of factors that a court or tribunal must take into account in determining whether a contract is a standard form contract. In general terms, a standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms – that is, it is effectively offered on a “take it or leave it” basis. It is assumed that an agreement is a standard form contract unless the party that prepared the contract is able to prove that it is not. A court can declare a term of a standard form consumer contract to be unfair. Once a term is declared to be unfair, it will be void (of no effect). However, the remainder of the contract will continue to apply, provided that it the contract makes sense without the term that has been declared void. Individuals or the ACCC may apply to a court to have a term of a standard form contract they entered into declared unfair. If it is so declared, the term will be void in that particular contract and in all standard form contracts entered into by the business that contain that term. No fines may be imposed on a business that includes or seeks to rely on an unfair contract but consumers and the ACCC can seek compensation for any loss that is incurred as a result of a term of a standard form contract that is declared to be unfair. 1

Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth).

Who is a “consumer”? [13.295] A consumer contract is one for the supply of goods or services or the sale of land to an individual who acquires them wholly or predominantly for personal, domestic or household use or consumption: s 23(3). The contracts affected by the “small business” amendments are those where: at least one party is a business that employs less than 20 people; the upfront price payable under the contract is: – $300,000 or less; or – $1,000,000 or less, if the contract is for more than 12 months; and the contract is a standard form contract for the supply of goods or services or grant of an interest in land: s 23(4).

The “small business” amendments [13.296] As noted above, from 12 November 2016, s 23 has been amended to protect small businesses from unfair terms in contracts. If a particular term in a standard-form contract to which a small business is a signatory is found to be unfair by a court or tribunal, then that clause will be void and the small business will no longer be required to comply with it. In the lead-up to the new law taking effect, the ACCC examined standard form contracts in the advertising, telecommunications, retail leasing, independent contracting, franchising, waste management, and agriculture industries. However, any standard form contract must comply with the new law. The most common problems in standard form contracts were terms that gave one of the parties: (a)

a right to unilaterally or unreasonably vary all or some of the terms or terminate the agreement; and/or

(b)

broad and unreasonable powers to protect themselves against loss or damage at the expense of the small business by imposing broad indemnities or excessive exclusions or limitations on that party’s liabilities

Such clauses are likely to go beyond what is reasonably necessary to protect a business’s legitimate interests and are likely to raise concerns under the unfair contract terms law. Unfair terms – such as, terms that

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provide for termination at the convenience of one party; variations to the contract price or the scope of works or completion dates; substitution of materials; exclusion or limitation of liability that benefit only one party – will be void and of no effect. As an example of a standard form contract in the telecommunications sector, in 2015, the ACCC investigated the standard form consumer contracts offered by internet provider Exetel Pty Ltd to its small business customers. The contract allowed Exetel to “vary any part of the agreement for any reason”. This broad term was unfair to the small business consumer and likely to contravene the ACL. After concerns were raised with Exetel, the company agreed to remove the term from its broadband standard form contract and compensate affected customers. As an example of a standard form contract in the retail leasing sector, the ACCC cited an instance where one lease provided that the landlord was entitled to immediately terminate a lease if the tenant failed to comply with an obligation under the lease. Following the review by the ACCC, the lease was amended so that the landlord would only be entitled to terminate after first notifying the tenant of its intention to terminate and then providing the tenant with a reasonable period to remedy the breach. Another lease that was used by a landlord/franchisor provided that if a tenant/franchisee left property on the premises at the end of a lease, it would become the property of landlord and that the landlord would be entitled to deal with the property at the tenant’s expense. After working with the ACCC, the landlord agreed to amend its agreement to introduce the following limitations on this power: provide the franchisee with 14 days’ notice before taking possession of the property or arranging for its removal, and limiting the costs that the landlord is entitled to recover from the franchisee for removal to reasonable costs. One final example cited by the ACCC of a standard for contract, this time in the independent contracting sector. A vending services agreement reviewed by the ACCC provided that the business was entitled to immediately terminate a contract if the contractor engaged in any conduct that, in its view, had an adverse impact on the company. After discussions with the ACCC, the business amended its agreement so that it can only terminate an agreement where it had reasonable grounds to consider the ongoing agreement detrimental to its best interests, and where the conduct was incapable of being remedied.

Meaning of “unfair” [13.300] 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 [13.310] The following are given as examples of potentially unfair terms, namely, a term that: (a)

only one party to avoid performing the contract;

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(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;

(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).

Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd [13.315] Australian Competition and Consumer Commission v Chrisco Hampers Australia Pty Ltd [2015] FCA 1204. Chrisco sold Christmas hampers on an instalment payment plan. A term of the firm’s contract with customers provided that after the final instalment was paid the customer’s bank account would continue to be debited in anticipation of a future order. These payments could be refunded if the customer so requested. The contract permitted the customer to opt out of this term. The Federal Court held that this term was an unfair term. 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”. The right to demand repayment of the money was not a substantial corresponding right. The Court also decided that by making a statement in its order confirmations and on its website to the effect that consumers could not terminate their lay-by agreements after the final payment was made but before delivery of the goods, Chrisco made a false or misleading representation concerning the existence, exclusion or effect of a condition, warranty, right or remedy in contravention of s 29(1)(m) of the ACL because s 97(1) provides that a consumer who is a party to a lay-by agreement can terminate the agreement at any time prior to delivery of the goods. For making such false or misleading representations Chrisco was ordered to pay a pecuniary penalty of $200,000.

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Office of Fair Trading v Ashbourne Management Services Ltd [13.316] Office of Fair Trading v Ashbourne Management Services Ltd [2011] EWHC 1237 (Ch). Unfair contract terms provisions similar to the Australian provisions exist in the United Kingdom, and were recently used as the basis for action in Office of Fair Trading v Ashbourne Management Services Ltd. The alleged unfair terms were contained in a standard form consumer contract used by a company that managed the memberships of gym and health club service providers. Among the terms held to be unfair were: 1.

a term that locked consumers into a fixed membership period of one year or more, with termination triggering an obligation to pay all fees payable during the minimum period;

2.

a term that imposed a termination fee based on the number of monthly payments left under the contract’s term, with no discount of the fee for accelerated payment; and

3.

a term that permitted the contract to be terminated by the service provider for minor breaches, such as several days’ late payment by the consumer.

NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [13.317] NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98. The ACCC took action under the unconscionable conduct and unfair contracts provisions against NRM Corporation Pty Ltd. In relation to the latter, the contract in question is a long-term consumer contract regarding the provision of medication and services to treat male sexual dysfunction. Under the contract’s terms, the customer was required to give 30 days’ written notice in order to terminate the contract and, in doing so, became liable to pay a number of fees including a fixed administrative fee of 15% of the contract price. In his judgment, Justice North found that NRM further breached the Australian Consumer Law by entering into long-term agreements for the treatment which contained unfair contract terms in relation to the termination of a contract.

Meaning of standard form contract [13.320] 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). Standard form contracts are used by businesses for common business transactions, for example, banks, electricity companies and phone companies use standard form contracts when contracting with consumers. In determining this issue, a court may take into account such matters as it thinks relevant but must consider whether: (a)

one of the parties has all or most of the bargaining power;

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(b)

the contract was prepared by one party before any discussion relating to the transaction occurred;

(c)

another party was required, in effect, either to accept or reject the terms of the contract in the form in which they were presented;

(d)

another party was given an effective opportunity to negotiate the terms of the contract;

(e)

the terms of the contract take into account the specific characteristics of another party or the particular transaction; and

(f)

any other matter prescribed by the regulations: s 27(2).

The matters specified in (d), (e) and (f) do not apply to a term that defines the main subject matter of the contract, sets the upfront price payable or is required or permitted by federal, State or Territory law: s 26(1). On the application of a party to the contract or the ACCC, a court may declare that a contract term is unfair: s 250(1). The court may make such a declaration only if the contract is a standard form contract: s 250(3).

Specific false or misleading representation provisions Figure 13.6: Specific false or misleading representations

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[13.330] 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 [13.340] 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 1 or possible supply of goods 2 or services 3 or in connection with the promotion by any means of the supply or use of goods or services make a false or misleading representation: (a)

that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;

(b)

that services are of a particular standard, quality, value or grade;

(c)

that goods are new;

(d)

that a particular person has agreed to acquire goods or services;

(e)

that purports to be a testimonial by any person relating to goods or services;

(f)

concerning: i.

a testimonial by any person; or

ii.

a representation that purports to be such a testimonial; relating to goods or services;

(g)

that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits;

(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. 1

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).

2

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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3

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).

Australian Competition and Consumer Commission v Dell Computer Pty Ltd [13.350] Australian Competition and Consumer Commission v Dell Computer Pty Ltd (2002) 126 FCR 170, 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. An asterisk next to the price referred consumers to small print text which indicated that there was an additional delivery charge. 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.

Nationwide News Pty Ltd v Australian Competition and Consumer Commission [13.360] Nationwide News Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 215. 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. 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”: at 228.

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Ascot Four Pty Ltd v Australian Competition and Consumer Commission [13.370] 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 what is s 29(1)(i) of the Australian Consumer Law.

Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [13.372] In Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2015] FCA 1263 An airline’s website prominently advertised flights for a price that did not include the booking fee that applied to payment by most credit and debit cards. The booking fee was not disclosed until the customer reached the payment page of the website, although there was a prior indication that such a fee might be payable. The 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). The airline had represented that the prominently displayed price was a “firm figure” that would be varied only if the customer selected additional services. Disclosure on the payment page was insufficient to avoid these contraventions of the Act. Following representations by the Commission, the airline modified the price disclosure on its website. The prominently displayed price was now accompanied by a statement that conditions applied to the price. The booking fee was disclosed in these conditions. 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 Gordon Superstore Pty Ltd [13.375] Australian Competition and Consumer Commission v Gordon Superstore Pty Ltd [2014] FCA 452. 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. Under the Australian Consumer Law the store’s obligation to give a refund was independent of

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the obligations 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))].

[13.380] 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 [13.390] 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.

Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [13.395] Australian Competition and Consumer Commission v Marksun Australia Pty Ltd [2011] FCA 695. A series of websites operated by the respondent claimed that ugg boats were Australian made when they were actually made in China. The websites also used the “Australian Made” logo without authorisation. The Federal Court held that these claims constituted misleading or deceptive conduct (s 18) and falsely representations of the place of origin of the goods (s 29(1)(k)). The respondent had obtained an unfair market advantage over suppliers of products that were genuinely made in Australia. The misuse of the Australian made logo had the potential to undermine trust in that logo. The court imposed separate pecuniary penalties in relation to the misrepresentation of the place of origin ($330,000) and the use of the “Australian Made” logo ($100,000).

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Land [13.400] 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 connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land make a false or misleading representation concerning: (a)

sponsorship, approval or affiliation;

(b)

the nature of the interest in the land;

(c)

the price payable for the land;

(d)

the location of the land;

(e)

the characteristics of the land;

(f)

the use to which the land is capable of being put or may lawfully be put; or

(g)

the existence or availability of facilities associated with the land.

An example of the application of this provision can be seen in the following case:

Given v Pryor [13.410] Given v Pryor (1979) 24 ALR 442. In the audio part of a television advertisement for land being offered for sale, it was stated, inter alia: “150 quarter acre lots at a sensational price. … A wonderful place to live.” The visual part included the words “watch it grow” and contained various pictures of parts of the land including some showing several houses. The court found that having regard to the advertisement as a whole (including the various pictorial representations), there had been a representation that houses could be built on the land advertised for sale. In reality, however, the land was subject to a planning scheme under which houses could not be built on the land without the special approval of the responsible authority and by satisfying its onerous conditions. Accordingly, it was held that there had been a misleading representation concerning the use to which the land could be lawfully put in contravention of what is now s 30(1)(f) of the Australian Consumer Law). The decision was upheld by the Full Federal Court on appeal.

[13.420] 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. 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).

Profitability of certain business activities [13.430] 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

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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.

Ducret v Colourshot Pty Ltd (1981) 35 ALR 503 [13.440] 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. The company was convicted of a number of offences arising out of contravention of what is now s 37 of the Australian Consumer Law) and fined a total of $95,000.

Representations and predictions about future outcomes [13.450] 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. Thus it is an implication from the words of Section 4(1) that a representation will not be misleading if the defendant can show that they had reasonable grounds for making the representation.

Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [13.452] Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] FCA 487. Taxsmart made representations that it was offering a graduate program and 12 months of employment to accounting graduates with no previous work experience in tax accounting that would enable such graduates to satisfy the requirements for registration as a tax agent and commence as franchisees. The ACCC took action against Taxsmart and its executives. The Federal Court ordered by consent that Taxsmart repay $260,400 in franchise fees to five former Taxsmart franchisees following proceedings brought by the ACCC. The court declared that Taxsmart engaged in misleading or deceptive conduct because (a) it had not made proper enquiries or adequately considered whether the graduate program would enable graduates, with no prior experience in tax accounting, to satisfy the legal requirements for registration as a tax agent; and (b)

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the graduate program was not capable of enabling graduates, without any previous work experience in tax accounting, to satisfy the legal requirements for tax agent registration.

Representations about the profitability of a business [13.455] 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 [13.460] 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:

Misleading conduct as to employment [13.470] 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 [13.480] 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 [13.490] 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).

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Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [13.495] Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408. 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. The manufacturer admitted that it had contravened ss 33 and 18 (misleading and deceptive conduct). 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. The Federal Court held that ss 33 and 18 had been violated. The court issued an injunction restraining the manufacturer from engaging in further breaches for a period of three years. The court also imposed a pecuniary penalty of $1.7 million. The Commission has lodged an appeal against the penalty decision, submitting that a penalty of at least $6 million was appropriate in order to send a strong deterrence message, taking into account the longstanding and widespread nature of the conduct, and in view of the fact that the judge found that Reckitt Benckiser had made many millions in profits from sales of 5.9 million units of these products at around 8,500 outlets during the relevant period.

Misleading conduct in relation to services [13.500] 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.

Dawson v World Travel Headquarters Pty Ltd [13.510] 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. 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.

[13.520] 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).

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Bait advertising [13.530] 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.

Reardon v Morley Ford Pty Ltd (1980) 33 ALR 417 [13.540] 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. The defendant was held to have breached what is 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.

[13.550] 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 [13.560] 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 [13.570] 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 [13.580] 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 [13.590] 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 [13.600] 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 [13.610] 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 Competition and Consumer Commission v Jutsen (No 3) (2011) 206 FCR 264; 285 ALR 110 a pyramid scheme claimed to offer accommodation and travel discounts and the chance to earn substantial money. Members had to pay $250 to join. The accommodation or travel discounts arising from membership were difficult or impossible to realise so were of little or no value. Members were told that they could earn money by recruiting new members. Nicholas J observed that a pyramid scheme has two essential characteristics. First, new participants make a payment to participate in the scheme. Secondly, new participants are induced to make such payments by the prospect of receiving payments for introducing new participants to the scheme. The scheme in this case possessed both characteristics. 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).

Pricing [13.620] 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).

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Australian Competition and Consumer Commission v AirAsia Berhad Co [2012] FCA 1413 [13.625] 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.

[13.627] 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 [13.630] 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. The penalty for referral selling is $1,100,000 for corporations or $220,000 for other parties: s 167(1).

Harassment and coercion [13.640] 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]. 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 [13.650] Contravention of the “unfair practices” provisions of the may give rise to an action for: (a)

a criminal penalty: ss 151–168;

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(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.

Criminal penalties [13.660] 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.

Liability of a corporation for the conduct of its employees [13.670] 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 1 provides that: Any conduct engaged in on behalf of a body corporate – is taken, for the purposes of … the Australian Consumer Law, to have been engaged in also by the body corporate. 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). 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. 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. 1

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.

Defences [13.680] 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 to

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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). [13.700] 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 [13.710] 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. 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. 1 1

An exception is contravention of the multiple pricing provision: Australian Consumer Law, s 47(1); see [13.627] where the maximum pecuniary penalty for a corporation is $5,000 and for an individual $1,000: s 224(3).

Australian Competition and Consumer Commission v Harvey Norman Holdings Ltd [13.711] Australian Competition and Consumer Commission v Harvey Norman Holdings Ltd [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. 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

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representations in connection with the promotion and supply of goods and services). The ACCC and Harvey Norman submitted that an appropriate pecuniary penalty for this conduct was $500,000. 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. Harvey Norman was aware of this fact when it began distributing the pamphlets. 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. During the promotion, 819 expensive 3D televisions were sold in areas which could not receive the broadcasts. 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. The size of the contravener was also relevant in assessing the penalty. Harvey Norman was a large corporation. The period over which the conduct occurred was relevant. In this case the contravening conduct occurred over several weeks. 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”. The judge held that the proposed penalty was within the appropriate range.

Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [13.712] 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. The disclaimers in the advertisements were invisible or ineffective to dispel the misleading impression. The claim was made in print, billboard and Internet advertising. Optus had previously engaged in similar contraventions. 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. The scope of the campaign and the different mediums used justified this treatment of the advertisements. Penalties imposed in previous cases did not establish a range of appropriate penalties where their facts differed from those in the present case. The absence of loss or damage to consumers is a factor in favour of reducing a penalty. 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. Given the scale of the contravening advertising campaign in this case, it was

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necessary to impose a penalty that would “substantially affect” the profitability of the campaign. The breaches were “on a grand scale”. Optus was not a first offender. Optus had acted in breach of a previous undertaking. The court imposed a penalty of $3.61 million for the 11 infringements.

Australian Competition and Consumer Commission v Apple Pty Ltd [13.713] 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. Apple admitted that its advertisements contravened s 33 of the Australian Consumer Law (misleading conduct as to the characteristics of goods). Apple and the ACCC jointly proposed that a penalty of $2.25 million was appropriate. The Federal Court imposed the proposed penalty. Apple’s conduct was deliberate. 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. Apple had thus placed greater importance upon “global uniformity” in marketing than upon compliance with the Australian Consumer Law. On the other hand, Apple had not previously engaged in similar contraventions. Apple’s admission of liability also reduced the appropriate penalty.

Injunction [13.720] 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. 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.

Who may apply [13.730] 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.

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Damages [13.780] 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). In general terms, proceedings for damages under s 236 that “follow on” from regulatory proceedings initiated by the ACCC, where, for example, it seeks pecuniary penalties, require a lesser evidentiary burden for consumers seeking compensation, particularly where a court has already made findings of fact in relation to the contravention. Section 137H of the Competition and Consumer Act 2010 provides that findings of fact made by a court in proceedings under the Australian Consumer Law constitute prima facie evidence in “follow on” proceedings relating to that contravention. Findings by a court that particular facts existed, and that conduct was of a particular level of seriousness, or that particular detriment resulted from the conduct, will all assist potential claimants who seek to recover damages under s 236.

Assessment of damages [13.790] 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 making of false statements: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1. 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).

Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd [13.800] Wakefield Trucks Pty Ltd v Lach Transport Pty Ltd (2001) 79 SASR 517. The appellant sold the respondent a vehicle. During the negotiations, the appellant made representations as to the vehicle’s fuel consumption that 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”: 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. The Court also permitted recovery of the interest incurred in respect of the extra fuel costs.

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HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [13.810] HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. 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.

[13.820] 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. 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. The value of a lost commercial opportunity is assessed by reference to possibilities and probabilities, so this value generally cannot be assessed with precision: CAJ Investments Pty Ltd v Lourandos (1998) 83 FCR 189. 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. 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.

Liability of persons involved in contravention [13.830] 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. The definition of “involved” in s 2(1) provides that a reference to a person involved in a contravention (as in s 236(1) above) is to be read as a reference to a person who: (a)

has aided, abetted, counselled or procured the contravention; or

(b)

has induced, whether by threats or promises or otherwise, the contravention; or

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(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 held that to establish that a person has “aided or abetted” a contravention of the Act under s 75B(a) of the former Trade Practices Act 1974 (Cth) (now s 2(1) of the Australian Consumer Law, above) 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 Ross Lucas Pty Ltd (1985) 158 CLR 661. The facts of that case were as follows:

Yorke v Ross Lucas Pty Ltd [13.840] Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661. Mr and Mrs Yorke bought a record business from Treasureway Stores Pty Ltd for $44,500. They raised the amount by way of mortgage on their home and loans at high rates of interest. They were assured by Treasureway’s selling agent (R, of Ross Lucas Pty Ltd, who had obtained the figures from M, a director of Treasureway) that the average weekly turnover of the business was $3,500. However, the Yorkes found on running the business that the average weekly turnover was only $1,800. 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 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. 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.

[13.850] 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]. Liability under s 2(1) of the Australian

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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 [13.860] 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. 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: see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514.

Other orders [13.870] 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 [13.880] 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).

Orders for non-party consumers [13.890] 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 [13.900] 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 above include: (a)

declaring the whole or any part of a contract void;

(b)

varying the terms of a contract;

(c)

refusing to enforce any or all of the terms of a contract;

(d)

directing the refund of money or return of property;

(e)

directing the payment of the amount of loss or damage suffered;

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(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).

Sanrod Pty Ltd v Dainford Ltd [13.910] 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).

[13.920] 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.

Other enforcement provisions [13.930] In addition to the criminal penalties and pecuniary penalties discussed earlier in this chapter, the Australian Consumer Law provides for a number of other enforcement measures to secure compliance with the consumer protection provisions.

Undertakings [13.940] The ACCC may accept a written undertaking by a person in respect of a breach of the provisions of the Australian Consumer Law. 1 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]. 1

See M Nehme, “The Use of Enforceable Undertakings by the Australian Competition and Consumer Commission” (2008) 27 University of Tasmania Law Review 197.

Substantiation notice [13.950] 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).

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Public warning notice [13.960] 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 [13.970] 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 [13.980] 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 and deceptive conduct in s 18). An adverse publicity order requires the person to disclose specified information and requires the person to publish, at their own expense, an advertisement in the terms specified in the order: s 247. See for example Australian Competition and Consumer Commission v Turi Foods Pty Ltd [2012] FCA 19 at [13.65].

Order disqualifying a person from managing corporations [13.990] If a person has contravened, the consumer protection provisions (excluding the general prohibition on misleading and 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(1). 1 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]. An undischarged bankrupt is disqualified from managing a corporation. 2 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]. 1

Corporations Act 2001 (Cth), s 206B(3).

2

Ibid.

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Australian Competition and Consumer Commission v Halkalia [13.995] Australian Competition and Consumer Commission v Halkalia [2012] FCA 534. The ACCC obtained orders against individuals who were guilty of breaches of s 52 and s 59 of the former Trade Practices Act 1974 (Cth) (now ss 18 and 37 of the Australian Consumer Law). Section 59(2) (s 37 of the Australian Consumer Law) prohibits persons from making: “a false or misleading statement concerning the profitability or risk or any other material aspect of any business activity that the corporation has represented as one that can be, or can be to a considerable extent, carried on at a person’s place of residence.” The defendants were directors of companies that sold distributorships of household cleaning products (“Heartlink”). In the advertisements the defendants represented that the business had the potential to generate weekly earnings of $800–$1000 for 3-4 days work a week. The distributorships sold for between $10,000–$15,000 depending on the area. In fact, the defendants were aware that the weekly earnings were around $300–$400 and did not have the potential to improve (there were problems with distributing the products). The Court imposed the following penalties against the individual directors: an injunction restraining the two directors for 7 and 15 years, respectively, from carrying on businesses or supplying goods or services in connection with which:
people are invited to invest money or perform work;


any claim is made that moneys or profits earned by the sale of goods are donated to charity; or
goods or services concerned are or include household cleaning products; disqualified for 15 years from managing a corporation; and ordered to pay a civil penalty of $450,000. Similar penalties and restraining orders were also imposed on the companies involved.

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Consumer guarantees An introduction Figure 13.7: Consumer guarantees

[13.1000] Before the introduction of the Australian Consumer Law, the Trade Practices Act 1974 (Cth) operated to imply into contracts for the supply of goods and services to consumers in Australia, a number of conditions and warranties (eg conditions that goods would be of merchantable quality and were fit for their purpose). If there were a breach of an implied condition or warranty, the consumer was entitled to sue for breach of contract. The legislation provided that any attempt to modify, exclude or restrict the implication of terms was void (s 68). Things changed when the Australian Consumer Law took effect. It replaced the old implied conditions and warranties with statutory consumer guarantees. These guarantees are similar to the implied conditions and warranties of the Trade Practices Act 1974 (Cth). However, the remedies for breach of the statutory guarantees are different – no longer does a consumer have a right to sue for breach of contract, but instead has a statutory right to take action under the Australian Consumer Law. Like the old regime, section 64 of the Australian Consumer Law provides that any term of a contract which attempts to modify, exclude or restrict the operation of the consumer guarantees is void – this is the equivalent to s 68 of the Trade Practices Act 1974 (Cth). It is qualified by section 64A of the Australian Consumer Law that provides that a term of a contract that modifies, excludes or restricts the consumer guarantees is not void to the extent that it limits the supplier’s liability for contravention of the guarantees the goods and services are not of a kind ordinarily acquired for personal, domestic or household use or consumption, provided that the acquirer of the goods or services does not persuade the court that the term is unfair.

An overview of Part 3-2 [13.1001] The Australian Consumer Law Pt 3-2 provides for statutory guarantees in contracts for the supply of goods and services to consumers. In relation to the supply of goods to consumers, there are nine consumer guarantees. Depending on which consumer guarantee is breached (see below), the consumer may have an action against the supplier or manufacturer.

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The consumer guarantees re supply of goods [13.1002] Sections 18 to 37 of the Australian Consumer Law set out the following nine consumer guarantees that apply to goods supplied to a consumer: Guarantee as to title: The supplier of the goods has the right to dispose of the property in the goods when the goods pass to the consumer (s 51). Guarantee as to undisturbed possession: The consumer has the right to undisturbed possession of the goods (s 52). Guarantee as to undisclosed securities: The goods are free of any undisclosed security, charge or encumbrance (s 53). Guarantee as to acceptable quality: The goods are of “acceptable quality” (s 54). Guarantee as to fitness for any disclosed purpose: The goods are reasonably fit for: (i) a purpose for which the supplier represents they are fit; or (ii) a purpose the consumer makes known to the supplier or manufacturer that they will use the goods for (s 55). Guarantee relating to supply by description: If goods are sold by description, they correspond to that description (s 56). Guarantee relating to supply by sample or demonstration model: If goods are sold by sample or demonstration model, they correspond to that sample or model (s 57). Guarantee as to repairs and spare parts: The manufacturer of the goods will ensure that spare parts and facilities for repair of the goods are reasonably available (s 58). Guarantee as to express warranties: The manufacturer will comply with any express warranty given by the manufacturer in relation to the goods (s 59(1)) and the supplier will comply with any express warranty given by the supplier (s 59(2)). The manufacturer’s 1 liability is as follows: Guarantee of acceptable quality of goods (s 54), except where the breach is caused by someone other than the manufacturer, or where the breach is caused by something beyond human control, which occurred after the goods left the control of the manufacturer, or where the breach is because the supplier charged more than the manufacturer’s recommended retail price (s 54, ss s 271(1) – (2)); Guarantee that goods sold by description will comply with that description, except where the breach is caused by someone other than the manufacturer, or where the breach is caused by something beyond human control, which occurred after the goods left the control of the manufacturer (s 56, ss s 271(3) – (4)); Guarantee that the manufacturer will take reasonable action to ensure facilities for repair of goods, and spare parts, are available (s 58, s 271(5)); Guarantee that the manufacturer will comply with any express warranty given (s 59 or s 271(5)), except where the person affected has relied on an express warranty to require the manufacturer to repair or replace the goods, and the manufacturer has not refused or failed to repair or replace it within a reasonable time (s 271(6)). 1

Section 7: A “manufacturer” includes the following: (a)

a person who grows, extracts, produces, processes or assembles goods;

(b)

a person who holds himself or herself out to the public as the manufacturer of goods;

(c)

a person who causes or permits the name of the person, a name by which the person carries on business or a brand or mark of the person to be applied to goods supplied by the person;

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(d) (e)

a person who imports goods into Australia if the person is not the manufacturer of the goods and at the time of the importation, the manufacturer of the goods does not have a place of business in Australia. a person who imports goods into Australia if: (i)

the person is not the manufacturer of the goods; and

(ii)

at the time of the importation, the manufacturer of the goods does not have a place of business in Australia.

The consumer guarantees re supply of services [13.1004] Sections 60 to 64 of the Australian Consumer Law set out four consumer guarantees that apply to services supplied to a consumer: Guarantee as to due care and skill: the service must be rendered with due care and skill (s 60). Guarantee as to fit for a particular purpose: the service must be reasonably fit for a purpose that a consumer, expressly or impliedly, makes known to the supplier (where it is reasonable for the consumer to rely on the supplier). Services must also be of a nature, quality, state or condition that they can be expected to achieve the purpose that the consumer has made known (s 61). Guarantee as to reasonable time for supply: the service must be provided to consumers within a reasonable time if the time is not otherwise fixed in a contract or agreed to between the consumer and supplier (s 62). Guarantees not to be excluded by contract: a person may not exclude any of the guarantees set out in the ACL (s 64). Before examining some of these guarantees in detail some explanation is required of the terms “supply” and “consumer”.

“Supply” [13.1010] 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” [13.1020] 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).

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].

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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 to “consumer” contracts for the supply of goods 1 are as follows: 1

Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1).

As to title [13.1030] 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 [13.1040] 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). 1 1

Under the former Trade Practices Act 1974 (Cth) the implied condition was that the goods were of merchantable quality, the term used in the State and Territory Sale of Goods Acts.

Meaning of acceptable quality [13.1050] 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)):

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(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.

E v Australian Red Cross Society [13.1060] E v Australian Red Cross Society (1992) 31 FCR 299. 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. 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.

Fitness for disclosed purpose [13.1070] 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).

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Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [13.1075] Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145; 284 ALR 1. 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 [13.1080] 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 [13.1090] 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 [13.1100] 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 [13.1110] 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 [13.1120] 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: s 59(1).

Exemption of auction sales [13.1130] It will be observed that, with the exception of the guarantee as to title, the other guarantees outlined above do not apply in sales by auction.

Guarantees and the supply of services [13.1140] 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.

Alameddine v Glenworth Valley Horse Riding Pty Ltd [13.1145] Alameddine v Glenworth Valley Horse Riding Pty Ltd [2015] NSWCA 219. See [9.280] for the facts of the case. The Court held the plaintiff was entitled to compensation under the Australian Consumer Law, as a result of Glenworth’s failure to comply with the s 60 guarantee given to the plaintiff, as a consumer, that the services would be performed with due care and skill. In relation to ss 60 and 61 of the ACL, the respondent accepted on appeal that the appellant was a consumer and that in circumstances where a finding of negligence had been made, the guarantee of service being supplied with due care and skill was not complied with. In these circumstances, the Court of Appeal found that the only barrier to the appellant recovering damages from the respondent for non-compliance with s 60 of the ACL would be the alleged contractual waiver and the statutory defences raised under ss 5L, 5N and 5M of the Civil Liability Act 2002 (NSW) (CLA). With respect to the CLA defences, the court considered s 275 of the ACL, Insight Vacations Pty Ltd v Young [2011] HCA CLR 149 and Motorcycling Events Group Australia v Kelly [2013] NSWCA 361, and held that the respondent cannot utilise ss 5M or 5N to defend claims brought pursuant to the ACL. The court accepted that s 5L was an available defence, as it does not expressly purport to exclude a defendant’s liability. However, that defence failed in this particular matter on the basis of the Court’s factual finding that the activity was not a “dangerous recreational activity”. The court also found that contractual waivers are void under s 64 of the ACL so far as they seek to exclude a consumer’s rights. Section 139A of the Competition and Consumer Act 2010 (Cth) (CCA) provides an exception for the supply of recreations

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services, but only for personal injury caused by a supplier’s reckless conduct.

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, 1 with the exception of: (a)

a contract for the transportation or storage of goods for the purposes of a business, trade, profession or occupation carried on by the person for whom the goods are transported or stored; or

(b)

a contract of insurance: s 63.

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. 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).

Limitation of liability [13.1150] 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 earlier: s 64(1). Importantly, that general rule is subject to the qualification that where the goods are not of a kind

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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: 1 (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).

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). 2 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). 3 1

This does not apply to the guarantees as to title (s 51), undisturbed possession (s 52) and undisclosed securities (s 53) (see [13.1000]–[13.1030]).

2

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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3

Section 139A(2) is contained in the Competition and Consumer Act 2010 (Cth), Part XI–Application of the Australian Consumer Law as a law of the Commonwealth.

Remedies for non-compliance with consumer guarantees [13.1160] Part 5-4 of the ACL sets out the remedies to which a consumer is entitled when a guarantee has been breached. In many cases, a consumer will have a choice of enforcing remedies against either the manufacturer of the goods (which includes the importer) or the retailer. The only guarantees that cannot be enforced against a retailer are the guarantee relating to the availability of a repair network and spare parts, and the guarantee that the manufacturer will comply with its own express warranty. Retailers have a right of indemnification against manufacturers where the retailer has incurred loss honouring a consumer guarantee that could have been directly enforced against the manufacturer: s 274. 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 choose whether to reject the goods or recover compensation for any reduction in the value of the goods below the price paid: s 259(3). In addition, the consumer may recover damages for any reasonably foreseeable loss or damage caused by the failure to comply with the guarantee (s 259(4)), unless the failure occurred only due to a cause independent of human control that occurred after the goods left the control of the supplier: s 259(5). There are limitations upon the consumer’s right to reject the goods, for example where the rejection period has ended or where the goods have been lost, destroyed or disposed of by the consumer, or were damaged after being delivered to the consumer: s 262(1). The rejection period is the time within which it would be reasonable to expect that the failure would become apparent, having regard to factors such as the type of goods and the use to which it is likely that they would be put: s 262(2). A consumer who rejects the goods must return them to the supplier, unless doing so would impose significant cost, in which case the supplier must collect the goods: s 263(2) – (3). The supplier must refund the money paid or replace the goods: s 263(4). If the failure to comply with the consumer guarantee is not “major”, the supplier can choose what remedy is provided. The remedy the supplier may choose depends on the type of failure, but for a defective product the supplier can choose to repair, replace or refund the product. If the consumer gives the goods to another person as a gift, that person has the same rights and remedies that would have been available if he or she had acquired the goods from the supplier: s 266. Broadly similar remedies apply in relation to failure to comply with guarantees in relation to the supply of services: ss 267 – 268.

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Although s 260 lists five grounds for categorising a failure as “major”, the “reasonable consumer” test ((a) above), the “unfit for purpose” test ((c) above) and the “unsafe goods” test ((e) above) are likely to be the grounds most commonly relied on to establish a major failure. The “reasonable consumer” test - s260(a): The “reasonable consumer test” may often be used to determine whether a failure is “major”. Section 260(a) provides that a failure will be major if a reasonable consumer who knew of the failure in advance would not have acquired the goods. The fact that an individual consumer, whose sensitivities may differ from those of the reasonable consumer, may not have purchased a product, does not necessarily mean that a defect is “major”. For example, imagine that a consumer is unhappy with defects in the paintwork on a boat she has purchased and she wishes to replace it. The expert evidence is that the defect is easy to remedy and covered by the manufacturer’s express warranty that came with the boat. In those circumstances, a reasonable consumer, having regard to the existence of the express warranty, would probably still have made the purchase. In this instance, the failure is not “major” and the consumer would not have the right to return the vehicle. Again, considering the cost of fixing the defect may provide an insight into whether it is “major”. Thus, if the consumer has to spend 20% of the value of the goods on repairs this is more likely to suggest a major failure where spending 2% may not. Many consumer items are complex and reliant on sophisticated technology so a “reasonable consumer” may expect that things (such as a vehicle) may develop faults at one time or another over the several years that a vehicle is usually owned. Provided the fault will be remedied under the manufacturer’s warranty, faults of this nature are unlikely to cause a reasonable consumer “not to acquire” the goods. Therefore it would not constitute a “major” failure. By contrast, most dishwashers can be expected to operate without fault for some years. Therefore, a reasonable consumer who knew that a dishwasher would experience faults requiring it to be taken away (or repaired on site), is likely to choose another brand. Thus, a fault that can be quite easily remedied may be a “major” failure and give rise to a right of refund if it causes considerable inconvenience to the consumer. Unsafe goods – s 260(e): Section 260(e) of the ACL provides that goods have a major failure if they are “not of acceptable quality because they are unsafe”. This means that any failure of the guarantee of acceptable quality that arises as a result of a safety defect is automatically a major failure allowing the consumer to claim a refund. However, before a safety defect can be deemed to be a “major” failure, it must be serious enough to breach the guarantee of acceptable quality in the first place. In practice, this means that the defect must result in the product not being as free from defects or as safe as a reasonable consumer would regard as acceptable. A tractor that has a defect that results in an increased risk of brake failure or an electric kettle with a fault that creates a risk of electrocution, will breach the guarantee of acceptable quality on the basis that these products would not be as safe as a reasonable consumer would regard as being acceptable. This has serious implications for manufacturers conducting safety recalls. Where products have a potential safety issue, the normal approach is for the manufacturer to issue a recall for a specified range (such as a serial number range), have each product inspected and take the necessary action (such as a repair or replacement) for products that are found to be affected by the fault. Unfit for purpose – s 260(c) and (d): Sections 260(c) and 260(d) provide that failure of a product to be fit for purpose will constitute a “major” failure if it cannot be remedied “easily and within a reasonable time”.

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On the other hand, if a product can be repaired or modified within a reasonable time, the initial failure to be fit for purpose will not be deemed under s 260(c) or (d) to be “major”.

Manufacturers' liability for defective goods Figure 13.8: Manufacturers’ liability for goods

[13.1170] 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 ([13.1070], [13.1040] 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 14 at [14.10]. 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:

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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.

Liability of manufacturer for goods with safety defects Circumstances in which liability arises [13.1180] 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. More specifically, it is provided that: (1)

A manufacturer is liable to compensate an individual if: (a)

the manufacturer supplies the goods in trade or commerce; and

(b)

the goods have a safety defect; and

(c)

the individual suffers injuries because of the defect: s 138(1).

Where these conditions are satisfied, the individual may recover from the manufacturer the amount of the loss or damage suffered by them: s 138(2). The meaning of “safety defect” is considered separately at [13.1190]. 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 dependents of an individual suffer loss as a result of the injuries sustained or the death of that individual because of a safety defect in the goods, such loss is recoverable from the manufacturer: s 139. Liability extends to loss resulting from other goods of a kind ordinarily acquired for personal, domestic or household use being destroyed or damaged because of the defective goods: s 140. A person who suffers loss or damage because land, buildings or fixtures (for private use) are destroyed or damaged because other goods of a kind ordinarily acquired for personal, domestic or household use or consumption are destroyed or damaged because of the safety defect: s 141. Damage to commercial property is outside the scope of the provisions. Basically, the provisions impose liability on a manufacturer for the loss or damage suffered as a result of the supply of goods that have a safety defect. The meaning of “safety defect”, “goods” and “manufacturer” in this context require further explanation.

Meaning of “safety defect” [13.1190] 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;

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(c)

the use of any mark in relation to them;

(d)

any instructions for, or warnings with respect to, doing, or refraining from doing, anything with or in relation to the goods;

(e)

what might reasonably be expected to be done with or in relation to them; and

(f)

the time when they were supplied by their manufacturer: s 9(2).

An inference that goods have a safety defect is not to be made only because of the fact that, after they were supplied by their manufacturer, safer goods of the same kind were supplied: s 9(3). An inference that goods have a safety defect is not to be made only because: (a)

there was compliance with a Commonwealth mandatory standard for them; and

(b)

that standard was not the safest possible standard having regard to the latest state of scientific or technical knowledge when they were supplied by their manufacturer: s 9(4).

A pharmaceutical drug that increased the risk of a heart attack in some patients and carried no warning to that effect had a safety defect: Merck Sharp & Dohme (Australia) Pty Ltd v Peterson (2011) 196 FCR 145 284 ALR 1 at [201].

Meaning of “goods” [13.1200] 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. 1 1

Goods are defined as including: “(a) ships, aircraft and other vehicles; and (b) animals, including fish; and (c) minerals, trees and crops, whether on, under or attached to land or not; and (d) gas and electricity; and (e) computer software; and (f) second-hand goods; and (g) any component part of, or accessory to, goods”: Australian Consumer Law, s 2(1).

Meaning of “manufacturer” [13.1210] 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 [13.1220] 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;

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(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 145 284 ALR 1 [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.

If the court finds that the goods had a safety defect only because there was compliance with a Commonwealth mandatory standard for the goods, the Commonwealth is liable to pay the plaintiff for the amount of the loss or damage caused by the safety defect and not the manufacturer: s 148.

Contributory negligence [13.1230] 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. 1 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.

Limitation period [13.1240] 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 [13.1250] 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 [13.1260] 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 [13.1270] 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 [13.1280] 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

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discussed earlier in this chapter: s 271. The broad effect of the latter section is to enable a consumer to recover damages from the manufacturer of goods which do not comply with the statutory guarantees for the following reasons: (a)

the goods are not of acceptable quality (ss 54, 271(1));

(b)

the goods do not correspond with a description which the manufacturer has applied, or allowed to be applied to the goods (ss 56, 271(3));

(c)

there is a failure to ensure that facilities for the repair of the goods or spare parts are available (ss 58, 271(5)); or

(d)

there is a breach of express warranties, for example in guarantees or advertising matter (ss 59, 271(5)).

In an action against the manufacturer, an “affected person” is entitled to recover damages for: (a)

(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); or

(c)

a person who derives title to the goods through the consumer: s 2(1).

An action for damages may be commenced within three years of the day when the affected person first became aware, or ought reasonably to have become aware, that the guarantee was not complied with: s 273.

Liability of manufacturer to seller of defective goods [13.1290] 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 [13.1000]) and the liability imposed on a manufacturer of the goods to a consumer for non-compliance with the statutory guarantees (see [13.1280]), 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.

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Limitation of liability [13.1300] 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. However, if the goods are not of a kind ordinarily acquired for personal, domestic or household use or consumption, the liability of the manufacturer to the supplier who supplied the goods to a consumer is limited to the cost of: (a)

replacing the goods;

(b)

obtaining equivalent goods; or

(c)

having the goods repaired; whichever is the lowest amount: s 276A(1).

Such limitation on the liability of the manufacturer does not apply if the supplier establishes that it is not “fair or reasonable” in the circumstances: s 276A(2). In determining whether or not it is “fair or reasonable” for the manufacturer’s liability to the seller to be so limited, the court is to have regard to all the circumstances of the case and, in particular, to: (a)

the availability of suitable alternative sources of supply of the goods;

(b)

the availability of equivalent goods; and

(c)

whether the goods were manufactured, processed or adapted to the special order of the supplier: s 276A(3).

Furthermore, these provisions are subject to any term of a contract between the manufacturer and seller imposing a greater liability on the manufacturer: s 276A(4). The following case demonstrates that there are a number of causes of action that may be brought against a manufacturer (and the importer/retailer) by a consumer when the goods cause loss or injury to a person, his or her goods or property.

Fulcher v Knott Investments Pty Ltd [13.1305] Fulcher v Knott Investments Pty Ltd [2012] QSC 232. Early in the morning of 9 February 2004, a fire broke out in a Winnebago motor home which the plaintiffs, Mr and Mrs Fulcher, had recently purchased and had parked in the packing shed on the property where they had a tomato growing and packing business. The shed and its contents were destroyed. The Court found that an electrical fault in the air-conditioning unit of the motor home caused the fire. The plaintiffs sued the dealer, the manufacturer and the importer of the air-conditioning unit in negligence, contract, and under provisions of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)). The negligence claim. The judge found that the manufacturer had not been negligent because the evidence established that the fault in the electrical system could not have been detected by exercising reasonable care. The unit was acquired fully assembled, the supplier of the unit was reputable and Winnebago had not had problems in the past. Breach of express warranty. The plaintiffs sued the manufacturers under s 74G (now s 59 of the Australian Consumer Law) for breach of an express warranty contained in the sales brochure that said, in part, under the heading “Safety & Warranty”:

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“You would expect that Australia’s largest manufacturer of motorhomes would have safety and quality as top priorities – spot on. At Winnebago, all of our motorhomes are ‘built better and backed better’”. The judge found that the warranty had not been breached. The warranty did not convey the meaning the manufacturer would detect hidden defects in a component like an air-conditioner. The evidence showed the manufacturer carried out regular safety checks. Breach of statutory implied terms under the Trade Practices Act 1974 (Cth). The judge found that the manufacturer was liable for breaches of ss 74B and 74D (now the “consumer guarantees” in ss 54, 55 and 271 of the Australian Consumer Law). The fact that there was a fault in the air-conditioning unit meant that the Winnebago was not reasonably fit for its ordinary use as a motorhome (now “fitness for disclosed purpose”: see [13.1070]), nor was it of merchantable quality (now “acceptable quality”: see [13.1050]). The retailer and importer were also found to be liable.

Product safety and information [13.1310] The Australian Consumer Law contains provisions concerning product safety, product recall and information requirements. The provisions are contained in Part 3-3. It is only possible here to outline their general effect. A person must not supply consumer goods that do not comply with a prescribed safety standard: s 106(1). Doing so is an offence subject to a penalty of $1,100,000 for a corporation and $220,000 for any other party: s 194(1). The Minister may impose an interim or permanent ban on consumer goods that may cause injury: ss 109(1), 114(1). Supplying banned consumer goods is an offence subject to the same penalties: s 197(1). A person must not supply consumer goods in relation to which an interim or permanent ban is in force: s 118(1). The Minister is also empowered to issue a recall notice for consumer goods in certain circumstances. Thus, where a person supplies consumer goods that: (a)

are of a kind which, in the opinion of the Minister, will or may cause injury to a person;

(b)

do not comply with a prescribed safety standard; or

(c)

are the subject of an interim or permanent ban;

and the Minister considers that the supplier of the goods has not taken satisfactory action to prevent the goods causing injury, the Minister may require the supplier to take action to recall the goods: ss 122(1), 123(1). The Minister may also require the supplier to advertise that the supplier undertakes to repair or replace the goods or refund the price: s 123(1)(c). The mandatory recall power is only intended to be exercised where the supplier has not already taken satisfactory remedial action. A supplier must comply with the requirements of a recall notice, and not supply goods in which a defect or dangerous characteristic has been identified in the notice: s 127(1), (2). Where a supplier contravenes the latter provision, and a person suffers loss or damage by reason of a defect in the goods, or as a result of not having information about the unsafe characteristics of the goods, the

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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.

PART 4: TORTS

Chapter 14: Law of Torts

chapter 14

Law of Torts [14.20] Overview............................................................................................................................................................... 328 [14.40] Negligence........................................................................................................................................................... 328 [14.390] Breach of the duty of care........................................................................................................................ 347 [14.515] Remoteness of damage............................................................................................................................ 357 [14.550] Defences to an action in negligence................................................................................................... 359

Introduction [14.10] In law, a “tort” is a civil wrong (the word “tort” comes from the Latin “tortus” meaning “crooked” or “wrong”). The “law of torts” is primarily concerned with providing a remedy for one person’s wrongful interference with another’s personal or property rights. Such “rights” arise as a result of corresponding “duties” imposed by law (either common law or statute). Where there is no duty, there is no right. Thus the tort of nuisance that involves a duty not to interfere with an occupier’s use and enjoyment of land creates a corresponding right in the occupier to be able to use and enjoy. Again, the tort of defamation that imposes a duty not to damage a person’s reputation creates a corresponding right to a good reputation. Where a tort is committed, the person committing the tort (the tortfeasor) is liable to pay damages to the plaintiff. The aim of tort damages (unlike contract damages) is to put the plaintiff, as far as money can do it, back in the position that he or she was in before the tort was committed. The law of torts is an important area of law for society generally but, for those involved in business, it is vital to appreciate the potential liability they may have in tort to their customers, consumers, employees, other businesses and to the general public. In this chapter, we discuss a number of torts that have particular relevance to commercial activity, including nuisance, torts of strict liability, vicarious liability and defamation. However, the tort that towers above them all is the tort of negligence. For this reason, we consider the tort of negligence in detail and deal briefly with some of the other torts that have commercial relevance. If the law of torts is, historically, a creature of the common law courts, it is the legislature that is now playing an important role in clarifying and reforming the law so that we now have to consider both the case law and the legislation. The “civil liability reforms” referred to in [14.50] and throughout our study of negligence are a perfect example. It is useful to begin a study of the law of torts by distinguishing it from other branches of the law.

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Overview Liability in tort and criminal liability [14.20] As the criminal law is also concerned with wrongful interference with an individual’s person or property, it is not surprising that there is an overlap between criminal liability and liability in tort. In some cases, the conduct may be both a tort and a crime. However, there is an important difference between the two forms of liability. A crime is considered to be an offence against the state, and therefore, criminal proceedings are conducted in the name of the state. For instance, in the case of a sexual assault of a woman, the culprit may be prosecuted and, if found guilty beyond a reasonable doubt, will receive a criminal sanction (a fine or imprisonment or some other penalty). The victim is not involved in the prosecution (except as a witness) and will not generally receive any compensation from the defendant. On the other hand, the law of torts is concerned with the individual’s right to compensation for the loss or injury caused by the wrongful conduct. In the case of the assault, it is the victim who is responsible for bringing the action and, provided she can prove her case on the balance of probabilities, she will receive a remedy (usually damages). So we can see that the object or purpose of tort and criminal law are quite distinct: the primary object of tort law is compensation for victims whereas the primary object of the criminal law is to deter crime and punish the culprits.

The law of torts and contract law [14.30] As in the case of the commission of a tort, a breach of contract can also give rise to a civil action for damages. However, there are important differences between the rights protected by the law of torts and the law of contract. Contract law is concerned with vindicating a party’s right to have a contractual promise performed. This right arises because the parties voluntarily agreed to mutual obligations. On the other hand, the law of torts protects general rights enjoyed by all individuals that derive not from specific agreement but are imposed by the law itself. In some cases, conduct that amounts to a breach of contract may also constitute a tort. For example, a contract for the provision of services between a professional person, such as a solicitor or an accountant and their client, includes an implied term that the services will be performed with reasonable care. A failure to do so gives rise to an action not only for a breach of contract but also a claim based on the tort of negligence.

Negligence Scope of the tort of negligence [14.40] Negligence emerged as an independent tort following the landmark decision of the House of Lords in Donoghue v Stevenson [1932] AC 562. In the years following the decision, the tort of negligence has assumed prime importance in the law of tort. Unlike other torts, for example trespass, nuisance and defamation, negligence does not involve a specific form of conduct: an action for negligence is about careless behaviour and can, therefore, be applied to any form of human activity. Successful claims have been brought in a wide variety of circumstances including traffic accidents, actions against retailers and manufacturers for loss or injury incurred as a result of the supply of defective products, and against those who fail to exercise reasonable care in carrying on a profession such as doctors, solicitors, accountants and financial advisers. Damages are now recoverable not only for the negligent infliction of physical and psychological injury but also for economic loss.

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As with the law of torts generally, the tort of negligence was a creature of the common law courts. However, as a result of the so-called “civil liability reform” (see below), the study of torts now must include the relevant legislation. The common law remains the key to an understanding the tort of negligence because it puts flesh on the bones of the new legislation. We will refer to the legislation at relevant times throughout the chapter.

Statutory reform Figure 14.1: Civil law reforms – general principles

[14.50] The common law principles governing negligence liability have been reformed by legislation enacted in all Australian States and Territories. 1 As the relevant provision in the New South Wales Civil Liability Act 2002 (NSW) shows, the legislation is broad in its scope and applies to “any claim for damage for harm resulting from negligence regardless of whether the claim is brought in tort, contract, under statute or otherwise”. 2 The laws not only cover personal injury but also property damage and economic loss. One aspect of the operation of these laws is to limit the scope of potential liability for negligence. Broadly speaking, this effect is achieved in two ways: (a)

By modifying the common law principles governing the general ingredients of the cause of action in negligence such as breach and causation as well as the circumstances in which a defendant can raise a defence to a plaintiff’s negligence claim; and

(b)

By restricting the plaintiff’s right to recover in a number of particular categories of negligence action. For instance, liability is limited in circumstances where the plaintiff’s injury arises from having been engaged in a “recreational activity”. 3 Other examples include cases involving defendants who are professionals, 4 public authorities, 5 volunteers 6 and food donors. 7

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Another important objective of this legislation is to reduce the amount of damages that can be awarded to a plaintiff for personal injuries in a negligence action. The common law principle that aims to provide the plaintiff with full compensation has been abandoned and replaced with a new system. For example, the Civil Liability Act 2002 (NSW) places a cap on the amount that can be awarded to a plaintiff for general or non-economic damages. 8 Other measures include the abolition of exemplary, punitive and aggravated damages for personal injury 9 and a limitation on damages for past or future economic loss due to loss of earnings or impairment of earning capacity. 10 Despite these legislative reforms, the basic common law principles still underpin the law of negligence. For this reason, the common law principles will now be considered and, where relevant, reference will be made to the operation of the legislation. 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).

2

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.

3

Civil Liability Act 2002 (NSW), Pt 1A, Div 5; Civil Liability Act 2003 (Qld), Pt 1, Div 4 and Civil Liability Act 2002 (WA), Pt 1A, Div 4; Civil Liability Act 2002 (Tas), Pt 6, Div 5. In South Australia, see the Recreational Services (Limitation of Liability) Act 2002 (SA). Compare Wrongs Act 1958 (Vic); Civil Law (Wrongs) Act 2002 (ACT), and Personal Injuries (Liabilities and Damages) Act 2003 (NT), which do not deal with this issue.

4

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.

5

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.

6

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).

7

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.

8

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) 295 FLR 153 at [195] where the New South Wales Court of Appeal upheld a decision that Pt 2 of the Civil Liability Act 2002 (NSW) is invalid to the extent of its inconsistency with the former s 74(1) of the Trade Practices Act 1974 (Cth) (see now, the Australian Consumer Law, s 60 (Sch 2 to the Competition and Consumer Act 2010 (Cth)). This means that damages recoverable under s 60 are determined by common law principles and not subject to the limitations imposed by the Civil Liability Act.

9

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.

10

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

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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).

Figure 14.2 Negligence criteria

[14.55] The defendant in an action based on negligence will only be liable if the plaintiff can prove: (a)

the defendant owed the plaintiff a duty of care;

(b)

the defendant was in breach of this duty of care;

(c)

the defendant’s breach of duty was the cause of the plaintiff’s loss (“causation”); and

(d)

the damage suffered by the plaintiff was not too remote (“remoteness of damage”).

There are two other considerations: (e)

Whether either of the two defences or mitigating factors to a negligence clain – contributory negligence and voluntary assumption of risk – are relevant

(f)

Whether the civil liability reforms are relevant

Duty of care [14.57] In the following landmark decision, the modern law of negligence was born. In essence, the House of Lords accepted that a duty of care could arise in any context where loss or injury was “reasonably foreseeable” and where the parties were in a sufficiently close “proximity” that it required one party not to cause harm to the other.

Donoghue v Stevenson [14.60] Donoghue v Stevenson [1932] AC 562. On the evening of Sunday, 26 August 1928, May Donoghue and a friend went to the Wellmeadow Café in Paisley, Scotland. The friend ordered and paid for an ice-cream drink. The owner brought the order and poured ginger beer from an opaque bottle into a tumbler containing ice cream.

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May Donoghue drank some of the contents and her friend lifted the bottle to pour the remainder of the ginger beer into the tumbler. The remains of a decomposed snail dropped out of the bottle into the tumbler. May Donoghue later complained of stomach pain and her doctor diagnosed her as having gastroenteritis and being in a state of nervous shock. As there was no contract between herself and the café owner (because she was not the purchaser), she could not sue in contract for breach of an implied term that the goods be of good quality. For this reason, she decided to sue the manufacturer, David Stevenson, in tort for negligence. She alleged that the manufacturer, “owed her a duty to take reasonable care that the ginger beer he manufactured, bottled, labelled and sealed, and invited her to buy, did not contain substances likely to cause her injury.” Such a writ had never been issued before: up to this point, a manufacturer was not – outside of contract or fraud – liable to a consumer for negligence. The House of Lords upheld May Donoghue’s appeal by a majority of 3–2. In explaining the circumstances when a duty of care would arise, Lord Atkin delivered his famous “neighbour principle” judgment: “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 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 that are called in question …” Lord Atkin applied this general principle to the specific facts of the case. He said: “[A] manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with knowledge that the absence of reasonable care in the preparation or putting up of products will result in an injury to the consumer’s life or property, owes a duty to the consumer to take that reasonable care.” The case was returned to Scotland for the Court of Session to apply the ruling to the facts of the case. In the event, David Stevenson died within a year of the decision and his executors settled out of court for £200.

Forseeability of harm [14.70] As a result of Donoghue v Stevenson, “reasonable forseeability of harm” emerged as the touchstone requirement for a negligence action. The plaintiff must prove it was reasonable foreseeable to a person in the defendant’s position that harm would result from the conduct in question. Thus, for example, in Donoghue v Stevenson, the court decided that manufacturers of consumable items such as food and drink should have consumers like May Donoghue in mind when directing his or her mind

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to the acts or omissions that are called in question. Lord Atkin applied this general reasonable foreseeability of harm principle to the specific facts of the case. He said: “[A] manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with knowledge that the absence of reasonable care in the preparation or putting up of products will result in an injury to the consumer’s life or property, owes a duty to the consumer to take that reasonable care. A man has a duty of care to conduct himself in such a way as to avoid harm to others, where a reasonable man would have seen that such harm could occur”: at [580]. On the other hand, in the following case, the High Court decided the police officers could not have reasonably foreseen the psychological harm suffered by the appellant.

Tame v New South Wales [14.80] Tame v New South Wales (2002) 211 CLR 317. The appellant who had been involved in a car accident in 1991 was tested to determine her blood alcohol content. A police sergeant incorrectly reported as having a reading of 0.14, almost three times the legal limit. It was soon corrected, and it was never acted upon by anybody. However, the appellant, who had consumed very little alcohol for twenty years, became obsessed by the error when informed by her solicitor in 1992 and in 1995 was diagnosed as having developed a psychotic depressive illness because she felt that the community would believe she had been drunk when the accident occurred. She sued the police in negligence. The High Court dismissed the claim. The respondent did not owe a duty of care to the appellant. The police sergeant could not reasonably have been expected to foresee that his mistake carried a risk of harm to Mrs Tame of the kind that resulted. It was not reasonable to require him to have her mental health in contemplation when he recorded the results of the blood tests. The High Court reaffirmed that the reasonable foreseeability inquiry is a composite test involving an issue of fact (is it foreseeable that if D does not exercise reasonable care P would be injured?) and a question of value (is it reasonable to say that a duty of care is owed by the defendant to the plaintiff?). The determination involves an assessment of community standards – objectively speaking, would the community regard it as reasonable for a duty of care to exist? Put simply, the latter element means that the court takes into account the broader question of the effect on society if a duty of care is or is not found to exist. What would the effect be on the broader community? For instance, in Tame there were clear policy considerations that affected the decision that the police did not owe a duty of care to Mrs Tame. It would have placed too great a burden on police if they were liable for the consequences of every relatively minor administrative mistake.

However, foreseeability alone was never enough. If it were, there would be a very heavy burden of potential liability because, after all, reasonable foreseeability of harm is not difficult to establish. For this reason, the courts have restricted the circumstances in which a duty of care is owed to ones where the plaintiff and the defendant are in some form of relationship of proximity to one another (or, to use the

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language of Lord Atkin, the person is “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 that are called in question.” Thus two requirements – reasonable foreseeability and a relationship of proximity – are normally required for a duty of care to exist. Where the particular relationship has been found to give rise to a duty of care in the past, the normal application of the doctrine of precedent will often mean that a duty of care is not difficult to establish. Examples include manufacturers and consumers, employers and employees, doctors and patients, public authorities and users, teachers and students, road users and others on the road, occupiers of property and those who enter the property, professionals and their clients.

The duty of care in specific situations Figure 14.3: Nature of the duty of care

[14.90] We will now consider the duty of care test in five specific situations. There is clearly overlap but it is useful to examine how the courts have formulated the tests depending on the act or omission or the kind of damage inflicted. 1.

Negligent acts causing physical harm.

2.

Negligent acts causing mental harm.

3.

Liability for omissions.

4.

Negligent acts causing pure economic loss.

5.

Negligent statements causing pure economic loss.

1. Acts causing physical harm [14.100] In the case of a positive infliction of physical harm, the existence of a duty of care is well established: see Donoghue v Stevenson [1932] AC 562. It depends on whether the harm suffered by the

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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 (reasonable foreseeability of injury) to certain individuals involved in the particular event (the element of proximity or “neighbourhood”). Physical harm means injury to the plaintiff or damage to his or her person and/or property. 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. And, particularly after Donohue v Stevenson, manufacturers of consumables should have consumers in mind when establishing their manufacturing processes. An example of a relationship that has generated significant case law is the situation where an occupier owes a duty to take positive steps to protect persons lawfully entering his or her property. Such liability has attached to supermarkets for the failure to prevent injuries sustained by a customer.

Australian Safeway Stores Pty Ltd v Zaluzna [14.101] Australian Safeway Stores Pty Ltd v Zaluzna (1987) 162 CLR 479. On 20 January 1979, the respondent entered the “foyer area” of the appellant’s supermarket at Mount Waverley in Victoria, intending to buy some cheese. It was a rainy day and in consequence the vinyl-tiled floor of the foyer area had become wet or moist. Unfortunately, before entering the area of the supermarket where the merchandise was displayed, the respondent slipped and fell heavily on the floor. She sustained personal injury. The High Court held that the fact that the respondent was a lawful entrant upon the land of the appellant, establishes a relationship between them, which of itself, suffices to give rise to a duty on the part of the appellant to take a reasonable care to avoid a foreseeable risk of injury to the respondent. 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.

Modbury Triangle Shopping Centre Pty Ltd v Anzil [14.102] Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254. The appellant was the owner of the Modbury Triangle Shopping Centre. Anzil, the respondent was the manager of a video shop owned by Focus Video Pty Ltd which leased premises in the Centre. The Centre had a large outdoor area for car parking. The video shop faced the car park. Nearby, there were automatic teller machines. At night, the car park was dark (except for slight illumination from fluorescent lighting on the roof of the verandah facing the car park), unless the car park lights were turned on. There were four lighting towers. Timing devices controlled them. The video shop closed at 10 pm. The attack occurred at around 10.30 pm at night. Anzil closed the video shop and walked a short distance to his car, which was parked in the car park. The car park lights were not on at the time. The first respondent was attacked by the three assailants, one armed with a baseball bat, and was badly injured.

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The High Court held that the appellant’s duty as an occupier of land did not extend to taking reasonable care to prevent physical injury to the first respondent resulting from the criminal behaviour of third parties on that land: “The most that can be said of the present case is that the risk of harm of the kind suffered by the first respondent was foreseeable in the sense that it was real and not far-fetched. The existence of such a risk is not sufficient to impose upon an occupier of land a duty to take reasonable care to prevent harm, to somebody lawfully upon the land, from the criminal behaviour of a third party who comes onto the land. To impose such a burden upon occupiers of land, in the absence of contract or some special relationship of the kind earlier mentioned, would be contrary to principle; a principle which is based upon considerations of practicality and fairness ”: at [35]. Following the decision in Modbury, the courts have differed in their application of the decision. On the one hand, New South Wales Court of Appeal in Ashrafi Persian Trading Co Pty Ltd v Ashrafinia [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. On the other hand, Modbury was 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. 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. 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.

2. Negligent acts causing mental harm [14.105] In the early nervous shock/psychiatric damage cases, the courts, probably reflecting current community standards, were reluctant to recognise nervous shock as a kind of damage in its own right. Rather they required that the psychiatric injury be a consequence of direct and contemporaneous physical injury or, later, at least required the plaintiff to be within the area of possible physical injury by impact. However, the courts gradually began to appreciate that shock was a distinct kind of damage in itself, different from conventional cases of personal injury, and decided that a duty of care may arise in cases of this kind. The following case was a significant turning point for nervous shock cases in Australia.

Jaensch v Coffey [14.106] Jaensch v Coffey [1984] HCA 52. The plaintiff’s husband, Allan, was a policeman in Adelaide. In the early evening of 2 June 1979 he was on duty riding his motorcycle when he collided with a motor vehicle negligently driven by Mr Jaensch. Allan was seriously injured. He was taken by ambulance to the Royal Adelaide Hospital. Two police officers brought the news to Mrs Coffey. She was at home,

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away from the scene of the accident. The police brought her to the hospital where she saw Allan in the casualty section in severe pain. She stayed at the hospital and saw what was happening to Allan until a doctor advised her to go home to sleep. He told her that Allan was “pretty bad”. When Mrs Coffey left the hospital that evening, she thought Allan was going to die. She first realised that Allan would survive three to four weeks after the accident. After her experience at the hospital, Mrs Coffey suffered severe anxiety and depression. Her psychiatric condition caused gynaecological problems and a hysterectomy was later performed. The High Court held that Mrs Coffey could recover damages for “nervous shock” because (a) damage to the plaintiff in the form of psychiatric injury was reasonably foreseeable by the defendant and (b) there was, therefore, sufficient “proximity” (that is, she was “so closely and directly affected by the act”) because although she was not present at the scene of the accident, she came to the hospital in the immediate aftermath. To prevent the so-called floodgates opening on “nervous shock” claims, the High Court excluded a number of claimants including (a) claimants who experienced “normal” rather than pathological grief as a result of their loved one’s death or injury; (b) claimants that have not personally experienced – with eyes or ears – the “immediate aftermath” of the event (rather than having “mere knowledge” – that is, were told about the death or injury of their loved one; and (c) claimants who were only bystanders or curious onlookers.

Rules for recovery of damages for psychiatric illness that were explained in Jaensch v Coffey were reconsidered by the High Court in Tame v New South Wales; Annetts v Australian Stations Pty Ltd (2002) 211 CLR 317; [2002] HCA 35. The appeals were heard together. The decision significantly amended the principles governing the common law of compensation for negligently inflicted pure psychiatric injury. The High Court opted for a simple test of reasonable foreseeability of this kind of harm, taking into account: (a)

the relationships between the parties;

(b)

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

(c)

what the expected response of a person of normal fortitude might be.

In Tame, as we have seen, a policeman investigating a car accident between Mrs Tame and another driver, inadvertently swapped the other driver’s blood-alcohol reading, which was high, and her own, which was nil. Although the mistake was subsequently corrected, and no one had acted on the wrong information, Mrs Tame claimed that she developed a psychotic depressive illness, not as a result of the collision, but when her solicitor told her of the incorrect entry. The High Court determined that the police officer did not owe Mrs Tame a duty to take reasonable care to avoid causing her injury of the kind she had suffered. In Annetts, Mr and Mrs Annetts’ son, James, went to work as a jackeroo for Australian Stations in Western Australia as a 16 year old. The Annetts, being particularly concerned about the safety of their son in such a harsh working environment, contacted Australian Stations. They only agreed to allow their son to work for Australian Stations after making enquiries as to the safety arrangements that would be put in place for James and being assured that he would be under constant supervision. However, despite those assurances, after only seven weeks, he was sent to work alone as a caretaker in a remote location. In December 1986, it was discovered that James was missing and likely to be in grave danger. Mr and Mrs

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Annetts were informed of this over the phone by police and Mr Annetts subsequently collapsed. A prolonged search for James then ensued leading to the discovery of his bloodstained hat in January 1987 and finally his body in April. On the basis of medical evidence, it was concluded that James had died in December 1986 as a result of dehydration, exhaustion and hypothermia. The court held that reasonable foreseeability of risk should be the fundamental test for the imposition of a duty of care in pure psychiatric injury claims. Consequently, at common law there is now no difference between cases of physical injury and cases of psychiatric injury. In both, reasonable foresight of the risk of harm will prima facie determine the existence of a duty of care, although McHugh J opined that “policy issues may be relevant to the issue of reasonable foresight because reasonableness requires a value judgment.” Liability for what is now called “mental harm” is now, in some Australian jurisdictions, limited by the reform legislation. 1 Under the statutory reforms, only claimants who suffer a recognised psychiatric illness or disorder can recover damages for negligently occasioned mental harm. In the following two cases, the High Court has had an opportunity to consider the statutory reforms. For example, in King v Philcox (2015) 255 CLR 304, the High Court 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 realised that he had driven past the location of the accident earlier in the day when his brother had been trapped and was dying in the car. 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. 1

Liability for mental harm is dealt with by legislation in all States except Queensland and the Northern Territory: Civil Liability Act 2002 (NSW), Pt 3; Wrongs Act 1958 (Vic), Pt XI; Civil Liability Act 2002 (WA), s 1B; Civil Liability Act 1936 (SA), s 53; Civil Liability Act 2002 (Tas), s 34 and the Civil Law (Wrongs) Act (ACT), Pt 3.2.

3. Liability for omissions [14.110] Generally, the common law imposes no liability for omissions or failing to act. The classic example concerns the child drowning in a shallow swimming pool. As morally confronting as it may be, unless the onlooker is a parent or a lifeguard or has some close relationship with the child, the common law imposes no duty to rescue the child. The reason for the reluctance to impose liability for an omission is that such liability involves the imposition of a duty to take positive action and the courts see this as a more serious interference with a person’s liberty than imposing an obligation to take care when acting. The only circumstance in which a person may be liable for omissions is where a person has a positive duty to act. Positive duties may be imposed where the parties are in a pre-existing relationship that contains elements of reliance or dependence or where the defendant is in a position of control. Examples include parent and child, doctor and patient, school authority or teacher and student, employer and employee and occupier and visitor.

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We will look at three cases where the issue was whether a duty of care arose in circumstances where the defendant did not act. Two are classic “failure to warn” cases and, in the third, the issue was whether a publican had a duty of care to prevent a drunk customer from driving his bike home.

Rogers v Whitaker [14.120] Rogers v Whitaker (1992) 175 CLR 479. The respondent, Maree Whitaker, had been almost totally blind in her right eye for nearly 40 years. Nevertheless, she had lived a normal life. She consulted the appellant, Rogers, an ophthalmic surgeon, who advised her that an operation on the injured eye would not only improve its appearance but would probably restore sight to it. Following the surgery, the respondent developed a condition known as “sympathetic ophthalmia” in her left eye which resulted in her losing her sight in that eye. Despite the fact that the operation was conducted with due care and skill, it failed to restore her sight. As a result, she was almost totally blind. She sued the appellant alleging his failure to warn her of the risk of sympathetic ophthalmia was negligent. She had not specifically asked whether the operation to her right eye could affect her left eye but she had incessantly questioned the appellant as to possible complications. Evidence given at the trial was that the risk of sympathetic ophthalmia was about one in 14,000 but, even then, not all cases lead to blindness in the affected eye. The appellant relied on the principle that the standard of care owed to a patient in all things is determined by medical judgment. The High Court rejected that argument. It held that, except in cases of emergency or necessity, doctors have a duty to warn patients of the risks associated with a surgical procedure. “…a medical practitioner has a duty to warn a patient of a material risk inherent in the proposed treatment; a risk is material if, in the circumstances of the particular case, a reasonable person in the patient’s position, if warned of the risk, would be likely to attach significance to it or if the medical practitioner is or should reasonably be aware that the particular patient, if warned of the risk, would be likely to attach significance to it.”: at [490]. This case confirmed is that in the usual circumstances the choice of whether to undergo a procedure is that of the patient but in order to make this decision they need to be informed of the risks that may be involved. Thus there is a duty on the doctor to act. In the following case, the High Court considered the extent to which licensees or publicans have a duty of care to look after their customers’ health and welfare.

CAL No 14 Pty Ltd v Motor Accidents Board [14.150] CAL No 14 Pty Ltd v Motor Accidents Board (2009) 239 CLR 390. In January 2002, Shane Scott went to the Tandara Motor Inn in Triabunna, Tasmania for a drink after work. Scott gave the keys to his motorbike to Kirkpatrick, the licensee, and told Kirkpatrick not to allow him to ride home. He remained there drinking for about three hours. Kirkpatrick knew Scott was so drunk that he should

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refuse him service and that Scott would endanger himself if he left on his motorcycle. Nevertheless, he handed Scott the keys to his motorbike when Scott aggressively demanded them. Scott then left the hotel and, soon after, lost control of the bike, collided with a bridge, and was killed. At the time of his death, Scott had a blood alcohol level of 0.253. His widow, Sandra Scott, sued the owner and licensee of the motor inn, alleging they owed her husband a duty of care. The High Court unanimously overturned a decision of the Full Court of the Supreme Court of Tasmania which held that a publican owed a duty to prevent a patron from driving his motorcycle home from the premises where he had been drinking. Although the actual decision in this case was decided on a narrower basis, the 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”: at [52].

[14.155] As the following two cases show, a public authority that controls and manages land, parks, reserves or other public areas can come under a duty to act to protect members of the public against foreseeable danger in those areas.

Nagle v Rottnest Island Authority [14.160] Nagle v Rottnest Island Authority (1993) 177 CLR 423 at 430. Nagle was an employee of the Rottnest Island Authority Board, but had never previously visited the Reserve or swum at the Basin. He dived from a partially submerged rock ledge into the water. His head struck a fully submerged rock and he became a quadriplegic. He sued the Board in negligence arguing that it failed to give any or any adequate warning that the ledge was unsafe for diving when it knew or ought to have known that it formed a natural platform that members of the public would assume to be suitable for diving. The High Court held that the Board was the occupier of the Reserve and was under a statutory duty to manage and control it for the benefit of the public. In these circumstances, the Board owed a duty of care to warn those visitors of any foreseeable risks of injury to which they might be exposed. By encouraging the public to swim in the Basin, the Board came under a duty to take reasonable care to avoid injury to them and the discharge of that duty would naturally require that they be warned of foreseeable risks of injury associated with the activity so encouraged.

4. Negligent acts causing pure economic loss [14.180] In cases concerning pure economic loss, the plaintiff suffers no personal injury or physical damage to their property but is simply financially worse off as a result of the defendant’s negligent acts. In these circumstances the courts have been reluctant to find a duty of care is owed. Something more than

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forseeability and proximity is required. A major concern in pure economic loss cases is the issue of indeterminancy. In Cardozo J’s famous edict, the courts have refused to recognise a duty where it would lead to a liability that is “in an indeterminate amount for an indeterminate time to an indeterminate class (of plaintiff)”: Ultramares Corp v Touche (1931) 255 NY 170 at 179–180. To establish a duty of care in such cases it must be shown that the plaintiff and the defendant were in a relationship where the plaintiff was vulnerable to or dependent upon the defendant and the defendant was aware of this or should have been aware of this fact.

Perre v Apand Pty Ltd [14.185] Perre v Apand Pty Ltd (1999) 198 CLR 180. Perre was a potato farmer who suffered economic loss when the defendant supplied diseased potato seeds to a farm 20 kilometres from the plaintiffs’ property. The diseased seeds resulted in the growth of a crop with bacterial wilt. The plaintiffs’ economic loss arose because they were unable to export their potato crop to Western Australia owing to a legislative prohibition on the importation of potatoes grown within a 20 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 following five factors: 1. Reasonable foreseeability: Reasonable foreseeability of harm to others is a necessary but not sufficient condition of duty in an economic loss case. In this instance, the economic loss suffered by Perre was reasonably foreseeable. 2. Indeterminancy of liability: The courts have refused to recognise a duty where it would lead to a liability which is indeterminate. Liability is indeterminate only when it cannot be realistically calculated. In this case, imposing the duty on Apand does not expose it to indeterminate liability. There are a finite number of growers within the radius who may have been affected by the defendant’s careless conduct. “Indeterminancy” was a factor in the following case.

Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” [14.190] Caltex Oil (Aust) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529. The respondent’s dredger damaged a pipeline owned and operated by Australian Oil Refinery Pty Ltd (“AOR”). The defendants knew of the existence of the pipeline and the charts showed it went from an oil refinery on one side of Botany Bay to the Caltex Oil terminal on the opposite shore. Owing to the damage, the pipeline could not be used for some time. The defendants admitted liability for the loss of the oil in the pipeline but denied liability for the considerable additional expense incurred by Caltex in transporting the oil by alternative means to its terminal. The High Court held unanimously that Caltex could recover the economic loss suffered. The Court addressed the indeterminacy issue. Three judges said that there were exceptions to the indeterminacy obstacle where, as here, the defendant has the knowledge, or means of knowledge, that the plaintiff individually, and not merely as a member of an unascertained class will be likely to suffer loss. Mason J said that a duty of care could arise when:

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“a defendant can reasonably forsee that a specific individual as distinct from a general class of persons will suffer financial loss…This approach eliminates the prospect that there will come into existence liability to an indeterminate class”: at [593].

3. The individual autonomy factor: In our market economy, conduct legitimately protecting a person’s social or business interests does not give rise to a duty of care. For example, when a trader is engaged in legitimate competition, no one questions the right of the trader to increase its advertising or cut its prices even though that action is done with the intention of taking the market share of its rivals. In this case, no such competition considerations were relevant. Imposing the duty does not unreasonably interfere with Apand’s commercial freedom. 4. The vulnerability to risk: In this context, “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. In this case, the plaintiff’s business was exposed to Apand’s conduct because they were not in a position to protect themselves against the effect of Apand’s negligence. In contrast, in Marsh v Baxter (2015) 49 WAR 1, liability for pure economic loss was denied because 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. Similarly, in Johnson Tiles Ltd v Esso Australia Pty Ltd [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. 5. The defendant’s knowledge, of the risk and its magnitude: Knowledge of the defendant that its act will harm the plaintiff is virtually a prerequisite of a duty of care in cases of pure economic loss. Apand was aware of the risk that the bacterial wilt disease would break out and was aware of the repercussions for the Western Australian market: Perre v Apand Pty Ltd (1999) 198 CLR 180.

5. Negligent statements causing pure economic loss [14.250] 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 or was made in breach of a fiduciary relationship, for example, a solicitor-client relationship. 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.

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Hedley Byrne & Co Ltd v Heller & Partners Ltd [14.270] Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. The plaintiff was an advertising agency that was to place television and newspaper advertisements on behalf of a company called Easipower. As the plaintiff was to personally guarantee the payment of these advertising accounts, it sought credit references from the defendant, Easipower’s bank. The defendant’s written response indicated that Easipower was creditworthy. In its reply, the defendant had disclaimed responsibility for its credit reference. Easipower was not creditworthy and the plaintiff agency was unable to recover the amount paid for the advertisements. The House of Lords decided that a duty of care in making statements could arise in circumstances where 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. 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.

Mutual Life and Citizens' Assurance Co Ltd v Evatt [14.280] Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556. The officers of a life assurance company (Mutual Life and Citizens’ Assurance Co Ltd (MLC)) made statements to policy holder (Evatt) about the financial affairs of another company, Palmer. As a result of acting on the advice, Evatt suffered economic loss. The Privy Council held that MLC owed no duty of care to Evatt in these circumstances. Lord Diplock held that the duty of care arose only where the advice was given in the exercise of business or professional skill possessed or claimed by the adviser or possibly where adviser had a financial interest in the advice being acted upon. However, when the case had come before the High Court Australia (on its way to the Privy Council – as could happen until the abolition of the right to appeal to the Privy Council in 1986 – Barwick CJ explained the nature of the “special relationship” that must exist before a duty can arise in cases of pure economic loss: “It seems to me, therefore, that whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter, and particularly a matter of business, and the relationship of the parties arising out of the circumstances is such that on the one hand the speaker realises or ought to realise that he is being trusted, particularly if he is thought by the other to have, or to have particular access to, information or to have a capacity or opportunity to exercise judgment or both as to the matter in hand, to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to seek or accept and in either case to act upon that information and advice the speaker, choosing to give the information or advice in such circumstances, comes under a duty of care both to utilise with reasonable care the information and sources of

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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”: at 572–573.

[14.285] 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.

Shaddock & Associates Pty Ltd v Parramatta City Council [14.290] Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225. The plaintiffs (property developers) owned property on the south-east corner of Macquarie and O’Connell Streets, City of Parramatta, near Sydney. They intended to redevelop the land by erecting a commercial building on the property. The plaintiff’s solicitor made inquires to the city council about the property. In answers to verbal inquiries and later written inquiries by the plaintiff’s solicitor, the respondent (Parramatta City Council) did not reveal that there proposals for road-widening that affected the property. In actual fact the proposals were, at the time of the solicitor’s inquiries, already adopted in principle by the city council. The plaintiffs claimed that the remaining parts of the property would be unsuitable for their proposed redevelopment. They also alleged that they would not have bought the property if they had been aware of the proposal by the city council to reduce the size of the property to widen the adjacent streets. The plaintiffs argued that the city council owed them a duty of care to inform them about the road-widening proposal. Held: The High Court held that the city council committed the tort of negligence causing pure economic loss and was liable to the plaintiffs for the losses they suffered. The city council was under a duty of care in relation to the provision of advice or information (the court held that no distinction should be drawn between “advice” and “giving of information”) because it was of a kind that called for skill and competence that the city council professed to possess. Further the city council knew or ought to have known that the recipient intended to act or rely on the information (reasonable foreseeable).

[14.295] Although it was not specifically discussed, it seems clear that the High Court was anticipating the factors considered by the subsequent High Court decision in Perre v Apand (see above). Compare the two decisions. In Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225 liability arose because one particular developer was involved and the amount of pure economic loss was reasonably easy to determine (no indeterminacy of liability); the plaintiffs were vulnerable as they had no other reasonable way of finding out about the city council road widening proposals (test of vulnerability); the defendants knew or ought to have known of the risks and its magnitude by negligently not providing information to the plaintiffs (test of defendants’ knowledge of the risk and its magnitude); and there can be little doubt that this liability would not have placed any serious unreasonable burdens on the autonomy of city councils generally (test of unreasonable burdens on the autonomy of individuals).

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It is clear from the following case that the High Court has accepted the Barwick CJ formulation of the “special relationship” as the test for determining the existence of a duty of care in the making of statements or the giving of advice.

San Sebastian Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 [14.300] 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. 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.

[14.320] 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 without giving adequate warning of the dangers (currency fluctuations causing the loan amount to increase) 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

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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); 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 1 (formerly, s 52 of the Trade Practices Act 1974 (Cth)) rather than the common law principles regarding negligent misstatements: see further at [13.40]. 1

The is Sch 2 to the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13.

[14.325] Third party scenarios: The establishment of liability for negligent misstatement has also led to an increasing number of actions against solicitors, accountants, auditors and other financial advisers for recoupment of financial losses allegedly suffered as a result of reliance by third parties, such as investors, creditors shareholders, those considering a takeover, on negligent advice or information provided by the accountant, auditor or solicitor. [14.330] An issue that has arisen in respect of an auditor’s liability for misstatement is whether the auditor’s duty of care is limited to the client for whom the audited accounts are prepared, or whether the duty extends to any person who relies on a statement contained in the auditor’s report. In the United Kingdom, the House of Lords has held that the liability of an auditor does not extend to the situation where the audit statement was relied on by a third party for a purpose other than the particular purpose for which it was prepared: Caparo Industries Plc v Dickman [1990] 2 AC 605. The decision of the High Court in the following case demonstrates how cautious the courts are about recognising a duty of care in a situation where negligent advice or information provided to one person is used by an unintended or unknown person who suffers economic loss as a result. Something more than reasonable foreseeability of harm is required: there must be some reliance or assumption of responsibility.

Esanda Finance Corp Ltd v Peat Marwick Hungerfords [14.335] Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241. The plaintiff (Esanda) was a financier who, in reliance on the audited accounts of a company (Excel), lent money to various companies associated with Excel, accepting a guarantee of repayment from Excel. Peat Marwick Hungerfords (PMH) was a firm of chartered accountants and was Excel’s auditor. Excel went bankrupt and Esanda lost considerable amounts of money. In the legal action, Esanda claimed that PMH was negligent in carrying out the audit and that Esanda suffered loss as a result of relying on the audited accounts prepared by the defendant accounting firm. Esanda asserted that it would not have entered into the transactions but for its reliance on the audited accounts. It alleged that PMH owed it a duty of care, as Esanda belonged to a class of persons who might reasonably and foreseeably rely on the audited accounts and audit report. Held: The High Court held that PMH did not owe Esanda a duty of care. To establish liability for economic loss, a plaintiff has to show that there was a sufficient relationship between himself or herself and the defendant. However the mere fact

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that it was reasonably foreseeable that someone (such as lenders or investors) might rely on the statements is not enough. The plaintiff needs to show that the defendant has assumed responsibility for providing the information or advice (though a request is not essential) in circumstances in which the defendant knew or should have known that the plaintiff, himself or herself, would access the information or advice, that he or she would act upon it and would suffer loss if the advice or information was careless. The mere fact that PMH should reasonably have foreseen that members of a particular class (for example, creditors or investors or shareholders) might rely on the accounts was not enough to give rise to a duty of care. The Court said: “… in every case, it is necessary for the plaintiff to … prove that the defendant knew or ought to reasonably have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statements should be untrue or the advice should be unsound. If any of these elements are found to be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice”: at [252]. After pointing out that the defendant auditors were in a “particularly advantageous position to know or ascertain the true financial position” of Excel, their audit client, Toohey and Gaudron JJ said that Esanda should have made its own enquiries: “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”.

Breach of the duty of care [14.390] 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 Civil Liability Acts set out the test in almost exactly the same terms as Mason J used in Wyong Shire Council v Shirt (1980) 146 CLR 40: A person does not breach a duty to take precautions against a risk of harm unless – (a)

the risk was foreseeable (that is, it is a risk of which the person knew or ought reasonably have known); and

(b)

the risk was not insignificant; and

(c)

in the circumstances a reasonable person would have taken precautions. 1

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1

Civil Liability Act 2002 (NSW), s 5B(1); Wrongs Act 1958 (Vic), s 48(1); Civil Liability Act 2003 (Qld), s 9(1); Civil Liability Act 1936 (SA), s 32(1); Civil Liability Act 2002 (WA), s 5B(1); Civil Liability Act 2002 (Tas), s 11(1) and the Civil Law (Wrongs) Act (ACT), s 43(1). The Northern Territory legislation does not deal with this issue.

The “reasonable person” test [14.395] The standard of the reasonable person, 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 person test gives way to the standard of a child of similar age and experience: McHale v Watson (1964) 111 CLR 384. The reasonable person 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). In Imbree v McNeilly (2008) 236 CLR 510, the High Court reconsidered the standard of care owed by an unskilled and inexperienced driver.

Imbree v McNeilly [14.400] 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: “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.”

[14.405] When assessing what precautions a reasonable person would have taken, the courts look forward to identify what a reasonable person would have done, not retrospectively to ask what could have been done to avoid the injury, loss or damage. In New South Wales v Fahy (2007) 232 CLR 486, a police officer suffered post traumatic stress disorder when she was left alone to deal with an injured victim of an armed robbery. She argued that the Police Department had breached its duty of care to her because it should have ensured that officers worked in pairs. Although, in hindsight, this would have reduced the risk of her trauma, it was not something that a reasonable person would have done at that time.

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The statutory reforms [14.410] 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) 1 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”. 2 Under the Act, the defendant will only be in breach of duty for a failure to respond if the risk of harm is “not insignificant”. As to the second stage of the inquiry, Section 5B(2) 3 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: 1.

the probability of the risk of injury;

2.

the gravity of the harm;

3.

the burden of eliminating the risk; and

4.

the utility of the defendant’s conduct.

1

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.

2

Wyong Shire Council v Shirt (1980) 146 CLR 40 at 47 per Mason J.

3

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.

(a) Probability of the risk of injury Bolton v Stone [14.425] Bolton v Stone [1951] AC 850. The plaintiff brought an action against the defendant cricket club after being injured by a ball that was hit out of the cricket ground during a match. The evidence showed that the risk of a person being struck by a ball hit out of the cricket ground was negligible. The court weighed this factor against the reality that the only sensible way to entirely eliminate the risk of a person being hit by a ball would be to cease playing cricket on the ground altogether. The House of Lords held that in these circumstances a reasonable person would have thought it right to ignore the risk. The case established that a defendant may be justified in disregarding a foreseeable risk of injury where the probability of that risk occurring is small and the circumstances are such that a reasonable man would think it right to neglect the risk.

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Roads and Traffic Authority of NSW v Dederer [14.428] Roads and Traffic Authority of NSW v Dederer (2007) 238 ALR 761. The plaintiff, a 14 year old boy, suffered catastrophic injuries when he dived off a bridge and into a river about nine metres below and struck his head on a submerged sandbar. Although there were signs on the approach to the bridge (that the plaintiff was aware of) prohibiting diving there was evidence that people had been diving off the bridge for 40 years and this was the first reported diving accident. The High Court found there was no breach of the duty of care. Gummow J said: “What Shirt requires is a contextual and balanced assessment of the reasonable response to a foreseeable risk. Ultimately, the criterion is reasonableness, not some more stringent requirement of prevention. Here, the risk of injury consequent upon jumping or diving from the bridge into water of variable depth was reasonably foreseeable … The magnitude of the risk was self-evidently grave … The probability of that injury occurring was, however, low. Despite the frequency of jumping and diving from the bridge, no-one was injured until Mr Dederer’s unfortunate dive. What, then, of the expense, difficulty and inconvenience of taking alleviating action? The erection of further warning signs should not have been expensive, but … the reasonableness of such measures is open to doubt. … Returning, then, to the assessment of breach mandated by Shirt, it becomes apparent that the RTA did not breach its duty of care. Though grave, the risk … was of a very low probability, and a reasonable response to that risk did not demand the measures suggested by him. This was not a case in which the defendant had done nothing in response to a foreseeable risk. To the contrary, the RTA had erected signs warning of, and prohibiting, the very conduct engaged in. … In the circumstances, that was a reasonable response, and the law demands no more and no less”: at [781]–[782].

(b) Gravity of the harm [14.433] 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 in the case of dangerous substances or activities, “a reasonably prudent person would exercise a higher degree of care”; and

(b)

where the plaintiff, to the defendant’s knowledge, has a particular susceptibility which increases the seriousness or gravity of the risk: Paris v Stepney Borough Council [1951] AC 367.

A recent decision of the Victorian Supreme Court provides guidance as to how the statutory test of the standard of care for professionals is to be applied.

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Brakoulias v Karunaharan (Ruling) [14.435] Brakoulias v Karunaharan (Ruling) [2012] VSC 272. Mrs Brakoulias, the plaintiff, suffered a cardiac arrest when 50 years of age. She stopped breathing. Before being resuscitated by paramedics, she was substantially deprived of oxygen for 26 minutes. As a result she has suffered serious, long-term injuries, including loss of motor and cognitive function, speech impairment, loss of memory and other injuries. About four months before her cardiac arrest, she had been prescribed a weight loss drug called Reductil by her local general practitioner, Dr Karunaharan, the defendant. Mrs Brakoulias took the drug up until the day of her cardiac arrest. Mrs Brakoulias alleged that Dr Karunaharan was negligent in prescribing her Reductil, and that the taking of Reductil caused her cardiac arrest and her injuries. Macaulay J instructed the jury that to prove negligence against a professional, a plaintiff must discharge prove negligence according to the common law standard of care, currently expressed in Rogers v Whitaker (1992) 175 CLR 479, where the majority of the High Court said “the standard of reasonable care and skill required is that of the ordinary skilled person exercising and professing to have that specialised skill”. If that burden is discharged, a defendant is to be found negligent unless the defendant establishes that he or she acted in a manner that accorded with peer professional opinion as set out in s 59 (virtually identical to s 5O of the NSW legislation) provided it is not unreasonable. The jury determined that Dr Karunaharan had not been negligent in her management and treatment of Mrs Brakoulias and the proceeding was dismissed with costs.

Paris v Stepney Borough Council [14.437] 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 that would have protected him against injury to his good eye. The House of Lords held that whatever the defendant’s duty to his other workers, the gravity of the consequences of an injury to the plaintiff’s good eye (that is, complete blindness) meant that the defendant employer was in breach of the duty of care owed to the plaintiff employee.

In Rogers v Whitaker (1992) 175 CLR 479 (see [14.120]), the High Court held that, although the risk of a potential complication after eye surgery was low (approximately 1 in 14,000), the consequences for a person who was already blind in one eye were so serious that a reasonable person would have warned of the (slight) risk before operating.

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(c) Burden of eliminating the risk [14.438] As Denning LJ pointed out in Watt v Hertfordshire CC [1954] 1 WLR 835, 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, 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). 1 1

Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540.

Woods v Multi-Sport Holding Pty Ltd [14.440] 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 circumstances where such headgear had yet to be designed and manufactured and the rules of the game did not allow for the use of helmets, the High Court held that it was open for the trial judge to find that the defendant was not negligent in failing to provide the plaintiff with a helmet.

[14.450] In New South Wales, s 5C of the Civil Liability Act 2002 (NSW) 1 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.

1

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.

(d) Utility of the defendant's conduct [14.460] 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

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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 standard of care for professionals – the statutory tests [14.480] The reform legislation provides that a professional does not breach a duty of care if the conduct in question (eg legal or financial advice, medical interventions, engineering works etc) is widely accepted by peer professional opinion as sound professional practice. With respect to the liability of professional persons the Civil Liability Act 2002 (NSW), s 5O provides: 1 (1)

A person practising a profession (“a professional”) does not incur a liability in negligence arising from the provision of a professional service if it is established that the professional acted in a manner that (at the time the service was provided) was widely accepted in Australia by peer professional opinion as competent professional practice.

(2)

However, peer professional opinion cannot be relied on for the purposes of this section if the court considers that the opinion is irrational.

(3)

The fact that there are differing peer professional opinions widely accepted in Australia concerning a matter does not prevent any one or more (or all) of those opinions being relied on for the purposes of this section.

(4)

Peer professional opinion does not have to be universally accepted to be considered widely accepted. 2

However, it is clear that s 5O is a defence that is available to a defendant once a breach of the duty has been established. To put it another way, where the plaintiff proves that the defendant professional has not exercised reasonable care in the discharge of his or her professional duties, the defendant is liable unless he or she can show by way of defence that he or she acted in a manner that satisfies the “peer professional opinion” test in s 5O: see Dobler v Halverson [2007] NSWCA 335. Health professionals often seek to rely on the legislation when a patient takes action alleging the treatment was negligent. The following case is a recent example. 1

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.

2

See also, Wrongs Act 1958 (Vic), s 59; Civil Liability Act 2003 (Qld), s 22; Civil Liability Act 1936 (SA), s 41 and Civil Liability Act 2002 (Tas), s 22. There is no equivalent provision in Western Australia or the Territories.

Mules v Ferguson [14.485] Mules v Ferguson [2015] QCA 5. Ms Mules sought treatment for neck pain from her general practitioner on a number of occasions in early September 2008. On 12 September, the doctor advised her to continue taking her pain relief medication and to continue seeing her chiropractor. She did so. On 18 September, the doctor ordered a CT scan and after examining the photos said she had some curvature of the spine. She continued to decline until on 25 September 2008, she was admitted to Cairns Private Hospital and the following day diagnosed with cryptococcal meningitis, a rare infection that originates in the lung, spreading through the bloodstream to the brain, causing the meningitis. In this particular case,

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although the diagnosis came just in time to save her life, the treatment was too late to prevent irreversible brain damage, leaving the plaintiff blind and deaf. Ms Mules sued her general practitioner alleging that her illness should have been diagnosed earlier, and, if this had happened, that this would have allowed her to avoid the resulting injuries. The trial judge found Dr Ferguson failed to act with reasonable care and skill in not physically examining Ms Mules’ neck and enquiring about the progress of her previously recorded symptoms of headache and facial flushing. However, he concluded that this breach did not cause her injuries because he considered that a physical examination performed on 18 or 19 September 2008, would not have caused the respondent to suspect the presence of a symptom with a cause any more sinister than a musculoskeletal cause. He also found that based on the evidence of the experienced general practitioners who gave evidence at the hearing, Dr Ferguson had established the peer professional opinion defence created by s 22 of the CLA (Qld). The Court of Appeal took a different view on both causation and the peer professional opinion defence. As to the peer professional opinion defence, the Court found that although there was evidence that two experienced general practitioners considered Dr Ferguson’s approach was consistent with a reasonable standard of general practice, they had based their opinions on assumptions that were consistent with Dr Ferguson’s version of events and not with the facts as found by the trial judge (who found that Ms Mules had complained of headaches and that Dr Ferguson was aware of some reduction in Ms Mules’ range of neck movement). When these factors were taken into account, there was no evidence upon which the trial judge could be satisfied that Dr Ferguson had demonstrated that her actions were protected by the peer professional opinion defence. The Court accordingly found in favour of Ms Mules. The High Court refused special leave to appeal.

Damages [14.490] The final element that a plaintiff must prove for an action in negligence to succeed is that: (a)

that it was caused by the defendant’s negligence; and

(b)

that it is appropriate for the “scope of the defendant’s liability” to extend to the loss or damage or injury

Causation [14.500] 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. There is no requirement to prove with absolute certainty that the breach caused the loss. As pointed out earlier, the reform legislation also deals with the issue of causation. In New South Wales, s 5D(1)(a) of the Civil Liability Act 2002 (NSW) provides that the decision whether a breach of duty caused the particular harm involves a test or element of “factual causation”. 1 As the High Court pointed out in Strong v Woolworths Ltd (2012) 246 CLR 182, 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

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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. 1

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.

Strong v Woolworths Ltd [14.505] Strong v Woolworths Ltd (2012) 246 CLR 182. Kathryn Strong, who was disabled and required the use of crutches, was injured when the tip of her crutch came into contact with a chip lying on the floor of an area occupied by Woolworths in a shopping centre in Taree, NSW. She sued Woolworth’s and the occupier. The High Court held that even though the plaintiff could not show exactly when the chip was dropped, by showing that the probabilities were that the chip was dropped more than 20 minutes before the fall she could satisfy her onus of proof. The High Court has affirmed that the main question in any inquiry into causation remains whether it was more probable than not that the defendant’s breach was the cause of the plaintiff’s loss. Where the defendant’s breach of duty is clear or admitted, the plaintiff will not fail on the causation issue only because there is no positive evidence establishing the causal link between the defendant’s breach and the plaintiff’s injury.

Mules v Ferguson [14.506] Mules v Ferguson [2015] QCA 5. On the causation question, the trial judge found Dr Ferguson failed to act with reasonable care and skill in not physically examining Ms Mules’ neck and enquiring about the progress of her previously recorded symptoms of headache and facial flushing. However, he concluded that this breach did not cause her injuries because he considered that a physical examination performed on 18 or 19 September 2008 would not have caused the respondent to suspect anything other than a musculoskeletal cause. The Court of Appeal reversed the trial judge’s decision. It found that caused the plaintiff’s injuries because, had he done a proper examination on 18 and 19 September, Ms Mules would have demonstrated restricted neck movements that may have indicated a meningeal problem requiring immediate attention. Had he referred the plaintiff at that time, it is likely that she would not have suffered the injuries she did.

[14.508] 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 car park. 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

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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. 1 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. In Cummings v Sir William Arrol & Co Ltd [1962] 1 WLR 295, 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. The “but for” test was also applied in Chappel v Hart (1998) 185 CLR 232 where it was held 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. 1

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].

March v E & MH Stramare Pty Ltd [14.509] March v E & MH Stramare Pty Ltd (1991) 171 CLR 506. March sued to recover damages for personal injuries sustained when, around 1.00 am at night, he collided with the tray of a truck, owned by Stramere, that was parked in the centre of the road for the purpose of loading it with large wooden bins containing fruit and vegetables. March was intoxicated to such an extent that his ability to judge speed and distance was impaired. The primary judge found that, although the parking and hazard lights of the truck were illuminated, the driver should have appreciated that the parked vehicle might, in some circumstances, constitute a danger to oncoming vehicles. The High Court recognised that the “but for” test gives rise to a well-known difficulty in cases where there are two or more acts or events which would each be sufficient to bring about the plaintiff’s injury. In the past, according to the “last opportunity” or “last clear chance” rule, the plaintiff was entitled to recover, despite his or her own negligence, if the defendant had the last opportunity of avoiding the accident but failed to do so due to negligence. If this principle were applied here, March would not succeed because he had the last opportunity to avoid the accident, but did not. Courts now readily recognize that there are concurrent and successive causes of damage and that it is a common sense approach that liability will be apportioned as between the wrongdoers. Thus Stramere’s negligence was a cause of the accident and of March’s injuries. The wrongful act in parking the truck in the middle of the road created a situation of danger, the risk being that a careless driver would act in the way that the appellant acted. In these circumstances, the respondents’ negligence was a continuing cause of the accident. The Court concluded that March was responsible for

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70% of his losses and Stramere 30%.

In the following medical negligence case, the High Court reinforced the need for the plaintiff to prove that “but for” the negligence of the doctor the injury or damage would not have occurred. Loss of a chance of a better outcome is not enough

Tabet v Gett [14.509A] Tabet v Gett (2010) 240 CLR 537. Reema Tabet was a six year old girl when she suffered from persistent headaches and vomiting. She was admitted to the hospital and discharged two days later. When her symptoms persisted, she was readmitted to the hospital. The defendant, Dr Gett, diagnosed chicken pox and possibly meningitis and ordered a lumbar puncture. Two days later she became non-responsive and a day later had a seizure. At this point the defendant ordered a CT scan. She was subsequently diagnosed with a brain tumour and suffered irreversible brain damage. The High Court held that the plaintiff could not establish on the balance of probabilities that the brain damage would not have happened “but for” the defendant doctor’s negligent delay in ordering a scan. It said that where the evidence showed that, at most, the defendant doctor’s negligent omission deprived the plaintiff of the chance of a better outcome, this “loss of chance” should not be actionable at common law. In the view of some members of the High Court, the requirement that a plaintiff prove causation aims to strike a balance between the competing interests of plaintiffs and the defendants. For liability to be based on anything other than the plaintiff being able to show the defendant’s conduct was the probable cause of the damage would tip the balance too much toward the plaintiffs and expose medical practitioners (and others) to uncertain legal liability which itself would have an impact on the public and private healthcare system and on professional liability insurance.

[14.510] The reform legislation in New South Wales, s 5D(1)(b) of the Civil Liability Act 2002 (NSW) 1 and in other States sets out an additional element for determining whether a breach of duty caused the particular harm. This requirement relates to the “scope of liability”. It involves a consideration of policy issues including the “remoteness of damage” question considered at common law to determine whether, and to what extent, a defendant should have to answer for the consequences of their negligent conduct. 1

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.

Paul v Cooke [14.511] Paul v Cooke (2013) 85 NSWLR 167. Mrs Paul was diagnosed with a cerebral aneurysm that had the potential to rupture and cause bleeding within the brain. To reduce the risk of it rupturing she underwent a procedure to remove it but it ruptured during surgery leaving her severely disabled. Three years earlier, she had

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had an angiogram but the radiologist, Dr Cooke, had failed to diagnose the aneurysm. The plaintiff sued arguing that Dr Cooke’s negligent failure to diagnose the aneurysm three years earlier had caused the harm. The New South Wales Court of Appeal held that the harm suffered by the plaintiff was outside the scope of the defendant’s liability. Although the defendant’s negligence had created a risk that the cerebral aneurysm would go untreated and could therefore, like any other aneurysm, have ruptured spontaneously, it did not create the risk of what had actually occurred – a rupture whilst on the operating table. That risk was the unavoidable risk that one takes when undertaking surgery. The absence of any relationship between Dr Cooke’s negligent conduct and the harm suffered by the plaintiff due to its rupture in surgery three years later made it inappropriate to impose liability.

Remoteness of damage [14.515] For obvious reasons, it would not be sensible or practical for a defendant to be responsible for all the consequences of his or her negligent words or conduct. It would create the same “indeterminacy” problem that has concerned the courts in the past. 1 Defendants could be liable for all the future consequences of their actions. To avoid this problem, the courts place a limit by using the concept of forseeability: a defendant is liable for the harm that is caused by the breach of a duty of care only if the harm was not too remote from the breach. 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. 1

See Perre v Apand Pty Ltd (1999) 198 CLR 180 and Ultramares v Touche (1931) 255 NY 170.

Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd [14.520] Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388. The defendant charterer of a ship negligently spilt a quantity of oil while it was being loaded. The oil floated on the surface of the water in Sydney Harbour. The oil was ignited by some molten metal falling from the plaintiffs’ wharf, where welding operations were being carried out, onto cotton waste floating in the oil which acted as a wick. The ensuing fire extensively damaged the plaintiffs’ wharf. The flashpoint of the oil was 170 degrees F and would not normally have ignited on water. The Privy Council held that the defendant charterer was not liable to the plaintiffs for the damage caused to their wharf. Although there was a clear causal connection between the events that took place, but that was not enough. The defendant is only liable for the harm caused if the harm was of a kind that was reasonably foreseeable. The kind of damage resulting from the spillage of the oil was not reasonably foreseeable in the circumstances.

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[14.530] 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.

Rowe v McCartney [14.540] 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 that resulted in him becoming a quadriplegic. The plaintiff, who was a passenger in the car, incurred only minor physical injury. However, the plaintiff suffered mental illness brought on by her sense of guilt in allowing the defendant to drive her car. The New South Wales Court of Appeal held that the psychiatric illness suffered by the plaintiff was neither reasonably foreseeable, nor was it of the same type or kind of injury that was reasonably foreseeable in the circumstances. The type or kind of injury that would have been foreseeable was mental illness arising from nervous shock from seeing or hearing about the injury of another, or from shock or worry about her own injury.

Defences to an action in negligence [14.550] The principal defences to an action for negligence are: (a)

contributory negligence; and

(b)

voluntary assumption of risk.

Contributory negligence [14.560] 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 allows for an apportionment of damage. 1 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.”

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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. 2 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) 3 alters the common law relating to contributory negligence by allowing a court to reduce a plaintiff’s damages by any contribution of the plaintiff to their own damage. A court may find that the plaintiff’s contribution was in fact 100 per cent which will have the effect that the defendant has no ultimate liability. 4 1

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.

2

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.

3

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.

4

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.

Alzawy v Coptic Orthodox Church Diocese of Sydney, St Mary and St Merkorious Church (No. 2) [14.565] Alzawy v Coptic Orthodox Church Diocese of Sydney, St Mary and St Merkorious Church (No. 2) [2016] NSWSC 1123. Carolin Alzawy attended a bible study group that met in a building on the grounds of the Church of St Mary and Merkorious in Sydney. After the meeting, she descended a flight of stairs as she had done many times before. The staircase consisted of tiled steps with “nose tiles” laid on the outer edge of each tread and a handrail along the entire length. The “nose tile” on one of the steps had been broken four years earlier but never fixed. Ms

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Alzawy did not to use the handrail as she descended the stairs. Some way down the staircase, she fell forward, hitting her head forcefully on the metal handrail before falling down to the bottom of the stairs. The trial judge was satisfied that the plaintiff had stepped on the broken tile when she slipped. As such, the broken tile itself, and the church’s failure to fix it, had caused the damage the plaintiff had suffered. The defendant was therefore held liable for the plaintiff’s injuries. However, the judge found a person descending a flight of stairs ought to take reasonable care for their own safety. In this instance, reasonable care included simple precautionary measures such as the use of the handrail and keeping a proper lookout. The plaintiff was found to have been 50% responsible for the injuries she suffered on account of her own contributory negligence.

In Liftronic Pty Ltd v Unver (2001) 179 ALR 321, the High Court held that it was open for the jury to reduce the plaintiff’s damages by 60%. 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 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. 1 1

See Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9; Wrongs Act 1958 (Vic) s 26; Law Reform Act 1995 (Qld), s 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA), s 4; Wrongs Act 1954 (Tas), s 44; Civil Law (Wrongs) Act 2002 (ACT), s 102; Law Reform (Miscellaneous Provisions) Act (NT), s 16.

Voluntary assumption of risk [14.570] Unlike contributory negligence, a successful plea of voluntary assumption of risk is a complete defence. 1 The rationale behind this defence is that no wrong can be done to a person who consents. Over the years the courts have limited the scope of this defence. It is not enough for the defendant to show that the plaintiff knew of the risk. The plaintiff must have fully appreciated the risk and accepted it freely and willingly. The strict requirements of the defence mean that it is now rarely raised successfully. In cases involving an obvious risk, the reform legislation applies to introduce a presumption of awareness of the risk on the part of the plaintiff and place the onus on the plaintiff to show he or she was not aware of that risk. 2 1

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.

2

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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Vicarious liability [14.620] 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. An employer or master is vicariously liable for the acts or omissions committed by his or her employee or servant. However, an employer is not vicariously liable for the tortious acts committed by an independent contractor: Hollis v Vabu Pty Ltd (2001) 207 CLR 21. Accordingly, a distinction is drawn between servants and independent contractors. The general test used to determine the distinction between a servant and an independent contractor is what is known as the “control test”. If an employer has legal authority to tell a worker not only what to do but how to do it then a master-servant relationship will exist: Humberstone v Northern Timber Mills (1949) 79 CLR 389. Other factors can also be relevant such as the mode of remuneration (including who pays any income tax and superannuation), the power of dismissal, whether a uniform is worn, and the provision of equipment. The High Court found that Stevens v Bodribb Sawmilling Co Ltd (1986) 160 CLR 16 and Sweeney v Boylan Nominees (2006) 226 CLR 161 were both cases involving independent contractors. However, in Hollis v Vabu Pty Ltd (2001) 207 CLR 21, an employer/employee relationship was present. In On Call Interpreters and Translators Agency Pty Ltd v the Commissioner of Taxation (No 3) [2011] FCA 366, the Court said that whether a person was an employee or an independent contractor was a practical question and depended on whether the person was performing the work as an entrepreneur who owned and operated their own business, or, worked in and for the employer’s business. This case was considering liability of the “employer” for superannuation payments and so any considerations may apply to other types of cases, such as negligence causing injury to third parties, need to also be considered. This question of whether a person is an employee or an independent contractor is a very important issue in an era where businesses often contract out tasks and utilise labour hire arrangements.

Frost v Warner [14.640] 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. In circumstances where a worker is “borrowed” by another employer, the lending employer prima facie remains liable for the employee’s acts or omissions. A lending employer can only escape liability for the wrongdoing of a “borrowed” employee if he/she can show that control over the employee has been effectively transferred to the “borrowing” employer. The vicarious liability of an employer is limited to acts or omissions that are committed in the course of the employee’s employment. It is not always easy to determine whether a servant’s act or omission took place in the course of their employment. Clearly, an employer will be vicariously liable for acts or omissions that they authorised or ratified. The notion of “course of employment” also covers conduct that can be regarded as an unauthorised mode of performing an authorised

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task. For example, the employer of a petrol-tanker driver was held vicariously liable for the damage caused by a fire which ignited when the driver lit a cigarette when delivering petrol to an underground tank. The driver’s action was considered to be an unauthorised way of performing the authorised task, namely, delivering petrol: Century Insurance Co Ltd v Northern Ireland Road Transport Board [1942] AC 509. However, an employer will not be liable for an employee’s wrongdoing if it was unrelated to their employment. In New South Wales v Lepore (2003) 212 CLR 511, deliberate predatory sexual behaviour was not seen as having been committed in the course of the teacher’s employment.

Deatons Pty Ltd v Flew [14.650] Deatons Pty Ltd v Flew (1949) 79 CLR 370. Where a barmaid threw a glass into the face of an inebriated customer who as a result lost the sight of an eye, it was held that the act was of a personal nature unconnected with the employee’s duties and therefore the employer was not vicariously liable for the injury suffered by the customer.

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PART 5: BUSINESS RELATIONSHIPS

Chapter 15: Law of Agency Chapter 16: Corporations Law

chapter 15

Law of Agency [15.30] Agency distinguished from other relationships .............................................................................. 369 [15.90] Creation of agency .......................................................................................................................................... 371 [15.200] Nature and scope of an agent's authority....................................................................................... 374 [15.270] Duties of an agent........................................................................................................................................ 382 [15.390] Rights of agents ............................................................................................................................................ 386 [15.470] Liabilities of agents...................................................................................................................................... 388 [15.670] Termination of agency............................................................................................................................... 393 [15.790] Particular types of agents ....................................................................................................................... 395 [15.860] Statutory regulation of agents .............................................................................................................. 396

Introduction

[15.10] An increasingly important concept in the commercial world is the concept of agency. Although we usually act for ourselves and are responsible for own own actions, it is also clear that for various reasons – lack of time, lack of expertise, inability to be present – we often rely upon or engage others to act on our behalf. When we do, we are acting through an agent and we are in the realm of agency law. We only need to think of real estate agents, sports and theatrical agents, stockbrokers, employees, travel agents and directors of corporations to appreciate that agency is crucial to many aspects of commercial life. The law of agency, a creature of the common law, allows one person to authorise another person to do any act that he or she has capacity to do themselves – negotiate or enter into contracts,

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receive information, perform work, buy and sell real estate or other property, make representations – as if the principal were acting in person. However, the foundational principle of the law of agency is that the principal, who has chosen to conduct his or her business through an agent, must bear the consequences of that decision (and, naturally, the principal is entitled to the benefits created by the relationship). Agency is a consensual relationship. Therefore, the use of an agent by a principal will always be voluntary, even if a particular act by the agent is not authorised. In other words, a principal will not be bound by the acts of his or her agent, unless the principal has given authority to the agent to act on his or her behalf. If it were not so, we would all be vulnerable because we might be bound by the acts of a person who simply claimed to be acting on our behalf. This immediately raises the issue of the authority that an agent has to act on the principal’s behalf. This authority may be actual or apparent. Actual authority is the authority actually conferred on the agent (either express or implied) by the principal. Obviously, the principal is responsible for any contracts made by an agent acting within his or her actual authority. For example, a principal may instruct her agent (a stock broker) to enter into a contract to purchase shares up to a value of $1 million. The agent binds the principal if and when he does so. More problematically, the principal may be bound by the acts of an agent acting within his or her apparent authority. This is the authority that the agent appears to have but which, in fact, he or she does not have. The principal is responsible for the foreseeable consequences of the agent who acts outside of his or her actual authority but within his or her apparent authority. In the above example, if the agent purchases shares worth $1.3 million, the question will be whether the agent (who clearly does not have actual authority) has apparent authority to do what he did. If so, the principal will be bound by the acts of the agent. The principal may also be liable in tort for the actions of his or her agent. For instance, the partners in an accounting firm are both principals and agents for one another. So if, for instance, if a partner were to provide negligent advice to a client or steal the client’s funds, the other partners may be liable (as principals) for the conduct of the partner (who was acting as an agent of the firm). A final introductory concept: an agency relationship is a fiduciary relationship, one in which the agent must always act in good faith towards the principal, putting the principal’s interests above his or her own interests and act under the control and direction of the principal at all times. In this chapter, we compare agency with other relationships and then examine various types of agency, look at how an agency relationship may be created and how it may be ended, explore in some detail the power and authority an agent may have and the various rights and responsibilities of each of the parties – principal, agent and third parties.

chapter 15 Law of Agency

Agency distinguished from other relationships [15.30] Agency overlaps with two other relationships that appear at first sight to be somewhat similar, namely, that of employer and employee and that between an independent contractor and the person with whom he or she contracts. Employees and independent contractors are mutually exclusive classes. The former comprises persons employed on such terms that they are subject to control regarding the manner in which their work is to be carried out. Independent contractors, on the other hand, exercise their own discretion as to the manner in which they carry out the work they undertake to perform. The difference may be further illustrated by distinguishing between a person employed under a contract of service (an employee) and a person engaged under a contract for services (an independent contractor). There are many reasons why it may be important for an employer to distinguish between an employee (agent) and an independent contractor.

International Harvester Co of Australia v Carrigan’s Hazeldene Pastoral Co [15.35] International Harvester Co of Australia v Carrigan’s Hazeldene Pastoral Co. Carrigan bought a machine from H & K, a machinery supplier, which described itself as the “agent” in that area for International Harvester (IH) products. However, H & K owned the machine it had bought from IH and which was on-sold to Carrigan. When the machine broke down and the suppliers went bankrupt, the question arose as to whether the suppliers were acting as agents of IH. If so, Carrigan could sue IH as the principal. The High Court decided that no agency relationship existed between IH and H & K. The fact that H & K described itself as an “agent” was not determinative – the word was not used in a legal sense. One had to look at all the circumstances including the control that IH exercised over H & K.

[15.37] Some independent contractors are agents for those who employ them and some employees are general agents for their employers, but it is not true to say that all employees or all independent contractors are agents for their employers. Employers risk breaching taxation, superannuation and workplace laws and regulations if they incorrectly classify a worker as an independent contractor rather than an employee/ agent. In the case of some types of employee this will be readily implied, for example a shop assistant employed to sell goods is an agent. On the other hand, an auctioneer (an independent contractor) retained to sell goods is an agent of the vendor but not an employee. Sometimes it will not be clear and, as in International Harvester, all the facts and circumstances will need to be considered. For instance, there is currently considerable doubt as to the legal status of Uber drivers – are they independent contractors or employees? If the Uber driver is characterised as an employee there are implications for leave and superannuation entitlements, workcover, workplace health and safety and so on. A person who is characterised as an “employee” has far greater rights (and responsibilities) that one who is characterised as an “independent contractor”. This is the central issue in ongoing litigation concerning Uber and its relationship with its drivers (are they employees of the company – and therefore entitled to minimum wages, leave and superannuation etc – or independent contractors).

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An agent should also be distinguished from a trustee. Both act in a similar manner, that is, on behalf of other persons. However, although a trustee exercises their powers on behalf of beneficiaries, a trustee is not the agent of the beneficiaries. Thus, a trustee does not bring the beneficiaries of the trust into a contractual relationship with third parties that is the normal function of an agent. In dealing with matters relating to the trust, the trustee is considered a principal not an agent.

Capacity to act as principal and agent [15.40] 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. Any person can be employed as an agent and can exercise any of the rights and powers conferred by the contract of agency, even though they may not have the necessary contractual capacity to bind themselves in similar negotiations. For example, although a minor is not able to bind herself or himself to certain contracts, a minor may be employed as an agent, and consequently may bind the principal to contracts he or she has entered into as agent. In respect of contracts to which a minor is able by law to bind herself or himself, it is permissible for the minor to appoint an agent for such purpose. A minor’s capacity to act through an agent is coextensive with the minor’s capacity to do the act that he or she purports to delegate. An agent cannot have greater powers conferred upon them than the principal has; 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 [15.50] 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 [15.60] 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 [15.70] 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.

chapter 15 Law of Agency

Universal agents [15.80] 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 [15.90] The relationship of principal and agent may be created in the following ways: (a)

expressly (that is, by agreement) (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 [15.100] 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. 1

Powers of attorney to enable attorneys to deal with land under the Torrens system of registration in force in the various States require registration or deposit of copy. See Transfer of Land Act 1958 (Vic), s 94; Real Property Act 1886 (SA), s 156; Transfer of Land Act 1893 (WA), ss 143, 144. The corresponding provision in the Real Property Act 1900 (NSW), s 88 was repealed by the Real Property (Amendment) Act 1970 (NSW), s 13. As to dealings with land under the general law by attorneys, see Conveyancing Act 1919 (NSW), s 163; Instruments Act 1958 (Vic), Pt XI; Land Title Act 1994 (Qld), ss 132 – 135; Registration of Deeds Act 1935 (SA), s 35; Property Law Act 1969 (WA), s 85; Powers of Attorney Act 2000 (Tas), requiring registration of powers to validate such dealings.

By writing [15.110] 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.

By word of mouth [15.120] 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 above. In practice, it is usually desirable that the appointment of an agent be in writing.

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Holding out or estoppel [15.130] 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. The question whether one person has led third parties to believe that another person is their agent is a question of fact to be decided upon the circumstances of each particular case: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72.

Ratification [15.140] 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. For the legal position where an agent does not disclose to the third party that he or she is acting as an agent, see [15.550].

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 of the Corporations Act 2001 (Cth) 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.

5.

Ratification must be with full knowledge of what has been done so that the inference may properly be drawn that the principal intended to take upon themselves the responsibility for such acts: Marsh v Joseph [1897] 1 Ch 213.

Where the rules set out above are satisfied, ratification operates retrospectively to validate a previously unauthorised act. The position is the same as if the agent had been vested with authority at the outset.

Operation of law [15.150] An agency can arise by operation of law, that is, irrespective of assent or intent, in two main situations; namely, in cases of: (a)

necessity; and

(b)

arising out of cohabitation.

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Agency of necessity [15.160] 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.

A person must have been entrusted with another’s property.

2.

An immediate expense must be required for the preservation of the property, or there must be some commercial necessity for the action, that is, there must be an emergency.

3.

It must be commercially impossible or extraordinarily difficult to communicate with the owner of the property: Sachs v Miklos [1948] 2 KB 23.

4.

The agent must act bona fide in the interest of the principal.

Great Northern Railway Co v Swaffield [15.170] Great Northern Railway Co v Swaffield (1874) LR 9 Exch 132. The plaintiff railway company agreed to deliver the defendant’s horse to a particular railway station. However, on arrival at the station at night there was no-one to take possession of the horse on the defendant’s behalf. Accordingly, the plaintiff’s stationmaster sent the horse to a nearby livery stable. Subsequently, the plaintiff paid the stablekeeper his charges. It was held that the plaintiff had acted reasonably in placing the horse in the livery stable and was entitled to recover from the defendant the expense it had incurred in doing so.

Munro v Willmott [15.180] Munro v Willmott [1949] 1 KB 295. Another example of an agency of necessity is where the master of a ship is compelled to pledge (hypothecate) the ship in order to effect essential repairs to preserve the ship, or to sell damaged cargo which would be ruined if there was further delay. On the other hand, the fact that property (for example, a parked car) may be causing a person inconvenience does not mean that such an emergency has arisen which compels its disposal.

Agency arising by cohabitation Debenham v Mellon [15.190] Debenham v Mellon (1880) 5 QBD 394. In the case of a married woman cohabitating with her husband, and even in the case of an unmarried woman cohabitating with a man, the law presumes that she has his authority to pledge his credit for necessaries in all domestic matters ordinarily entrusted to a wife. It is possible for the man to rebut the presumption of such authority in various ways, for example, by showing that he had expressly warned the tradesman not to supply his wife, or de facto wife, that he had expressly forbidden her to pledge his credit or that he had provided her with a sufficient allowance to pay for necessaries.

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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. 1 1

In New South Wales, the Married Persons (Equality of Status) Act 1996 (NSW), s 7 provides: “A married person does not, by reason only of the person’s status as a spouse, have authority to pledge the credit of the other spouse for necessaries or to act as agent for the other spouse for the purchase of necessaries.” See similarly, Law of Property Act 1936 (SA), s 104; Married Persons’ Property Act 1986 (ACT), s 5; Northern Territory, Married Persons (Equality of Status) Act 1989 (NT), s 5.

Nature and scope of an agent's authority Figure 15.2: Agent’s authority

[15.200] The fact that an agency has been created does not mean that the principal is bound by all the actions of the agent. The principal will only be bound by those acts of the agent which fall within the scope of the agent’s authority. The principal will not be affected by what the agent does in excess of her or his authority, unless the principal subsequently ratifies the unauthorised act of the agent. Furthermore, if the agent acts outside their authority, the agent may be liable to the principal for breach of the contract of agency or to third parties for breach of implied warranty of authority.

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The following case is an example of the importance of determining the scope of an agent’s authority. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (see [9.210] above for the facts of the case) the main issue was whether the principle of L’Estrange v Graucob applied. Alphapharm also submitted that Richard Thomson Pty Ltd was not acting within its authority when its employee signed the contract. If not, the Conditions of Contract that included the exclusion clause would not bind Alphapharm. The High Court rejected the argument and concluded that Thomson was acting as an agent for Alphapharm and acting within its authority. The Court said: “In contracting to obtain the supply of those services, Richard Thomson was acting for the benefit of Alphapharm. As Dixon AJ said in Press v Mathers [1927] VLR 326” ’in any ordinary case the question whether one person authorized another to do an act or series of acts on his behalf is best answered by considering for whose benefit or in whose interest it was intended it should be done. Such a consideration may not be conclusive, but it is a useful practical starting point’ [at 70]. The evidence compels the conclusion that Alphapharm authorised Thomson to contract with Finemores and to agree upon rates of freight, terms of payment, and such other standard terms and conditions of the contract of storage and transportation as were required by Finemores. So long as the terms and conditions to which Richard Thomson agreed were Finemores’ standard terms and conditions then Richard Thomson was acting within its authority: at [81]–[82]. The authority of an agent may be: (a)

actual authority; or

(b)

apparent or ostensible authority.

Actual authority [15.210] Actual authority arises out of an agreement between the principal and the agent. The general nature and effect of the actual authority of an agent was explained by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 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” (emphasis added.) The actual authority of an agent can be express or implied. That is to say, the actual authority of an agent is either: (a)

actual express authority; or

(b)

actual implied authority.

Actual express authority [15.220] 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 or to purchase a particular piece of land at a stipulated price, or to sell a specific item. In other words, the agent’s authority may be specifically created and limited by the terms of the agreement which gives rise to the agency relationship.

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Actual implied authority [15.230] 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 sell goods, the agent will also have implied authority to do everything in the usual course of business to complete the transaction, such as receive cash, issue receipts or arrange delivery of the goods. Furthermore, where a person employs a particular type of agent to carry out some act on behalf of the principal, the agent will have such implied authority as agents of that class normally have; that is, the agent will have the usual authority which agents of that particular profession or calling normally have to carry out their functions. For example, when the board of directors of a company appoints one of their number to be managing director: “They thereby impliedly authorise him to do all such things as fall within the usual scope of that office”: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583. Similarly, a solicitor in a law firm is an agent and has the actual implied authority to carry out the tasks in respect of which she has actual express authority.

Hopcroft v Edmunds [15.231] Hopcroft v Edmunds (2013) 116 SASR 191. 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 their accountant to “do whatever [is] necessary”: at [33]. The court held that such an instruction related only to ascertaining the necessary actions and preparing the necessary documents, not binding the respondents. The expectation that the respondents would need to have signed the agreement in order to be bound could only have been displaced by clear evidence of the accountant’s authority to bind them.

[15.235] Implied authority is regarded as an aspect of an agent’s actual authority since such implications of implied authority are made on the basis that the principal has consented to the agent having authority to act in such a manner. If there is evidence that the principal has not so consented, for example, where the board of directors specifically limited the managing director’s authority in some respect, then to the extent of such limitation an implication of implied authority cannot be made. However, it may well be that in such a case the third party can rely on the agent’s apparent authority to enter into the particular transaction.

Apparent (or ostensible) authority [15.240] Apparent (also known as ostensible) authority is conceptually distinct from actual (express or implied) authority. There is no actual authority, but instead the mere appearance of authority. It is a device to protect third parties who contract or otherwise engage with an agent based on the authority that he or she appears to have. This may be more important than the actual authority because third parties will often not be aware of the actual authority of an agent. Thus, where a principal represents either by words or conduct that an agent has authority to contract on the principal’s behalf, the principal will be bound by those acts of the agent which fall within that

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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.

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [15.250] Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. Kapoor and Hoon formed the defendant company to purchase, develop and then resell the Buckhurst Park Estate in Berkshire, UK. The board of directors comprised Kapoor, Hoon and a nominee of each. The Articles contained a power to appoint a managing director but none was appointed. The development of the land was left to Kapoor who, with the knowledge of the board of directors, acted as managing director although he had never been formally appointed to the position. Kapoor employed Freeman and Lockyer, the plaintiff firm of architects. Kapoor had no specific authority to do this, either in the Articles or from the Board. When the architects claimed their fees from the company, the company refused to pay, arguing that Kapoor had no authority to employ the architects. The plaintiffs sued the company for payment of their fees. It was held by the Court of Appeal that the defendant company was liable for the plaintiffs’ fees. Diplock LJ first differentiated between actual and apparent authority. Actual authority arises from the relationship that exists between the principal and the agent. The third party does not affect the extent of actual authority. Provided the agent acts within the scope of his or her actual authority the principal is bound by the acts of the agent. On the other hand apparent authority arises from the relationship between the principal and the third party. The agent does not affect the extent of apparent authority. The extent of the authority depends on what the principal represents to the third party (expressly or impliedly, by words or conduct) about the authority of the agent. Once the principal relies on the representations by the principal, the principal cannot subsequently claim the agent did not in fact have that authority.

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The Court of Appeal rejected the submission that Kapoor had actual authority. There was no express authority to engage the architects and there was no implied actual authority, which might have existed had Kapoor been appointed managing director. However the Court of Appeal unanimously agreed that Kapoor had apparent authority to engage the plaintiffs. Kapoor was the driving force behind the venture (Hoon was absent for most of the time) and evidence from the Board meetings indicated Kapoor should carry out all the acts necessary to make the venture a success. However, the Court did find that Kapoor had apparent authority. But before such authority exists Diplock LJ set out four criteria that must be met: “… (1) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor; (2) that such representation was made by a person or persons who had ‘actual’ authority to manage the business of the company either generally or in respect of those matters to which the contract relates; (3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and (4) that under its memorandum or articles the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent”: at [505]–[506]. Thus, on the one hand, the law protects third parties by allowing them to rely on a principal’s representations about the agent’s authority (when those representations are inconsistent with the agent’s actual authority). On the other hand, the law is protecting principals, who otherwise may find themselves bound to a contract made by an agent who acted without authority, by stating (in Diplock LJ’s conditions 1 and 2) that for apparent authority to exist, someone with actual authority (usually the principal) must have represented that the agent is acting within his authority.

Williams Group Australia Pty Ltd v Crocker [15.255] Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265. The recent decision of the NSW Court of Appeal involved a trading customer (Crocker) making a credit application to its supplier (Williams). The supplier required directors’ guarantees and a guarantee document was attached to the credit application. The directors of the customer had established an electronic signature system using “HelloFax”. The credit application (including the personal guarantee document) was returned to Williams with the electronic signatures of the directors attached, each of them having been purportedly witnessed by the customer’s administration manager. The customer defaulted and Williams looked to enforce the guarantees. Crocker successfully resisted the claim against him, arguing that “an unknown person” (in the company) had added his electronic signature to the credit application and the guarantee without his knowledge and without him giving that “unknown person” actual or apparent authority to do so.

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The decision was principally concerned with the issue of apparent rather than actual authority. It was accepted that Crocker had not given any actual authority to the “unknown person” to add his signature. The Court also decided there was no ostensible authority because that would require the “principal” (Crocker) to have made a representation to Williams of his authorisation of that other (unknown) person to affix his signature and for Williams to have relied on that representation. The Court found there had been no representation here. Williams simply assumed that the affixation of the signature was genuine and authorised. That assumption was aided by the fact that the office administration manager had apparently witnessed it. The Court was not prepared to find that Crocker’s failure to change his password had in effect provided anyone from his company with the means of affixing his signature to documents.

[15.260] 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.

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [15.262] Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711. The secretary of a company (Fidelis) contracted with a hire-car company (Panorama) to hire expensive cars, ostensibly to transport Fidelis’ clients from Heathrow airport to the company’s offices. In fact, the secretary had no actual authority to enter into such agreements and was using the cars for his own purposes. The hire-car company sued Fidelis to recover the hiring charges. It succeeded. The Court of Appeal held that entering into contracts like this was within the usual authority of company secretaries and therefore within the apparent authority of this particular secretary. The Court said that a company secretary is an officer of the company with wide responsibilities. They may be seen to have authority to make representations and enter contracts on behalf of the company in respect of the day to day administration of the company. This would include such routine matters as hiring cars. So whilst a company secretary may not have actual authority to do such things, he or she has apparent authority.

[15.263] A principal is bound by those acts of an agent that fall within the scope of the agent’s apparent authority even though the agent acted outside the terms of their actual authority. Where an agent occupies a particular office, or exercises a particular profession or calling the agent, by virtue of the position he or she holds, may have both implied actual authority and apparent authority to do a particular act binding on the principal. That is to say, although actual authority and apparent authority are independent of each other, in certain circumstances they may co-exist and coincide in the same person. In such a case, the agent’s ostensible authority is likely to be wider than their actual authority (whether express or implied) which may be limited by the terms of the agreement between the agent and the principal: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.

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Pacific Carriers Ltd v BNP Paribas [15.263A] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451. NEAT Ltd sold legumes to an Indian grain trader Royal Trading Company (RTC). While the cargo was in transit to India the world price of legumes fell sharply and RTC delayed accepting the cargo and refused to pay the purchase price. The original bills of lading were not available to enable the cargo to be unloaded, and Pacific Carriers (the shipper) required bank-endorsed letters of indemnity before releasing the cargo. NEAT and BNP Paribas (a large French merchant bank) signed letters of indemnity. Ira Dhiri, the documentary credits department manager at BNP signed for BNP and faxed them to Pacific allowing legumes to be released to Royal. Discharge of legumes occurred in stages then stopped. Pacific sustained losses and claimed against BNP, NEAT having become insolvent. BNP claimed that the indemnities were signed without its authority, and did not bind it. The High Court held that Ms Dhiri’s belief about what the documents were meant to convey is irrelevant. The question was what a reasonable person in Pacific’s position would have understood them to mean, based on their wording and the surrounding circumstances. Ms Dhiri had authority to sign and stamp documents verifying NEAT’s undertaking but no authority to sign letters of indemnity. However nothing put Pacific on notice or inquiry as to her lack of authority. The High Court held that Ms Dhiri had apparent authority, Pacific reasonably relied on that authority, and therefore BNP was bound. “A kind of representation that often arises in business dealings is one which flows from equipping an officer of a company with a certain title, status and facilities … The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation”: at [38].

The basis of apparent (or ostensible) authority is that there has been a representation of authority of the agent on which the third party relied. However, only someone who has the actual authority to make the representation can make the representation of authority. For example, in the case of a company, only a person who had actual authority (not apparent authority) to manage the business of the company can make the representation.

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [15.264] Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72. ADMA was a family company. Bruce Williams Snr was the Chair of the Board. His son, Bruce Jnr, was the managing director. The other son, Peter, had resigned as a director because he was a bankrupt, but continued to do the same work. Peter placed an order for machinery with Crabtree-Vickers. The order was on ADMA’s standard form order. At the bottom of the form was Bruce’s printed signature, next to which was “per” and then Peter’s written signature. When ADMA backed out, Crabtree Vickers sued for breach of contract. One of ADMA’s defences was that there was no contract because Peter had

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no authority to place the order. He had no apparent authority because someone who had actual authority to enter into that contract had not made the representation. In the company the actual authority to enter into this contract rested with the Board. The managing director alone did not have actual authority and therefore could not represent that Peter had apparent authority. The High Court accepted this argument, relying on Diplock LJ’s judgment in Freeman and Lockyer. 1 It has been held that the apparent authority of a solicitor includes authority to compromise a dispute on behalf of their client. Accordingly, the client will generally be bound by a compromise entered into by the solicitor with a third party, notwithstanding that the solicitor’s actual authority to compromise on behalf of the client had been withdrawn: Waugh v HB Clifford & Sons Ltd [1982] 1 Ch 374. Even where the solicitor mistakenly exceeds the client’s instructions as to the amount of a proposed settlement the client will generally be bound, unless it would be unconscionable for the party seeking to enforce the compromise to rely on it: Buseska v Sergio (1990) 102 FLR 157. Where the plaintiff’s solicitor exchanged identical signed contracts that included terms to which the plaintiff had not agreed at the time of signature, 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: (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.

1

It is perplexing that a managing director may bind the corporation because it has clothed him with apparent authority (as in Freeman v Lockyer) but that same person is unable to represent that someone else has apparent authority.

Ratification [15.265] A person may be an agent but act outside his or her actual authority. In these circumstances, the principal may retrospectively ratify (or adopt) the contract concluded with the third party. Such “ratification” can occur provided: at the time the subsequently ratified agreement was created, the agent represented to the third party that he or she was acting on the principal’s behalf; the principal had contractual capacity at the time of the creation and ratification of the contract; and

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the principal ratifies the whole contract.

Keighley, Maxsted & Co v Durant [15.266] Keighley, Maxsted & Co v Durant [1901] AC 240. Keighley, Maxsted & Co authorised Roberts to buy wheat on a joint account for himself and Keighley, Maxsted & Co at or below a certain price. Roberts, on his own behalf, bought wheat from Durant at a higher price than the price for which he had authority. Roberts did not disclose to Durant that he was acting as an agent for Keighley, Maxsted & Co as well as himself. Keighley, Maxsted & Co, however, later agreed with Roberts to ratify his purchase and buy the wheat at the higher price but eventually failed to do so. Durant resold it at a loss and sued Keighley, Maxsted & Co for the loss. The issue was whether a contract made by an agent, purporting to act on his own behalf, and not on behalf of a principal, but having an intention to give the benefit of the contract to a principal, can be ratified by that principal, so that the principal becomes liable on that contract. The House of Lords held that a contract made by an agent in his own name cannot be ratified. Lord Lindley noted the anomaly in holding a person bound to another of whom he knows nothing and with whom he did not in fact intend to contract. He said, “what Roberts intended was never disclosed to Durant and cannot be inferred from the nature of the transaction itself. His intention, therefore, cannot be allowed to affect the rights of the parties”.

Williams Group Australia Pty Ltd v Crocker [15.267] (See facts at [15.255].) Williams also argued that Crocker had ratified the guarantee by his subsequent conduct after accessing the “HelloFax” system, seeing the list of documents and effectively “shutting his eyes” to the obvious fact that his signature had been applied to the guarantee. The Court held that for Crocker to be held to have ratified a document executed by someone else (but in his name), there must be “full knowledge of all the material circumstances”. Crocker did not have that level of knowledge. The mere fact of the email listing the documents from “HelloFax” was not enough to establish ratification for the reasons mentioned earlier (namely, the fact that the personal guarantee was not mentioned as opposed to the credit application itself).

Duties of an agent [15.270] Every agent owes certain duties to their principal that varies in degree according to the nature of the agency or according to the express terms of the contract of agency. These duties include the: (a)

duty to follow the principal’s instructions;

(b)

duty to act in person;

(c)

duty to act in good faith;

(d)

duty to make full disclosure of any personal interest;

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(e)

duty not to make a secret profit;

(f)

duty to exercise reasonable care and skill; and

(g)

several other duties.

Each of these duties will be examined in turn.

Duty to follow principal's instructions [15.280] 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 [15.290] 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.

Duty to act in good faith [15.300] 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 below, are really aspects of the agent’s basic duty to act in good faith. The agent is under a duty in all cases to act in the interests of the principal and must not allow their own interests to conflict with those of the principal.

Lintrose Nominees Pty Ltd v King [15.310] Lintrose Nominees Pty Ltd v King [1995] 1 VR 574. The respondent purchaser had bought property from the appellant vendor on the advice of an agent to whom the purchaser had paid a fee for the advice. Unknown to the purchaser, the vendor had also retained the agent to sell the property.

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The Full Court of the Supreme Court of Victoria, held that the purchaser was entitled to rescind the contract of sale with the vendor. “[T]he vendor could not properly sell its property through its agent, knowing that the agent was retained to advise the purchaser on the purchase, without knowing also that the dual allegiance of the agent was disclosed to the purchaser”: at 576.

[15.320] 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 [15.330] 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. Any profit received by the agent resulting from non-disclosure is recoverable by the principal on learning the true facts: Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815. Should any question arise as to the validity of any transaction on this score, the onus lies upon the agent to prove that they acted bona fide and also that they made full disclosure of all material facts. After the termination of their employment, an agent may not use information acquired in the course of the agency in a manner prejudicial to the interests of the principal: Robb v Green [1895] 2 QB 315.

Duty not to make a secret profit [15.340] 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, James LJ said: “No agent in the course of his agency, in the matters of his agency can be allowed to make any profit without the knowledge of his principal; … that rule is an inflexible rule and must be applied inexorably by this court, which is not entitled, in my judgment, to receive evidence, or suggestion or argument as to whether the principal did or did not suffer any injury in fact, by reason of the dealing of the agent”.

Regal (Hastings) Ltd v Gulliver [15.345] Regal (Hastings) Ltd v Gulliver [1942] UKHL 1. The defendants were the directors of Regal, a company which operated a cinema. It created HAC, intending it to be a subsidiary, to acquire the leases on two cinemas nearby. However, because the company itself did not have sufficient money, the directors and the company solicitor personally paid for 60% of the shares in HAC. HAC acquired the cinemas, and then both were sold off to the plaintiff [Gulliver] for a tidy profit. The plaintiff, as the new management of Regal, sued the ex-directors and solicitor, seeking an account of profits made on the sale of their personal shares in HAC saying that this profit was in breach of their fiduciary duty to the company. The four directors were ordered to disgorge the profit they made from the sale of shares because they had acquired the shares through their positions as directors. The House of Lords said

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that the rule of equity which insists on those who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or considerations as whether the property would or should otherwise have gone to the plaintiff, The liability arises from the mere fact of a profit having been made. Lord Wright put the ethical responsibilities of fiduciaries well in the following statement: “Once, it was said, they came to a bona fide decision that the appellant company could not provide the money to take up the shares, their obligation to refrain from acquiring those shares for themselves came to an end. With the greatest respect, I feel bound to regard such a conclusion as dead in the teeth of the wise and salutary rule so stringently enforced in the authorities. It is suggested that it would have been mere quixotic folly for the four respondents to let such an occasion pass when the appellant company could not avail itself of it…(however) the person in the fiduciary position may be the only person in the world who could not avail himself of the opportunity”: at [157] (emphasis added).

Should the agent receive a secret commission or profit, the principal may recover it as well as dismiss the agent without notice. Where the agent desires to act for both vendor and purchaser and to obtain commission from both, the agent must make full disclosure to each party of her or his intention to act for and receive payment from the other, and must obtain the assent of each party for so acting: Fullwood v Hurley [1928] 1 KB 498. This general principle applies unless a special usage or custom which is notorious, certain and reasonable is proved to the contrary. Thus, it has been held that a firm of stock and share brokers were entitled as a matter of custom, which had been established to be sufficiently notorious and certain and which was reasonable in the circumstances of the case, to “marry” or cross certain selling and buying orders for shares without express reference to the respective clients. Where such custom is established, it would seem that the share broker is entitled to commission from both the seller and the buyer of the shares: Jones v Canavan [1972] 2 NSWLR 236.

Duty to exercise reasonable care and skill [15.350] 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.

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Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [15.360] Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corp [1984] WAR 365. An insurance broker was instructed by a client to obtain unqualified insurance cover against damage caused by storm and flood. Unknown to the client, the broker obtained insurance cover excluding flood caused by the sea. Subsequently the client suffered loss as a result of flooding by the sea in a cyclone but the insurance company avoided liability by virtue of the exclusion clause. The broker was held liable because of his failure to exercise reasonable care and skill in effecting the insurance.

Further duties [15.380] 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.

Rights of agents Right to remuneration [15.390] 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 [15.400] 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.

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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:

L J Hooker Ltd v W J Adams Estate Pty Ltd [15.410] L J Hooker Ltd v W J Adams Estate Pty Ltd (1977) 138 CLR 52. The respondent company was the owner of a property in Sydney and engaged the appellant real estate agent to find a purchaser for it. The appellant introduced the property to company A that made several unsuccessful offers to purchase it. Meanwhile, the respondent was negotiating for the sale of the property to company B that the appellant had not introduced. On company A and company B learning of each other’s interest in the property, they entered into a joint venture agreement for the purpose, inter alia, of avoiding the risk of forcing up the price by competing bids. The joint venture agreement provided that each company would continue to negotiate upon agreed terms and conditions with the respondent, and that upon one of the companies becoming the purchaser, that party would complete the purchase and carry out the redevelopment of the site with the other on an equal basis. Neither the appellant estate agent nor the respondent owner was then aware of the joint venture agreement. The respondent owner eventually sold the property to company B. The appellant then sued the respondent to recover commission. It was held by a majority of the High Court that the appellant estate agent was not entitled to recover any commission as it had not been an effective cause of the sale to company B, nor of any sale of any interest in the property to company A. The Court said: “The proper analysis in the present case … is that company A, without the intervention of the appellant or the knowledge of the respondent, agreed with company B to acquire an interest in common with company B in the whole of the property upon its purchase by company B. The situation is not comparable to a sale by a vendor to a purchaser of part of the property, where that purchaser was introduced to the property or the vendor by the agent. Further, it seems to me that in this case the acquisition by company A of an interest in the property as joint purchaser would not entitle the appellant to commission simply because the appellant had introduced company A to the property and to the respondent. In my opinion, the acceptance by the respondent of company A as a purchaser would be indispensable to the success of the appellant’s claim … I am unable to accept the conclusion that, because company A made an agreement with company B through which it acquired an interest in the property the subject of sale by the respondent to company B, the appellant is entitled to any commission upon that sale. The argument that the appellant was an effective cause of the sale to company B is to my mind completely unacceptable”: at [60] (emphasis added).

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Right to indemnity and reimbursement [15.450] 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 [15.460] 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.

Liabilities of agents [15.470] An agent may incur liability: (a)

to the principal; and

(b)

to third parties.

Liability of agent to principal [15.480] 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. 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.

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Liability of agent to third parties Figure 15.3: Liability of agent to third parties

[15.490] 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 [15.500] 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 [15.580]);

(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.

Regarding (e) above, if a person professes to contract on behalf of a principal and the principal is a fictitious or non-existent person, the person is presumed to have intended to contract personally, unless a contrary intention is proved; and where the contract is in writing, such contrary intention cannot be proved by oral evidence, but must appear from the terms of the contract or from the surrounding circumstances. The fundamental question must be what the parties intended, or must be fairly understood to have intended; thus, where the intention is that the contract be made by the company, and the person who signs

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“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.

Kelner v Baxter [15.510] 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.

Existence but not name of principal disclosed [15.540] 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.

Existence of principal not disclosed [15.550] 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. However, the legal rights and obligations of the undisclosed principal only arise where the agent was in fact her or his agent at the time of the transaction, that is, where the agent had actual authority from the principal to enter into the contract. An undisclosed principal cannot purport to ratify as the act of their agent a transaction entered into without their authority by one who purports at the time to be a principal and does not disclose that he or she is an agent: Keighley, Maxsted & Co v Durant [1901] AC 240. The general principles applying to undisclosed principals were summarised in Siu Yin Kwan (Administratrix of the Estate of Chan Ying Lung, Decd) v Eastern Insurance Co Ltd [1994] 2 AC 199 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.

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Where the third party sues and recovers judgment against the agent on the contract, the third party is conclusively deemed to have elected to hold the agent liable and cannot thereafter sue the undisclosed principal. Where the third party has not sued the agent to judgment the question whether the third party has so elected or not is a question of fact depending on the circumstances of the particular case; the mere fact that the third party has commenced an action against the agent is not of itself conclusive although it may be some evidence of an election. [15.570] 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. Where an agent contracts in such a manner as to make themselves personally responsible, the agent will be liable whether the principal was or was not known at the time of the contract, for example, where the agent signs a bill of exchange in their own name instead of on behalf of the principal.

Breach of warranty of authority [15.580] 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. However, the agent is not liable where the other party knew of the agent’s lack of authority: Weigall & Co v Runciman & Co (1916) 85 LJKB 1187.

Liability of principal and agent for misrepresentations [15.590] 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 that was relied on by the purchaser, the agent will be liable in damages to the purchaser for the loss suffered. For example, a real estate agent for the vendor of a business was held liable to the purchaser for negligent misrepresentations made by the agent as to earnings of the business: Roots v Oentory Pty Ltd [1983] 2 Qd R 745; cf Norris v Sibberas [1990] VR 161. A principal is vicariously liable for a tort committed by an agent where the agent has acted within the scope of his or her actual or apparent authority. The liability of the principal includes liability for the negligent misrepresentations of their agent. For example, the vendor of a building was held vicariously liable to the purchaser for damages because of the negligent misrepresentation made by the vendor’s agent

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as to the “lettable” floor space of the building: Thompson v Henderson & Partners Pty Ltd (1990) 58 SASR 548. In the latter case, the agent was also held liable to the purchaser; furthermore, the vendor was entitled to an indemnity from the agent in respect of the vendor’s liability to pay damages to the purchaser. The representations of an agent may also constitute, in an appropriate case, misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law 1 (formerly s 52 of the Commonwealth Trade Practices Act 1974 (Cth)): Aliotta v Broadmeadows Bus Service Pty Ltd [1988] ATPR 40-873). Where an agent’s representation to a third party comprises information provided to the agent by their principal, the agent will be entitled to an indemnity from the principal in the event of the agent being liable to the third party because the representation proves to have been untrue. In such a case, the agent would have the ordinary right of indemnity of an agent against a principal where the agent has acted within the scope of their authority. 1

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13.

Liability of principal and agent for wrongful acts [15.600] 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 where such was committed within the scope of the agent’s apparent authority.

Royal Globe Life Assurance Co Ltd v Kovacevic [15.610] Royal Globe Life Assurance Co Ltd v Kovacevic (1979) 22 SASR 78. An insurance agent persuaded Kovacevic to enter into certain life assurance proposals. Kovacevic paid the agent an initial premium and was given a receipt for the amount by the agent from a receipt book provided by the insurance company. Some months later, the agent again approached Kovacevic and invited him to invest moneys on loan with the insurance company. The agent told Kovacevic that a deposit of moneys with the company would return a higher rate of interest and give Kovacevic the right to obtain from the company a loan on mortgage for the purchase of a house. Kovacevic paid the agent $2,000 and was again given a receipt from the agent’s receipt book. The agent misappropriated the money and disappeared and Kovacevic sued the insurance company for the $2,000. It was held that the agent had received the money from Kovacevic in the course of his employment by the insurance company which was accordingly liable to Kovacevic for the agent’s fraud.

[15.620] 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. [15.640] 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

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do; and the principal has done nothing to represent that the agent had authority to do the act: Armagas Ltd v Mundogas SA [1986] 1 AC 717. Similarly, a principal will not be liable for other wrongful acts of an agent that are outside the agent’s actual or apparent authority, for example where an agent commits an unauthorised assault upon third parties:

Deatons Pty Ltd v Flew [15.650] Deatons Pty Ltd v Flew (1949) 79 CLR 370. D conducted a hotel in which it employed B as a barmaid. P, a customer in the hotel, acted in an offensive manner and B asked him to go away. In the course of an altercation, B threw a glass of beer and then the glass itself in the face of P. It was held that, whether or not B had been provoked as D alleged, B was not acting within the scope of her employment in doing what she did and that accordingly D was not liable to P in damages.

[15.660] 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 (PC).

Termination of agency [15.670] 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 [15.680] 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 [15.690] 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 that an agent has been instructed to sell is destroyed by fire.

Agreement [15.700] Whilst the agency is still current both the principal and agent may mutually agree to its termination.

Revocation [15.710] In most cases, the appointment of an agent will be revocable. In fact, the general rule is that the authority of an agent may be revoked by the principal, or the agent may revoke the agency agreement, even if it is agreed by their contract to be irrevocable. But neither notice of revocation nor notice of renunciation will affect any rights or liabilities that may have been created between the principal and third parties prior to the notice.

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The right of the principal to revoke the agent’s authority may be limited or affected by the rights of: (a)

third parties; and

(b)

the agent.

Rights of third parties [15.720] 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 [15.730] 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: Trollope (George) & Sons v Martyn Bros [1934] 2 KB 436.

By death [15.740] 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. 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. 1 1

Powers of Attorney and Agency Act 1984 (SA), s 12; Property Law Act 1969 (WA), s 85(2); Powers of Attorney Act 2000 (Tas), s 52; Powers of Attorney Act 1956 (ACT).

By insanity [15.750] 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. 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.

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Bankruptcy Of the agent [15.760] 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 [15.770] 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 [15.780] 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 [15.790] 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. In the various States, there exist Acts 1 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”. 1

Factors (Mercantile Agents) Act 1923 (NSW); Goods Act 1958 (Vic), ss 65 – 72; Factors Act 1892 (Qld); Mercantile Law Act 1936 (SA); Imperial Act 5 & 6 Vict, c 39 (WA); Factors’ Acts Amendment Act 1878 (WA); Factors Act 1891 (Tas).

Brokers [15.810] 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 [15.820] 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

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partner so acting has in fact no authority to act for the firm in the particular matter and the person with whom the partner is dealing either knows that he or she has no authority or does not know or believe her or him to be a partner.

Directors [15.830] 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.

Estate agents [15.840] 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”. An auctioneer is an agent for the sale of property at a public auction.

Statutory regulation of agents [15.860] There is considerable regulation by State statutory law of auctioneers and “estate agents”. Thus, in most States, auctioneers and estate agents have to be licensed. 1 In most States, repossession and debt collecting agents (referred to as “commercial agents”) are subject to licensing requirements. 2 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). In all States and Territories “uniform” legislation formerly required the licensing of travel agents and regulated their operations. One of the conditions to be satisfied before a licence would be granted was that the applicant be a participant in the Travel Compensation Fund which was established to compensate travellers who suffer loss as a result of misappropriations by travel agents. However, it is intended that these licensing requirements will be repealed in all jurisdictions and the Compensation Fund will be closed. See Victorian Legislative Assembly Hansard, 13 November 2013, p 4024. The legislation has already been repealed in New South Wales, Queensland, Victoria, South Australia Northern Territory and the Australian Capital Territory. 3 Employment agents may also be subject to licensing requirements. 4 1

In New South Wales, the Married Persons (Equality of Status) Act 1996 (NSW), s 7 provides: “A married person does not, by reason only of the person’s status as a spouse, have authority to pledge the credit of the other spouse for necessaries or to act as agent for the other spouse for the purchase of necessaries.” See similarly, Law of Property Act 1936 (SA), s 104; Married Persons’ Property Act 1986 (ACT), s 5; Married Persons (Equality of Status) Act 1989 (NT), s 5. See also Estate Agents Act 1980 (Vic), ss 49A, 50; Property Agents and Motor Dealers Act 2000 (Qld), ss 117, 140, 217, 288, 346; Land Agents Act 1994 (SA), s 6(2); Real Estate and Business Agents Act 1978 (WA), s 60; Property Agents and Land Transactions Act 2005 (Tas), s 18. The following statutes should also be considered: Auction Sales Act 1973 (WA); Agents Act 2003 (ACT); Auctioneers Act 1935 (NT); Agents Licensing Act 1979 (NT). The National Competition Review “concluded that the benefits of licensing auctioneers of goods are outweighed by the costs”: Victorian Hansard (Assembly), 5 April 2001, p 761. As a result of this recommendation, the Victorian Auction Sales Act 1958 (Vic) was repealed: Auction Sales (Repeal) Act 2001 (Vic), s 3.

2

Commercial Agents and Private Inquiry Agents Act 2004 (NSW); Property Agents and Motor Dealers Act 2000 (Qld), s 45; Security and Investigation Agents Act 1995 (SA); Debt Collectors Licensing Act 1964 (WA); Security and Investigations Agents Act 2002 (Tas); Commercial and Private Agents Licensing Act 1979 (NT).

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3

Travel Agents Act 1985 (WA); Travel Agents Act 1987 (Tas). The Travel Agents Act 1986 (NSW) was repealed by the Travel Agents Appeal Act 2014 (NSW). The Travel Agents Act 1986 (Vic) was repealed by the Travel Agents Appeal Act 2014 (Vic). The Travel Agents Act 1988 (Qld) was repealed by the Construction and Tourism (Red Tape Reduction) and Other Legislation Amendment Act 2014 (Qld) , s 52. The Travel Agents Act 1986 (SA) was repealed by the Travel Agents Repeal Act 2014 (SA). The Consumer Affairs and Fair Trading Act 1990 (NT), Pt 11 was repealed by the Consumer Affairs and Fair Trading Amendment Act 2014 (NT), s 6. Agents Act 2003 (ACT), s 21 was repealed by the Justice and Community Safety Legislation Amendment Act 2014 (ACT), Sch 1 Pt 1.1 Item 1.3.

4

Employment Agents Registration Act 1993 (SA), s 6; Employment Agents Act 1976 (WA), s 12; Agents Act 2003 (ACT), s 22.

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Corporations Law [16.40] Administration of the Corporations Act .............................................................................................. 400 [16.45] Nature and formation of companies ..................................................................................................... 400 [16.230] Constitutions and replaceable rules................................................................................................... 405 [16.320] The company making contracts: liability for the acts of its agents ................................... 407 [16.350] Membership .................................................................................................................................................... 410 [16.840] Management and control......................................................................................................................... 411

Introduction [16.10] The modern form of the corporation makes it possible to share risk and move beyond individual risk-taking. Or, as Ambrose Bierce’s Devils Dictionary (Doubleday) defines it, the corporation is “an ingenious device to obtain profit without individual responsibility”. The fundamental characteristics of a company discussed in this chapter – a separate legal entity, limited liability, easy transferability of shares, separation of owners and management, the concept of perpetual existence of the company, and flexible fund raising – have enabled the corporation to perform a valuable role in the economy. It enables a sole trader or small business owners to carry on a business without bearing unlimited risk and allows large commercial enterprises to raise funds and spread rewards and risks. [16.20] 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, mergers, fund-raising, financial services and financial markets. Section references in the discussion that follows are to sections of the Corporations Act 2001 (Cth) unless otherwise indicated.

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Administration of the Corporations Act [16.40] The Australian Securities and Investments Commission (ASIC) has sole responsibility for the administration and enforcement of the Corporations Act 2001 (Cth) nationally. It is an independent statutory commission. In exercising its functions and powers, ASIC is subject only to a written direction by the responsible Commonwealth Minister about the policies it should pursue or priorities to be followed under the national scheme. As part of its administrative role, ASIC has established business centres in each capital city and in certain regional centres to deal with company registrations, document lodgment, registration of security interests, and to provide facilities for the public to search for information in the company registers.

Nature and formation of companies Registration of companies [16.45] To register a company, a person must lodge an application with ASIC and pay the required fees: Corporations Act 2001 (Cth), s 117(1). 1 The contents of the application are set out in s 117(2). The new company is entered in ASIC’s register of companies and an Australian Company Number (ACN) is issued: s 118(1). A company comes into existence as a body corporate at the beginning of the day on which it is registered: s 119. 1

The fee to register a new limited liability company with share is $457.00 as at 1 July 2014. The fees for the various steps in registering companies and lodging details and reports can be found on the ASIC website at www.asic.gov.au/for-business/payments-fees-and-invoices/asic-fees/fees-for-commonly-lodged-documents/.

Corporate personality [16.50] The House of Lords in Salomon v Salomon & Co Ltd [1897] AC 22 (see below) affirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity, a legal person. This principle, and the concept of the limited liability of the owners of the company, is the cornerstone of modern corporate law. It has statutory force through s 124(1) of the Corporations Act 2001 (Cth) which provides that from the date of registration, a company has the full legal capacity of a natural person. It has an existence separate from its members (the shareholders) and its management (directors) and agents (such as employees). The acts of a company are its acts, not the acts of its members. It can sue and be sued. It can acquire, hold and dispose of property and its assets belong to the company, not to its members. The flip side is that shareholders are not liable for the company’s debts beyond their initial capital investment, and have no proprietary interest in the property of the company. The company has perpetual succession – it is not affected by changes to its members – and it remains a legal person until it is deregistered: s 601AD(1). Section 126 allows the authorized agents of a company to make, vary, ratify or discharge a contract on behalf of the company. Section 127 recognizes that the agents of a company are also liable to execute documents on its behalf by either using its common seal (a rubber stamp with company’s name and registration number) or through the signature of authorised officers. Let us now look at the decision that confirmed that a company, upon registration, was a separate legal entity, even where the company was in reality a one-man band.

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Salomon v Salomon & Co Ltd [16.55] Salomon v Salomon & Co Ltd [1897] AC 22. Aaron Salomon was the sole proprietor of a successful leather shoe and boot manufacturing business. He had a wife, Schoot, a daughter and five sons. Four of the sons worked with him. The sons wanted to become partners in the business, so he turned the business into a limited company with the required seven shareholders (his wife and five children). The two eldest sons were appointed directors. Mr Salomon took 20,001 of the company’s 20,007 shares. The purchase price was approximately £39,000. Salomon received the purchase price by way of 20,000 shares in the new company (valued at £1 each), a cash amount and debentures (secured loans) worth £10,000. Shortly after the company was floated, its business was badly affected by strikes and a severe downturn in the market for its products. Salomon lent additional money to the company but the company failed. When the company was liquidated its assets were not sufficient to discharge the secured creditors, including Salomon himself, in full. The unsecured creditors (like employees and creditors) argued that Salomon and his company were in essence the same person and that he, far from laying claim as a secured creditor to the assets of the company, should actually be liable for the debts of the company. The Court of Appeal upheld the trial judge’s decision that the whole transaction was against the true intent of the Companies Act (when Parliament stipulated that that a company must have seven members it meant seven active and independent members), that the company was a “sham” (nothing more than a agent, trustee or nominee of Salomon) and that Salomon had committed a fraud by overvaluing the company. Therefore, Salomon was personally liable for the company’s debts. The House of Lords reversed the decision. It said that the Act required seven members but said nothing about them being independent or active. Therefore, as the company was properly incorporated and there was no fraud perpetrated by Salomon in the valuation of the company at £39,000 (all members were aware of what Salomon had done) there was no basis for holding Salomon personally liable for the debts of the company. The case confirmed that the separate legal personality principle applied even where the company is in reality a one-man band: the “owner” of such a business can as a result of the separate legal personality principle use the separate corporate personality to shield himself from liability. The Court said: “The company is at law a different person altogether from the (shareholders) and though it may be that after incorporation of the business is precisely the same as it was before and the same persons and managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustees for them. Nor are the subscribers or members liable in any shape or form except to the extent and in the manner provided by the Act.”

[16.57] In a general sense, the decisions taken in Salomon v Salomon & Co Ltd [1897] AC 22 have been beneficial for the business world. However, the decision in Salomon has had some deleterious

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consequences. As discussed, the House of Lords confirmed that, upon registration, the company is a new and separate legal entity, separate from the shareholders, even where one person holds all, or nearly all, of the company’s issued shares. In so deciding, the Court permitted the corporate form to be (mis)used by those who set up companies that are under-capitalised, knowing that, in the event of failure, they can shield behind the veil created by the company’s separate personality and, in so doing, leave creditors to bear the losses. While some large creditors – banks and large financial lenders – can and do take securities in order to minimise their risk exposure, trade creditors and employees, in particular, are often left exposed.

The concept of limited liability [16.60] We have seen that incorporation can provide its owners with limited liability. Limited liability, traditionally associated with corporations, is the principal catalyst for incorporation. Sole proprietorships and general partnerships do not have this security. Limited liability means that the owner (shareholder) is not personally responsible for business debts and obligations of the company. In other words, if the corporation is sued, only the assets of the business are at risk, not the owners’ (shareholders’) personal assets, such as their houses or cars. Limited liability is especially desirable when dealing with insurance or high-risk ventures. For example, consider the misfortune that befell numerous high wealth private individuals amongst Lloyd’s Names that had unlimited liability related to insurance risk in return for pocketing profits from insurance premiums. In the late 1990s, hundreds of these names had to declare bankruptcy in the face of claims against their personal assets in relation to unexpectedly large and frequent claims related to diseases caused by exposure to asbestos. By comparison, although the losses incurred by shareholders in some of the biggest public companies to go bankrupt during the global financial crisis were considerable (and sometimes catastrophic), the principle of limited liability means the shareholders were not liable for the billions of dollars owed by these companies to their creditors when they went into bankruptcy. In an excellent article on the limited circumstances when shareholders may be personally liable, Ramsay and Noakes have note five advantages of limited liability. “First, limited liability decreases the need for shareholders to monitor the managers of companies in which they invest because the financial consequences of company failure are limited. Shareholders may have neither the incentive (particularly if they have only a small shareholding) nor the expertise to monitor the actions of managers. The potential costs of operating companies are reduced because limited liability makes shareholder diversification and passivity a more rational strategy. Secondly, limited liability provides incentives for managers to act efficiently and in the interests of shareholders by promoting the free transfer of shares. This argument has two parts to it. First, the free transfer of shares is promoted by limited liability because under this principle the wealth of other shareholders is irrelevant. If a principle of unlimited liability applied, the value of shares would be determined partly by the wealth of shareholders. In other words, the price at which an individual shareholder might purchase a share would be determined in part by the wealth of that shareholder which was now at risk because of unlimited liability. The second part of the argument (that limited liability provides managers with incentives to act efficiently and in the interests of shareholders) is derived from the fact that if a company is being managed inefficiently, shareholders can be expected to be selling their shares at a discount to the price which would exist if the company were being managed efficiently. This creates the possibility of a takeover of the company and the replacement of the incumbent management.

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Thirdly, limited liability assists the efficient operation of the securities markets because, as was observed in the preceding paragraph, the prices at which shares trade does not depend upon an evaluation of the wealth of individual shareholders. Fourthly, limited liability permits efficient diversification by shareholders, which in turn allows shareholders to reduce their individual risk. If a principle of unlimited liability applied and the shareholder could lose his or her entire wealth by reason of the failure of one company, shareholders would have an incentive to minimise the number of shares held in different companies and insist on a higher return from their investment because of the higher risk they face. Consequently, limited liability not only allows diversification but permits companies to raise capital at lower costs because of the reduced risk faced by shareholders. Fifthly, limited liability facilitates optimal investment decisions by managers. As we have seen, limited liability provides incentives for shareholders to hold diversified portfolios. Under such circumstances, managers should invest in projects with positive net present values, and can do so without exposing each shareholder to the loss of his or her personal wealth. However, if a principle of unlimited liability applies, managers may reject some investments with positive present values on the basis that the risk to shareholders is thereby reduced.” 1 1

I Ramsay and D Noakes, “Piercing the Corporate Veil in Australia” (2001) 19 Company and Securities Law Journal 250, 256-257.

Types of companies that may be registered [16.70] The most important method of company incorporation is that of formation under the Corporations Act 2001 (Cth). The types of company that may be registered under the Corporations Act 2001 are listed below. The first distinction between types of companies is whether they are proprietary or public. For this chapter, a brief overview of the characteristics is sufficient. Proprietary companies are limited to 50 members and are also limited as to how they may raise funds. Proprietary companies are not permitted to raise funds from the public (for example, by a public share offer). Public companies are not limited as to the number of members and may raise funds from the public subject to compliance with other rules about raising funds and issuing shares. Generally speaking, public companies have significantly higher levels of accounting, reporting and disclosure obligations. To list on the stock exchange a company must be a public company and comply with the additional rules imposed by the Australian Stock Exchange (ASX Listing Rules). Within each of the two broad categories of company – proprietary and public – it is the extent to which members are liable for the debts of the company that is the key distinguishing feature. For each type of company listed below, special rules may determine when such a type of company is allowed to be registered, depending on the membership and activities of the company. For example, no liability companies are only available to companies whose activities are strictly limited to mining. The types of companies are discussed below: proprietary companies


liability limited by shares; or


liability unlimited with share capital. public companies


liability limited by shares;


liability limited by guarantee;


liability unlimited with share capital; or
no liability.

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Companies limited by shares [16.80] This means a company formed on the principle of having the liability of its members limited by the constitution or replaceable rules to the amount unpaid on their shares. It may be either one of the following: 1.

a public company; or

2.

a proprietary company.

Public companies are those that 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 [16.90] These public companies do not have share capital. It, therefore, has a restricted scope and is usually found in the non-profit sector (eg sporting clubs). The company is formed on the principle that the original guarantors of the company undertake to guarantee the payment of a certain sum to be used to pay the company’s debts in the event of the company being wound up: Corporations Act 2001 (Cth), s 9. Their liability is limited to extent of the amount guaranteed.

Unlimited companies [16.100] 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 [16.110] This class of company may be formed only for the purpose of mining, and on the principle of their members incurring no liability to pay calls, that is to say, the acceptance of a share does not constitute a contract to pay calls in respect of money unpaid on such shares. There are special provisions in the Corporations Act 2001 (Cth) relating to the liability of members, payment of calls and dividends.

Proprietary and public companies [16.130] A distinction is drawn between public and proprietary companies. The most popular type of company incorporated in Australia is the proprietary company, which is otherwise referred to as a private company. The legislature, recognising the fact that many companies are of a private nature and require a simple form of incorporation, has enacted special provisions giving proprietary companies rights, privileges and exemptions not enjoyed by other companies. A proprietary company must be a company limited by shares, or unlimited with a share capital, and have no more than 50 “members” (people who have been allocated shares excluding those who are employees). A proprietary company is not permitted to raise funds by offering or issuing shares to the general public.

Company name [16.135] When the company is registered, it must be given a name that distinguishes it from other companies and is not already registered as a business name on the Business Names register. A public company with limited liability must include the abbreviation “Ltd” at the end of the name. A limited

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proprietary company must have the word “Proprietary” or the abbreviation “Pty” as part of its name inserted immediately before the abbreviation “Ltd”. An unlimited proprietary company must have the word “Proprietary” or “Pty” at the end of its name. A no liability company must include the abbreviation “NL”.

Company seal [16.140] A company need not have a common seal. Even if it does, it need not use it in the execution of documents. If a company adopts a common seal, it is required to set out in legible characters on its common seal its name followed by the expression “Australian Company Number” (or “ACN”) and its registration number, unless its name is also its registration number: Corporations Act 2001 (Cth), s 123.

Constitutions and replaceable rules Figure 16.1: Internal management of a company

Memorandum and articles of association [16.230] Prior to July 1998, the memorandum and articles of association were the two fundamental documents upon which the registration of any company was based. The Company Law Review Act 1998 abolished the need for both. Companies in existence prior to July 1998 continue to have a memorandum and articles of association as their constitution unless and until they resolve to repeal them. If an existing company repeals its constitution and does not adopt a new one in its place, the “replaceable rules” (see below) will apply to that company: Corporations Act 2001 (Cth), s 135(1).

Replaceable rules and a company's constitution [16.240] 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). [16.250] 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

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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. [16.270] 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 (a vote by members requiring at least 75% approval): Corporations Act 2001 (Cth), s 136(1).

Actions of the company [16.280] Actions of the company will not be invalid notwithstanding that the company’s constitution contains an express or implied restriction on, or prohibition of, the exercise of any of its powers: s 125(1). Nor will an act of the company be invalid merely because it is contrary to or beyond the objects stated in the company’s constitution: s 125(2). Furthermore, the fact that some act by a company (such as entering into a particular contract, or the transfer of property to or by the company) is not in the best interests of the company does not affect its legal capacity to do the act: s 124(2). People are not taken to have information about a company (for example, its constitution) merely because the information is available to the public through ASIC: Corporations Act 2001 (Cth), s 130.

The company making contracts: liability for the acts of its agents Figure 16.2: How does a company contract with a third party?

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[16.320] A company being an artificial body must of necessity act through its directors, officers and other agents. Accordingly, difficult questions may arise as to whether acts purported to have been done on behalf of the company by its directors and other agents are binding on the company. A company may enter into any contract that a natural person can and it is important to note that the actions of a company (through its agents) are not invalid because they contravene the company’s constitution (if it has one): s 125. Section 127 is the formal way in which a company may execute a document, including a contract: it may execute a document without using a common seal if the document is signed by two directors of the company; or a director and a company secretary of the company; or for a proprietary company that has a sole director who is also the sole company secretary – that director. If a company seal is fixed, two directors or a director and secretary witnessing the affixing of the company seal can execute the document. When the company executes in one of the ways set out in s 127 then, even if this is in contravention of the constitution, those people who have dealings with the company will be able to rely on the assumptions contained in ss 129(5) and 129(6) unless they were aware the assumption is incorrect: s 128(4).

The assumptions third parties are entitled to make [16.325] There are a number of assumptions that affect the substantive authority that the company’s agent has when contracting with a third party. Section 128 states that persons dealing with a company are entitled to make certain assumptions (specified in s 129) as to the powers of the company and the authority of the officers and agents with whom they deal. The policy objective is to increase the protection for third parties by limiting the circumstances in which a company may argue that it is not bound by contracts because its agent was not authorised to enter the contract. The assumptions are cumulative and may “cure” defects in the formal execution process (non-compliance with s 127) and any defects in the substantive authority of an agent who was ostensibly authorised to act on the company’s behalf. Section 128 – Entitlement to make assumptions 1.

A person is entitled to make the assumptions in s 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

2.

A person is entitled to make the assumptions in s 129 in relation to dealings with another person who has, or purports to have, directly or indirectly acquired title to property from a company. The company and the other person are not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

3.

The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings, as per s 128(3).

4.

A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect, as per s 128(4).

Section 129 – The assumptions that can be made under section 128 1.

That at all relevant times the constitution and replaceable rules of the company have been complied with (s 129(1));

2.

That a person who appears, from information provided by the company and available to the public from ASIC, to be a director or a secretary of the company: (a)

has been duly appointed; and

(b)

has authority to exercise the powers and perform the duties customarily exercised or performed by a director or secretary of a “similar” company (s 129(2));

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3.

That a person who is held out by the company to be an officer or agent of the company: (a)

has been duly appointed; and

(b)

has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company (s 129(3));

4.

That the officers and agents of the company properly perform their duties to the company (s 129(4));

5.

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

6.

That an officer or agent of the company who has authority to issue (sign or certify) a document on its behalf, has authority to certify that the document is genuine or a true copy: s 129(7).

Note that s 128(3) provides that these assumptions may be made even if the officer or agent of the company had acted fraudulently or had forged a document in connection with the dealing. However, it is probable that knowledge of the fraud or forgery by persons dealing with the company would disentitle them from claiming the benefit of the relevant assumption. Under s 129(1), a person is entitled to assume that the dealing (eg a contract to purchase goods or services) in which they are engaged does not breach the company’s constitution or an irreplaceable rule. Under s 129(2), a person is entitled to assume that ASIC records concerning a director or company secretary are correct and that the person has been validly appointed and has the authority to exercise the powers and perform the duties “customarily exercised or performed” by such a person. “Customary” powers are the equivalent of the implied/usual powers of an agent: see Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 for a discussion of “customary powers” (see below at [16.335]). As mentioned above, the assumptions in ss 129(5) and 129(6) apply when the company executes in one of the formal ways to execute a contract set out in s 127. Section 129(5) provides that a person may assume that a contract has been duly executed by the company if it appears to have been signed in accordance with s 127(1). Section 129(6) provides that a person may assume that a contract has been duly executed by the company if the common seal appears to have been affixed in accordance with s 127(2) and the fixing of the seal appears to have been witnessed in accordance with s 127(2). The one assumption that has generated significant case law is s 129(3).

“Holding out” [16.330] Under s 129(3), a person is entitled to assume that a person who is “held out by the company to be an officer or agent of the company has been duly appointed; and has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company”. The issue in the following case was whether a “holding out” had occurred.

Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [16.333] Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279. Soon after being taken over by the Goldberg group of companies, Brick & Pipe Industries Ltd (Brick & Pipe) provided a third party guarantee to Occidental.

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The guarantee had to be signed by a director and the secretary of Brick & Pipe or a person appointed for that purpose. Goldberg and Furst, who were both directors of Brick & Pipe, executed the deed without prior board approval. Furst, however, signed as secretary, a position to which he had not been appointed. When a solicitor, who had read the public documents, challenged Furst’s capacity to act as secretary, another officer, in the presence of Goldberg, asserted that Furst had been appointed to that position. That officer had no actual authority to give that assurance. He may have had apparent authority but a person with apparent authority cannot hold out another as having actual authority. Only a person with actual authority can do so. Three days later, the Goldberg group collapsed and Brick & Pipe refused to honour the guarantee. The question was whether the company had held out Furst as being the company secretary. If there was a holding out by the company, it had to be done by someone with actual authority to do so. The Court of Appeal held that the guarantee was enforceable by Occidental. It recognised that Goldberg was controller of all companies in the group and had implied actual authority to represent that Furst was the secretary of the company. By remaining silent, he had impliedly represented that Furst had been validly appointed to the position of secretary.

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [16.335] Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711. Fidelis’ company secretary, Mr Bayne, hired cars from Panorama Development. Bayne used the Fidelis’ paper and represented that he wished to hire a number of Rolls Royce cars for the business while his managing director was away. He was in fact using them for his own purposes. Bayne was prosecuted and imprisoned, but Panorama had over £500 in unpaid bills for the hired cars. Fidelis claimed that it was not bound to the hire contracts, because Bayne never had the authority to enter into contracts of this kind. The Court of Appeal held that entering into contracts like this was within the usual authority of company secretaries and therefore within the apparent authority of this particular secretary. Salmon LJ said the secretary “is the chief administrative officer of the company” so he has ostensible authority with administrative matters. Nothing is more natural than “ordering cars so that its servants may go and meet foreign customers at airports, nothing to my mind, is more natural than that the company should hire those cars through its secretary.” So whilst a company secretary may not have actual authority to do such things, he or she has apparent authority to do because they are the usual or implied powers enjoyed by company secretaries.

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Membership Where membership exists [16.350] A person is a member of a company if he or she is identified as a member of the company on its application for registration: Corporations Act 2001 (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 most usual ways by which persons become members are by the allotment of shares to them or the transfer to them of shares by a person who already is a member. A company must set up and maintain a register of its members (that is, its shareholders) containing details about the member and its shareholding. The register must be kept at the company’s registered office, an office at the company’s principal place of business, or the office where the register is maintained, unless another office has been approved by ASIC. The office must be in Australia: s 172.

Shares [16.375] Shares are an important source of capital for a company. A company may use the issue of shares as a means to raise capital throughout its life. There are a number of rules under the Corporations Act 2001 (Cth) and the ASX Listing Rules (for companies listed on the Stock exchange) that regulate share issues so as to protect existing members’ rights and the prospective investors in shares. Offering shares on the stock exchange for the first time (often referred to as “listing”) is an extremely complex and highly regulated event and the company will usually require advice from expert lawyers and corporate advisers. Shares are a form of property. The members who subscribed for shares on registration or acquire shares in subsequent issues may choose to sell their shares in the future. If a member sells their share, then the member retains the price they receive for the share.

Members' rights [16.380] Members do not have any rights over the company property. This is an important consequence of the separate legal identity of the company. The company owns the company property – not the members. We saw in the Salomon, discussed above, that Mr Salomon sold his business to the company, Salomon and Co Ltd, and under the contract, in exchange for the assets of the business, he received the price (paid partly in cash and partly in shares in the company and partly by a secured loan). When the company was not able to pay its debts, the creditors were able to access the assets of the company, although these assets were insufficient to pay the company’s debts, prompting the creditors to pursue Mr Salomon personally. They were unsuccessful in doing this because the company is a separate legal entity. The members have certain rights that attach to their share or membership in the company. As we have discussed above, directors have the control of the day-to-day management of the company and its business. Members’ rights in respect of the management of the company are essentially limited to voting for the directors. The general rights of members are: The right to vote – to appoint or remove directors; on directors’ remuneration (but this is limited); on any changes to the company constitution; for any matters that are specified in the company constitution as being matters for members to vote on; on financial benefits given by public companies to the directors and other related parties. The right to distribution – to receive a dividend if the company makes a profit and the directors declare a dividend; to receive a share of any surplus if the company is wound up or capital is returned.

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The right to information about the company – to inspect the company books and receive annual reports; to be notified about company meetings. The rights attached to their class of shares – class rights are special rights that are attached to a particular group of shares, for instance, a priority dividend, or a right to appoint a director, or to veto a major business decision.

Management and control Registered office [16.840] 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 [16.850] As a company is an artificial legal person, it must act through the agency of others. Directors carry out the day-to-day management of a company and s 198A provides the business of the company is managed “by or under the direction of the directors”. The directors are elected by the members (shareholders) or appointed according to the rules of the company. The number of directors depends on the size of the company – a proprietary company may have as few as one director; public companies must have at least three: Corporations Act 2001 (Cth), s 201A. If there is more than one director, they are collectively referred to as a “board of directors”. The board will usually appoint a managing director or chief executive officer who will run the company and report directly to the board. Directors who also are involved with managing the company (for example, the chief financial officer) are called executive directors; those not involved with management are called non-executive directors. A public company must also have a secretary who is responsible for “book-keeping”, drawing up agendas and providing notice of meetings, ensuring compliance with disclosure and reporting requirements, signing or authorising payments. All public companies must have a secretary. Personal details and particulars of the appointment and resignation of all directors must be filed with ASIC. A director must also give notice of contracts to which they are party: ss 191 – 192. A director of a listed public company must notify the relevant securities exchange of their interests in the company’s securities (as well as in the securities of any related company). Notice must be given within 14 days of appointment as a director or listing of the company: s 205G.

Company secretary [16.860] 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. The directors appoint the secretary of a company: s 204D. A company of any magnitude requires a secretary. Quite apart from legal compulsion, it is essential that some officer of the company should be made responsible for attending to the requirements of the

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Corporations Act 2001 concerning the filing of returns, keeping a record of the proceedings at meetings, 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 Corporations Act 2001 (Cth) imposes a number of duties and obligations on “officers” of the company and s 9 of the Act defines officers to include the company secretary (as well as certain other participants in company management). This means company secretaries can be liable for breach of duties such as the duty of care and diligence and the duty to act in the best interests of the company which are discussed below in the same way as directors.

Validity of acts of a director [16.880] 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. This is important as it imposes duties and potential liability on people who try to exercise control of a company and its business through others.

Powers of directors [16.885] The directors of a company can exercise all the powers of the company, except for matters that require the authority of the shareholders. They can hire and fire people, authorise employees or agents to represent the company, take out loans, enter contracts for the company, buy, sell or lease goods or real property.

Duties and liabilities of directors and other officers Figure 16.3: Director’s duties

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[16.890] There are many duties imposed on directors and other officers. These duties are owed to the company, not (except in unusual circumstances) to the shareholders as individuals. The statutory duties – each has a common law equivalent - include the following: Care and diligence - to act with the degree of care and diligence that a reasonable person might be expected to show in the role (s 180). The same duty is imposed on directors at common law. The business judgment rule provides a “safe harbour” for a director in relation to a claim at common law or under s 180; Good faith - to act in good faith in the best interests of the company and for a proper purpose (s 181). This is a ‘fiduciary duty’ imposed by general law and a duty required in legislation; Improper use of position - to not improperly use their position to gain an advantage for themselves or someone else or to the detriment to the company (s 182); Improper use of information - to not improperly use the information they gain in the course of their director duties to gain an advantage for themselves or someone else or to the detriment to the company (s 183). If the duties under ss 181 – 183 of the Corporations Act 2001 (Cth) are breached by a director or officer acting dishonestly or recklessly a criminal offence is committed: s 184. Section 180(1) – duty of care and diligence – attracts only civil penalties. Breach of these duties attracts the civil and/or criminal penalty provisions and are enforceable by ASIC. “Officers” is a broader 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. 1 1

See s 9 of the Corporations Act 2001 (Cth) which is the dictionary section of the Act.

Duty of care and diligence: s 180 [16.895] Section 180 Care and diligence—directors and other officers (1)

A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a)

were a director or officer of a corporation in the corporation’s circumstances; and

(b)

occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Business judgment rule (2)

A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a)

make the judgment in good faith for a proper purpose; and

(b)

do not have a material personal interest in the subject matter of the judgment; and

(c)

inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d)

rationally believe that the judgment is in the best interests of the corporation.

The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

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Section 180(1) requires that an “officer” act with care and diligence. The High Court has held that the degree of care and diligence required in s 180(1) is determined by looking at the corporation’s circumstances and the responsibilities that the officer had. Although the section does not itself include the word “skill”, it is a requirement of the common law equivalent and it has been accepted that skill is a required element in exercising the s 180(1) duty of care and diligence. As the following case demonstrates, when reviewing company accounts, executive and non-executive directors alike, must critically examine all financial reports, and consider them in the context of their own knowledge of the company’s affairs. Placing reliance solely on others, no matter how competent, is not sufficient; directors must themselves be familiar enough with current accounting standards to know what should be included in financial statements and whether there are any significant omissions. Neither ignorance nor honesty is a defence to an action under s 180(1). Section 180(1) is a civil obligation only.

Australian Securities and Investments Commission v Healey [16.900] Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 196 FCR 291. ASIC launched civil penalty proceedings against the current and former non-executive directors, the former CEO and former CFO of the Centro group of companies. It accused the defendant directors and officers of failing to act in accordance with their duties of care and diligence and failing to take steps to ensure compliance with the financial reporting obligations under the Corporations Act 2001 (the Act). Mistakes were made in the financial statements. The mistakes were not inconsiderable: Centro Properties stated in its annual results released in August 2007 that it had no interest bearing current liabilities on its balance sheet as at 30 June 2007. Centro Properties later confirmed that the amount of interest bearing current liabilities that should have appeared on its 30 June 2007 balance sheet was $2.7 billion and it had entirely omitted a US$1.75 billion short-term liability guarantee. When the group eventually revealed the extent of their maturing debt obligations and when they revealed that they had been unable to refinance billions of dollars of debt that had become payable, their share prices fell dramatically. The critical question was whether in the circumstances, the obligation to exercise care and diligence required the directors to personally scrutinise each line in the accounts looking for accounting errors or apparent inaccuracies and, if not, whether it was negligent for them to have failed to detect the errors where both management and the external auditor, PricewaterhouseCoopers (PwC), had not detected the errors. Justice Middleton found that each of the directors and officer had breached his duty of care and diligence and had failed to take all reasonable steps to ensure compliance with the financial reporting obligations in the Act. The directors were aware of the guarantees, their current nature and that they were significant to the accounts. A diligent director should have noticed the failure to include the guarantees as current liabilities in the accounts, or at least asked questions about them of the managers and corporate advisers, however the directors did not do this. In the particular circumstances of this case, Justice Middleton stated:

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“I do consider that all that was required of the directors in this proceeding was the financial literacy to understand basic accounting conventions and proper diligence in reading the financial statements. The directors had the required accumulated knowledge of the affairs of Centro, based upon the documents placed before them and discussions at Board meetings. Each director then needed to formulate his own opinion, and apply that opinion to the task of approving the financial statements.” In essence, Middleton J said that directors are entitled to rely on others but they must always bring an independent and enquiring mind to the exercise of their duties. His Honour found that while the reliance by the directors was not misplaced they were not entitled to only rely on management and others to be appropriately informed. His Honour said there is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor the company. Although nothing decided in this case should indicate that directors are required to have infinite knowledge or ability, or that they are not entitled to delegate to others the preparation of books and accounts and the carrying on of the day-to-day affairs of the company, his Honour said: “What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her. Such a responsibility arises in this proceeding in adopting and approving the financial statements.” It must be emphasised that liability under s 180(1) does not depend on proof of dishonesty. It may affect the penalty but not liability. Middleton J said “There has been no suggestion made that the directors were dishonest. As I have said, each director was an intelligent, experienced and conscientious director. They relied upon extensive advice and processes which were not called into question so all I say is that that should be taken into account and all my reasons as to the next step that ASIC thinks should be taken.” Note, finally, that although this case concerned a publicly-listed company, the same principles apply to proprietary companies 1 1

A class action initiated by a few large financial institutions and thousands of small investors who suffered loss when the Centro share price collapsed was settled in June 2012 for $200 million. Of the $200 million, Centro’s auditors, PricewaterhouseCoopers, which admitted negligence in the way it handled the audit of Centro’s 2006-07 accounts, will pay $67 million. The Centro group will pay the balance of $133 million. However, after legal costs and payment to the litigation funders, the shareholders are likely to share approximately $120 million.

[16.905] In 2012, the High Court decided two cases arising out of the same events. The Court held that the non-executive directors and the secretary/general counsel of James Hardie Ltd breached their obligations under s 180(1) by approving a misleading announcement to the Australian Stock Exchange:

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Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 and Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465.

Australian Securities and Investments Commission v Hellicar [16.910] Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345. At the centre of this case is a product – asbestos – that has caused and is continuing to cause, terrible human suffering, and a company that attempted to avoid its legal and ethical responsibilities. Asbestos dust is lethal – it causes pleural abnormalities such as asbestosis and malignant mesolthelioma. It has claimed, and continues to claim, thousands of victims around the world. However, as the symptoms of the disease take many years to manifest, putting in place a scheme or arrangement to ensure adequate compensation for victims when needed has been necessary and very difficult. James Hardie Industries Ltd (JHIL) is an industrial building materials company listed on the ASX. It manufactures fibro cement products for the building and construction sectors. The company was a key player in asbestos mining and manufacturing in Australia through most of the last century. For this reason, JHIL has an exposure to claims by victims of asbestosis and mesothelioma, principally because of the activities of two of its subsidiaries up to 1987. In February 2001, after an extended period of planning by management and at board level, the directors of JHIL decided to establish the Medical Research and Compensation Foundation (the Foundation) to meet the present and future asbestos-related claims made against the separate companies in the group. JHIL entered into a deed of covenant and indemnity. Under that deed, the subsidiaries indemnified JHIL in respect of asbestos claims and JHIL covenanted to make substantial payments to the Foundation. JHIL received expert actuarial and other financial advice on the likely level of asbestos claims over the next 50 years and it prepared a cash flow model for the Foundation. The directors approved a draft ASX announcement about the Foundation proposal at their Board meeting on 15 February 2001. On the following day, JHIL made a market announcement which said, among other things, that the Foundation would have “sufficient funds to meet all legitimate compensation claims anticipated”, would be “fully funded” and provide “certainty” for both asbestos claimants and shareholders. Later, it became clear that the Foundation was very substantially underfunded, to a figure well in excess of $1 billion. In May 2012, the High Court found seven former non-executive directors, three former executive directors and the company secretary/general counsel of James Hardie Ltd liable for breaches of s 180(1) of the Corporations Act 2001. It was alleged that each failed to exercise due care and diligence in relation to the release of information to the share market concerning an asbestos victims’ compensation fund and, by doing so, breached their s 180(1) duties. In their defence, the non-executive directors denied that they had approved any draft ASX announcement at the February board meeting. They argued that ASIC had failed to satisfy the burden of proof that the draft ASX announcement had been tabled and approved at the February board meeting. The High Court found that the

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board minutes were a formal record of what happened at the meeting and were evidence that a draft ASX announcement was tabled and approved. The High Court also noted that when the ASX announcement was later circulated, none of the individuals in question demurred or protested as to its terms. This was held to be consistent with the finding that the draft ASX announcement had been approved. Thus the civil penalties imposed by the trial court stood. Fines were imposed and the former directors (both executive and non-executive directors) were disqualified from acting as directors for various lengths of time. Among the sanctions imposed was a disqualification period of 15 years and a $350,000 fine imposed on the chief executive officer and a fine of $75,000 and a disqualification period of 7 years for the company secretary and general counsel.

Shafron v Australian Securities and Investments Commission [16.920] Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465. This case arose out the same facts as in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 (as discussed at [16.910] above). In 1998, Shafron was employed by JHIL as its “general counsel and company secretary”. “General counsel” is the term used for the senior in-house lawyer. The basis of his appeal was that, while he accepted that s 180(1) of the Act applied to him as a company secretary, the contraventions of section 180(1) which ASIC had alleged against him were concerned with actions he made in his capacity as general counsel and not in his capacity as a company secretary of JHIL. That is to say, Shafron argued that his role as “general counsel and company secretary” should be divided was into tasks he undertook as general counsel, and tasks he undertook as company secretary. He argued that the contraventions of s 180(1) that ASIC had alleged against him (in respect of the critical Board meeting that approved the draft ASX announcement) involved him acting in his capacity as general counsel and not in his capacity as a company secretary of JHIL. The High Court held that the degree of care and diligence required in s 180(1) is determined by looking at the responsibilities that the officer actually had, regardless of how or why those responsibilities came to be imposed on the officer. The Court said that his responsibilities were indivisible and must be viewed as a whole. Further, a company secretary with a legal background would be expected to raise issues such as potential misleading statements in disclosure obligations, and that because of his close involvement in the actuarial advice the raising of the limitations of that advice was a responsibility that fell within his responsibility as company secretary. As noted above, Shafron was fined $75,000 and disqualified from being a director or officer of a company for 7 years.

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The business judgment rule [16.930] The business judgment rule in s 180(2) of the Corporations Act 2001 (Cth) provides a defence for actions that may otherwise have constituted a breach of s 180(1). The introduction of a statutory “business judgment rule” into the Act was an attempt to provide a “safe harbour” for directors when they make informed and honest business decisions but ones which ultimately are proved to be wrong. The rule provides directors and other officers with a presumption that they have met the requirements of care and diligence’ in making a business judgment if they: have acted in good faith and for a proper purpose; and do not have a material personal interest in their decision; and take steps which they believe to be reasonably appropriate to inform themselves about the subject of the decision; and rationally believe that the decision is in the best interests of the corporation. A director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one, unless the belief is one that no reasonable person in their position would hold. The effect of the rule is that if directors meet the requirements in s 180(2), they are shielded from liability. There was concern that Daniels v Anderson (1995) 37 NSWLR 438 (see below at [16.940]) had significantly increased uncertainty and extended the liability of directors. It was argued that this lack of certainty caused directors to be overly risk-averse and conservative in their approach to corporate governance, with negative economic consequences. Although s 1318 of the Corporations Act provides scope for courts to excuse directors from liability where they have acted fairly and honestly, there was concern (from directors) that this did not provide directors with sufficient certainty and confidence, because it can only operate after there has been a finding of a breach of duty.

Daniels v Anderson [16.940] 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 must: (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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Australian Securities and Investments Commission v Adler [16.950] Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 (see facts at [16.975] below). Santow J held that Adler was in breach of his s 180(1) duty because a reasonably careful and diligent director in his position would not have caused the payment of $10 million to be applied (at least partly) to purchase the HIH shares. The court held that no reasonable director in Adler’s position and possessing his knowledge would have proceeded with the acquisition of the three unlisted technology and internet investments and the three unsecured loans. Two directors of HIH, Williams and Fodera were also found to be in breach of s 180(1) as they were aware of the $10 million transaction and Adler’s potential conflict of interest, and it was held that a reasonably careful and diligent director in their circumstances would have brought the issue before the board. Unsurprisingly, the Court held that neither none of the defendants could make use of the business judgment rule in s 180(2). Adler clearly had a material personal interest through his substantial shareholding in HIH and did not make the business judgment in good faith and for a proper purpose – the object was to support the HIH share price.

Duty to act in good faith and for a proper purpose: s 181 [16.960] Section 181 Good faith-directors and other officers (1)

A director or other officer of a corporation must exercise their powers and discharge their duties: (a)

in good faith in the best interests of the corporation; and

(b)

for a proper purpose.

Directors must exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose: s 181. The duty to act in good faith and for a proper purpose has been interpreted as meaning that the directors must act honestly in the interests of the company as a whole (or “the members as a whole”). In general, directors do not owe a duty to the individual shareholders of the company. The directors meet this obligation if they honestly believe their decision or their action is in the best interests of the company. “Honesty” is a broad concept, applying to conduct that does not promote the best interests of the company. A “proper purpose” is a purpose that benefits the company. An example of directors exercising their powers and discharging their duties for an improper purpose is where directors authorise the issue of shares for the purpose of effecting a change in control of the company or for the purpose of preventing or obstructing a takeover bid for the company.

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Duty not to misuse the director's position to gain an advantage or cause detriment: s 182 [16.970] Section 182 Use of position–directors, other officers and employees (1)

A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a)

gain an advantage for themselves or someone else; or

(b)

cause detriment to the corporation

The following case raised issues in relation to the duties under ss 182 – 183 of the Corporations Act 2001:

Australian Securities and Investments Commission v Adler [16.975] Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253. Adler was a non-executive director, Williams was a director and the chief executive officer, and Fodera was a director and the financial controller of HIH. HIHC (a subsidiary of HIH) authorised a $10 million loan to Pacific Eagle Equity (PEE) which half owned by Adler. This money was used by PEE to purchase shares worth nearly $4 million and the balance was used to buy shares in unlisted technology stocks from Adler Corporation and to make loans to entities that were associated with Adler. ASIC brought proceedings against the three directors alleging inter alia they had contravened ss 180 – 183 of the Act in failing to notify the board. Adler was found to have contravened each of ss 180 – 183 of the Corporations Act 2001 (Cth): duty to act with care and diligence (s 180) duty to act in good faith and for a proper purpose (s 181) duty not to improperly use position (s 182) duty not to improperly use information (s 183). Santow J concluded that Adler had contravened s 182 due to the arrangement of $10 million loan that was used to acquire HIH shares on the stock market. This transaction was merely done for the purpose of inflating the price of HIH shares and to allow Adler Corporation to sell the HIH shares it owned to HIH at a higher price. Santow J explained the principles that are relevant when assessing a contravention of s 182: a director causes a company to enter into an agreement that confers unreasonable personal benefits on the director obtaining that agreement in a way that ensures any independent director is not aware of the fact that the benefits flowing to the director are unreasonable it is sufficient to establish that the transaction was carried out by the company so that the director would benefit and the director does not make adequate disclosure of their interest whether the director has breached the section is assessed objectively.

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Cummings and anor v Claremont Petroleum NL [16.980] Cummings and anor v Claremont Petroleum NL [1992] FCA 674. Cummings and Fuller were directors of Claremont, a publicly listed mining company. They gained control of the board and passed resolutions to provide them (through a consulting firm that they also controlled) with luxury vehicles and very generous severance packages. When they were voted off the board the new board cancelled the leases on the luxury cars and sought repayment of the severance payments. The company argued that both of the former directors were in breach of their duty to act honestly and not misuse their positions to gain an advantage or cause detriment. The Full Court of the Federal Court affirmed that the two directors (both lawyers) had misused their positions and had breached their duty to act honestly. The Full Court said: “One of the prime duties of a fiduciary is to avoid putting himself in a position of conflict of duty and interest, or at any rate to avoid advancing his personal interest by pursuing a gain in circumstances in which there is a conflict between his duty and his interest … In addition to the clear conclusion that Fuller and Cummings failed to exercise a reasonable degree of care and diligence, there was ample material upon which (the trial judge) could find that they had also failed to act honestly in the exercise of their powers and in the discharge of their duties of office and had made improper use of their position as directors to gain a direct or indirect benefit to themselves or each other. The duties imposed on a director are stringent with good reason and having regard to the breadth of the right developed by the doctrines of equity to recover losses caused by and gains received by errant fiduciaries there is no reason to expect that the scope of (ss180 – 182) was intended to be in any way narrow or limited. Fuller and Cummings were experienced commercial solicitors and Fuller, at least, an experienced director. These were matters to be taken into account when determining whether they had exercised a reasonable degree of care and diligence and had at all times acted honestly in the exercise of their powers as directors when they had put themselves in a situation where their personal interests conflicted plainly with the interests of the public company they served”: at [66]–[68].

Duty not to misuse the director's position to obtain and use information: s 183 [16.985] Section 183 Use of information - directors, other officers and employees (1)

A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a)

gain an advantage for themselves or someone else; or

(b)

cause detriment to the corporation

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Australian Securities and Investments Commission v Vizard [16.990] Australian Securities and Investments Commission v Vizard [2005] FCA 1037; (2005) FCR 57. Steve Vizard, a qualified lawyer and high profile arts personality and benefactor, was appointed a non-executive director of Telstra Corporation Limited (Telstra) in September 1996. Telstra invests in companies listed on the ASX. In order to buy or sell shares in listed companies Telstra’s CEO would provide all the directors of Telstra with highly confidential information to help them make the right investment decisions. After having received such highly confidential information from Telstra’s CEO, Vizard instructed his accountant (Mr Lay) to proceed with share transactions on behalf a company, Creative Technology Investments Pty Ltd (CTI), that Vizard created for investment purposes. In order to conceal any direct involvement in CTI by Vizard, he appointed Mr Lay as the company’s sole shareholder and director. The ultimate aim was for Vizard’s family trustee company (Brigham Pty Ltd) to benefit from these transactions. It was proven that each share transaction entered into by CTI happened because, as a director of Telstra, Vizard had obtained confidential information. If the confidential information suggested that Telstra would sell shares in an identified company, Vizard instructed My Lay to sell the shares held by CTI in that company; if the confidential information indicated that Telstra would buy shares in an identified company, Vizard instructed Mr Lay to buy shares in that company on CTI’s behalf. After an 18-month investigation, ASIC determined it did not have a case against Vizard for insider trading or any other crime. As a result, ASIC did not bring criminal charges of any kind against Vizard. However, ASIC did commence civil proceedings against Vizard for breaching his director’s duties under the Corporations Act 2001 (Cth), ss 183 and 232. ASIC made no allegations of dishonesty against Vizard in those proceedings. Vizard and ASIC came to an out-of-court settlement in which Vizard would plead guilty in exchange for a $390,000 fine and disqualification from acting as a company director for five years. When the plea agreement was submitted to the court for approval, the court doubled the period of disqualification to 10 years, giving an indication of the seriousness with which it viewed the offence. On 28 July 2005, in a highly controversial decision, the Commonwealth Director of Public Prosecutions formally announced that it had elected not to proceed with the criminal case against Vizard.

Duty to act in good faith use of position and use of information: s 184 [16.1000] Section 184 Good faith, use of position and use of information–criminal offences Good faith – directors and other officers (1)

A director or other officers of a corporation commits an offence if they: (a)

are reckless; or

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(b)

are intentionally dishonest;

and fail to exercise their powers and discharge their duties: (c)

in good faith in the best interests of the corporation; or

(d)

for a proper purpose.

Use of position – directors, other officers and employees (2)

A director, other officer or employee of a corporation commits an offence if they use their position dishonestly: (a)

with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or

(b)

recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation. Use of information – directors, other officers and employees (3)

A person who obtains information because they are, or have been, a director or other officer or employee of a corporation commits an offence if they use the information dishonestly: (a)

with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or

(b)

recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation.

There are three offences created by s 184. First, directors commit a criminal offence if they are reckless or intentionally dishonest, and if they fail to exercise their powers and discharge their duties in good faith, in the best interests of the corporation, or for a proper purpose: s 184(1). Second, directors may commit a criminal offence if they use their position dishonestly, with the intention of gaining an advantage for themselves or someone else; or by causing detriment to the corporation; or, if they use their position dishonestly or are reckless as to whether they or someone gains an advantage; or whether they or may cause detriment to the corporation: s 184(2). Third, equivalent offences lie for the misuse of company information: s 184(3). The central element in each offence is dishonesty and this may be established by showing the director intended to act dishonestly or was reckless.

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Civil penalty provisions Figure 16.4: Penalties for breach of directors’ duties – ss 180–184

[16.1010] The provisions of the Corporations Act 2001 (Cth) concerning the duties of directors and other officers are “civil penalty provisions”. These provisions can be divided into two categories. The first refers to those provisions that may (if the required intention is present) be enforced by a criminal prosecution in addition to a civil penalty. The directors’ duties contained in the Act in ss 181, 182 and 183 are examples. The second refers to those civil penalty provisions that are not enforceable through the criminal regime: the non-criminal civil penalty provisions. In the event that a non-criminal civil penalty provision is contravened, a civil penalty application is the most severe enforcement action that ASIC can instigate. The directors’ duty of care and diligence in s 180 is an example. Under Part 9.4B, 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. A director who commits an offence (s 184) may be liable to criminal penalties: imprisonment for up to five years and/or fines of up to $220,000. ASIC is responsible for the enforcement of these statutory duties and may apply for any of these remedies. In addition, a court may order a person to compensate a corporation if the person has contravened a civil penalty provision and the corporation has suffered damage as a result of the contravention. In this context “damage” includes profits made by any person: s 1317H. ASIC may apply for any of these remedies. The corporation may apply for a compensation order: s 1317J. Proceedings for these remedies must be started no later than six years after the contravention:

chapter 16 Corporations Law

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 [16.1020] 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 by the board: s 195(1). An exception is made where the board has passed a resolution stating that the directors are satisfied that the interested director should not be disqualified: s 195(2). ASIC may also exempt a director from the disqualification in certain circumstances: s 196. In contrast, the director of a proprietary company may participate in discussions, vote on a matter and keep any benefits that arise, provided they have declared their interest beforehand: s 194.

Director's duty to prevent insolvent trading [16.1030] Directors, including non-executive 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

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(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 [16.1010]). Where, on an application for a civil penalty 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. In relation to non-executive directors, as the following case demonstrates, in order to defend an insolvent trading claim, they must ensure that they are fully informed of the company’s financial position and if it appears – or should appear - that the company is, or might become, insolvent, they must take swift action to appoint an administrator. If the non-executive director is unable to persuade the Board that the company should cease trading, the director should resign. Obviously the same applies but with more force (in relation to penalties) to executive directors.

Australian Securities and Investments Commission v Plymin, Elliott and Harrison [16.1035] Australian Securities and Investments Commission v Plymin, Elliott and Harrison [2003] VSC 123. The Victorian Supreme Court found that John Elliott, as a non-executive director, had failed to prevent a company from incurring debts while it was insolvent. The Court was satisfied that the Water Wheel companies were insolvent at the time debts were incurred and the directors were, or should have been, aware that there were reasonable grounds for suspecting the companies were, or would become, insolvent. In relation to non-executive directors, the Court said: “A non-executive director is expected to take steps to put himself in a position to monitor the company and to exercise and form an independent judgment and to take a diligent and intelligent interest in the information either available to him or which he might with fairness demand from the executives or other employees and agents of the company.” The Court said that Elliott was aware of facts and matters that gave rise to reasonable grounds for suspecting insolvency. The Court said that it would not find a director guilty where he or she has acted honestly and ought fairly to be excused for the contravention. Here Elliott had not acted dishonestly but, in assessing whether he ought fairly to be excused, the Court considers any action to appoint an administrator, the way in which the breach occurred; and the circumstances of the person seeking to be excused.

chapter 16 Corporations Law

In relation to penalty, the Court disqualified Elliott from managing a corporation for four years, ordered him to pay compensation of approximately $1.4 million, and a pecuniary penalty of $15,000 to ASIC. On appeal, the Court of Appeal in agreeing with the decision and the penalty, said: “We agree with the judge’s conclusions that Elliott’s contraventions over a period of five months were serious and inexcusable and showed continuing disregard for the position of creditors. In his role as a member of the Board of Water Wheel, albeit as a non-executive director, Elliott had stubbornly and tenaciously allowed Water Wheel to trade after 14 September 1999 and did nothing to protect the creditors from the inevitable insolvency of the company. ”

Prohibition of insider trading [16.1040] 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 the valuable information of that nature. Sections 1042A – 1042H collectively give the prohibition in s 1043A an expansive meaning but ss 1043B – 1043K provide specific exceptions for vendors and purchasers, their agents, underwriters and companies or partnerships where adequate barriers separate the person with the information from the person engaging in the transaction. Severe penalties, both civil and criminal, may be imposed for contravention and, in addition, the “insider” is liable to compensate the other party to a dealing and to account for any profit to the company whose shares are traded: ss 1043A, 1043L. However, in addition to the statutory defences (s 1043M) to a prosecution, courts have power to relieve a party to a civil proceeding from liability where satisfied that the information was used innocently.

R v Hannes [16.1045] R v Hannes (2002) 173 FLR 1. 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.

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CDPP v Hill and Kamay [16.1046] CDPP v Hill and Kamay [2015] VSC 86. 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 a major bank employed K on its wholesale foreign exchange desk. Between August 2013 and May 2014, H provided K with sensitive, embargoed ABS main economic indicators information which was used by K to conduct trades of margin contracts on the foreign exchange derivatives market. Both defendants pleaded guilty, inter alia, to insider trading under 1043A of the Corporations Act 2001. H was sentenced to imprisonment for 3 years and 3 months and K to 7 years and 3 months.

Removal of directors [16.1050] Directors may be removed from office by an ordinary resolution (50% approval) of members. This is a replaceable rule for proprietary companies (s 203C) but not for public companies (s 203D).

Payments for retirement from office [16.1055] 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.

Certain persons not to manage corporations [16.1060] 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).

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

chapter 16 Corporations Law

21 days’ notice of their intention to apply. On an 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 they have been disqualified under the law of a foreign jurisdiction (s 206EAA), or have been banned from managing companies under Competition and Consumer Act 2010 (Cth) (s 206EA). On an application by ASIC, the court may disqualify a person from managing corporations for up to 20 years if within the last seven years that person has been an officer of two or more corporations when they have failed, and the management of the corporations was wholly or partly responsible for their failure: s 206D. ASIC may disqualify a person from managing corporations for up to five years if within the last seven years they have been an officer of two or more corporations which were wound up while they were an officer, or within 12 months after they ceased to be an officer. ASIC must give the person a notice requiring them to demonstrate why they should not be disqualified and must give them an opportunity to be heard: s 206F.

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PART 6: BUSINESS ETHICS

Chapter 17: Business Ethics

chapter 17

Business Ethics [17.20] Ethical issues in business ........................................................................................................................... 435 [17.30] Ethical aspects of general commercial law principles ................................................................. 437 [17.40] Benefits of business ethics ........................................................................................................................ 437 [17.50] Ethical duties of business............................................................................................................................ 438 [17.60] International standards................................................................................................................................ 439 [17.100] Corporate ethics codes .............................................................................................................................. 442 [17.110] Industry codes................................................................................................................................................ 443 [17.120] Regulatory responses................................................................................................................................ 443 [17.130] Socially responsible investing ............................................................................................................... 447

Introduction [17.10] 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: (a)

examples of ethical issues in business;

(b)

ethical aspects of general commercial law principles;

(c)

the benefits to business of observing business ethics;

(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.

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1

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.

2

HIH Royal Commission, The Failure of HIH Insurance (Commonwealth of Australia, Canberra, 2003), Vol 1, p lxiii.

chapter 17 Business Ethics

Ethical issues in business [17.20] 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”. 1 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”. 2 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”. 3 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, 4 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. 5 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. 6 Goldman Sachs sold an Australian hedge fund collateralised debt obligations that a Goldman internal email described as an excremental deal. 7 The Wall Street investment firm of Bernard Madoff defrauded investors of billions of dollars. 8 Numerous Australian investors lost heavily after a financial adviser at the Commonwealth Bank recommended that his clients invest in high risk financial products for which he would be paid substantial commissions. 9 Some executives have artificially inflated profits to raise the stock market value of the shares to which their remuneration was tied. 10 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. 11 In 1984 an industrial accident in Bhopal, India resulted in the deaths of thousands of people. 12 The labour conditions under which products are manufactured may be abusive or exploitative. 13 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. 14 There are numerous examples of the potential impact of business upon environmental protection. 15 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. 16 Media reports have suggested that some waste-producing industries have sought to shift responsibility for waste management from the producer to the consumer. 17

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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. 18 Accounting misconduct undermines business confidence because investment decisions are made on the assumption that the reported figures are accurate. 19 Extreme disparities between executive salaries and those paid to other employees undermine public respect for the business sector. 20 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”. 21 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. 22 1

HIH Royal Commission, The Failure of HIH Insurance (Commonwealth of Australia, Canberra, 2003), Vol 1, p lxiii.

2

Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577 at [4].

3

Australian Competition and Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 at [319].

4

“Williams Faces HIH Royal http://www.abc.net.au/businessbreakfast.

5

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).

6

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.

7

“One Shitty Deal”, Four Corners, 14 June 2010, http://www.abc.net.au/4corners.

8

“The Madoff Affair”, Frontline, 12 May 2009, http://www.pbs.org/wgbh/pages/frontline/madoff.

9

“Banking Bad”, 4 Corners, 6 May 2014, http://www.abc.net.au/4corners.

10

P Krugman, The Great Unravelling (Allen Lane, London, 2003), pp 107–108, 125–127.

11

M Peacock, Killer Company (ABC Books, Sydney, 2009).

12

Clouds of Injustice: Bhopal Disaster 20 Years On ASA 20/015/2004 (Amnesty International, London, 2004).

13

“Corporate Social Responsibility”, Law Report, 5 February 2008, http://www.abc.net.au/rn/lawreport.

14

“GAP Nike – No Sweat?”, Panorama, 15 October 2000, http://www.bbc.co.uk/panorama.

15

See also “Globalising Justice”, Law Report, 1 December 2009, http://www.abc.net.au/rn/lawreport.

16

“The Timber Mafia”, Four Corners, 2 August 2002, http://www.abc.net.au/4corners.

17

“The Waste Club”, Four Corners, 8 September 2003, http://www.abc.net.au/4corners.

18

“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.news.sbs.com.au/dateline.

19

RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 39.

20

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.

21

G Haigh, Bad Company: The Cult of the CEO (Black Inc, Melbourne, 2003), p 14.

Commission”,

Business

Breakfast,

8

August

2002,

chapter 17 Business Ethics

22

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.

Ethical aspects of general commercial law principles [17.30] 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 Chapter 9 ([9.540] – [9.545]). 1 The consumer protection provisions of the Australian Consumer Law 2 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 13. 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. 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, as was discussed previously in Chapter 17. 1

See, for example, E Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths, Sydney, 2003).

2

The Australian Consumer Law is Sch 2 to the Commonwealth Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)): see Chapter 13.

Benefits of business ethics [17.40] 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 has well expressed the benefits of an ethical approach: “It takes many years to build up a good reputation, and is of enormous financial benefit to the companies that continue to maintain their good name. Although individual transactions may be foregone, other customers will continue to use such companies because they know that if a poor purchase has been made it is easy to exchange or get a refund. The basic issue here is whether or not one wishes to foster a continuing relationship; it would be as well to behave as if one had such a relationship in mind.” 1 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. 2 A company may also incur negative publicity if it is ordered to publish corrective advertisements to remedy prior misleading advertising. 3

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Furthermore, the poor business ethics of individual companies are injurious to the interests of the business sector as a whole. Unethical business conduct is likely to lead to more stringent government regulation. 4 For example, unethical conduct in the US financial sector prompted greater regulation of the sector. 5 1

RD Francis, Ethics and Corporate Governance (UNSW Press, Sydney, 2000), p 9.

2

“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.

3

“Coca-Cola Ordered to Correct Record in New Ads”, World Today, 3 April 2009, http://www.abc.net.au/worldtoday.

4

D Grace and S Cohen, Business Ethics: Australian Problems and Cases (2nd ed, Oxford University Press, Melbourne, 1998), pp 119, xiii, 54.

5

Pub L 111-203, Dodd-Frank Wall Street Reform and Consumer Protection Act (21 July 2010), 124 Stat 1376.

Ethical duties of business [17.50] 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”. 1 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”. 2 Business ethics concerns the application of ethical concepts to business. There are many theories regarding the content of business ethics. Two prominent theories which have found their way into popular discourse will be discussed here. Milton Friedman famously argued that the only social responsibility of a corporation was to maximise returns to shareholders. One of his essays was entitled, “The Social Responsibility of Business is to Increase its Profits”. He wrote: “[T]here is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”. 3 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. 4 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”. 5 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. 6 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. 7

chapter 17 Business Ethics

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 171(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. 8 Such hypocrisy is not an argument against the desirability of business ethics but for closer monitoring of their observance. 1

C Dickens, The Life and Adventures of Martin Chuzzlewit (Oxford University Press, London, 1951), p 181 (Ch 11).

2

RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 7.

3

M Friedman, “The Social Responsibility of Business is to Increase its Profits”, New York Times Magazine, 13 September 1970, p 124.

4

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.

5

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).

6

R Sarre, “Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?” (2002) 7(1) Deakin Law Review 1 at 7–8.

7

R Sarre, “Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?” (2002) 7(1) Deakin Law Review 1 at 12.

8

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.

International standards United Nations Convention Against Corruption [17.60] The most comprehensive international response to corruption is the United Nations Convention Against Corruption. 1 Australia ratified this treaty on 7 December 2005. The Commonwealth AttorneyGeneral’s Department has indicated that Australia’s obligations under the Convention will be implemented under existing legislation such as the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). 2 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, Article 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: Article 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: Articles 21 – 22. 1

United Nations Convention Against Corruption (New York, 31 October 2003, 2349 UNTS 41, 43 ILM 37).

2

Joint Standing Committee on Treaties, Report 66 (Commonwealth of Australia, Canberra, 2005), pp 14-15.

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United Nations Guiding Principles [17.65] In recent times international bodies have given increased attention to the human rights practices of business. In July 2011 the United Nations Human Rights Council endorsed the Guiding Principles on Business and Human Rights. 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. 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 [17.70] 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 17.1: 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. 1 Corporations are expected to detail in their annual report how they have given effect to these principles. Businesses are also expected to publicly

chapter 17 Business Ethics

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. 1

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.

OECD Guidelines [17.80] Some international instruments concerning business practice relate specifically to multinational business operations. 1 The Organisation for Economic Co-operation and Development has adopted a series of Guidelines for Multinational Enterprises. 2 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(1). 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 May 2011, 42 nations had adhered to these OECD principles. The implementation of the Guidelines is regulated by a decision taken by the OECD Council in June 2000. Each nation must set up a National Contact Point that will promote the observance of the Guidelines, answer questions regarding their application and undertake discussions with parties that consider that the Guidelines have been infringed: para I(1). 3 The interpretation of the Guidelines is undertaken by the International Investment Committee, though it has no power to “reach conclusions on the conduct of individual enterprises”: para II(4). 1

See also Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (as amended at Geneva, November 2000, 41 ILM 184).

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2

OECD Guidelines for Multinational Enterprises (as revised at Paris, 25 May 2011). See generally, http:// www.oecd.org/daf/internationalinvestment/guidelinesformultinationalenterprises/; 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.

3

The website of the Australian National Contact Point is at http://www.ausncp.gov.au.

Other international conventions concerning business practices [17.90] 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. 1 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. 2 Other treaties prohibit the employment of children in harmful forms of work. 3 These treaty rights should influence the conduct of corporations which are engaged in manufacturing in developing countries. 1

International Convention on the Elimination of All Forms of Racial Discrimination, Article 2(e) (New York, 7 March 1966, 660 UNTS 195); Convention on the Elimination of All Forms of Discrimination Against Women, Article 2(e) (New York, 18 December 1979, 1249 UNTS 13).

2

Convention on the Rights of the Child, Art 32(1) (New York, 20 November 1989, 1577 UNTS 3).

3

International Covenant on Economic, Social and Cultural Rights, Article 10(3) (New York, 19 December 1966, 993 UNTS 3); ILO Convention concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour (No 182) (Geneva, 17 June 1999, 2133 UNTS 161, 38 ILM 1207).

Corporate ethics codes [17.100] Many individual companies have ethics codes. 1 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”. 2 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. 3 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;

(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;

chapter 17 Business Ethics

(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. 4

Some studies have suggested that codes have little direct influence upon the behaviour of employees and management. 5 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. 1

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.

2

M Schwarz, “The Nature of the Relationship between Corporate Codes of Ethics and Behaviour” (2001) 32 Journal of Business Ethics 247, 248.

3

RD Francis, Business Ethics in Australia (Centre for Professional Development, Melbourne, 1994), p 13.

4

RD Francis, Ethics and Corporate Governance (UNSW Press, Sydney, 2000), pp 155–174.

5

M Schwarz, “The Nature of the Relationship between Corporate Codes of Ethics and Behaviour” (2001) 32 Journal of Business Ethics 247 at 253.

Industry codes [17.110] Under Pt IVB of the Competition and Consumer Act 2010 (Cth), industry codes of conduct may be prescribed and enforced under the Act. 1 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 2.2. 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 28.4. Prospective borrowers are to be informed of the risks associated with foreign currency loans: cl 21.2. Other provisions concern disclosure and modification of fees and charges: cll 10.4, 18.3. 1

For Code texts, see http://www.asic.gov.au/asic/asic.nsf/byheadline/Codes-of-practice; R Mares (ed), Business and Human Rights: A Collection of Documents (Martinus Njjhoff, Dordrecht, 2004), pp 341ff.

Regulatory responses [17.120] 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

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response which imposes standards and practices”. 1 Laws are frequently enacted in response to, rather than in anticipation of, ethical breaches or problems. 2 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 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. 3 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.” 4 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. 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. 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. 5 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”. 6 In the wake of this controversy, the Broadcasting Services (Commercial Radio Current Affairs Disclosure) Standard 2012 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. 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. 8

chapter 17 Business Ethics

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 1.20. 9 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. See also Commercial Television Code of Practice, cl 1.18. 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”. 10 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. 11 Some pharmaceutical companies have sought to circumvent this prohibition by persuading the media to run news stories that indirectly advertise their products. 12 There have also been proposals for the prohibition of advertisements for “junk food” during children’s television programs. 13 A large proportion of advertising for unhealthy foods appears to be targeted at children. 14 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). 15 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. 16 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). 17 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). 18 Advertising techniques can also raise ethical issues. The use of subliminal advertising appears to contravene the Commercial Television Industry Code of Practice. The Code prohibits 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. 19 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. 20 The acceptability of the message promoted by some advertisements may also be very important. The Alcohol Beverages Advertising (and Packaging) Code provides that alcohol advertisements must not suggest that alcohol consumption contributes “to the achievement of personal, business, social, sporting, sexual or other success”: Pt 1(c)(i). 21 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

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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. 22 Advertising directed towards children requires especially careful regard for ethical considerations. 23 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). 1

D Grace and S Cohen, Business Ethics: Australian Problems and Cases (2nd ed, Oxford University Press, Melbourne, 1998), p xiii.

2

RT DeGeorge, Competing with Integrity in International Business (Oxford University Press, New York, 1993), p 26.

3

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.

4

OECD Working Group on Bribery, Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Australia (2012), 19.

5

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.

6

K Henderson in “Laws, Jones Feud Boils Over”, Lateline, 28 April 2004, http://www.abc.net.au/lateline.

7

The Standard was adopted by the Australian Communications and Media Authority under the Broadcasting Services Act 1992 (Cth), s 125.

8

Australian Communications and Media Authority v Radio 2UE Sydney Pty Ltd (2009) 178 FCR 199 at [141]–[142], [185].

9

The text of the Code is available at http://www.freetv.com.au.

10

House of Representatives Hansard, 16 December 1992, p 3884.

11

Therapeutic Goods Act 1989 (Cth), s 42DL(1)(f); Medicines Australia Code of Conduct (Edition 16), s 12.3, available at http://www.medicinesaustralia.com.au.

12

“Gilding the Lily”, Media Watch, 19 May 2008, http://www.abc.net.au/mediawatch; “Spinning “Ageing Stress””, Media Watch, 23 June 2008.

13

“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.

14

K Chapman, P Nicholas and R Supramaniam, “How much Food Advertising is there on Australian Television?” (2006) 21 Health Promotion International 172. 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.

15

The Code is available at http://www.aana.com.au/pages/codes.html.

16

The Principles are available at http://www.iaso.org/iotf/obesity/childhoodobesity/sydneyprinciples/.

17

The Standards are available at http://www.comlaw.gov.au/Browse/ByTitle/LegislativeInstruments.

18

C Hughes, “We’re Getting Only Weasel Words on Junk Food Ads”, Sydney Morning Herald, 5 September 2008, p 17.

19

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.

chapter 17 Business Ethics

20

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.

21

The Code is available at http://www.adstandards.com.au.

22

47 Code of Federal Regulations § 73.682 and 76.607; 77 Federal Register 40276 at [1] (2012).

23

See S G Thomas, Buy, Buy Baby: How Big Business Captures the Ultimate Consumer – Your Baby or Toddler (Harper Collins, London, 2007); and see S Beder et al, This Little Kiddy Went to Market: The Corporate Capture of Childhood (UNSW Press, Sydney, 2009).

Socially responsible investing [17.130] 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. 1 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. 2 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. 3 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. 4 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 responsible investment strategies by companies with a genuine commitment to applying them”. 5 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

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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. 6 1

Allen Consulting Group, Socially Responsible Investment in Australia (Allen Consulting Group, Melbourne, 2000), p 1.

2

Allen Consulting Group, Socially Responsible Investment in Australia (Allen Consulting Group, Melbourne, 2000), pp 2–3.

3

See generally, BJ Richardson, “Ethical Investment and the Commonwealth’s Financial Services Reform Act 2001” (2002) 2 National Environmental Law Review 47.

4

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).

5

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).

6

T Devinney et al, “The Other CSR” (2006) 4, 3 Stanford Social Innovation Review 30 at 35.

PART 7: EMPLOYMENT AND ANTI-DISCRIMINATION LAW

Chapter 18: Employment Law Chapter 19: Anti-Discrimination and Equal Employment Opportunity Law

chapter 18

Employment Law [18.20] Employment relations law.......................................................................................................................... 453 [18.30] Australian industrial history ............................................................................................................... 453 [18.40] The modern employment environment ..................................................................................... 455 [18.120] Sources of legal rights and obligations .................................................................................... 460 [18.130] Defining the employment relationship .................................................................................... 460 [18.160] Legal tests applied .................................................................................................................................. 461 [18.230] Employment categories ...................................................................................................................... 464 [18.240] Recruitment and selection ................................................................................................................ 464 [18.250] Common law duties of an employer .......................................................................................... 465 [18.265] Common law duties of an employee ......................................................................................... 466 [18.290] Termination of employment ............................................................................................................ 467 [18.350] Vicarious liability ...................................................................................................................................... 471 [18.370] Workplace health and safety and workers compensation.................................................... 472 [18.380] Workers compensation ...................................................................................................................... 473 [18.390] National health and safety legislation ..................................................................................... 475 [18.400] Work Health and Safety Act 2011 (Qld) .............................................................................. 476 [18.410] Workers Compensation and Rehabilitation ....................................................................... 477 [18.420] The Law of Registered Industrial Associations ................................................................ 478

Introduction [18.10] 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

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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 [18.20] 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 [18.50]). 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 [18.30] 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 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

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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 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

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controversy, and notable cases being the subject of appeal to the High Court. These cases sought to demarcate Commonwealth power. As noted however at [18.50], 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 [18.40] 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 New South Wales v Commonwealth (Work Choices Case) [18.50] New South Wales v Commonwealth (Work Choices Case) (2006) 229 CLR 1. 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.

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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 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.

[18.60] 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 [18.70] 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 [18.80] 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 [18.90]). 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) [18.90] 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. 1 1

Source: https://www.fwc.gov.au/creating-fair-workplaces/the-national-workplace-relations-system (as of 1 July 2016).

Role of the Fair Work Ombudsman (FWO) [18.100] 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.

FWO v Bound for Glory Enterprises Pty Ltd [18.105] FWO v Bound for Glory Enterprises Pty Ltd [2014] FCCA 432. 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.

Fair Work Act Review and Amendments to the Act [18.110] 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

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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. 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

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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); 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 [18.120] 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 [18.30]–[18.60], 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 [18.130] 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

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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 [18.350]. [18.140] 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 [18.160] 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”.

Zuijs v Wirth Bros Pty Ltd [18.170] Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561. 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

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the trapeze artist and therefore was, from the perspective of the law, in fact an employer of the injured individual.

[18.180] 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 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:

Stevens v Brodribb Sawmilling Co Pty Ltd [18.190] Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16. 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.

[18.200] 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:

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Hollis v Vabu Pty Ltd [18.210] Hollis v Vabu Pty Ltd (2001) 207 CLR 21. 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.

[18.220] 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 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.

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Employment categories [18.230] Full-time employees are typically engaged for a maximum 38 hours per week, plus reasonable additional overtime, as per the National Employment Standards (see [18.80]). 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. 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 [18.240] 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.

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Common law duties of an employer [18.250] 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 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:

Commonwealth Bank of Australia v Barker [18.255] Commonwealth Bank of Australia v Barker (2014) 253 CLR 169. 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

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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]).

[18.260] 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 [18.370].

Common law duties of an employee [18.265] 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 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 [18.310]), then the employee may consider an action for breach of contract at common law.

Ottoman Bank Ltd v Chakarian [18.270] 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.

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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.

[18.280] 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 [18.290] The case of Ottoman Bank Ltd v Chakarian [1930] AC 277 discussed at [18.270] 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:

Bibby Financial Services Australia Pty Ltd v Sharma [18.295] Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37. 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 accordance with the terms of his contract.

Limitations [18.300] 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

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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 [18.310] 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 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.

Lawrence v Coal & Allied Mining Services [18.320] 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.

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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.

[18.330] 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 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

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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.

Board of Bendigo Regional Institute of Technical and Further Education v Barclay [18.340] Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 248 CLR 500. 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 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

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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.

Murrihy v Betezy.com.au Pty Ltd [18.345] Murrihy v Betezy.com.au Pty Ltd (2013) 238 IR 307 and Murrihy v Betezy.com.au Pty Ltd (No 2) [2013] FCA 1146. 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.

Vicarious liability [18.350] 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: 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.

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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 [18.370] As discussed at [18.250], 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 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

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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 [18.380] 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 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

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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 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.

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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 [18.390] As noted at [18.380], 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. 1 Western 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

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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. 1

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).

Work Health and Safety Act 2011 (Qld) [18.400] 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 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. 1

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1

Source: http://www.deir.qld.gov.au/workplace/law/whslaws/penalities/index.html#.U5--c_mSx8E (as of 1 July 2016).

Workers compensation and rehabilitation [18.410] 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. 1 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: 1

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).

Comcare v PVYW [18.415] Comcare v PVYW. The appellant 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 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.

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Dunning v BHP Billiton Ltd [18.417] Dunning v BHP Billiton Ltd [2014] NSWDDT 3. 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.

The Law of Registered Industrial Associations [18.420] 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; 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

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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. 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.

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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:

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [18.430] Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1. 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 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

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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.

Heydon Royal Commission [18.435] 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 pay money into an employee benefit, superannuation, or insurance scheme; and, importantly, that employees have freedom of choice in superannuation.

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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 [18.440] 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 [18.430] 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.

Dollar Sweets Pty Ltd v Federated Confectioners Association of Australia [18.450] 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.

Grocon Constructors Pty Ltd v Construction Forestry, Mining and Energy Union [18.455] 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. 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

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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.

Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Airline Pilots [18.460] Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Airline Pilots [1991] 1 VR 637. 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.

Transport Workers’ Union of Australia v Qantas Airways Ltd [18.470] Transport Workers’ Union of Australia v Qantas Airways Ltd (2012) 225 IR 13. 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.

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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 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.

Secondary boycotts [18.480] 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

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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.

Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd [18.490] 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 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.

chapter 19

Anti-Discrimination and Equal Employment Opportunity Law [19.20] Why is this chapter important?............................................................................................................... 489 [19.30] Equal employment opportunity law and anti-discrimination law .......................................... 490 [19.30] Two distinct entities, but pulling in the same direction .................................................. 490 [19.40] Equal employment opportunity legislation and affirmative action ....................... 490 [19.50] Anti-discrimination law ................................................................................................................................ 491 [19.60] Federal anti-discrimination legislation ........................................................................................ 492 [19.70] Other federal discrimination legislation ..................................................................................... 494 [19.80] The key features of Australian anti-discrimination legislation and an overview of the Anti-Discrimination Act 1991 (Qld) ........................................................................................ 495 [19.340] Sexual harassment, vilification and victimisation ...................................................................... 510 [19.350] Sexual harassment ................................................................................................................................ 510 [19.400] Victimisation ............................................................................................................................................... 513 [19.440] Vilification ...................................................................................................................................................... 514

Introduction [19.10] This chapter provides an overview of anti-discrimination and equal employment opportunity (EEO) laws and their application to, and influence on, the Australian workplace. It is, however, a general introduction to anti-discrimination and EEO law in Australia, rather than a technical analysis of the finer points of law relating to this field. While anti-discrimination legislation in Australia is focused on ensuring equality of treatment or formal equality, EEO legislation (which effectively means affirmative action legislation) attempts to deliver equality of result. This chapter’s primary focus is on the former aspects of human rights law as it pertains specifically to Queensland, in particular the Anti-Discrimination Act 1991 (Qld) (QADA). However, it should be noted that, on most accounts, a similar interpretation can be used in other States. Indeed, the central principles underpinning the State and federal AntiDiscrimination Acts are very similar. Each Act follows a comparable statutory approach for the lodging, hearing and conciliation of complaints. While the final adjudication and enforcement of

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complaints may be different depending on the jurisdiction, similar outcomes apply. Therefore, learning to apply the QADA will assist students in applying the various Anti-Discrimination Acts across both State and federal jurisdictions. This chapter acknowledges that the QADA applies to other “areas” outside the workplace setting such as education, religion and goods and services, but primarily focuses on the area of work, in acknowledgment of the particular relevance to students studying this area of the law. Furthermore, issues relating to the area of work result in the largest number of complaints being lodged to anti-discrimination commissions. In order to better understand how the QADA and other similar Australian legislation have been applied, the most salient cases from the various Australian jurisdictions have been used to demonstrate the general application of these analogous provisions, and to illustrate the similarities between the way the various Acts play out across State and federal jurisdictions.

chapter 19 Anti-Discrimination and Equal Employment Opportunity Law

Why is this chapter important? [19.20] All human beings are born free and equal in dignity and rights – this statement is so salient in the international understanding of human rights that it appears in Art 1 of the Universal Declaration of Human Rights. The Declaration was adopted in 1948 as part of the International Bill of Human Rights which, as well as this Declaration, also includes the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights and its two Optional Protocols. While the United Nations has had a chequered history in terms of influence on world events, the International Bill of Human Rights has influenced political structures on all continents, including Australia, and has extended its reach into federal and state parliaments. We will discuss a number of pieces of legislation that have the 1948 Bill as their inspiration. One of the major purposes of the anti-discrimination and EEO laws is to help shape the ways in which we interact with each other in our daily working lives. Both focus on our rights and obligations as owners, managers and employees in the workplace. Collectively, the laws emphasise a person’s right to work in a society that is based on dignity and human rights. Jointly, the anti-discrimination and EEO legislation aims to limit the degree to which unlawful discrimination occurs in work (and other) settings, and is generally underpinned by Australia’s international obligations, as outlined at [19.20]. The provisions are designed to ensure that individuals are judged fairly, according to their personal skills, and the degree to which those skills meet the requirements of the workplace, often referred to as the “merit principle”. Anti-discrimination and EEO principles should be implemented contemporaneously and systematically into business policies to guide operational practices including improving management style, protecting the business from legal claims (risk management) and, most importantly, ensuring that staff and clients are able to operate “in an environment free from harassment and discrimination” (Ronalds, p 63). Such a course of action has positive corporate outcomes, such as attracting and retaining talent – remembering that staff turnover is one of the largest operational expenses in human resource management – and increasing productivity and innovation. There is, however, a broader application of anti-discrimination and EEO measures in a workplace setting, and it relates to a broader set of rights. In R v Equal Opportunity Board; Ex parte Burns [1984] EOC 92-112, the Board held: “A benefit of employment is the entitlement to quiet employment, that is, the freedom from physical intrusion, the freedom from being harassed, and the freedom from being physically molested or approached in an unwelcome manner. If molestation, physical and sexual affronts are permitted by an employer, it is denying a benefit and permitting detriment to those employees who suffer such unwelcome intrusions vis-a-vis those who do not.” Harassment in the workplace is an emerging – and, indeed, rapidly emerging – area of law. While most of us have some limited awareness of this area of law, it is a potentially confusing field – and a minefield for employers. The explosion in cases involving discrimination in the workplace indicates a growing sophistication of employees’ awareness of their rights. Furthermore, it highlights the degree to which employers and managers can benefit from training in this field, and the need for the development of adequate policies to counteract these problems. Failure to do so is becoming increasingly costly for companies. This chapter will arm students with some of the tools and knowledge required to help them play a role in this growing field.

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Equal employment opportunity law and anti-discrimination law Two distinct entities, but pulling in the same direction [19.30] Anti-discrimination and equal employment opportunity (EEO) provisions in Australia have a relatively short history compared to causes of action recognised by the common law such as breach of contract. Unlike many other causes of action that have developed under the common law before being enshrined into statute, both anti-discrimination and EEO laws had their political beginnings as products of parliament. As discussed in the previous chapter, managerial prerogative has been progressively constrained by legislation. The various pieces of Australian anti-discrimination and EEO legislation are clear examples of a progressive restriction of a manager’s freedom to control the workplace. In regard to discriminatory conduct, the common law has allowed managerial prerogative to flourish as it does not provide avenues for a common law action to be brought against the perpetrator of discriminatory acts by an aggrieved person who has suffered discriminatory conduct, unless it pertains to evidence of another cause of action, such as a breach of contract. Thus the only avenue available to resolve a complainant of discrimination is remedy via legislation, as the common law does not specifically recognise legal actions that prevent discrimination and promote EEO. To overcome the common law’s shortcomings, the legislature has over the last four decades developed some protection for some members of society who have been discriminated against, in particular during employment. Furthermore, legislators have crafted legislation that focuses on promoting EEO in the workplace.

Equal employment opportunity legislation and affirmative action [19.40] Equal employment opportunity (EEO) law works in tandem with the anti-discrimination legislation and focuses on the idea that all employees should have equal access to opportunities at work. Unlike the anti-discrimination legislation, however, EEO legislation specifically places the legal onus on typically large employers (defined at [19.70]) to take positive measures to help ensure this occurs – such as requiring an affirmative action program to be in place – and report on the progress of the program. In particular, EEO legislation targets minority groups who have been disadvantaged in the past, including Aboriginal and Torres Strait Islanders, women, people from non-English speaking backgrounds and disabled people. The legislation is aimed at putting minorities such as these groups onto an equal footing in the area of work with any other Australians in the workplace – that is, those who have not been disadvantaged in the same way. Ideally, the legislation should ensure that factors unrelated to a person’s capacity to perform the tasks that make up their work play no role in how they are treated at any stage of the employment process. It requires that measures are put in place to improve the career opportunities of these previously disadvantaged groups of employees, including, but not limited to, recruitment and selection, access to training and promotion, and dismissal rights. More idealistically, the legislation aims to buttress the employee’s sense of esteem in the workplace, ensuring that they feel valued for the work they perform, rather than their value being based on attributes such as sex and race. On a more measurable front, the employee should enjoy the same advantages when it comes to pay, training, promotion, and the risk of dismissal, either when dismissal is related to redundancy, or due to misbehaviour. These decisions should be based on a person’s ability to do the job and embody the “merit principle”.

chapter 19 Anti-Discrimination and Equal Employment Opportunity Law

Employers who positively embrace this approach tend to refer to themselves as equal employment opportunity (EEO) employers, and use this label in branding, for example, when it comes to recruitment processes. Effectively, there are two categories of such employers: those who follow anti-discrimination laws closely and attempt to ensure their staff are equally diligent in conforming to the law; and those who take a more proactive stance in developing their company’s approach. Such employers commonly implement an affirmative action program, which embodies practical steps to achieving EEO targets for certain groups, such as women or indigenous employees. These employers commonly have a staff member assigned to these issues – for example, an EEO officer – to lead the implementation of EEO measures in the workplace. Alternatively, the companies may give their human resources or personnel manager or, more rarely, line managers, additional training to equip them for their role. Sometimes, proactive employers may seek out barriers to advancement for certain groups and maintain databases to ensure the spirit of the legislation, as well as adhering to the letter of the law. In essence, an affirmative action program is a structured approach to the issue of equal opportunity. It is a program designed to ensure that disadvantaged groups or individuals are able to compete on an equal footing with the balance of the working population for employment, training and promotional opportunities. Additionally, such programs commonly contain remedial elements to ensure that any disadvantages are addressed. This aspect of an affirmative action program relies on the keeping of statistics on the occupations and employment status of disadvantaged groups in the organisation in order to monitor the degree to which the organisation is carrying out its obligations. Where it is failing to meet its obligations, awareness of shortfalls can trigger the organisation to act – for example, on improving facilities or extending provisions for sick leave or maternity leave. It is a broad field, and practitioners generally use the term “affirmative action” to cover any aspect involved in the development of an EEO workplace.

Anti-discrimination law [19.50] While the major focus of anti-discrimination law is on how we interact with each other in the workplace, it also covers areas such as education, goods and services. Generally, anti-discrimination law is reactive and applies to discriminatory conduct that has already occurred, but it can also apply to discriminatory conduct that is likely to occur. It seeks to deter certain types of discriminatory conduct by providing a remedy to an individual or a group of people who have been (or are likely to be) subject to conduct that has been found unlawful by the tribunal or court enforcing the relevant state or federal legislation. However, it is important to note that not all discrimination is unlawful. Anti-discrimination law only punishes conduct that breaches the legislation. For the conduct to be considered unlawful it must: be based on an attribute (sometimes known as a “ground”) covered by the Anti-Discrimination Act(s); be either “direct” or “indirect” discrimination; have occurred (or likely to occur) in an area covered by the Act such as the workplace; and have occurred in circumstances where no defences or exceptions apply. In the instance of a possible breach, the parties at a preliminary stage will have the matter conciliated by the relevant State Anti-discrimination Commission or the Australian Human Rights Commission. If the matter is conciliated at this stage then the parties will sign a “Deed of Agreement” and the matter will only need to proceed to court if the Deed is breached by either party. Should conciliation fail, a tribunal or court

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will determine whether, on the balance of probabilities, unlawful discrimination has occurred. If it concludes that it has, remedies to the person (or group) unlawfully discriminated against will be determined. Apart from “direct” and “indirect” discrimination (see [19.120] and [19.140] respectively), other actions are also available under the various Anti-Discrimination Acts such as sexual harassment, victimisation and vilification. These other causes of action will be discussed at [19.350], [19.400] and [19.440] respectively.

Federal anti-discrimination legislation [19.60] The degree to which the 1948 International Bill of Human Rights influences the statutes of many nations was mentioned at [19.20]. Many countries – but not Australia – have adopted their own Bills of Rights. In fact, the Australian Constitution is remarkably silent on human rights. However, while Australia does not have a Bill of Rights, it is a signatory to numerous international covenants that require it to promote economic, political and social human rights. These include preventing discriminatory conduct in the workplace. For example, Arts 2 and 7 of the Universal Declaration of Human Rights declare that the right to freedom from discrimination and equality is a human right and an essential element of democracy. During the last four decades, Australian parliaments have shown an increasing interest in crafting legislation that embodies elements of the International Bill of Human Rights. Anti-discrimination legislation was first introduced into Australia by the South Australian government in 1966, and since 1998, when Tasmania enacted its Anti-Discrimination Act 1998 (Tas), anti-discrimination legislation has existed in all States and Territories, as well as federally. At the federal level the discrimination legislation is spread across several Acts. The Australian Human Rights Commission Act 1986 (Cth), previously the Human Rights and Equal Opportunity Commission Act 1986 (Cth), established the Human Rights and Equal Opportunity Commission, now known as the Australian Human Rights Commission (AHRC). Apart from being linked to aspects of the International Labour Organisation (ILO) Convention, the Australian Human Rights Commission Act 1986 (Cth) (AHRC Act) itself is also underpinned by a number of international instruments, including the: Convention on the Rights of the Child; Declaration of the Rights of the Child; International Covenant on Civil and Political Rights; Convention on the Elimination of All Forms of Discrimination Against Women; Convention Concerning Discrimination in Respect of Employment and Occupation; Convention on the Rights of Persons with Disabilities; Declaration on the Rights of Disabled Persons; Declaration on the Rights of Mentally Retarded Persons; and Declaration on the Elimination of All Forms of Intolerance and of Discrimination Based on Religion or Belief. Furthermore, the Aboriginal and Torres Strait Islander Social Justice Commissioner has specific functions under the AHRC Act and the Native Title Act 1993 (Cth) to monitor the human rights of indigenous people. The AHRC Act also allows complaints about unfair treatment, discrimination, harassment and bullying in employment because of: criminal record, trade union activity, religion and political opinion. Complaints lodged under the AHRC Act can be investigated and, if appropriate, resolved through conciliation.

chapter 19 Anti-Discrimination and Equal Employment Opportunity Law

If conciliation is unsuccessful or inappropriate – and if the AHRC decides that a complainant has been discriminated against – then it can prepare a complaint report, including action recommendations for the federal attorney general, which must be tabled in parliament. It is important to note that discrimination under the AHRC Act is regarded as unfair conduct, rather than being unlawful. Unlike the other anti-discrimination laws that the AHRC has statutory responsibilities under, a complainant cannot apply to have a complaint heard in the federal court if conciliation is unsuccessful. 1 The AHRC Act also provides the AHRC with the jurisdiction to investigate and conciliate complaints under the following main Acts: Race Discrimination Act 1975 (Cth); Sex Discrimination Act 1984 (Cth); Disability Discrimination Act 1992 (Cth); and Age Discrimination Act 2004 (Cth). The Race Discrimination Act 1975 (Cth) was introduced by the Whitlam Labor government. The Act gives effect to Australia’s obligations under the International Convention on the Elimination of All Forms of Racial Discrimination. Its major elements include promoting equality before the law for all persons, regardless of their race, colour or national or ethnic origin, and outlawing discrimination against people on the basis of their race, colour, descent or national or ethnic origin. Similarly, the Sex Discrimination Act 1984 (Cth), introduced during the Hawke Labor government, gives effect to Australia’s obligations under the Convention on the Elimination of All Forms of Discrimination Against Women and certain aspects of the International Labour Organisation (ILO) Convention 156 (Workers with Family Responsibilities Convention). The Acts do not cover State Governments as an Employer for sex discrimination complaints. The major objectives of the Sex Discrimination Act 1984 (Cth) are, not surprisingly, to: promote equality between men and women; eliminate discrimination on the basis of sex, marital or relationship status or pregnancy, breastfeeding, family responsibilities, gender identity, intersex status and sexual orientation for example, and, with respect to dismissals, family care responsibilities; and eliminate sexual harassment at work, in educational institutions, in the provision of goods and services, and in the provision of accommodation and the delivery of Commonwealth programs. Similarly, the Disability Discrimination Act 1992 (Cth), was introduced during the Keating Labor government. As far as practicable, the Disability Discrimination Act 1992 (Cth) aims to ensure that people with disabilities have the same rights to equality before the law as other people in the community. The major objectives of the Act are the elimination of discrimination against people with disabilities and the promotion of the principle that people with disabilities have the same fundamental rights as all members of the community. This includes intellectual, sensory and psychiatric disabilities; diseases or illnesses; medical conditions; work related injuries; past, present and future disabilities; and association with a person with a disability. The relatively recent Age Discrimination Act 2004 (Cth) was introduced during the Howard Liberal government’s term, and is designed to ensure that people are not treated less favourably on the basis of their age in various aspects of public life, including employment, education, the law, or the provision of goods and services. In addition, the Act provides a framework for actions against positive discrimination – that is, actions which assist people who experience a disadvantage because of their age to gain favourable advantage. The Age Discrimination Act 2004 provides exemptions in the area of superannuation,

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migration, taxation and social security laws, State laws and other Commonwealth laws and some health programs that amount collectively to positive discrimination. All four Acts are based on international human rights treaties and conventions ratified by the Australian parliament. A complaint goes through two stages of assessment: (i)

an initial screening, to ensure that it can be investigated under the Commission’s jurisdiction; and

(ii)

a review of the facts to decide whether it can be conciliated or should be terminated.

If the parties come to an agreement during the conciliation process, they sign a binding “Deed of Agreement” (as discussed at [19.50]), but in the absence of successful conciliation, the complainant can choose to have the matter determined by the Federal Court. 1

Source: https://www.humanrights.gov.au/complaints/complaint-guides/what-you-can-complain-about/complaintsabout-discrimination-employment (as at 19 August 2014).

Other federal discrimination legislation [19.70] The Fair Work Act 2009 (Cth) (as discussed in Chapter 19) includes sections that aim to prevent discrimination from occurring at different stages of the employment relationship, and overlaps to some degree with anti-discrimination and EEO legislation. Other federal legislation that contains provisions preventing discriminatory conduct by promoting equal opportunity in employment and affirmative action includes: Equal Employment Opportunity (Commonwealth Authorities) Act 1987 (Cth) places affirmative action obligations on certain Commonwealth statutory authorities (generally those with more than 40 employees) and aims to improve opportunities for traditionally disadvantaged groups such as women, people with disabilities, those from non-English speaking backgrounds and Aboriginal and Torres Strait Islanders. Public Service Act 1999 (Cth) which aims to ensure an apolitical public service, both efficient and effective in serving the government, the parliament and its ultimate masters, the Australian public, as well as to delineate a legal framework for the effective and fair employment, management and leadership of public service employees as well as establishing the rights and obligations of Australian Public Service employees. This Act also defines the powers, functions and responsibilities of key staff within the public service, including Agency Heads, the Public Service Commissioner and the Merit Protection Commissioner. Workplace Gender Equality Act 2012 (Cth) (formerly the Equal Opportunity for Women in the Workplace Act 1999 (Cth)) requires all medium and large non-public sector employers (those with 100 or more employees at any time, until less than 80 employees), and all higher education institutions, to implement an “affirmative action program” focused on promoting the equal status of women. The Act requires employers to report on their program to the federal government’s Workplace Gender Equality Agency (WGEA), but punishment for failure to comply with the WGEA is minimal. Non-complying companies are named on a list tabled in federal parliament, and published on the internet. Perhaps more seriously, these employers will be ineligible for certain federally-controlled industry assistance programs, and are not able to supply the Commonwealth with goods or services. In dealing with actual cases, consideration should be given to all alternatives in lodging complaints as actions may be taken under State or federal legislation, such as one of the federal Anti-Discrimination Acts or the Fair Work Act 2009 (Cth). It is up to the complainant to decide under which jurisdiction a complaint should be lodged. We will discuss the Queensland anti-discrimination legislation next.

chapter 19 Anti-Discrimination and Equal Employment Opportunity Law

The key features of Australian anti-discrimination legislation and an overview of the Anti-Discrimination Act 1991 (Qld) [19.80] In addition to the Commonwealth (federal) legislation mentioned at [19.60], each State and Territory has its own legislation. As already noted at [19.10], the main legislation relevant to Queensland is the Anti-Discrimination Act 1991 (Qld) (QADA). To a limited extent Queensland is also regulated by the following legislation: Public Service Act 2008 (Qld); and Industrial Relations Act 1999 (Qld). In its initial form, the QADA came into force on 30 June 1992, but it has been subject to a number of amendments. The aims of the Act are to promote equality of opportunity for all, with particular emphasis on work, goods and services, education and accommodation. In regard to work, the QADA outlaws discrimination at any stage of the employment process including, but not limited to, advertisements for a position, recruitment and selection, training, promotion and termination. Employers, principal contractors and employment agencies must be careful that they or their employees do not discriminate against other employees in the work area, or against clients in supplying goods and services, otherwise the employer, and possibly the employee, may be held vicariously liable for the discriminatory acts. More specifically, the QADA: specifies a number of attributes, and prohibits direct and indirect discrimination on the basis of these attributes; focuses on a number of specific domains in public life (although sexual harassment may also occur in private domains – see [19.350]); provides exemptions – making certain conduct lawful, and defences that an alleged offender can attempt to rely on to minimise liability; unlike other Australian statutes, directly prohibits sexual harassment in public and private, whereas other States focus solely on the public domain; prohibits vilification based on race, sexuality, gender identity or religion; details a complaints procedure; includes remedies (compensation for successful complainants as well as punishment for offenders); and prohibits victimisation. Similar to federal legislation, bullying may fall under the anti-discrimination provisions, but only if there is a causal link between the bullying conduct and an attribute, or a separate cause of action such as sexual harassment, vilification or victimisation; as bullying is not a separate cause of action in itself. More commonly, workplace bullying is dealt with under the workplace health and safety or workers’ compensation and rehabilitation legislation as an occupational health and safety issue. Alternatively, depending on the circumstances a person may take a common law breach of contract or tort claim, or an unfair dismissal or general protections claim, or ask the police to prosecute a criminal action against the defendant, such as an assault claim. More recently, an employee has also been able to take a Stop Bullying Claim under Fair Work Act 2009 (Cth) as outlined at [19.265]. Most of the discrimination cases discussed in this chapter revolve around workplace discrimination, sexual harassment, vilification and victimisation. Notable case exceptions are included when the cases are used for their broad applicability.

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The following template should help students understand the concepts of direct and indirect discrimination and also answer ILAC hypotheticals. It will also help to prepare them for real-life scenarios they may encounter as employees, managers or owners of businesses. Each of these steps will be discussed in detail, but this template provides a quick overview of the process from the viewpoint of the person or group wanting to lodge a claim: Steps: 1.

Attribute(s) (known as ground(s) under other State or federal legislation): Was the alleged discrimination based on grounds or attributes covered by the legislation? If yes, proceed to Step 2. Otherwise, complaint should not proceed. *

2.

Type: direct or indirect discrimination: Does the alleged treatment fall within one of the definitions of discrimination included in the legislation? If yes, proceed to Step 3. Otherwise, complaint should not proceed. *

3.

Area: Did the alleged discrimination occur in one of the areas covered by the legislation? If yes, proceed to Step 4. Otherwise, complaint should not proceed. *

4.

Exemptions: Do any exemptions apply that would render the discrimination not unlawful? If yes, consider the strength/weakness of the exemption applying to the current circumstances and whether to proceed to Step 5 or terminate complaint proceedings. If no exemptions reasonably apply, proceed to Step 5. *

5.

Vicarious liability and defence of reasonable steps: Is the employer vicariously liable for the actions of the employee, or has the employer taken reasonable steps? If yes – that is, if the employer is liable and has not taken reasonable steps to prevent the discriminatory conduct from occurring – proceed to Step 6. You may also want to consider naming the offending employee(s) and/or management as a co-respondent(s) of the employer, if the employee(s) have intentionally engaged in conduct that breaches the legislation. [Note that the conduct does not have to be intentional, but it is always a consideration of whether to proceed against the directors, managers etc. For example, in the case of an indirect discrimination claim the action may be taken solely against the company, with the aim of ensuring that policies are changed. Typically, it is the employer that is made solely liable, unless the employee’s conduct was reprehensible.] If no (the employer is not liable), consider action against individual employees or other parties responsible for the alleged incident(s) and whether to proceed to Step 6. Next, consider how to lodge the complaint and the types of remedies that may be sought.

6.

Procedure: What is the procedure for lodging a claim? Consider the steps for lodging a claim, and proceed to Step 7.

7.

Remedy: What is the likely remedy or remedies (if any)? Consider the merits of the case and what remedies the tribunal or court may award and what would satisfy the complainant on settlement. At the conciliation stage the complainant and respondent need to consider whether a suitable settlement could be agreed on, as opposed to not settling and the possibility of the matter proceeding to the tribunal or court.

chapter 19 Anti-Discrimination and Equal Employment Opportunity Law

*Note: This template is for a direct and/or an indirect discrimination claim. In sexual harassment, vilification or victimisation claims, different elements need to be proven in addition to Steps 5, 6 and 7 as these steps apply to all types of claims under the QADA that occur in the workplace. These additional steps will be discussed at [19.300], [19.320] and [19.330] respectively. The steps are now discussed in greater detail.

Step 1 [19.90] At this stage, we need to make a basic determination: Was the alleged discrimination based on an attribute(s) covered by the legislation? Section 7 of the QADA prohibits discrimination “on the basis of” one or more of the following 16 attributes: (a)

sex;

(b)

relationship status (includes single or married, which covers being separated, divorced or widowed, and de facto spouses, regardless of sexual orientation);

(c)

pregnancy (includes presumed pregnancy);

(d)

parental status;

(e)

breastfeeding (note that the 2003 amendments extended this attribute to the areas of work and pre-work);

(f)

age;

(g)

race (includes colour, descent or ancestry, ethnicity or ethnic origin, and nationality or national origin);

(h)

impairment (in other jurisdictions this is known as “disability” and is a broad definition generally referring to a medical condition, illness or malfunction that presently exists or previously existed);

(i)

religious activity or belief (includes engaging in or not engaging in religious activity and holding or not holding a religious belief);

(j)

political activity or belief;

(k)

trade union activity (includes being a trade union member or not being a member of a trade union);

(l)

lawful sexual activity (means a person’s status as a lawfully employed sex worker);

(m)

gender identity (means transgender identity, that is, living as a member of the opposite sex or being a person of indeterminate sex);

(n)

sexuality (means heterosexuality, homosexuality and bisexuality);

(o)

family responsibilities (means the person’s responsibilities to care for or support a dependent child of the person or any other member of the person’s immediate family who is in need of care or support); and

(p)

association with, or relation to, a person identified on the basis of any of the above attributes.

Definitions of several of these attributes are provided for in the Schedule to the QADA. Under most State and federal Anti-discrimination Acts, an “attribute” is termed a “ground”. It is important to note that while the “attributes (grounds)” on which complaints can be lodged are similar across federal and State Anti-discrimination Acts, there are some differences across jurisdictions. For example, irrelevant criminal record is available as a “ground” of complaint in Tasmania and the Northern Territory, in the Australian Capital Territory, and Western Australia (in certain circumstances), a more restricted “ground” of complaint is “spent conviction”, while federally a similar action is known as

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“criminal record” – but is only available as a “ground” of complaint within employment, rather than public life generally. Furthermore, under federal legislation discrimination on the basis of “criminal record” is not unlawful per se. In Queensland, criminal record or analogous terms are not listed as “attributes”, and therefore are unavailable as an avenue of complaint. Another relatively new “ground” available under the federal Sex Discrimination Act 1984 (Cth) is discrimination based on inter-sex status, known as gender identity (and defined as including indeterminate status) under the QADA. This is defined as having physical, hormonal or genetic features that are neither wholly female nor wholly male; or a combination of female and male; or neither female nor male. Intersex people may have the biological attributes of both sexes or not have some of the biological attributes to be defined as one or the other sex (see the case of NSW Registrar of Births, Deaths and Marriages v Norrie [2014] HCA 11 at [19.205]). Throughout this chapter leading cases covering several of the above attributes from different jurisdictions will be discussed in order to provide context to similar provisions under the QADA. The following often-cited case at [19.100] provides an example of a complainant, Cox, who was unsuccessful in bringing a discrimination claim because he was unable to prove that an attribute was the cause of discrimination.

Cox v Public Transport Corporation [19.100] In Cox v Public Transport Corporation [1992] EOC 92-401, a Victorian case, which has relevance in the Queensland context, an obese man – with a significantly elevated risk of heart disease, but with no other existing clinical symptoms – was refused a tram-driving job on the basis of his obesity. What may at first sight have appeared to be a clear case of discrimination was subsequently rejected by the tribunal. The former Victorian Equal Opportunity Board held that obesity did not come within any of the subsections of the definition of disability (impairment) in the Victorian Act. Obesity could only form a ground for complaint if it was an attribute. Interestingly, the Board did agree that if a person’s obesity developed to such an extent that “it did lead to either a total or partial loss of part of the body or a malformation or disfigurement of part of the body”, then it could form the basis for a complaint. The complainant, in this case, was effectively too healthy to be able to be classified as suffering an impairment.

Step 2 [19.110] Discrimination must be either direct or indirect. Does the alleged treatment fall within one of the definitions of discrimination included in the legislation? Note that the complainant is able to argue a case of both direct and indirect discrimination, but the tribunal or court will only find for the complainant on one of these claims. Therefore, if possible it is always best to take both actions if it is reasonable in the circumstances, and let the tribunal or court decide. In determining whether the alleged discrimination falls within the ambit of the definition of direct or indirect discrimination under the legislation, the fact that employers must not allow any prejudices or stereotyped views to influence their decisions in the workplace must be taken into account. For example, employers must not allow their views relating to older people or women to influence them in their hiring practices, human resource management, or decisions in the case of redundancies. Some employers might view a young female employee as inherently less worthy of training, fearing she might get pregnant and leave the company, or an employer might presume that a mature age candidate for a job might not “fit in” with the culture of their workplace. Such assumptions may well be directly discriminatory if they result in differential treatment of the particular individual.

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Direct discrimination [19.120] Direct discrimination is defined in s 10 of the QADA fairly broadly as treating an individual or a group of individuals less favourably than others in similar circumstances because of an attribute, such as those listed at [19.90]. In practice, there are three elements which must all be established before a case can be made that direct discrimination has occurred. Those discriminated against must be treated less favourably than those without the attribute, because of the attribute, and in an “area of activity” covered by the QADA, as discussed at [19.180]. Note that the QADA largely ignores the intention or motive for the less favourable treatment – even if the discrimination was well-intentioned, it would still fall within the scope of the Act.

Leading case on direct discrimination

Lightning Bolt Pty Ltd v Skinner & Smith [19.130] Lightning Bolt Pty Ltd v Skinner & Smith [2002] QCA 518. Two storemen at Lightning Bolt Pty Ltd, Mr Skinner and Mr Smith, aged 58 and 57 respectively, were dismissed on the same day, their employer citing “insufficient work”. Upon returning to his former employer to collect a reference, Mr Skinner observed two new, much younger employees doing the work that he and Mr Smith used to do. A complaint of age discrimination in employment was made. In their defence, Lightning Bolt contended that one of its key clients had gone into liquidation owing the company a significant amount of money and necessitating cost reductions. Mr Skinner and Mr Smith, as relatively recent employees, were terminated on the basis of “last on, first off”. In his determination, Wyvill M found that at the time of dismissal there was no lack of work for the two older men at Lightning Bolt, and that age was a substantial reason for the dismissals. In determining compensation, he took into account that Mr Skinner had been in continuous employment, and had indeed left a permanent position to take up the Lightning Bolt job. Mr Skinner had been highly distressed by the experience and, despite 300 applications for work, had failed to secure another permanent position. He was awarded $75,582. While Mr Smith had left a more lucrative job to take up the position with Lightning Bolt, and had suffered distress, he had subsequently found employment, and was thus awarded $8,906. Furthermore, Lightning Bolt Pty Ltd was ordered to pay costs. The decision was upheld by the Queensland Supreme Court of Appeal.

Indirect discrimination [19.140] Indirect discrimination is defined in s 11 of the QADA and occurs when a condition or requirement stops an individual or group with an attribute (as per QADA, s 7) from doing something that others can do, causing the person or group with the attribute to be disadvantaged in some manner. The term “condition” is defined as including the physical characteristics of the workplace (for example design) as well as policies, common practices, rules, procedures or requirements. Such indirect discrimination may, of course, occur without any intention on the part of the discriminator to disadvantage a particular individual or group. It may even be a legacy of past discriminatory practices that have become deeply embedded in workplace thinking or expectations. Few within the workplace may

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realise that these biased “standard operating procedures” even exist. Only upon closer analysis will such polices, practices or other attributes of a workplace be found to inhere a form of indirect discrimination. Employers must be careful not to create a workplace environment, or institute rules, policies, procedures or requirements (that is, terms) that indirectly disadvantage one group as opposed to another, unless they can show that they have little choice in the matter – that to do otherwise would not be “reasonable in all the circumstances”. The treatment can appear superficially fair or neutral, but nevertheless has unequal effect on people with an attribute (as per QADA, s 7). For example, many workplaces promote individuals on the basis of seniority – an apparently fair and neutral attribute. However, it differentially affects women, young workers, or other groups who are likely to have had shorter careers in an Australian workplace. Clearer and well-known past examples have involved the Police Services which previously discriminated against potential recruits by requiring candidates for employment to meet certain height criteria, thereby preventing a substantial number of women, and different races, from being able to participate in that form of work. Recently the Australian Human Rights Commission applauded the Australian government for acting on allowing females to serve on the “front-line” in armed combat, as long as they are able to meet stringent testing to be phased in over the next five years (from 2011). Specifically, s 11(1) of the QADA requires the person or persons lodging the complaint to establish that the respondent imposed, or proposes to impose, a requirement with which a person with a particular attribute is not able to comply. Additionally, the requirement is one with which either a greater minority or majority of other people without that attribute could comply. Finally, the requirement is found not to be reasonable. As to the issue of reasonableness, what is taken into account is the cost of not being able to comply with the requirement or term, the cost of alternative terms, and the financial circumstances of the entity or person imposing or proposing to impose the requirement under investigation. The most complex part of the process is working out whether the term in question really detrimentally affects a minority with an attribute (as per QADA, s 7), and calculating whether there really is a higher proportion of people without the attribute in question who can comply with the term. Even the High Court has conceded the complexity of the issue, arguing that the “base groups” on which decisions are based will vary from case to case. The “base group” could be defined as the pool of people qualified for a job – in theory – or it could apply only to those who are qualified and live within a reasonable distance of the job, taking into account the availability of public transport, the employer’s method of advertising, and so on. Such decisions are necessarily made on a case-by-case basis. If, however, the alleged discrimination is more general – for example based on weight – then the court might choose to regard the whole population as the reference group. In practice, the area is one of significant legal dispute, with both sides trying to choose a case in relation to different base groups. While this side of the dispute is complex, one aspect of the law is clear: the onus is on the respondent to prove the term is reasonable (QADA, s 205), once the complainant has proven a prima facie case.

Leading cases on indirect discrimination [19.150] Considering the complexity of the law on indirect discrimination, it is helpful to examine how statutory provisions are interpreted and applied, and the legal principles the courts and tribunals have developed since the QADA was enacted. Some of the following cases are from other jurisdictions but remain relevant to understanding the QADA.

Australian Iron & Steel Pty Ltd v Banovic [19.160] Australian Iron & Steel Pty Ltd v Banovic (1989) 168 CLR 165 is a curious case in discrimination law history insofar as Australian Iron & Steel (AIS) was found to have acted unfairly in an instance where its behaviour, when viewed

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from a non-historical perspective, may have otherwise been considered fair. The case was triggered when AIS attempted to rationalise its workforce, during difficult economic circumstances, by instituting a retrenchment policy of “last on, first off”. In itself the policy can be defended; however, AIS had a history of discriminatory policies in hiring women. Due to delays in appointing women relative to men, a “last on, first off” policy of retrenchment thus saw women disproportionately selected. The case acts as a warning to employers who seek to reduce their staff, and shows that great care must be taken to ensure that the method of selecting employees for retrenchment, as well as the length of notice, amount of severance pay and other aspects of retrenchment, do not amount to unlawful discrimination. Retrospectivity was also added to the issues an employer – and the courts – need to take into account. The case, which was finally settled when the High Court in 1989 dismissed an appeal brought by AIS against a tribunal hearing the decision, has helped bring about pervasive changes to the way equal opportunity for women is applied in Australian employment law.

Escobar v Rainbow Printing Pty Ltd (No 2) [19.170] The following case, Escobar v Rainbow Printing Pty Ltd (No 2) [2002] EOC 93-229, raises an interesting question, touching on the issue of how flexible an employer should be in dealing with employees. The defendant had denied the plaintiff part-time work after she returned to work from maternity leave. Rainbow Printing refused to allow her to work part-time, and the applicant refused to work full-time, so she was dismissed. The case ended before the Federal Magistrates Court, which accepted that Ms Escobar had been unreasonably discriminated against on the basis of her family responsibilities. While it is true that an employer, strictly speaking, is only obliged to offer an employee the role they had before leave (such as maternity leave) was taken, the court could find no reason in this case for the employer’s reluctance to offer part-time employment as an option. Interestingly, the court did not offer the applicant damages for future economic loss because it determined the dismissal was unlikely to impact on her future employment prospects. However, the court did order $7,000 in damages and an apology.

Step 3 [19.180] Discrimination must occur in an area of activity covered by the Act. Did the alleged discrimination occur in one of the areas covered by the legislation? One of the key questions that needs to be asked in considering a case of alleged discrimination is whether the incident occurred in one of the areas covered by the legislation. The QADA lists a number of relevant areas of interest (see box):

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work and pre-work; education; provision of goods and services; superannuation; insurance; disposition of land; accommodation; club membership; administration of State laws and programs; and administration of local government.

“Work” is fairly elaborately defined in the Schedule to the QADA to cover all forms of work arrangements. Section 14 of the QADA also prohibits “discrimination in the pre-work area”, which is defined to include activities such as job interviews, access to training, including apprenticeships, and the recruitment process. Section 15 elaborates on the relevant work processes that fall under the QADA, such as terms of work and the processes of dismissal, but it also encompasses less tangible domains such as promotion and access to training, in addition to a catchall phrase, “treating a worker unfavourably in any way in connection with work” which includes, but is not limited to, access to salary and similar benefits. These “hidden”, less tangible areas still constitute direct discrimination if they are carried out on the basis of an attribute. A couple of key cases that demonstrate discrimination in the “pre-work” and “work” areas follow at [19.190]–[19.200].

Wardley v Ansett Transport Industries (Operations) Pty Ltd [19.190] Wardley v Ansett Transport Industries (Operations) Pty Ltd [1984] EOC 92-002. Deborah J Wardley, in 1976, applied to join Ansett Airlines as a trainee pilot. At first her applications failed to even get her an interview, but after two years of persisting, she was given an interview, but was rejected. The case was heard before the newly formed Victorian Equal Opportunity Board under recently enacted equal opportunity legislation. The owner of Ansett, Reg Ansett, denied discrimination, but it emerged that he had a strong personal preference for a male-only cadre of pilots, arguing that pilots needed strength (even though there was no strength test administered to male, or female, pilots) and arguing that pregnancy, childbirth and menstrual cycles made women unsuitable for piloting planes. Ansett’s legal argument revolved around career disruptions and their attendant costs on the employer. The case was an emphatic win for Wardley, with the Board not simply ordering damages, but also directing Ansett to include her in its next pilot training intake. During training, Ansett attempted to sack Wardley, ascribing to her responsibility for a near-miss incident at a Victorian airport, even though an inquiry cleared Wardley. It was only after the company was sold to new owners that Wardley eventually was allowed to fly a commercial flight. The case meanwhile had ended in the High Court on appeal, and was dismissed in March 1980 – by which time Wardley had taken her first commercial route, from Alice Springs to Darwin.

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Thomson v Orica Australia Pty Ltd [19.200] The following case, Thomson v Orica Australia Pty Ltd [2002] EOC 93-227, unlike the Escobar v Rainbow Printing case, related to the issue of a female employee’s right to return to an equivalent role after returning from maternity leave. The applicant here, a chemical engineer, returned to work and found she was not permitted to return to her former duties. She sought a suite of remedies, including damages and compensation, an apology through the company’s internal magazine, access to records held on her by the employer, and an order that Orica’s middle managers attend a remedial course outlining their responsibilities in relation to discrimination legislation. Orica argued in its defence that the employee was not disadvantaged by the change, keeping her former grade and salary package. The Federal Court of Australia heard evidence of bad blood between the employee’s direct manager, and that what happened to her after her return to work amounted to a demotion without loss of official status or remuneration.

[19.203] As an interesting side-note, in 2014 the High Court heard a matter pertaining to the registration of a person’s sex as being “non-specific” or “indeterminate sex”. While the claim was not made under the anti-discrimination legislation (but as an Administrative Appeals matter), it provides an interesting insight into how the attributes of sex and gender identity and other similar grounds in other legislation, such as intersex status, are to be interpreted and applied into the future, as the case defines many of these terms.

NSW Registrar of Births, Deaths and Marriages v Norrie [19.205] In the case of NSW Registrar of Births, Deaths and Marriages v Norrie [2014] HCA 11, Norrie, who did not provide a surname, was born male but had a sex change. Norrie identified as neither being male nor female, but as “nonspecific”. In 2010, Norrie applied to the NSW Registrar of Births, Deaths and Marriages for a name change and to be registered as of non-specific sex. Initially, the registrar approved the request, but subsequently revoked the decision, arguing it was beyond the power of the law to recognise options other than male and female. Norrie initially challenged the decision to the NSW Administrative Appeals Tribunal, which was rejected. However, in 2013 the NSW Court of Appeal ruled that existing laws could recognise other sex options. The Registrar, by special leave, then challenged that decision to the High Court, which unanimously dismissed the appeal, affirming that the law recognises that a person may be recognised as being neither male nor female.

[19.207] It is important for employers to be aware of these decisions so they can adjust their policies and relevant documents. [19.210] Note that s 124 of the QADA provides that a person must not ask another person, either orally or in writing, to supply information on which unlawful discrimination might be based, creating a separate cause of action.

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Step 4 [19.220] Do any exemptions apply that would render the discrimination not unlawful? There are a number of exemptions that those defending an anti-discrimination claim can rely on, and these are detailed in Pt 4 Subdiv 2 of the QADA. The exemptions, as one would expect, operate as excuses or defences. Not surprisingly, the onus is on the respondent to prove the exemption applies: QADA, s 206. One set of exemptions deals with the issue of specific work domains. A commonly cited work exemption in the QADA is s 25, which permits an entity or person to impose a “genuine occupational requirement” upon a position. In the federal Anti-Discrimination Acts, the equivalent term is “inherent requirement”. For example, if a job can only be done by exceptionally short people, then it could be justifiable for the employer to impose this restriction. The courts have stated that for an occupational requirement to be “genuine” or “inherent”, it must be “an essential element” of the job. According to the courts this means that “in the ordinary sense of that expression … whether the position would be essentially the same if that requirement were dispensed with” (Qantas Airways v Christie (1998) 193 CLR 280 at 295). More simply put, if that “element” of the job could be removed and the job could still be substantially performed, then it would not be considered a “genuine” or “inherent” requirement.

X v Commonwealth [19.230] This case, X v Commonwealth (1999) 200 CLR 177, revolves around a young man, X, who unbeknown to himself, was positive for the Human Immunodeficiency Virus (HIV). He entered the Army General Reserve to the Australian Defence Force (ADF) in November 1993, completing a medical history questionnaire that acknowledged, among other things, that he would be tested for HIV as part of the formal admittance process. He commenced standard recruit training, and then, shortly afterwards, underwent the requisite medical testing. The testing revealed his HIV positive status, and shortly afterwards, on Christmas Eve, he was discharged in accordance with the ADF Service Policy for the detection, prevention and administrative management of HIV. In its defence, the ADF admitted discrimination, but argued that it had acted lawfully on the basis that HIV status prevented an individual from carrying out their duties. The case ended up in the High Court on appeal, with the High Court accepting that it was an implied element of the employment contract that if the employee, through any reason, whether psychological or physical, was unable to carry out the employment properly, then what would otherwise be an unlawful discrimination would be allowable. The army focused, in its defence, on the issue of its employees being able to “bleed safely”, and argued successfully that the appellant would not be able to do so in the army. The High Court found that “genuine occupational (inherent) requirement” “depends on whether it was an ‘essential element’ of the particular employment. Inherent requirements … embrace much more than the physical ability to carry out the physical tasks encompassed by the particular employment”.

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Qantas Airways Ltd v Christie [19.240] Qantas Airways Ltd v Christie (1998) 193 CLR 280 has much in common with X v Commonwealth (1999) 200 CLR 177 in that the High Court found in favour of the employer’s right to dismiss over an “inherent requirement”. Mr Christie was a pilot on the international routes of Qantas’ 747. He was dismissed by Qantas at the age of 60, not because of Australian airspace requirements that no pilot over the age of 60 be allowed to fly international routes, but because the majority of destinations to which Qantas flies have such restrictions. Australia is a party to the Convention on International Civil Aviation which expressly prohibits pilots older than 60 from commanding international air routes, including disallowing planes piloted by older pilots from entering the signatories’ airspace. The High Court agreed with Qantas that being younger than 60 was thus an “inherent requirement” of the position of captain of a 747 jet.

[19.250] There is potential for lawful exemptions in relation to religious bodies. Former s 29 of the QADA, now repealed, dealt with religious sensitivities in employment. However, this area is now more generally dealt with by QADA, s 25 (Genuine occupational requirements). If the role genuinely requires an adherence to the employing body’s religious beliefs, discrimination is allowable as long as it is limited to religious beliefs. The employer is not required to consider those who openly act contrary to those beliefs, with the Act allowing religious bodies to discriminate to avoid offending the sensitivities of adherents. The QADA also allows exemptions in relation to domestic services and work with children. In relation to work with children, QADA, s 28 excuses discrimination on the basis of gender identity and lawful sexual activity where the discrimination is reasonably necessary to protect the psychological or physical wellbeing of children. Unsurprisingly, the section also allows active discrimination against individuals with a conviction for a child sex offence and people unable to obtain a Blue Card – that is, those who have been disqualified from working with children in Australia. Similarly, QADA, ss 26 and 27 allow discrimination in certain respects in cases relating to residential domestic and childcare services, allowing individuals to discriminate in respect of persons they permit to work in their own home. The QADA also allows discrimination in preserving the status of single sex accommodation (QADA, s 30), or on the basis of relationship status where the position is for married or de facto couples and has live-in accommodation provided (QADA, s 31), in respect of an invitation to join a partnership or the retirement age for partners (QADA, s 32) and in setting wages for workers under the age of 21: QADA, s 33. Taking into account the degree of impairment and the nature of the work, in some special cases QADA, s 36 permits employers to discriminate against impaired (known as “disabled” under federal legislation) workers. The employer is protected to the degree that implementing special facilities or the services required to accommodate the impaired potential employee (QADA, s 35 would impose “unjustifiable hardship” on the firm or the individual. “Unjustifiable hardship” is defined in QADA, s 5 as involving high costs and other onerous burdens. Furthermore, QADA, s 34 allows the employer to fix reasonable terms in relation to the holder or prospective holder of a position who, because of an impairment, has restricted capacity to do the work genuinely and reasonably required for the position, or who requires special conditions in order to be able to do the work.

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Cocks v Queensland [19.260] Cocks v Queensland [1994] EOC 92-612 is generally considered to be the leading Queensland case in illustrating the issue of indirect discrimination, access to premises and what is not an unjustifiable hardship. Although this case, initiated by Kevin Cocks, did not concern the workplace, it is extremely important because of its broad applicability. The case relates to a relatively famous landmark in Brisbane, the Convention and Exhibition Centre, which was being constructed without elevators at the front entrance. For those unable to use stairs, there was a service elevator at the rear of the building, the defendant argued. The complainants were people with physical impairments which rendered them unable to use the stairs. They argued that the term (or condition) the Queensland Government proposed to impose was that patrons of the Centre either had to be able to walk up the front steps or go to the rear of the building to access the service elevator. The tribunal held in favour of the complainants, finding that the term was not reasonable. As part of its reasoning, the tribunal took into consideration the fact that the delay and cost of including elevators was not excessively high. Failure to provide a lift at the front of the building was found to be damaging to the dignity and convenience of those with physical impairments and others wanting to enter the premises. Interestingly, it was estimated that the absence of a front entrance lift would affect 10% of the entire Queensland population, who were held to be the base group or reference point in this case.

[19.270] Finally, there are a number of general exemptions in the QADA which significantly extend the degree to which entities can lawfully discriminate, as listed below: Section 104: permits welfare measures – for example, priority in bus seating for aged; Section 105: permits steps to promote equal opportunity; Section 106: permits an act done to comply with legislation passed before 1992; Section 106A: compulsory retirement age under legislation; Section 107: permits acts reasonably necessary to protect public health; Section 108: permits a person to do an act that is reasonably necessary to protect health and safety of people at a place of work; Section 109: permits discrimination in the training and ordination of priests; Section 110: permits certain discrimination by charities; Section 111: permits some sport-related discrimination; Section 112: permits discrimination on the basis of legal incapacity; and Section 113: permits the tribunal to grant special exemptions. In regard to the workplace, the most commonly cited of the above-mentioned general exemptions are those that relate to protecting public health (QADA, s 107) and those relating to workplace health and safety: QADA, s 108.

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Flannery v O'Sullivan (No 2) [19.280] Flannery v O’Sullivan (No 2) [1993] EOC 92-501. The complainant was refused entry to the Queensland Police Service on the basis of his myopia (short-sightedness). This was the first pre-work “impairment” case heard under what was at the time the very new Queensland anti-discrimination legislation. To this day the precedent is still heavily cited in case law by tribunals in their determination of complaints. Complainants have also frequently cited the case as binding or persuasive precedent in challenging exemptions raised by respondents in regard to genuine occupational requirements, unjustifiable hardship and occupational (workplace) health and safety exemptions. In its defence, the respondent, O’Sullivan (who was the Police Commissioner at the time) relied on the aforementioned exemptions (QADA, ss 25, 36, 107 and 108), arguing that good eyesight was a genuine occupational requirement of entry into the Queensland Police Service as good eyesight was necessary to protect the health and safety of people in the workplace. Additionally, it argued that to accommodate the complainant’s impairment would impose unjustifiable hardship. Their case failed to sway the tribunal, which formed the view that the police service had confused whether Mr Flannery required a certain eyesight standard with the issue of whether he had within his means the ability to perform the required duties. With his contact lenses in place, Mr Flannery was able to “perform all of those tasks as well as any other person”. Furthermore, the tribunal found no evidence that a member of the public or another police officer had ever had his or her health or safety compromised by a myopic police officer.

Allegretta v Prime Holdings Pty Ltd [19.290] Allegretta v Prime Holdings Pty Ltd [1991] EOC 92-364 shows there are limits to “inherent requirement” applications in regard to the dismissal of employees. The plaintiff was a pregnant woman dismissed from her role as bar attendant, her employers claiming they were doing so for her own safety. In its defence, the employer noted that two other employees had fallen down at work prior to the dismissal of the plaintiff and that one of these two other employees had lodged a workers’ compensation claim. The employer claimed they had acted out of duty of care for the pregnant employee and her unborn child. The Western Australian tribunal did not allow the defence, arguing instead that it was unreasonable to dismiss an employee for fear of the employee experiencing a workplace accident. Instead, the tribunal ruled, the employer should move to alleviate the risk of injury.

Step 5 [19.300] Vicarious liability and defence of reasonable steps: Is the employer vicariously liable for the actions of the employee, and has the employer taken reasonable steps? The issue of vicarious liability is a delicate one for employers as it involves the employer taking on responsibility for the actions, or lack thereof, of subordinates, thereby greatly broadening the duty of care

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burden on the employers. These elements of the QADA are covered in s 133, which provides that if any of an entity’s workers or agents contravene the Act in the course of work for the entity, both the entity and the subordinate may be “jointly and severally civilly liable for the contravention, and a proceeding may be taken against either or both”. Thus, both can find themselves defending an action for contravention of the Act. Employers can, however, find some comfort in QADA, s 133(2) if they are able to prove that on the balance of probability it appears they took reasonable steps to prevent the contravention of the Act on the part of their subordinates. This defence has been successful in cases where the employer not only instituted appropriate anti-discrimination policies in the workplace, but carried out appropriate training to ensure workers and agents should, on the balance of probabilities, have been aware of the policies. Such a defence also holds in cases of sexual harassment, vilification and victimisation allegations.

Gardiner v New South Wales WorkCover Authority [19.310] In regard to the employer taking reasonable steps, the case of Gardiner v New South Wales WorkCover Authority [2003] EOC 93-291 achieved some popular media notoriety, but began with a relatively common workplace problem. The New South Wales WorkCover Authority was planning to move its premises out of the heart of Sydney to Gosford. The plaintiff argued that the requirement that she move to Gosford was a case of indirect discrimination as it created difficulties for her because of her home responsibilities as a carer. While the plaintiff ended up losing the case, it remains quite significant insofar as the Administrative Decisions Tribunal approved a broader definition of what constituted “responsibilities as a carer”, not simply limiting the term to those occasions where a dependant of the employee needed specific assistance, for example to an aged parent or a sick child. The outcome of the case, however, pivoted on a number of key points. First, the tribunal accepted that the requirement that staff relocate to the new premises was reasonable as there were good organisational reasons for the move and it was necessary that employees move together as a team. Second, and equally significantly, the tribunal noted that there had been a lengthy consultation period, and that the plaintiff had been aware of the possible move to Gosford when she first took up employment with the New South Wales WorkCover Authority.

Step 6 Process and procedures for launching actions [19.320] Procedure: What is the procedure for lodging a claim? Lodging a complaint under the QADA is a fairly straightforward process. However, the commission or tribunal, in seeking to investigate and determine an equitable result for both parties under the Act, often needs to consider complex case precedence in addition to legal reasoning and requirements, which makes judgments at times quite unpredictable. We will now discuss the processes for launching and determining actions. Those alleging a contravention of the QADA have up to one year from the time of the alleged discrimination to make a complaint in writing to the Anti-Discrimination Commission Queensland (ADCQ) as per QADA, ss 136 and 138. The Commissioner has the discretion to extend this period if the complainant is able to argue good cause, but this is rarely applied: QADA, s 138. At an initial stage, the Commissioner has 28 days to filter through allegations, and rejects those that may be considered frivolous

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or vexatious or otherwise lacking in substance: QADA, s 139. The complainant must be notified of the determination promptly, and a date is set for a conciliation conference: QADA, s 143(1) – (2). The respondent is allowed a further 28 days to respond in writing to the complaint, and may seek an earlier conference date: QADA, s 143(2)(d) and (g). The Commissioner’s powers in the process of investigation are laid out in QADA, ss 155 – 157, and the provisions relating to conciliation – with conferences required to take place within 42 days of the respondent being notified of the complaint – are detailed in QADA, ss 158 – 163. Attendance at conciliation is compulsory and, if successful, a written agreement detailing the terms of conciliation must be produced: QADA, s 164. Should conciliation fail, those bringing the action may ask the Commissioner to refer the complaint to the Queensland Civil and Administrative Tribunal (QCAT), of which the Queensland Anti-discrimination Tribunal forms a part, and the Commissioner has no discretion in choosing whether or not to do so unless the case has lapsed because the Commissioner has deemed it a frivolous or vexatious complaint, or because the complaint is misconceived or lacking in substance as per QADA, s 168. One interesting aspect of the QCAT is its emphasis on parties representing themselves, and the way it constrains parties from retaining the services of lawyers to represent them at the tribunal. Section 43 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) provides for a party in the proceeding to be represented, but only with the leave of the tribunal. The tribunal must be satisfied that the interests of justice require the parties to be represented, but with no representation being its default preference. At the appeals process, the arena for an appeal is determined by the rank of the decision-maker. If the decision-maker is a non-judicial member (that is, not a former judge), then appeals are sent to the Internal Appeal Tribunal of QCAT. If the decision is made by a member of judicial rank, then the appeal will be to the Court of Appeal in the Supreme Court of Queensland. Such appeals must be made within 28 days of the judgment, or within 28 days of the party receiving the reasons for the decision in writing. At appeal, the court can affirm, vary or quash a decision, or refer the issue to the QCAT for a further hearing. The Supreme Court can also vary a determination of costs or any other matter that the court considers appropriate.

Step 7 [19.330] Remedy: What is the likely remedy or remedies (if any)? We now briefly cover the processes for determining costs and remedies. Section 209 of the QADA provides a range of options: issuing an order requiring the respondent not to commit a further contravention of the QADA; ordering compensation for loss or damage caused by the contravention of the QADA, including interest payments on compensation and paying the other party’s costs; issuing an order requiring the respondent to take remedial action, for example, offering a written apology, or revising workplace anti-discrimination policies and implementing programs to eliminate unlawful discrimination; and declaring a previous discriminatory agreement not to be legally binding. In considering the issue of damages, note that in QADA, s 209, “damage” is defined as including the offence, embarrassment, humiliation and intimidation suffered by the person, a determination that is very dependent on the nature of the particular defendant and known as the “egg-shell skull” rule. The aim of the legislation is, where possible, to return the victim to the position they were in prior to the offence taking place. The quantum of damages relates to the compensation of the complainant, not the punishment of the respondent. Only where the respondent has amplified the complainant’s suffering by behaving in a malicious, oppressive, insulting or high-handed way can aggravated damages be considered. On their part,

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complainants have an obligation to attempt to mitigate loss – for example, in the case of dismissal by seeking another job. Thus, in calculating the quantum of damages, QCAT takes into account the total cost for the losses sustained by the complainant, makes deductions to account for failure to mitigate, income earned in the meantime from other sources and the general vicissitudes of life, then adds any past and future loss of earning capacity, in addition to general damages (accounting for the stress experienced and the loss of self-confidence, self-esteem, enjoyment of life and working environment) and, if relevant, aggravated damages. The system is set up to discourage the accumulation of high legal fees, but in some proceedings the tribunal may order the respondent to pay the complainant’s QCAT application fee. The rules may also allow the tribunal to award all reasonable costs to either the applicant or respondent and, in determining costs, a number of factors typical of civil cases come into play. The quantum takes into account, for example, whether one of the parties made a written offer to the other party to settle the dispute, which was subsequently refused, and that the tribunal’s offer of damages was less favourable than the offer volunteered by the other party. In this regard, see ss 85 and 86 of the Queensland Civil and Administrative Tribunal Rules 2009 (Qld).

Sexual harassment, vilification and victimisation [19.340] As previously highlighted, other courses of action that may not be considered direct or indirect discrimination, are available under the QADA in instances of sexual harassment, vilification and victimisation. Sometimes, however, instances may contain all elements of direct or indirect discrimination – in these circumstances it is possible to lodge multiple claims, generally, but not necessarily, at the same time. We will turn to these aspects of the QADA next. As noted at [19.80] all types of claims under the QADA that occur in the workplace listed apply to all types of claims under the QADA that occur in the workplace. Therefore, once the discrete elements have been proven for a claim of Sexual Harassment, Vilification or Victimisation, Steps 5–7 (Vicarious Liability, Procedure and Remedy) need to be applied.

Sexual harassment [19.350] Sexual harassment is the most common form of work-related complaint made under the Anti-Discrimination Acts across Australia. “Sexual harassment” can be defined as unwelcome conduct of a sexual nature that is intended to make a person feel offended, humiliated or intimidated, or is likely to make a reasonable person feel offended, humiliated or intimidated. It has little to do with mutual attraction or friendship between people, although managers need to be particularly cautious not to offend, humiliate or intimidate an employee in a sexual manner because of the imbalance of power between the parties. Sexual harassment does not have to be deliberate or repeated to be illegal, and intention is not necessarily a relevant consideration taken into account. However, sexual harassment cases often concern harassment that is accompanied by a threat or benefit, or a hostile work environment. Of the State Acts, the QADA provides one of the most broadly encompassing sets of sexual harassment laws: QADA, s 118. There is no requirement that the harassment be restricted to a specified area and, unlike the other Australian anti-discrimination provisions, sexual harassment in Queensland is unlawful in private as well as in public. It is important to note that the provisions also apply in very broad environmental contexts – from schools and restaurants to occasions when someone is searching for accommodation or applying for insurance, or dealing with government instrumentalities. Section 119 of the QADA defines “sexual harassment” in three elements, all of which must be established. First, there must be unwelcome or unsolicited conduct relating to the other person, and second, the conduct must be of a sexual nature. The third element is legally the most fraught. The conduct must be

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enacted with the intention of humiliating or intimidating the other person, or is carried out in circumstances where a reasonable person would have anticipated the possibility that the victim would be offended, humiliated or intimidated by the conduct. Some forms of conduct, such as indecent exposure or stalking, as well as violating the QADA, also constitute a criminal offence. Section 120 of the QADA sets out the circumstances the tribunal takes into account in determining the issue of a reasonable person’s anticipation. It takes into account the age, race, gender and disability status of the person being harassed, and the relationship between the person harassed and the harasser. It also allows for other circumstances to be taken into account in the assessment. The Act is broad in the way the burden of proof is couched, requiring only the anticipation by the alleged offender of a possibility (rather than a probability) that the victim would be “offended, humiliated or intimidated”. It is important to note that in addition to determining whether the conduct was likely to offend, humiliate or intimidate, the tribunal also takes into account the question of “unwelcome conduct”. This is a relatively objective test involving an examination of whether the conduct at the time was unwelcome, and again questioning whether a “reasonable” person placed in the position of the alleged offender would have understood that the conduct was unwelcome. This issue is of course key when it comes to exempting consensual relationships in the workplace. If the complainant does not, at the time, express discomfort about the alleged offender’s behaviour, the tribunal may still find in favour of the victim if they judge that a reasonable person should have known the conduct was unwelcome. In such cases, even a single instance of sexual harassment is sufficient, with precedent cases demonstrating that the law does not allow an offender exemption to test the complainant’s reaction to a comment or action prior to persisting with the conduct. [19.355] We examined the issue of vicarious liability in cases of discrimination at [19.300]–[19.310]. Sexual harassment claims and payouts have increased considerably since the now infamous high profile 2010 “David Jones” case involving the company’s CEO Mark McInnes and one of its employees, Kirsty Fraser-Kirk. The case was sensationalised in the media but was settled out of court, for a reported $850,000, in addition to the resignation of the CEO. At a federal level, in 2007–2008 there were 157 complaints made compared to 260 in 2010–2011 (at the time of the Fraser-Kirk media frenzy) and 222 in 2013–14. Damages have also increased considerably, raising the stakes for companies to ensure good policies are in place in an attempt to prevent this sort of behaviour.

Richardson v Oracle Corporation Australia Pty Ltd [19.360] In a recent appeal decision, Richardson v Oracle Corporation Australia Pty Ltd [2014] FCAFC 82, the full Federal Court increased a worker’s general damages award of $18,000 to $100,000 in addition to $30,000 for non-economic loss. This case demonstrates that considerably large payouts will now be applied to cases where psychological injury has occurred, even where there is no evidence of sexual assault. It suggests that there has been a “paradigm shift” in the way general damages are to be assessed in sexual harassment cases, as the full Federal Court confirmed that the “typical” (previous) damages range no longer matched community standards. Furthermore, the case highlights the importance of ensuring that workplace training and policies apply to the current legal environment. In that case Buchanan J held that there were “some serious deficiencies” in Oracle’s training including its US online sexual harassment training package, which made no reference to the Australian legislation.

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[19.363] Two key civil cases that examine sexual harassment where there has been aggravated sexual assault (non-consensual sexual intercourse) are Lee v Smith [2007] EOC 93-456 and Vergara v Ewin [2014] FCAFC 100, where the Federal Court awarded record $400,000+ payments in damages.

Lee v Smith [19.365] The case of Lee v Smith [2007] EOC 93-456 involved the Australian Defence Force as the respondent, and the scale of the damages reflected the fact that Lee was not only sexually harassed by a colleague, but also raped. Although this incident occurred outside the workplace, after a dinner party involving work colleagues, the Defence Force was held liable as it had allowed behaviour of a sexual nature to flourish in the workplace and had not taken previous complaints seriously.

Vergara v Ewin [19.367] Vergara v Ewin [2014] FCAFC 100, is a more recent, but similar case to that of Lee v Smith [2007] EOC 93-456, in terms of a significant financial remedy ($476,163 plus costs) and appalling conduct (including evidence of non-consensual sexual intercourse). The full Federal Court found the male accountant to have sexually harassed his female supervisor on several occasions including at the office and at the local pub. Evidence was led that the supervisor’s drink had been spiked at the pub, and that the accountant then had non-consensual sexual intercourse with her in the corridor outside the company’s office. While the evidence was circumstantial, the court accepted on the balance of probability, that even if Ms Irwin’s drink had not been spiked and she was drunk by her own accord, the sexual activity including the sexual intercourse had occurred. Furthermore, the court held that the pub across the road from the office was “sufficiently connected” to be considered a “workplace” considering the relevant circumstances, as work related discussion had taken place at the venue. The case is currently subject to a special leave application to the High Court.

Bennett v Everitt [19.368] Bennett v Everitt [1988] EOC 92-244 was a particularly messy early case of sexual harassment and sex discrimination involving two employees and a fish and chips shopowner. During their interviews the owner had asked both employees if they were on the pill and whether they had boyfriends. Einfield J found that the employees were entitled to believe that they would not have got the jobs had they not answered the questions. In contrast to the sexual harassment cases discussed at [19.360]–[19.368], the employer in Howard v Geradin [2004] EOC 93-358 was not found to be vicariously liable as reasonable steps had been taken. While the case was based on a sexual harassment claim, it is a good example generally of an employer being able to defend

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a claim of vicarious liability.

[19.370] As can be seen from the cases on sexual harassment at [19.360]–[19.368] employers need to be aware of the possibility of being vicariously liable for worker’s (including labour hire personnel) conduct, that breaches the anti-discrimination legislation, and workplace health and safety legislation in addition to the common law. This conduct can occur within the physical confines of the workplace or somewhere “sufficiently connected” to the “workplace”. Any hint of sexual harassment should be investigated immediately to prevent possible further conduct. Furthermore, policies, training, and complaint and investigation procedures need to be continually updated for the well-being of both the company and its employees. The case of Howard v Geradin Pty Ltd t/as Harvard Securities [2004] EOC 93-358 discussed at [19.390] highlights how an employer was able to successfully fend off a claim of vicarious liability.

Howard v Geradin Pty Ltd t/as Harvard Securities [19.390] Howard v Geradin Pty Ltd t/as Harvard Securities [2004] EOC 93-358. An employer was able to successfully fend off a claim of vicarious liability in a case of sexual harassment. The case involved a complaint by a female co-worker of sexual harassment against a fellow staff member, who made a number of inappropriate verbal and written remarks to her. The applicant claimed the company had not taken all reasonable steps to prevent the harassment from occurring in the first place, and additionally argued that she had been placed in an inappropriate position by the company after the complaint was raised. Company representatives had involved her in discussions on what action the company should take against the offender, including asking her whether or not the offender should be dismissed. The Victorian Civil and Administrative Tribunal found in favour of the company. While Geradin may not have practised an ideal prophylactic approach in dealing with sexual harassment in the workplace, the tribunal argued that the company had an appropriate policy, and that it had implemented it adequately. For example, the company informed employees of the policy, and provided regular informal feedback about what constituted sexual harassment. Notably, however, the tribunal did argue that the company could have held more formal seminars and meetings on sexual harassment.

Victimisation [19.400] Often confused with bullying, victimisation specifically refers to actions taken against a person or persons because they make, or propose to make, a complaint under the QADA, or supply information or act as a witness before the ADCQ, or refuse to be involved in an act that would amount to a contravention of the QADA – and in this sense, it can be defined as discriminatory action against whistleblowers: see QADA, s 129. “Victimisation” is defined widely in QADA, s 130 to include actual acts, or threats to commit an act, that will be to the detriment of an individual or group of individuals. This aspect of the QADA serves to protect those who are attempting to act in accordance with the Act. For example, an

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individual who is threatened with dismissal for proposing to assist the Commission in prosecuting a case of discrimination against an employer is protected under this aspect of the Act.

D v Berkeley Challenge Pty Ltd [19.410] A cleaner (D), in D v Berkeley Challenge Pty Ltd [2001] EOC 93-150, was working at a school when she claimed she was verbally and physically attacked by another employee, who was armed with a vibrator. She was afterwards transferred to another school as a relief cleaner and claimed that this was a demotion. In handing down their judgment, the tribunal sent out a warning to managers that when they dismiss an employee or allocate them to new duties, they need to provide a clear and transparent explanation of the process, otherwise an employee may infer that detriment has occurred based on victimisation.

[19.420] A case where victimisation was not found even though the employer was still found liable for sexual harassment is discussed at [19.430].

Font v Paspaley Pearls [19.430] In Font v Paspaley Pearls [2002] EOC 93-232, a shop assistant working at a jewellery store suffered a sustained period of sexual harassment, including comments about her appearance, sexual banter, suggestive and inappropriate touching and, in one instance, the jabbing of a walking stick between the applicant’s legs. What sets the case apart somewhat was that the manager of the jewellery store, one of the offenders mentioned in the case, claimed he had no sexual interest in the more junior employee as he was a homosexual. Second, the company itself was named as defendant, with the applicant’s case being that the employer was vicariously responsible for the atmosphere within the company that encouraged the harassment. The Federal Magistrate rejected the homosexuality defence put forward by one of the offenders, agreeing that the conduct of the senior staff members was offensive, humiliating and intimidating. Regardless of the offender’s sexuality, the magistrate noted that the offender would not have acted similarly towards a heterosexual male employee. The jewellery store was held vicariously responsible and was ordered to pay the employee $17,500 in exemplary damages and compensation for hurt and humiliation. Font also made allegations of victimisation related to the failure to pay her a bonus which was paid to other staff. The only bonus paid was to staff who had completed the Friedman course, which Font did not complete and therefore she did not succeed with this part of the claim.

Vilification [19.440] Whereas victimisation is quite narrow in context, vilification opens up the QADA to a broader range of actions and relates to a broader range of behaviours, which in this case need to be enacted in public. For example, vilification can include the delivery of speeches, the distribution of pamphlets, the publishing of websites or remarks made to the media. The term “public” means that the act occurs in a context where third parties can see it, hear it or read of it. The QADA prohibits vilification on a limited

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number of grounds – race, religious belief, gender identity and sexuality. Some forms of vilification (see QADA, s 131A) have criminal law implications, while others are purely civil (“ordinary vilification”). We will deal with this second, less serious category first. Ordinary, civil vilification requires four matters to be proved in prosecuting a case. The defendant must be found, first, by a public act, to have, second, incited, that is given rise to, third, hatred towards, serious contempt for, or severe ridicule of a person or group of persons, simply on the basis of, fourth, race, religion, gender identity or sexual identity on the part of the target of the alleged vilification. Broad as this definition may be, there are three defences, two of which are not generally available to the individual. These two defences relate to the publication of reports of vilification either in a newspaper or otherwise, where the publication constitutes a fair report (see QADA, s 124A(2)(a)), or in circumstances subject to a defence of absolute privilege (a good example of which would be acts committed in parliament). The third category of defence relates to whether the act was done “reasonably” and in “good faith”, and relates to instances where the alleged vilification occurred in a context of public discussion or debate in the public interest: QADA, s 124A(2). Serious or criminal vilification is easier to detect at an “eyeball analysis” stage, but still contains some important distinctions. Serious vilification requires additional elements: the perpetrator must knowingly or recklessly incite hatred (a parameter that relates clearly to intention); and the vilification must contain a threat of physical harm towards the target individual, population, or their property, or constitute an incitement of others to physically harm that target. Because of the nature of serious vilification, there are no defences available, and serious monetary penalties apply. Such complaints need to be made to the Magistrates Court under the Justices Act 1886 (Qld), and require the written consent of either the Attorney-General or the Director of Public Prosecutions before proceeding.

Ardeshirian v Robe River Iron Associates [19.450] The complainant in Ardeshirian v Robe River Iron Associates [1990] EOC 92-299 was dismissed ostensibly for acting violently in the workplace. However, the court heard evidence of a pattern of abuse of the complainant in the workplace that inflamed employee relations. The court accepted that the employee had suffered a pattern of racist abuse and harassment by his co-workers during his period of employment without the protection of his employer. The occasion that triggered his dismissal involved the complainant arming himself with an iron bar in a threatening manner – but it is notable that he did not make use of the weapon. The Human Rights and Equal Opportunity Commission was asked to consider the two possible reasons for his dismissal – racism against the complainant or violence on the part of the complainant. The Commission, in its decision, noted that the complainant had not enjoyed the support of his union during his period of harassment, and that issues relating to race, colour or national origin on the part of the complainant had led to his alienation from support. It regarded that race, not violence, was the dominant reason for his dismissal, and found in favour of the complainant after vilification by his workmates.

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[19.460] Although not a workplace case, another case that illustrates the concept of vilification and the meaning of “in public” is Anderson v Thompson [2001] NSWADT 11.

Anderson v Thompson [19.470] There is relatively little case law demonstrating cases of racial vilification in workplace settings, and the case of Anderson v Thompson [2001] NSWADT 11 is often cited as a precedent in the absence of such case law. Anderson, a woman of French Mauritian nationality, was living in Housing Department accommodation in Sydney. Upon returning from shopping one day, she was severely racially abused by another resident of the Housing Department block in which she was living. The event took place in a stairwell near Ms Anderson’s home, and witnesses included her 15-year-old son and another neighbour, making the abuse clearly a public affair. “It had a strong connotation of racial abuse”, the court ruled, handing down compensation of $5,000 to Ms Anderson at [37].

Index A Aboriginal and Torrens Strait Islanders acknowledgement of, lack of, [1.130] customary law, [1.30] enforcement of, [1.30] land rights, [1.50] Mabo v Queensland, [1.70], [1.80], [1.90] native title, [1.90] compensation, [1.95] recognition of, lack of, [1.130] sovereignty, [1.50] terra nullius, [1.50], [1.70] Acceptance — see Offer and acceptance Acts — see Statutes Administrative Law public law, [1.775] regulation of government powers and duties, [1.775] Affirmative action [19.40], [19.70] Advertisements bait advertising — see Bait advertising ethics, [17.120] false or misleading representations, [13.340] misleading or deceptive conduct — see Misleading or deceptive conduct offer, whether, [3.115] offer to treat, [3.100], [3.110] online, [13.68] disclaimers, [13.68] online endorsements, [13.68] standards and practices, [17.120] television, [17.120] unauthorised, [13.600] Agency concept, [15.10] creation of, [15.90] expressly, [15.100]–[15.120] deed, by, [15.100] word of mouth, [15.120] writing, in, [15.110] holding out or estoppel, [15.130] operation of law, [15.150] agency by cohabitation, [15.190] agency of necessity, [15.160]–[15.180] ratification, by, [15.140] principle, [15.10] privity of contract exception, [10.40] relationship, [15.30]

consensual, [15.10] fiduciary, [15.10] termination of, [15.670] agreement for, [15.700] bankruptcy, [15.760], [15.770] agent, [15.760] principal, [15.770] death, by, [15.740] impossibility of performance, [15.690] insanity, by, [15.750] performance or completion, [15.680] renunciation by agent, [15.780] revocation, [15.710] rights of agent, [15.730] rights of third parties, [15.720] Agent appointment of, [15.10], [15.40] auctioneer, [15.840] authority of, [15.10], [15.40], [15.200] actual, [15.10], [15.200]–[15.235] express, [15.220] implied, [15.230]–[15.235], [15.263] apparent or ostensible, [15.10], [15.200], [15.240]–[15.264] ratification of, [15.265]–[15.267] scope of, [15.200] warranty of, breach of, [15.580] bankruptcy of, [15.760] broker — see Brokers business — see Estate agents capacity to act as, [15.40] classification of, [15.50] general, [15.70] special, [15.60] universal, [15.80] determination of, [15.37] director — see Directors duties of, [15.270], [15.380] act in good faith, [15.10], [15.300]–[15.320] act in person, [15.290] delegation of, [15.290] exercise reasonable care and skill, [15.350], [15.360] follow principal’s instructions, [15.280] full disclosure of personal interests, [15.330] not to make secret profit, [15.340], [15.345] employee — see Employee estate — see Estate agents factor — see Factor agent

independent contractor — see Independent contractor land — see Estate agents liability of, [15.200], [15.280], [15.470] breach of warranty of authority, [15.580] misrepresentation, for, [15.590] principal, to, [15.480] third parties, to, [15.490] existence but not name of principal disclosed, [15.540] existence of principal not disclosed, [15.550], [15.570] name of principal disclosed, [15.500], [15.510] wrongful acts, for, [15.600]–[15.660] mercantile, definition, [15.790] partner — see Partnership powers conferral of, [15.40] delegation of, [15.290] principal and, [15.10] real estate — see Real estate agent rights of indemnity and reimbursement, [15.450] remuneration, [15.390] entitlement to, [15.400], [15.410] right of lien, [15.460] statutory regulation of, [15.860] sub-agent, appointment of, [15.290] use of, [15.10] voluntary, [15.10] Agreements — see also Contracts commercial — see Commercial agreements competitions and lotteries, participation in, [4.90] contract, whether, [2.17], [2.20], [2.30] intent for, [4.10], [4.100] presumption of, [4.15] enforcement of, [2.30], [4.50] evidence of, [5.350] intent for, [4.10], [4.70], [4.90], [4.140] express exclusions, [4.180], [4.190], [4.200], [4.210] legally binding, [3.10], [4.90] letter of comfort — see Letter of comfort letter of commitment, legally binding, [4.220]

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Business Law for Managers Agreements — cont offer and acceptance, [2.30] promise — see Promise restrictive trade agreements, [8.490] anti-competitive, [8.500] determination of, [8.510] franchises, [8.490]–[8.494] social and domestic agreements — see Social and domestic agreements Alternative dispute resolution (ADR) — see Dispute resolution Anti-discrimination policies [19.80]–[19.470] Arbitration — see Dispute resolution ASIC — see Australian Securities and Investments Commission (ASIC) Assignment of contracts absolute, [10.160] assignee, [10.110] assignment, [10.110] assignor, [10.110] bankruptcy, for, [10.220] death, by, [10.210] equitable chose in action, [10.190] equity, in, [10.170], [10.190] express notice of, [10.160] legal chose in action, [10.180] liabilities, of, [10.140] novation, by, [10.140] obligations, of, [10.100], [10.140] operation of law, [10.200] personal services contract not assignable, [10.230] rights, of, [10.100], [10.150] subject to equities, [10.160] statute, by, [10.160] writing, in, [10.160] Auction sales bid, [3.130] internet, [3.150], [3.155] invitation to treat, [3.130] offer and acceptance, [3.130]–[3.155] withdrawal of reserve, [3.130] without reserve, [3.130] Auctioneer agent, [15.840] Australia federation, [1.100] legal independence, [1.97] legal system — see Australian legal system Australian colonies — see also States and Territories constitutional development, [1.120] federation of, [1.120] legal development, [1.110] separation of powers, [1.110] Australian Company Number (ACN) issue of, [16.45]

Australian Competition and Consumer Commission (ACCC) consumer protection, [1.670] establishment of, [1.660] responsibilities, [1.670] restrictive trade practices cases, [1.670] Australian Competition Tribunal establishment of, [1.660] Australian constitutional system branches of government, [1.100] executive, [1.100], [1.140]–[1.160] judiciary, [1.100], [1.180] legislature, [1.100] customary law, [1.30] European colonisation, [1.40], [1.50] federal system of government, [1.160] Mabo v Queensland, effect of, [1.70], [1.80], [1.90] native title, [1.90] pre-European history, [1.30] Australian Consumer Law consumer guarantees — see Consumer guarantees consumer protection, [13.10], [13.930], [17.30] enforcement of, [13.930] defective goods — see Defective goods duress, goods and services transactions — see Duress enactment of, [13.10] enforcement of, [13.35] false or misleading representation — see False or misleading representation legislative framework, [13.30] misleading or deceptive conduct — see Misleading or deceptive conduct misrepresentation — see Misrepresentation objectives, [13.20] organisation of, [13.35] penalties, [13.35] remedies, [13.35] civil, [7.680] penal sanctions, [7.680] unconscionable conduct — see Unconscionable conduct unfair practices — see Unfair practices unfair pressure, [7.795], [7.796] unfair terms of contracts — see Terms of contract Australian courts federal courts, [1.560] Federal Circuit Court, [1.590] Federal Court of Australia, [1.580] High Court of Australia, [1.570] hierarchy, [1.540], [1.557] State courts, [1.600] County Court, [1.620] District Court, [1.620]

Local Court, [1.630] Magistrates Court, [1.630] specialist, [1.680] Supreme Court, [1.610] Australian Human Rights Commission (AHRC) AHRC Act [19.40] complaints [19.40] conciliation [19.40] discrimination [19.40] jurisdiction [19.60] Australian legal system Australian constitutional system — see Australian constitutional system basic features, [1.10] British common law and, [1.97] courts — see Australian courts doctrine of precedents — see Precedent federal legal system, [1.100] foundation of, [1.97] legal proceedings, classification, [1.780] nature and concept of law — see Law Australian Securities and Investments Commission (ASIC) functions administrative, [16.40] enforcement, [16.40] exercise of, [16.40] independent statutory commission, [16.40] powers, exercise of, [16.40] register of companies, [16.45]

B Bait advertising offer of special price, [13.530], [13.540] penalty, [13.550] Bankruptcy assignment of contract, [10.220] termination of agency, [15.760], [15.770] termination of contract, [11.520] Bankrupts certificate of discharge, [11.520] contractual capacity — see Contractual capacity disqualification from managing corporation, [13.990], [13.995] liability of, [11.520] undischarged, [13.990] Barristers application to “take silk”, [1.830] clients, [1.830] conduct court cases, [1.830] legal opinions, provision of, [1.830] Senior Counsel, [1.830] solicitor’s brief or instructions, [1.830]

C Index Breach of contract anticipatory breach, [11.180] breach of terms, [10.25], [10.30], [11.160] collateral contract, [9.70] conditions, of, [9.120], [9.130], [11.260], [11.270], [11.275] damages for — see Damages essential terms, of, [11.260] forfeiture of deposit, [12.332], [12.333] injunction for — see Injunction innominate terms, [11.260], [11.300], [11.305], [12.60] liability for inducing, [10.80], [10.90] intentional, [10.80] without justification, [10.80], [10.90] misrepresentation, for, [7.475] penalties — see Penalties remedies, determination of, [2.30], [2.100], [9.160], [9.170] repudiation, by, [11.160] restitution for — see Restitution specific performance for — see Specific performance termination of contract for, [11.10], [11.160], [12.30] torts, in, [14.30] warranties, of, [9.120], [9.140], [9.150], [11.260], [11.270] Breach of duty of care circumstances for, [14.390] standard of care for professionals, [14.480], [14.485] statutory test, [14.480] statutory reforms, [14.410] test for, [14.390] burden of eliminating the risk, [14.438]–[14.450] gravity of the harm, [14.433]–[14.437] probability of risk of injury, [14.425], [14.428] “reasonable person”, [14.395]–[14.405] utility of defendant’s conduct, [14.460] Brokers brokerage, [15.810] general agent, [15.810] Bullying anti-discrimination proceedings [19.180] stop bullying orders [19.80] Business ethics advertisements, [17.120] anti-discrimination [19.20]–[19.470] benefits, [17.40] business conduct, [17.20], [17.30] company obligations, [17.30] director’s duties, [17.30] commercial law principles, [17.30] good faith, [17.30] content of, [17.50] corporate governance, [17.20]

corruption, [17.20] environmental protection, [17.20] ethical duties of business, [17.50] good business practice, [17.10] human rights, [17.20] international standards Organisation of Economic Co-operation and Development (OECD) Guidelines, [17.80] United Nations Convention against Corruption, [17.60] United Nations Global Impact, [17.70] United Nations Guiding Principles, [17.65] investments, socially responsible, [17.130] lack of, [17.20] consequences, [17.20] legal, [17.20] moral, [17.20] poor, [17.40] principle, [17.10], [17.50] regulation of, [17.120] standards and practices, [17.120] enforcement of, [17.120] Business organisations ethical duties, [17.50] social responsibility, [17.50] Business practices consumer protection, [17.30] ethics, [17.20] international conventions, [17.90] restrictive trade practices, [17.30] unethical, [17.30]

C Choses in action equitable, [10.170], [10.190] legal, [10.180] Civil law damages, [1.790] injunction, [1.790] monetary compensation, [1.790] redress of wrong, [1.790] specific performance, [1.790] standard of proof, [1.790] Code of Banking Practice application of, [17.110] obligations, [17.110] Code of ethics definition, [17.100] Collateral contracts breach of, [9.70] determination of, [9.70]–[9.110] Commercial agreements governments, by, [4.225] intent to create legal relations, [4.140]–[4.150], [4.225] Commercial law law of torts, application of, [14.30]

regulation of business activities, [1.795] common law principles, [1.795] statutes, [1.795] Commissions — see Tribunals and commissions Common law development of, [1.450] doctrine of precedent — see Precedent judge-made law, [1.440] historical development, [1.440] subordinate, [1.440] principles, [1.540] rules of, abrogation or modification of, [1.440] statutory interpretation rules — see Statutory interpretation Commonwealth central government, [1.100] executive power, [1.100], [1.140] exercise of, [1.100], [1.140] vesting of, [1.100], [1.140] government — see Commonwealth government — see Federal government law-making powers, [1.100] Commonwealth government — see also Federal government accountability, [1.140] executive, [1.140] legislative powers, [1.150] House of Representatives, [1.140] parliament, [1.140] delegation of legislative powers, [1.150] exclusive powers, [1.160] legislative powers, [1.160] powers, [1.100] Companies actions of, [16.280] agents, liability for, [16.320] express or implied restrictions on, [16.280] legal capacity for, [16.280] validity of, [16.280] Australian Company Number (ACN), issue of, [16.45] authorised agents, [16.50] body corporate, [16.45] company law, [16.10] company seal, [16.130] company secretary acts of, validity of, [16.880] appointment of, [16.860] authority of, [16.860] duties of, [16.860], [16.970] obligations of, [16.860] public company, [16.850], [16.860] constitution, [16.240]–[16.280] contracts with third parties, [16.320] assumptions, [16.325] holding out, [16.330]–[16.335] binding, [16.320]

519

520

Business Law for Managers Companies — cont liability for, [16.320] contractual capacity — see Contractual capacity corporate personality, [16.50], [16.55] directors and officers — see Directors duties of, [16.20] incorporated entity, [16.10], [16.70] information on, public availability of, [16.280] internal management, [16.240]–[16.280] limited liability, [16.50], [16.57] concept of, [16.60] limited by guarantee, [16.90] limited by shares, [16.80] management of, [16.20] disqualification from, [16.1060] membership of, [16.350] member’s rights, [16.380] shares, [16.375] register of members, [16.350] where membership exists, [16.350] memorandum and articles of association, [16.230] name of, [16.120] no liability company, [16.110] operation of, [16.20] ownership, [16.50] powers, exercise of, [16.280] private law, [1.775] proprietary company, [16.70], [16.130] limited by shares, [16.80] unlimited with share capital, [16.100] public company, [16.70], [16.130] company secretary, [16.850], [16.860] limited by guarantee, [16.90] limited by shares, [16.80] no liability, [16.110] registered office, [16.840] unlimited with share capital, [16.100] register of companies, [16.45] registered office, [16.840] notice of, [16.840] registration of, [16.10], [16.45], [16.70] proprietary companies, [16.70] public companies, [16.70] regulation of — see Corporations Act 2001 (Cth) replaceable rule, [16.240]–[16.270] separate legal entity, [16.57] shares, [16.375] acquisition of, [16.375] issue of, [16.375] members, of, [16.375] offering, [16.375] sale of, [16.375] small business, [16.57] sole trader, [16.57] unlimited company, [16.100]

Compensation civil law remedy, [1.790] defective goods, for, [13.1220] limitation period, [13.1240] monetary — see Damages native title, [1.95] unfair practices, for, [13.870] non-party customers, [13.890] orders, [13.880]–[13.910] application for, [13.910] determination of, [13.920] work-related injuries, [13.1260] Competitions or lotteries participation, agreement for, [4.90] enforcement of, [4.90], [4.100] intent for, express exclusions, [4.200], [4.210] Conciliation anti-discrimination actions [19.50], [19.60], [19.320] dispute resolution, [1.900] Consent contractual, [2.15], [7.10] duress, extracted under, [7.10] genuine, [2.30], [7.10] misrepresentation, induced by, [7.10] mistake, [7.10], [7.20] assumption, [7.20] operative, [7.20] quality of subject matter, [7.20] unconscionable conduct, use of, [7.10] undue influence, use of, [7.10] Consideration adequate, [5.40] contract, for, [5.10] deed, lack of for, [5.25] definition, [5.30] executed, [5.65] executory, [5.65], [5.70] intangible, [5.50], [5.55] past act or forbearance, [5.75] past rule, [5.65] exceptions, [5.75], [5.83] performance of existing obligation, [5.95], [5.100], [5.120] practical benefit test, [5.134], [5.135] promise, for, [3.210], [3.220], [5.10], [5.20], [5.115] promise to refrain from legal action, [5.85], [5.90] recognised legal value, [5.40], [5.45], [5.60] requirement of, [5.20] rules of, [5.40] simple contract, requirement for, [2.60], [5.20] something bargained for, [5.138], [5.140] substituted performance, [5.130], [5.132], [5.132A], [5.133] sufficient, [5.40], [5.45], [5.90], [5.140] valuable, [2.30], [5.134] Constitution Commonwealth, [1.100]

Aboriginal and Torres Strait Islanders, and, [1.130] amendment of, [1.190] creation of, [1.130] interpretation of, [1.180] legislative powers, [1.130] separation of powers, [1.130] structure, [1.130] States, [1.100], [1.130] Constitutional law public law, [1.775] rights of individuals, [1.775] structure of governments, [1.775] Consumer contracts — see also Defective goods credit contracts, unjust, [7.970] duty of good faith, [9.610]–[9.640] exclusion clause interpretation of, [9.360], [9.420], [9.430] use of, [9.350], [9.360] implied term, [9.610]–[9.640] online — see Online contracting sale of land, [13.296] small business, [13.296] standard form, [13.290], [13.295], [13.320] determination of, [13.290] supply of goods and services, [13.296] unfair terms — see Terms of contract Consumer guarantees — see also Consumer contracts auction sales exemptions, [13.1130] breach of, [13.1000] contravention of, [13.1000] limitation of liability, [13.1150] manufacturers’ liability under — see Manufacturers’ liability non-compliance, remedies for, [13.1160] reasonable customer test, [13.1160] unfit for purpose, [13.1160] unsafe goods, [13.1160] operation of, modification, exclude or restrict, [13.1000] product information requirements, [13.1310] defence, [13.1310] product recall, [13.1310] product safety, [13.1310] statutory, [13.1000] supply of goods, for, [13.1001], [13.1002], [13.1010] acceptable quality, [13.1002], [13.1040]–[13.1060] corresponds with description, [13.1002], [13.1090] customer, to, [13.1020] express warranties, [13.1002], [13.1120] fitness for disclosed purpose, [13.1002], [13.1070], [13.1080] repairs and spare parts, [13.1002], [13.1110]

C Index Consumer guarantees — cont supply by sample or demonstration, [13.1002], [13.1100] title, to, [13.1002], [13.1030] undisclosed securities, [13.1002] undisturbed possession, [13.1002] supply of services, for, [13.1001], [13.1004], [13.1140], [13.1145] customer, to, [13.1020] due care and skill, [13.1004], [13.1140] exclusions prohibited, [13.1004] fit for purpose, [13.1004], [13.1140] reasonable time for, [13.1004], [13.1140] trade or commerce, in, [13.1140] Consumer law — see also Australian Consumer Law judge-made law, [1.440] Consumer protection adverse publicity order, [13.980] Australian Consumer Law — see Australian Consumer Law disqualification from managing corporation, order for, [13.990], [13.995] legislation, [13.10] non-punitive orders, [13.970] public warning notice, [13.960] substantiation notice, [13.950] undertaking, [13.940] Contract law enforcement of, [2.15] evolution of, [2.15] freedom of contract, [2.15] principles, [2.20] private law, [1.775] protection of individuals, [2.15] rights and duties under, [1.775] sanctity of contract, [2.15] source of, [2.10] Contracts — see also Consumer contracts agreement, [2.17], [2.20], [2.30] intent for, [4.10], [4.15] legally binding, [3.10], [4.10] assignment of — see Assignment of contracts bilateral contract, [2.90] mutual promise, [2.90] promise for a promise, [2.90] binding, [2.30], [3.10], [3.20], [3.460] breach of — see Breach of contract capacity — see Contractual capacity classification of, [2.50] collateral contract — see Collateral contracts commercial relationship, [4.10] consensus for, [2.30] consent for — see Consent consideration, requirement of — see Consideration creation of, [2.10]

credit contracts, unjust, [7.970] definition of contract, [2.17] discharge of — see Termination of contract disputes, [2.10], [2.30] employment — see Employment contracts enforceable, [3.20], [5.10] enforcement of, [2.15], [2.20], [2.30], [2.100], [4.100], [5.290] essential elements, [2.30] evidence of, [5.350] execution of, [2.10] express contract, [2.80] explicit terms, [2.80] oral, [2.80] writing, in, [2.10], [2.80] family arrangement, [4.10] form of, [2.10] evidenced in writing, [5.290], [5.300], [5.310]–[5.340] oral, [5.290] formal contract, [2.30], [2.70] formation of, [2.30] functions of, [2.10] gaming or wagering, [8.160] guarantee — see Guarantee illegal — see Illegal contracts implied contract, [2.80] indemnifying party against loss, [5.540] inferred terms, [2.80] intent to create legal relationship, [2.30], [3.420], [3.430], [4.10], [4.100] presumption of, [4.15] internet sales, [3.150], [3.155] invalid — see Illegal contracts land — see Land liability, exclusion of, [9.180], [9.220], [9.230], [9.280] misleading or deceptive conduct, effect of, [8.100], [8.105] negotiations, [3.10] offer and acceptance, [2.30], [3.10], [3.20] online contracting — see Online contracting operation of, [10.10] part performance of — see Part performance party to estoppel, [5.25] performance of — see Performance of contract personal services — see Personal services contract privity of — see Privity of contract promise, [2.20], [2.30] gratuitous, [2.30] made under seal, [2.30] rectification of — see Rectification repudiation of — see Termination of contract requirements for, [2.10], [2.30] restraint of trade — see Restraint of trade — see Void contracts rights and obligations creation of, [2.20]

determination of, [9.10] sanctity of, [2.15] simple contract, [2.30], [2.60], [5.20], [5.290] consideration for, [2.60], [5.20] enforcement of, [5.290] evidenced in writing, [2.60], [5.290], [5.300] implied, [2.60] oral, [2.60] writing, in, [2.60] subject of, [2.30] termination of — see Termination of contract terms of — see Terms of contract unconscionable — see Unconscionable contracts under seal — see Contracts under seal unenforceable, [2.100], [5.360] illegality, for, [8.10] technical defect, [2.100] unilateral contract, [2.90] acceptance by performance, [2.90] valid, [2.30], [2.100], [8.10] legality of object, [8.10] valuable consideration, [2.30], [2.60] void — see Void contracts voidable, [2.100] what constitutes, [2.20], [2.30] objective determination, [3.410] Contracts under seal — see also Deeds binding, [5.25], [5.180] enforcement of, [2.30] formal deed, [2.30], [2.70] release from, [5.180] enforcement of, [5.180] right of action, time-limit for, [5.25] signed, sealed and delivered, [2.70], [5.25], [5.180] writing, in, [2.70], [5.25], [5.180] Contractual capacity bankrupts, [6.200] undischarged, [6.200] liability of, [6.200] valid against trustee, [6.200] classes of persons, [6.10] corporations, [6.170] restriction of, [6.170] intoxicated persons, [6.180] contracts for necessaries, [6.180] liability of, [6.180] ratification of contract, [6.180] voidable, [6.180] married women, [6.190] mentally incapacitated, [6.180] contracts for necessaries, [6.180] liability of, [6.180] ratification of contract, [6.180] voidable, [6.180] minors, [6.20], [15.40] age of majority, [6.20] binding contracts, [6.30], [6.90], [6.100], [6.110] ratification for, [6.100], [6.120] repudiation of, [6.100], [6.110]

521

522

Business Law for Managers Contractual capacity — cont enforcement of, [6.70]–[6.90] liability, [6.140] misrepresentation by, [6.140] substantially detrimental to minor’s interests, [6.70], [6.80] trading contracts, [6.90] valid contracts, [6.30] beneficial contract of service, [6.30], [6.50], [6.60], [6.90] determination of, [6.90] liability under, [6.40], [6.50] supply of necessaries, [6.30], [6.40] void contracts, [6.130] accounts stated, [6.130] bill of exchange, [6.130] payment of goods, [6.130] repayment of loan, [6.130] voidable contracts, [6.100] binding contracts repudiated during minority or reasonable time after attaining majority, [6.110] binding contracts unless ratified within reasonable time of attaining majority, [6.120] valid contract, requirement for, [2.30] Contributory negligence burden of proof, [14.460] damages, apportionment for — see Damages defective goods, for, [13.1230] defence, [13.1230], [14.55], [14.560] determination of, [14.460], [14.465] Corporate ethics code aspirational code, [17.100] ethics code, definition of, [17.100] prescriptive code, [17.100] principals, [17.100] Corporate governance failure, [17.20] Corporations — see Companies Corporations Act 2001 (Cth) administration of, [16.40] application of, [16.10] enforcement of, [16.40] operation of, [16.20] Country of origin imported goods, [13.390] Made in Australia, [13.390], [13.395] Produce of Australia, [13.390] Product of Australia, [13.390] representations, [13.390] County Courts jurisdiction, [1.620] civil, [1.620] limited, [1.620] statutory, [1.620] Court of Petty Sessions criminal jurisdiction, [1.630]

Court of Summary Jurisdiction criminal jurisdiction, [1.630] Courts — see Australian courts Credit cards unsolicited, [13.570] Credit contracts unjust, [7.970] Criminal law indictable offences, [1.790] offences and punishment, [1.775], [1.790] prosecutions, [1.790] public law, [1.775] standard of proof, [1.790] beyond reasonable doubt, [1.790] summary offences, [1.790] Criminal liability offence against the state, [14.20] Customary laws Aboriginal and Torres Strait Islander, [1.30] classification of, [1.30] enforcement of, [1.30]

D Damages assessment of, [12.80], [12.190], [12.200] award of, [12.70], [12.80] breach of Australian Consumer Laws, [13.35] breach of contract, [2.100], [9.30], [9.70], [9.120], [12.70] anticipatory breach, [11.180] assessment of, [12.80], [12.190], [12.200] award of, [12.80], [12.90] causation for, [12.120]–[12.140] disappointment or distress, for, [12.210]–[12.245] exemplary, [12.280] innominate terms, of, [12.60] liquidated, [12.290] measure of, [12.90]–[12.115] mitigation of loss, [12.150]–[12.180] nominal, [12.270] ordinary, [12.260] substantial, [12.80] breach of warranty, [12.60] causation for, [12.120]–[12.140], [14.500]–[14.508] “but for” test, [14.508]–[14.509A] civil law remedy, [1.790] consumer guarantees, non-compliance with, [13.1280] affected person, [13.1280] contributory negligence apportionment for, [12.250], [14.460] assessment of, [14.460], [14.465] disappointment or distress, for, [12.210]–[12.245]

discriminatory conduct [19.330] economic loss, for, [14.50], [14.320] exemplary, [12.280] false or misleading representations, [13.330] fraudulent misrepresentation, [7.560], [15.620] innocent misrepresentation, [7.610] liquidated, [12.290] measure of, [12.90]–[12.115] mitigation of loss, duty of, [12.150]–[12.180] monetary compensation, [1.790], [12.70], [12.190], [12.200] negligence, for, [14.50], [14.55] causation for, [14.500]–[14.509A] proof for, [14.490] remoteness of damages, [14.510]–[14.540] nominal, [12.270] ordinary, [12.260] personal injury, for, [14.50] psychiatric injury, [14.105] quantification of, [12.190], [12.200] reasonably foreseeable, [12.120]–[12.140] reinstatement, [12.110] remoteness of, [12.120], [12.123], [12.127], [14.55], [14.510]–[14.540] test for, [14.515], [14.520] repudiation of contract, [11.200] substantial, [12.80] torts, in, [14.10], [14.50] unfair practices, [13.780] assessment of, [13.790]–[13.820] liability for, [13.830]–[13.850] limitation of action, [13.860] Death assignment of contract, [10.210] frustration of contract, [11.340] lapse of offer, [3.310], [3.320] termination of agency, [15.740] Debit card unsolicited, [13.570] Deed of Agreement [19.50], [19.60] Deeds — see also Contract under seal attested to, [5.25], [5.180] binding, [5.25] discharge of, [5.180] expressed, [5.180] lack of consideration, [5.25] signed, sealed and delivered, [5.25], [5.180] writing, in, [5.25] Defamation damage to one’s reputation, [14.10] Defective goods compensation for — see Compensation contributory negligence, [13.1230] goods, meaning of, [13.1200] manufacturer, meaning of, [13.1210] manufacturers’ liability, [13.1170]

D Index Defective goods — cont defences, [13.1220], [13.1230] limitation of, [13.1300], [13.1305] non-exclusion, [13.1250] safety defects, [13.1180] seller of defective goods, to, [13.1290]–[13.1305] supplier, to, [13.1290]–[13.305] work-related injuries, [13.1260] representative action, [13.1270] safety defects, [13.1180] meaning of, [13.1190] work-related injuries, [13.1260] Definitions — see Words and phrases Delegated legislation legislative instrument, [1.430] making of, [1.350] authority of Act of Parliament, under, [1.430] conferral of power for, [1.430] subordinate legislation, [1.430] Deposit forfeiture of, [12.332], [12.333] Direct discrimination case [19.130] claims and process [19.80] concept [19.80] definition [19.120] elements [19.120] unlawful conduct [19.50] Directors acts of, validity of, [16.880] agent of company, [16.840], [16.850] appointment of, [16.850] board of directors, [15.840], [16.850] criminal offences by, [16.1000] definition of, [16.880] disclosure of interests, [16.1020] dishonesty of, [16.1000] disqualification of, [16.1060] duties of, [16.850], [16.890] act for proper purpose, [16.960] act in good faith, [16.890], [16.930], [16.960], [16.1000] breach of, [16.890], [16.905]–[16.920], [16.1000] penalties, [16.1010] business judgment rule, [16.930]–[16.950] care and diligence, [16.890]–[16.900] not to misuse position to gain advantage or cause detriment, [16.890], [16.970]–[16.980] not to misuse position to obtain and use information, [16.890], [16.985], [16.990], [16.1000] prevent insolvent trading, [16.1030] defence, [16.1030], [16.1035] penalties, [16.1030] use of information, [16.890], [16.1000] use of position, [16.890], [16.1000]

election of, [16.850] insider trading, prohibition of, [16.1040] managing director, [16.850] number of, [17.850] powers of, [16.885] removal of, [16.1050] resignation of, [16.850] responsibilities of, [1.775] retirement from office, payments for, [16.1055] Discrimination age [19.60], [19.130] pilots [19.240] Anti-Discrimination Act 1991 (Qld) (QADA) [19.10], [19.80] area of activity [19.180] attributes, specification of [19.80], [19.90], [19.110] complaints process [19.80], [19.320] direct discrimination, definition [19.120] exemptions [19.80], [19.220]–[19.290] indirect discrimination, definition [19.140] information leading to discrimination, seeking [19.210] remedies [19.80], [19.330] unjustifiable hardship exemptions [19.250], [19.260] anti-discrimination legislation [19.10], [19.30], [19.50] application of [19.50] breaches [19.50] causes of action [19.50] conduct considered unlawful [19.50] EEO legislation and [19.40] federal [19.60], [19.70], [19.220] international instruments [19.60] managerial prerogative and [19.30] State and Territory [19.80] attributes covered by legislation [19.80], [19.90], [19.100] “base groups” [19.140] case [19.100] definitions [19.110] “ground” [19.90] breastfeeding [19.60] children, protection of [19.250] claims [19.50], [19.60] costs [19.330] investigation [19.320] lodgment of [19.320] defence of reasonable steps [19.80], [19.300], [19.310] direct — see Direct discrimination disabilities, people with [19.60], [19.250] fundamental rights of [19.60] Disability Discrimination Act 1992 (Cth) [19.60] exemptions under QADA [19.220]–[19.290]

access to services and [19.260] cases [19.230]–[19.240] children, work with [19.250] domestic services [19.250] general [19.270] onus of proof [19.220] pre-work “impairment” case [19.280] religious bodies [19.250] unjustifiable hardship [19.250], [19.260] family responsibilities [19.60], [19.170] gender identity [19.60] genuine occupational requirements [19.220] cases [19.230]–[19.240], [19.280] religious bodies [19.250] HIV and occupation [19.220] human rights and [19.20] indirect — see Indirect discrimination inherent requirements[19.220] cases [19.230]–[19.240] dismissal [19.290] intersex status [19.60], [19.90] investigation of complaints [19.320] lodgment of claims [19.320] marital or relationship status [19.60] Norrie case [19.90], [19.205], [19.207] pre-work area covered by legislation [19.180], [19.190] case [19.280] private and public domains [19.80] Public Services Act 2008 (Qld) [19.80] Queensland Anti-discrimination Tribunal [19.320] Queensland Anti-discrimination Act [19.340] racial [19.60] reasonable steps defence [19.300], [19.310] religion [19.240] religious bodies [19.250] remedies [19.80], [19.330] representation of parties [19.320] sex [19.60] sexual harrassment [19.60], [19.355], [19.360] contexts [19.350] definition [19.350] elements [19.350] QADA, under [19.340] reasonable steps defence [19.300], [19.380], [30.390] sex discrimination and [19.370] unlawful domains [19.350] unwelcome conduct [19.350] vicarious liability [19.360], [19.370] reasonable steps defence [19.380], [19.390] sexual orientation [19.60] types [19.80] — see also Direct discrimination; Indirect discrimination

523

524

Business Law for Managers reasonably foreseeable harm, [14.57], [14.60], [14.70], [14.100]–[14.102], [14.105], [14.155], [14.160], [14.280], [14.290] relationship proximity for, [14.57], [14.70], [14.270], [14.280], [14.295] test for, [14.90] acts causing physical harm, [14.100] liability for omissions, [14.110], [14.120], [14.150] negligent acts causing mental harm, [14.105], [14.106] negligent acts causing pure economic loss, [14.180]–[14.185] negligent statements causing pure economic loss, [14.250]–[14.335] voluntary assumption of risk — see Voluntary assumption of risk

Discrimination — cont vicarious liability of employer [19.80], [19.300] women [19.160], [19.190], [19.200] return to work after maternity leave [19.200] work area covered by legislation [19.180]–[19.200] Workplace Gender Equality Act 1999 (Cth) [19.70] Dispute resolution alternative dispute resolution (ADR), [1.840], [1.870] methods of, [1.870]–[1.900] commercial arbitration, [1.850] advantages, [1.850] conciliation, [1.900] dispute management, [1.870] mediation, [1.890] negotiation, [1.880] District Courts jurisdiction, [1.620] civil, [1.620] limited, [1.620] statutory, [1.620] Doctrine of frustration — see Frustration Doctrine of precedent — see Precedent Documents production of, [3.640] retention of, [3.660] Duress action for, [7.795] actual deprivation of liberty, [7.740] violence, [7.740] coerce, [7.740] consent extracted under, [7.10] contract under, [7.750] voidable, [7.740] economic, [7.770] action for, [7.795] determination of, [7.770] voidable contract, [7.770], [7.780] goods and services transactions, [7.795], [7.796] threat of deprivation of liberty, [7.740] violence, [7.740] unfair pressure, [7.795], [7.796] Duty of care — see also Standard of care advice, for, [14.280]–[14.290] assumption of responsibility, [14.330] breach of — see Breach of duty of care economic loss, for, [14.180]–[14.185], [14.250]–[14.290], [14.320] failure to warn, [14.110] mental harm, for, [14.105] negligent misstatements, for, [14.320]–[14.335] nervous shock, for, [14.105], [14.106] psychiatric injury, [14.105], [14.106]

E Economic loss damages — see Damages duty of care — see Duty of care future, [14.50] liability for, [14.180]–[14.185], [14.250]–[14.290], [14.320] reasonable foreseeable, [14.185], [14.290] past, [14.50] pure, [14.180] Electronic transactions acceptance of offer electronic, [3.620] writing, in, [3.620], [3.650] certainty for, [3.720]–[3.760] consent, [3.650] documents production of, [3.640], [3.650] retention of, [3.660] electronic communications authorisation for, [3.710] dispatch of place of, [3.700] time for, [3.660] receipt of, [3.690] place of, [3.700] time of, [3.670]–[3.680] information, retention of, [3.660] regulation of, [3.600] security protocols, [3.600] signatures, [3.630], [3.650] validity of, [3.610] Employee agent, [15.30], [15.37] contract of service, under, [15.30] dismissal [19.290] “merit principle” [19.20], [19.40] recruitment processes [19.40] Employers liability for discrimination [19.110] vicarious [19.80], [19.300]

vicarious liability discriminatory conduct [19.80], [19.300] Employment contracts contract of service, [15.30] inequality of bargaining power, [8.460], [8.470] restraint covenants, [8.400]–[8.450], [8.480] restraint of trade, [8.400], [8.440], [8.450] void, [8.400] circumstance for, [8.400]–[8.480] Employment law agency, and [18.140] Australian industrial history, [18.30] bullying [19.80] categories of employment, [18.230] common law duties case, [18.255] employee, [18.265]–[18.280] employer, [18.250] employment relationship definition, [18.130], [18.150] legal tests, [18.160]–[18.170] control, [18.180]–[18.190] relevant considerations, [18.220] Fair Work Act review, [18.110] Fair Work Commission, role, [18.90] Fair Work Information Statement, [18.80] Fair Work Ombudsman, role, [18.100] health and safety, [18.260] independent contractors, [18.200] industrial action, [18.440]–[18.470] secondary boycotts, [18.480]–[18.490] legislative framework, [18.20] modern employment environment, [18.40] National Employment Standards, [18.80] national health and safety legislation, [18.390] recruitment and selection, [18.240] reforms under Labor government, [18.70] registered industrial associations, [18.420] Australian waterfront dispute, [18.430] disclosure requirements, [18.420] sources of rights and obligations, [18.10], [18.120] stop bullying orders [19.260], [19.80] termination of employment dismissal at common law – breach of contract, [18.290] dismissal in breach of contract, [18.310]–[18.320] unfair dismissal laws amendments, exemption, [18.330]–[18.340] claims, [18.110] vicarious liability, [18.350] Work Choices decision, [18.50]–[18.60] workers compensation, [18.380]

H Index Employment law — cont case, [18.415] Queensland, legislation, [18.410] workplace health and safety, [18.370] Queensland, legislation, [18.400] Employment relationship definition, [18.130], [18.150] legal tests, [18.160]–[18.170] control, [18.180]–[18.190] relevant considerations, [18.220] stop bullying orders [19.260], [19.80] Environmental protection environmental damage, [17.20] Equal employment opportunity (EEO) affirmative action [19.40], [19.70] implementation of program [19.40] human rights and [19.20] legislation [19.10], [19.30] anti-discrimination legislation and [19.40] federal [19.70] managerial prerogative and [19.30] minority groups [19.40] targets of [19.40] Equitable estoppel — see Promissory estoppel Equity — see also Rectification — see also Restitution principles, development of, [1.460] rules of, abrogation or modification of, [1.440] Estate agents business, [15.840] land, [15.840] real estate — see Real estate agents Estoppel — see Promissory estoppel

F Factor agent employed to sell goods, [15.790] powers, [15.790] False or misleading representation advertisements, [13.340] land, sale or grant of interest in, [13.400]–[13.420] penalties, [13.380], [13.455] predictions, [13.450], [13.452] profitability of business activities, [13.430], [13.440], [13.455] prohibition of, [13.340] promotion and supply of goods and services, [13.330]–[13.375] profitability of business, [13.455] remedies, [13.340] Federal Circuit Court concurrent jurisdiction, [1.590] establishment of, [1.590]

conditions for, [11.315] doctrine application of, [11.310], [11.320] limitation of, [11.475]–[11.478] effect of, [11.480], [11.482] automatic termination of contract, [11.480] discharge of rights and obligations, [11.480] recovery of monies, [11.480]–[11.485] mistake distinguished, [11.310] termination of contract for, [11.10], [11.310] automatic, [11.480] determination of, [11.310], [11.313] discharge of rights and obligations, [11.480] recovery of monies, [11.480]–[11.485]

Federal Court of Australia appeals to High Court of Australia, [1.580] compilation of, [1.580] establishment of, [1.580] Full Federal Court, [1.580] jurisdiction of, [1.580] appellate, [1.580] concurrent, [1.580] original, [1.580] Federal government — see also Commonwealth government powers, [1.100] States, legal relationship, [1.100] Federal legal system written constitution, [1.100] Federal parliament — see Commonwealth government — see Federal government Federal tribunals and commissions establishment of, [1.660] quasi-judicial bodies, [1.660] Fiduciary relationship agent/principal, [15.10] Franchises void contracts, [8.490]–[8.494] Fraudulent misrepresentation action for, [7.475], [7.490] damages for — see Damages determination of, [7.490] falsity, [7.510] knowledge of, [7.520] reckless and careless, [7.520] without belief in its truth, [7.520] grounds for, [7.490] partial statement of fact, [7.490] principal, liability for, [15.600]–[15.650] remedies, [7.560] damages, [7.560] resulting damage, [7.550] statement of fact, [7.500] falsity, [7.510], [7.520] intended to be relied on, [7.530] reckless and careless, [7.520] reliance on, [7.535] without belief in its truth, [7.520] Frustration circumstances for common objective no longer available, [11.360], [11.370], [11.390] death or illness, [11.340] destruction of subject matter, [11.350], [11.355] government intervention, [11.400], [11.410] supervening circumstances, radical difference in performance, [11.420], [11.430] supervening illegality, [11.330] circumstances not resulting in frustration, [11.440]–[11.472]

G Gaming or wagering contracts, void, [8.160] Good faith agent, acting in, [15.10], [15.300]–[15.320] consumer contracts, [9.610]–[9.640] contract law, [17.30] duty of, [9.610]–[9.640] Goods and services pricing — see Price supply of consumer guarantees — see Consumer guarantees harassment or coercion as to, [13.640] manufacturers’ liability — see Manufacturers’ liability unsolicited, [13.580] payment for assertion of, [13.580] liability for, [13.590] Goodwill protection of, [8.370] Governor-General executive power, exercise of, [1.100] legislative powers, [1.150] Guarantee definition, [5.340] evidenced in writing, [5.320], [5.340] unjust, [7.970]

H Harassment and coercion emerging area of law [19.20] physical force, [13.640] sexual harrassment [19.340]–[19.390] supply or possible supply of goods and services, [13.640] undue, [13.640]

525

526

Business Law for Managers High Court of Australia establishment of, [1.180] functions of, [1.180] highest court of appeal, [1.180], [1.570] special leave to appeal, [1.570] highest court of Australia, [1.570] judgments authoritative statements, [1.180] binding precedents, [1.180] jurisdiction, [1.570] appellate, [1.570] original, [1.570] Human rights anti-discrimination and EEO legislation [19.20] Australia as signatory to international covenants [19.60] Bills of Rights [19.60] indigenous people [19.60] international understanding of [19.20] protection of, [1.130] violation of, [17.20] Husband and wife domestic arrangements, [4.30] legally enforceable obligations, whether, [4.30]–[4.50] marital/de facto relationship, [4.50], [4.60] married women’s contractual capacity, [6.190]

I Illegal contracts — see also Contracts — see also Void contracts administration of justice, prejudicial to, [8.220] maintenance of suit and champerty, [8.270] stifle a prosecution, [8.230]–[8.260] categories for, [8.10] commission of crime, for, [8.190] common law, at, [8.10], [8.170], [8.180] commission of crime, tort or fraud on third party, [8.190] contrary to public policy, [8.170], [8.360] corruption in public life, promotion of, [8.280]–[8.300] defraud the revenue, [8.320] prejudicial to administration of justice, [8.220] public safety, prejudicial to, [8.310] sexual immorality, promotion of, [8.200], [8.210] consequences of, [8.530] money paid under not generally recoverable, [8.550] exceptions, [8.560]–[8.580] related transaction void, [8.590] totally void, [8.540]

corruption in public life, promotion of, [8.280]–[8.300] defraud the revenue, [8.320] form, as to, [8.110], [8.120] illegality of object, for, [8.10] invalid, [8.10] misleading or deceptive conduct, effect of, [8.100], [8.105] performance, as to, [8.110], [8.130]–[8.150] incidental, where, [8.150] public safety, prejudicial to, [8.310] severance of invalid terms and promises, [8.620] sexual immorality, promotion of, [8.200], [8.210] statute, under, [8.10], [8.20], [8.110], [8.160] express prohibition, [8.30], [8.40], [8.160] form, as to, [8.110] implied prohibition, [8.50], [8.60], [8.160] non-compliance, for, [8.20] performance, as to, [8.110] statutory interpretation, [8.70]–[8.105] void under, [8.160] unenforceable, [8.10], [8.160] common law, at, [8.170], [8.190] contrary to public policy, [8.170] express prohibition, for, [8.30], [8.40] implied prohibition, for, [8.50], [8.60] void — see Void contracts void contract distinguished, [8.520]

Information company director’s use of — see Directors request for, [3.290], [3.300] retention of, [3.660] Injunction application for, [13.730] breach of contract, for, [12.400] civil remedy, [1.790] discretionary remedy, [12.400] grant of, [12.400] prohibition of conduct, [12.400] unfair practices, for, [13.720] Innocent misrepresentation examples, [7.580], [7.590] remedies, [7.475], damages, [7.610] rescission, [7.620]–[7.640] specific performance, [7.620] untrue statement of fact, [7.570] Insider trading penalties, [16.1040]–[16.1046] prohibition of, [16.1040] Insolvent trading defences, [16.1030], [16.1035] director’s duty to prevent, [16.1030] penalties, [16.1030] Insurance contracts privity of contract exceptions, [10.50]–[10.70] Internet sales, [3.160], [3.155] offer and acceptance, [3.150], [3.155]

Indemnity contract indemnifying party against loss, [5.540]

Intoxicated persons contractual capacity, [6.180]

Independent contractor agents, [15.37] contract for service, [15.30]

Investment considerations, [17.130] socially responsible investing, [17.130] methods for, [17.130]

Indigenous inhabitants — see Aboriginal and Torres Strait Islanders Indirect discrimination access to premises [19.260] cases [19.150]–[19.170] claims and process [19.80] complaints requirement [19.140] concept [19.80] definition [19.140] unjustifiable hardship exemption [19.260] unlawful conduct [19.50] what constitutes [19.140] women [19.160] Industry code of conduct adherence to, [17.110] mandatory, [17.110] voluntary, [17.110] enforcement of, [17.110] prescribed, [17.110] regulation of conduct, [17.110]

Invitation to treat advertisements, [3.100]–[3.110] auction sales, [3.130] misleading of deceptive conduct, [3.120] preparation for negotiation, [3.70]–[3.90] price list circulars, [3.100], [3.110] tenders, [3.160], [3.170] window displays, [3.100], [3.110]

J Judge-made law — see Common law Judiciary — see also Australian courts law-making powers, [1.210]

M Index

L Land contracts disposition of land, [5.330], [5.360] evidenced in writing, [5.330] interests in land, [5.320], [5.370] lease, assignment of, [5.330], [5.380] part performance, [5.360]–[5.390] privity of contract exceptions, [10.75] sale of land, [5.330], [5.360] invaded, [1.50] native title — see Native title occupied, [1.50] pastoral leases, [1.90] profit à prendre, [5.330] restrictive covenants, [10.75] right to remove something from, [5.330] settled, [1.50] terra nullius, [1.50], [1.70] unoccupied, [1.50] Law civil law, [1.790] classification of, [1.580] commercial law, [1.795] common law — see Common law Commonwealth/State inconsistencies, [1.160] contract law, [2.15] criminal law, [1.790] customary law, [1.20], [1.30] definition of, [1.20] enforcement of, [1.30] foundation of, [1.97] judge-made — see Common law making, [1.20] powers, [1.100], [1.160], [1.210] mistake of, recovery of money for, [7.390], [7.400] natural law, [1.20] nature and concept, [1.20] positive law, [1.20] private law, [1.775] procedural law, [1.780] public law, [1.775] religious law, [1.20] rule of law, [1.20] sources, [1.200] primary, [1.200] secondary, [1.200] statute — see Statutes substantive law, [1.780] Law Reports authorised, [1.557], [1.720] citation of cases, [1.740], [1.750] media neutral citations, [1.760] decisions of judges, [1.720] form of, [1.730] Lease assignment of, [5.330] evidenced in writing, [5.330] specific performance, [5.380]

Legal proceedings classification of, [1.780] Legal profession barristers, [1.810], [1.830] solicitors, [1.810] functions of, [1.820] Legislation — see Delegated legislation — see Statutes Legislative instrument — see Delegated legislation Legislature — see Commonwealth government — see Federal government

non-compliance with, [13.1280] defective goods, for — see Defective goods supply of goods and services, [13.1002] acceptable quality of goods, [13.1002], [13.1170] compliance with description, [13.1002] express warranties, compliance with, [13.1002] fitness for purpose, [13.1002], [13.1170] repair and spare parts facilities, [13.1002] work-related injuries, [13.1260]

Letter of commitment legally binding, [4.220]

Market sharing penalties, [17.20]

Letters of comfort contingent liability, [4.220] legally binding determination of, [4.220] intent for, [4.220] statement of commercial intent, [4.220] subsidiary loan, for, [4.220]

Marketing misleading or deceptive conduct — see Misleading or deceptive conduct online, [13.68] disclaimers, [13.68] online endorsements, [13.68]

Liability advice, for, [14.280]–[14.290] agent, of — see Agent criminal, [14.20] failure to warn, [14.110] manufacturer, of — see Manufacturers’ liability mental harm, for, [14.105] negligence, for — see Negligence negligent misstatements, [14.320]–[14.335] omissions, for, [14.110] partners, of — see Partnership principal, of — see Principal strict, [14.10] torts, in, [14.10], [14.50] vicarious, [14.10], [14.620]–[14.650] Limited companies — see Companies Local Courts New South Wales, [1.630] South Australia, [1.630] civil jurisdiction, [1.630] Lotteries and competitions — see Competitions or lotteries

M Mabo v Queensland Australian constitutional system and, [1.70], [1.80], [1.90] Magistrates Court Victoria, Queensland, Western Australia, Tasmania, [1.630] Manufacturers’ liability consumer guarantees, under, [13.1280] damages, for — see Damages

Married women contractual capacity, [6.190] Mediation dispute resolution, [1.890] Memorandum evidence of agreement, [5.350] requirements for, [5.350] Mental harm liability for, [14.105] Mentally incapacitated persons contractual capacity, [6.180] contracts for necessaries, [6.180] liability of, [6.180] ratification of contract, [6.180] voidable, [6.180] Mercantile agents definition of, [15.790] Merger circumstances for, [11.430] deed, by, [11.430] termination of contract by, [11.430] Minors act through agent, [15.40] age of majority, [6.20] contractual capacity — see Contractual capacity misrepresentation by, [6.140] Misleading or deceptive conduct — see also Misrepresentation — see also Mistake advertising, [3.120], [13.61]–[13.67] online, [13.68] disclaimers, [13.68] online endorsements, [13.68] conduct, concept of, [13.170] silence, [13.170A]–[13.173]

527

528

Business Law for Managers Misleading or deceptive conduct — cont what constitutes, [13.170]–[13.172] consent by, [7.10] consumer protection, [7.680], [13.35], [13.90]–[13.100] contract, effect on, [8.100], [8.105] defence, [13.176] definition of, [13.40] disclosure of information, lack of, [13.173] exemption clause, [13.176], [13.177] fault, [13.174] innocent, [7.475] intent, [13.174] invitation to treat, [3.120] marketing, in, [13.61]–[13.68] online, [13.68] disclaimers, [13.68] online endorsements, [13.68] meaning of, [13.60] mere puff, [3.120] mere representation, [3.120] news media exemption, [13.190] news and information, [13.190] “passing off”, [13.110], [13.120] pre-contractual representations, [13.140]–[13.160] prohibition of, [13.40] conduct in trade or commerce, [13.50] engage in misleading or deceptive conduct, [13.51], [13.52] proof of, [13.174] remedies, [7.680] civil, [7.680] penal sanctions, [7.680] Misrepresentation breach of contract for, [7.475] consent, induced by, [7.10] fraudulent — see Fraudulent misrepresentation innocent — see Innocent misrepresentation interest in land, grant of, [7.680] liability for agent, [15.590] principal, [15.590] minor, by, [6.140] negligent — see Negligent misrepresentation pre-contractual, [13.140], [13.145] remedies, [7.475], [7.680] sale of land, [7.680] supply of goods and services, [7.680] Mistake assumption, [7.20] common, [7.20] rectification for — see Rectification consent by — see Consent fact, of — see Mistake of fact frustration distinguished, [11.310] law, of, [7.390], [7.400] mutual, [7.20] operative, [7.20] pre-contractual negotiations, [7.20]

principal, of, [15.660] property damage, [14.50] proof of, [14.55] relationship proximity, [14.57], [14.70], [14.270], [14.280], [14.295] scope of, [14.40] statutory reform, [14.50] voluntary assumption of risk — see Voluntary assumption of risk

qualities of subject matter, [7.20] unilateral, [7.20], [7.30] rectification for — see Rectification Mistake of fact common mistake, [7.40] assumption of facts, [7.70] fundamental facts, existence of, [7.70]–[7.120] contract, for, [7.20], [7.30] effect of, [7.360] mutual mistake, [7.50], [7.130], [7.140] nature of transaction, [7.300]–[7.330] recovery of money for, [3.370], [3.380] restitution for, [3.380] subject matter, [7.40] unilateral mistake, [7.60] identity, as to, [7.200]–[7.290] promise of one party, [7.150], [7.160] proof, requirement of, [7.170], [7.180] terms of contract, [7.190] void contract, [7.360] Mistake of law recovery of money for, [7.390], [7.400] Mortgage unjust, [7.970]

Negligent misrepresentation determination of, [7.690] negligent advice or information, [7.690] Negligent misstatement liability for, [14.320]–[14.335] Negotiation contract, for, [3.10] dispute resolution, [1.880] invitation to treat, [3.70]–[3.90] New South Wales Local Court, [1.630] News media misleading or deceptive conduct — see Misleading or deceptive conduct Northern Territory native title, [1.95]

N

Novation assignment of obligations under contract, [10.140]

National Credit Code unconscionable personal credit transactions, [7.970]

Nuisance use and enjoyment of property, interference with, [14.10]

Native title compensation, [1.95] extinguishment of, [1.90], [1.95] legislation, [1.90] pastoral leases and, [1.90] rights and interests, [1.95] Wik Peoples v State of Queensland, [1.90] Negligence causation for, [14.55] contributory — see Contributory negligence criteria, [14.55] damages — see Damages defence to action for, [14.550] contributory negligence — see Contributory negligence voluntary assumption of risk — see Voluntary assumption of risk duty of care — see Duty of care exclusion or exemption from, [9.390] foreseeable harm, [14.60]–[14.80] reasonable, [14.60]–[14.80], [14.100]–[14.102] liability for, [14.50] economic loss, [14.50] personal injury, [14.50]

O Offer and acceptance agreement, for, [2.30], [3.10] auction sales, [3.130], [3.150], [3.155] bilateral, [3.330] communication of, [3.190] contract, for, [2.30], [3.10], [3.20] counter-offer, [3.290], [3.300], [3.410] internet sales, [3.150], [3.155] invitation to treat distinguished, [3.70]–[3.120] lapse of, [3.275], [3.280] circumstances for, [3.310], [3.320] death, by, [3.310], [3.320] mere puff distinguished, [3.30]–[3.60], [3.120] mere representation distinguished, [3.120] misleading or deceptive conduct, [3.120] options, [3.210], [3.220] enforcement of, [3.210], [3.220] persons to whom offer made, [3.180] promise to keep open, [3.210], [3.220]

P Index Offer and acceptance — cont enforcement of, [3.210] request for information distinguished, [3.290], [3.300] rules as to acceptance, [3.330], [3.340], [3.350] absolute, [3.330] clear, [3.330] communication of, [3.330], [3.510], [3.520] electronic, [3.430], [3.530], [3.580], [3.590] instantaneous, [3.580] postal, [3.530], [3.540]–[3.570] waiver of, [3.400] determination of acceptance, [3.440] electronic, [3.430], [5.530], [3.580], [3.590], [3.620] email, by, [3.430] form of, [3.300], [3.470] inaction, [3.360], [3.370] inferred, [3.360], [3.370] intent, [3.420], [3.450], [3.460] method of, [3.530] postal acceptance rule, [3.530], [3.540]–[3.570] revocation of, [3.490] silence, [3.360], [3.370] time for, [3.500] unaware of offer, where, [3.380], [3.390] unconditional, [3.330], [3.410] valid, [3.470] who may accept, [3.480] writing, in, [3.620] rules as to offer, [3.20] determination, [3.20] implied, [3.20] intent, [3.20] oral, [3.20] proposal, [3.20] revocation of, [3.200] communication of, [3.200], [3.230]–[3.250] notice of, [3.200], [3.230]–[3.250] time for, [3.250] terms of, [3.20] what constitutes, [3.115] writing, in, [3.20] statement of information distinguished, [3.70]–[3.115] tenders, [3.160], [3.170] unilateral, [3.330], [3.400] withdrawal of, [3.200] communication of, [3.200], [3.230]–[3.250] time for, [3.250] Online advertising, [13.68] disclaimers, [13.68] online endorsements, [13.68] Online contracting binding, [9.460], [9.500] browse wrap, [9.460], [9.470], [9.500]

click wrap, [9.460], [9.500] consent, [9.490] formation of, [9.460] incorporation of terms, [9.460] reasonable notice, [9.480], [9.490] Options enforcement of, [3.210], [3.220] promise to keep offer open, [3.210], [3.220] consideration for, [3.210], [3.220]

P Parliament — see also Commonwealth government — see also Federal government — see also States and Territories law-making powers, [1.210] Parol evidence rule application of, [9.20] express terms of contract, application to, [9.20] Part performance acceptance of, [11.26], [11.26A] acts of, [5.390] equitable doctrine, [5.360] application of, [5.360] basis for, [5.360] land contracts, [5.360], [5.390] restitution for, [12.430] termination of contract for, [11.26], [11.26A] Penalties accepting payment without intent or ability to supply, [13.560] assertion of right of payment for unsolicited goods, [13.580] bait advertising, [13.550] breach of Australian Consumer Laws, [13.35] breach of contract, [12.290]–[12.331B] criminal, [13.660] determination of, [12.330]–[12.331B] director’s breach of duties, [16.1010], [16.1030] false or misleading representations, [13.380], [13.455] harassment or coercion, [13.640] misleading conduct as to nature or manufacturing process of goods, [13.490] misleading conduct in relation to services, [13.520] multiple pricing, [13.627] pecuniary, [13.280], [13.710] determination of, [13.710] pre-estimated damages, [12.290] price fixing, [1.20] pyramid selling, [13.610] referral selling, [13.630] sanctions, [7.680] sending unsolicited credit or debit cards, [13.570]

unauthorised entries and advertisements, [13.600] unconscionable conduct, [13.280], [13.710]–[13.713] unfair practices, [13.650] unsolicited goods, assertion of payment for, [13.580], [13.590] Performance of contract contingent conditions for, [11.100] condition precedent, [11.100]–[11.140] condition subsequent, [11.100], [11.150] exact performance, [11.20], [11.23] condition precedent, [11.20], [11.21] divisible contract, [11.22] entire contract, [11.22] part — see Part performance substantial, [11.23], [11.24A], [11.24B] termination of contract by, [11.10], [11.20] exact performance, [11.20] condition precedent, [11.20], [11.21] divisible contract, [11.22] entire contract, [11.22] substantial performance, [11.23], [11.24A], [11.24B] time for, [11.28] Personal service contract not assignable, [10.230] specific performance for, [12.360] Postal acceptance rule acceptance of offer, [3.530]–[3.570] Precedent application of, [1.557] binding, [1.540] creation of, [1.550] ratio decidendi, [1.550] court hierarchy, [1.540], [1.557] doctrine, [1.540] obiter dictum, [1.550] statement of principle, [1.550] Pre-contractual statements mere puff, [7.475], [7.480], [7.485] promissory terms, [7.480], [7.485] representations, [7.480], [7.485] Price displayed, [13.620], [13.625] multiple pricing, [13.620], [13.627] Price fixing penalties, [1.20] Principal — see also Agent agent and, [15.10] bound by acts of, [15.10], [15.200], [15.263] bankruptcy of, [15.770] disabled, [15.40] capacity to act as, [15.40] liability of, [15.10]

529

530

Business Law for Managers Principal — cont fraud, [15.600], [15.610] fraudulent misrepresentation, for, [15.590]–[15.650] negligence, for, [15.660] wrongful acts, for, [15.600]–[15.660] trustee, [15.37] Private companies — see Companies Private law contract law, [1.775] corporations law, [1.775] private persons or organisations relationships, [1.775] property law, [1.775] torts, [1.775] trusts, [1.775] Privity of contract acquisition of rights, [10.20] breach of contract — see Breach of contract enforcement of contract, [10.20], [10.22] exceptions, [10.40] agency, [10.40] insurance, [10.50]–[10.70] property law, [10.75] trust, [10.40] principles of, [10.20]–[10.30] rights and liabilities, [10.20] Product information consumer guarantee requirements, [13.1310] defence, [13.1310] Product recall consumer guarantees, [13.1310] Product safety consumer guarantees, [13.1310] Promise bare, [5.20] consideration, requirement of — see Consideration enforcement of, [3.210], [5.10], [5.230], [5.243] evaluation of, [5.50] government policy proposals, [4.225], [4.227] gratuitous, [5.20] keep offer open, [3.210], [3.220] mistake as to, [7.150], [7.160] reversion of, [5.245], [5.270] terms of contract distinguished, [9.30], [9.40], [9.90], [9.100], [9.110] Promissory estoppel criteria for, [5.230] detrimental reliance, [5.280], [5,282] encouragement or inducement, [5.270] equitable doctrine, [5.10], [5.230], [5.243] application of, [5.245], [5.250], [5.280]

expectation or assumption, reliance on, [5.230], [5.270], [5.287] nature of, [5.230] requirements for, [5.280] unconscionable conduct, [5.270], [5.280], [5.285] Property — see also Land personal property, [1.775] private law, [1.775] real property, [1.775] Property law privity of contract exceptions, [10.75] Proprietary companies — see Companies Public companies — see Companies Public law administrative law, [1.775] constitutional law, [1.775] criminal law, [1.775] organisation of government, [1.775] Publication unauthorised entries, [13.600] Pyramid selling prohibition of, [13.610]

Q Queensland Anti-Discrimination Act 1991 (Qld) (QADA) [19.10], [19.80] aims [19.80] complaints process [19.80] Magistrates Court, [1.630] native title, [1.70], [1.80], [1.90]

misleading or deceptive conduct — see Misleading or deceptive conduct penal — see Penalties restitution — see Restitution specific performance — see Specific performance Representation — see also Misrepresentation country of origin — see Country of origin false or misleading — see False or misleading representation future outcomes, [13.450], [13.452] mere puff, [7.475] misleading or deceptive conduct, [3.120] pre-contractual — see Pre-contractual statements predictions, [13.450], [13.452] Restitution action in, [12.20] award of, circumstances for, [12.448] basis for, [12.440] part performance, for, [12.430] unjust enrichment, where, [12.440]–[12.446] Restraint of trade contracts, [8.360] binding, circumstance for, [8.360] contrary to public policy, [8.360] determination of, [8.510] employment, [8.400] void, [8.360]–[8.390] severance of invalid terms, [8.610]

R

Rule of law principles of, [1.20]

Real estate agents duty of, [15.840] right to remuneration, [15.410]

S

Recovery condition precedent for, [11.20] Rectification common mistake, for, [7.410], [7.440] grant of, [7.410], [7.440], [7.450] proof for, [7.410], [7.440] unilateral mistake, for, [7.450], [7.460] Referral selling prohibition of, [13.630] Remedies civil, [1.790], [7.680] compensation — see Compensation consumer law — see Australian Consumer Law damages — see Damages discriminatory conduct [19.330] injunction — see Injunction innocent misrepresentation — see Innocent misrepresentation

Sale of goods — see also Goods and services internet, [3.150], [3.155] offer and acceptance, [3.150], [3.155] Sale of land — see Land — see Property Securities — see Shares Sexual harassment civil cases [19.363]–[19.367] contexts [19.350] damages [19.355], [19.360] definition [19.350] elements [19.350] non-consensual sexual intercourse [19.363]–[19.367] psychological injury [19.360] QADA, under [19.340] reasonable steps defence [19.300], [19.380], [19.390] sex discrimination and [19.370] unlawful domains [19.350] unwelcome conduct [19.350]

T Index Sexual harassment — cont vicarious liability [19.355], [19.370] reasonable steps defence [19.380], [19.390] Shares acquisition of, [16.375] issue of, [16.375] members of company, of, [16.375] offering, [16.375] sale of, [16.375] Small Claims Tribunals dispute resolution, [1.690] Social and domestic agreements family arrangements, [4.70]–[4.80] legally enforceable obligations, whether, [4.70]–[4.75] husband and wife domestic arrangements, [4.30] legally enforceable obligations, whether, [4.30]–[4.50] marital/de facto relationship, [4.50], [4.60] intent to create legal relations, [4.20], [4.50], [4.70]–[4.80] social arrangements, [4.70], [4.80] Sole traders companies, [16.57] Solicitors brief or instruct barrister, [1.830] functions of, [1.820] general practitioner of law, [1.820] South Australia Court of Summary Jurisdiction, [1.630] criminal jurisdiction, [1.630] Local Court, [1.630] civil jurisdiction, [1.630] Specific performance application for, [12.340] grant of, [12.340] refusal of, [12.350]–[12.390] breach of contract, [2.100] application for, [12.340] grant of, [12.340] refusal of, [12.350]–[12.390] circumstances for refusal to grant constant supervision by court, [12.370], [12.380] damages adequate remedy, [12.350] order not mutually available, where, [12.390] personal services contract, [12.360] court decree for, [12.340] equitable remedy, [1.790], [12.340] innocent misrepresentation, for, [7.620] lease, for, [5.380] sale of land, for, [12.340] unique goods, [12.340] Standard of care professionals, for, [14.480], [14.485] statutory tests, [14.480]

Standard of proof balance of probability, [1.790] beyond reasonable doubt, [1.790] civil law, under, [1.790] criminal law, under, [1.790] Stare decisis — see Precedent State courts — see Australian courts Statement invitation to treat, [3.100], [3.110], [3.120] mere puff, [3.30]–[3.60], [3.120] mere representation, [3.120] misleading or deceptive conduct, [3.120] pre-contractual — see Pre-contractual statements supplying information, [3.50]–[3.115] tenders — see Tenders States and Territories — see also Australian colonies constitution, [1.100], [1.130] courts — see Australian courts Federal government, legal relationship, [1.100] law-making powers, [1.100] parliament, [1.130] legislative powers, [1.160] residual powers, [1.160] political self-government, [1.130] separation of powers, [1.110] Statutes Acts of Parliament, [1.210] amendment of, [1.220] body of law, [1.210] codify law, [1.210] commencement of, [1.220] consolidating statute, [1.210] interpretation of — see Statutory interpretation making of, [1.210], [1.220] new laws, [1.210], [1.220] repealing, [1.210] Royal Assent, [1.210] structure of, [1.230]–[1.330] Act number, [1.240] chapters, parts or divisions, [1.320] commencement date, [1.270] definitions, [1.290] long title, [1.250] object or purpose, [1.280] schedules, [1.330] sections, [1.300] short title, [1.260] Statutory interpretation common law rules, [1.380] golden rule, [1.400] literal rule, [1.390] mischief rule, [1.410] extrinsic material, consideration of, [1.380] judiciary, by, [1.340] maxims, [1.420] precedent — see Precedent

“purposive” construction, [1.360] rules or presumptions for, [1.350] Subordinate legislation — see Delegated legislation Supreme Court appeals Court of Appeal, to, [1.610] Full Court, to, [1.610] highest court of State or Territory, [1.610] jurisdiction, [1.610] civil, [1.610] criminal, [1.610] exercise of, [1.610] original, [1.610] Suretyship evidenced in writing, [5.340]

T Tasmania Court of Petty Session, [1.630] criminal jurisdiction, [1.630] Magistrates Court, [1.630] Tenders acceptance of, [3.160], [3.170] calling for, [3.160] invitation to treat, [3.160], [3.170] Termination of contract accord and satisfaction, by, [11.80] agreement, by, [11.10], [11.30]–[11.40] breach, by — see Breach of contract discharge, by, [11.10], [11.200] express power, [11.30] frustration, for — see Frustration implied right, [11.40] mutual agreement for, [11.60] operation of law, by, [11.10], [11.510] bankruptcy, [11.520] merger, [11.530] original contract, [11.30], [11.40] cancellation of, [11.60]–[11.80] part performance, by — see Part performance performance, by — see Performance of contract release, by, [11.70] repudiation, by, [11.170] acceptance of, [11.200] anticipatory breach of contract, [11.180] conduct amounting to, [11.190], [11.193], [11.195] damages for — see Damages determination of, [11.190] effect of, [11.200] non-performance, for, [11.190] renunciation, by, [11.190] subsequent agreement, by, [11.50]–[11.90] Terms of contract acceptance of, [2.30] agreement to agree, [9.320], [9.330]

531

532

Business Law for Managers Terms of contract — cont ambiguity, [9.300], [9.360] breach of — see Breach of contract conditions, [9.120], [9.130], [11.270] implied, [11.270] contractual, [9.220], [9.230] determination of, [9.10], [9.30], [9.50], [9.160] exclusion clause, [9.180], [9.220], [9.230], [9.250] ambiguity, [9.360] function of, [9.350] interpretation of, [9.340], [9.360]–[9.450] liability for negligence, exclusion or exemption from, [9.390] limitation or exclusion of liability, [9.390]–[9.410], [9.440], [9.450] reasonable notice, [9.250], [9.260]–[9.290] regulation of, [9.350] use of, [9.350] express, [9.10], [9.20], [9.120], [9.340] determination of, [9.20], [9.30] oral, [9.20] parole evidence rule, application of, [9.20] writing, in, [9.20] future performance, for, [9.320] identification of, [9.30] implied, [9.10], [9.320], [9.510] business efficacy, for, [9.530], [9.540], [9.570] court, by, [9.520]–[9.570] custom or trade usage, [9.590] duty of good faith, [9.610]–[9.640] specific types of contracts, [9.580] statute, by, [9.600] test for, [9.550], [9.560] incorporation of, [9.180] exclusion clause, [9.220], [9.250], [9.260]–[9.290] online contracting, [9.460] reasonable notice for, [9.250], [9.260] signature, by, [9.190], [9.200], [9.210], [9.240] inferred, [2.80] innominate, [9.160] interpretation of, [2.30], [9.10], [9.300], [9.310] exclusion clause, [9.340], [9.360]–[9.450] principles, [9.300] mere puff distinguished, [9.30] mistake as to, [7.30] promise distinguished, [9.30], [9.40], [9.90], [9.100], [9.110] representations distinguished, [9.30], [9.60], [9.100], [9.110] standard form contract, [13.290] uncertainty, [9.300] unfair examples, [13.310]–[13.317] meaning of, [13.300]

prohibition of, [13.290] warranties, [9.120], [9.140], [9.150] what constitutes, [9.30] writing, in, [5.290]

effect of, [7.860] grant of relief, [7.800] interpretation of, [7.800] onus of proof, [7.800], [7.820]–[7.840] presumption of, [7.800] special relationships, [7.800], [7.810] voidable contract, [7.860]

Terra nullius land belonging to no-one, [1.50] Mabo, [1.70], [1.80] Torts breach of contract, [14.30] compensation for civil wrong, [1.775], [14.10], [14.20] damages — see Damages defamation, [14.10] liability — see Liability negligence — see Negligence nuisance, [14.10] personal or property rights, [14.10] duties, [14.10] interference with, [14.10], [14.30] protection of, [14.30] private law, [1.775] Trade Practices Act — see Australian Consumer Law Tribunals and commissions federal, [1.660] Australian Competition and Consumer Commission (ACCC), [1,660], [1,670] Australian Competition Tribunal, [1.660] State, [1.680] Small Claims Tribunal, [1.680] Trustee principal, function as, [15.37] Trusts determination of, [1.775] private law, [1.775] privity of contract exceptions, [10.40]

U Unconscionable conduct concept, [13.200] consent induced by, [7.10] doctrine, [13.230] goods and services, supply of, [13.240]–[13.260] intentional breach, [13.270] prohibition of, [7.960], [13.200] remedies, [13.210], [13.280] small business, protection of, [13.265] statutory, [13.200] unwritten law, within, [13.210]–[13.225] Unconscionable contracts common law, at, [7.870] credit contracts, [7.970] guarantee, [7.970] mortgage, [7.970] setting aside, [7.880]–[7.925] Undue influence abuse of confidence, [7.800] consent induced by, [7.10]

Unfair practices — see also Bait advertising — see also False and misleading representation — see also Misleading or deceptive conduct — see also Unconscionable conduct accepting payment without intent or ability to supply, [13.560] advertisements — see Advertisements compensation for — see Compensation corporation liable for actions of employees, [13.670] damages — see Damages defences, [13.680], [13.700] due diligence, [13.700] reasonable mistake of fact, [13.680] reasonable precautions, [13.700] harassment or coercion, [13.640] injunction for — see Injunction misleading conduct as to employment, [13.470] misleading conduct as to nature or manufacturing process of goods, [13.490] misleading conduct in relation to services, [13.500]–[13.520] offering rebates, gifts, prizes, free items with intent not to provide, [13.480] penalties — see Penalties pricing — see Price prohibition of, [13.460] publication entries, unauthorised, [13.600] pyramid selling, [13.610] referral selling, [13.630] remedies, enforcement of, [13.650] sending unsolicited credit or debit card, [13.570] unsolicited goods, assertion of payment for, [13.580], [13.590] Unfair pressure goods and services transactions, [7.795], [7.796] Unjust contracts human rights [19.20] Unjust enrichment restitution where, [12.440]–[12.446]

V Vicarious liability [19.80], [19.300] sexual harassment [19.360]

W Index determination of, [8.510] employment, [8.400] severance of invalid terms, [8.600] restrictive trade agreements, [8.490] anti-competitive, [8.500] determination of, [8.510] franchises, [8.490]–[8.494] severance of invalid terms and promises, [8.600] considerations, [8.600], [8.610] statute, under, [8.160] unenforceable, [8.600]

Victimisation bullying and [19.400] definition [19.400] dismissal or demotion of employee [19.410] QADA, under [19.340] reasonable steps defence [19.300] sexual harassment and [19.420]–[19.430] Victoria Magistrates Court, [1.630] Vilification civil [19.440] criminal [19.440] defences [19.300], [19.440] definition [19.440] elements [19.440] public in [19.410] meaning [19.470] QADA, under [19.340] racial [19.450], [19.470] reasonable steps defence [19.300] serious [19.440] Void contracts — see also Capacity to contract — see also Contracts — see also Illegal contracts common law, at, [8.170], [8.330] employment contract, [8.400]–[8.480] oust jurisdiction of court, [8.340] prejudicial to status of marriage, [8.350] restraint of trade, [8.360]–[8.390], [8.400] restrictive trade agreements, [8.490] declaration of, [8.160] definition, [2.100] employment contract, [8.400] circumstance for, [8.400] inequality of bargaining power, [8.460], [8.470] restraint covenants, [8.400]–[8.450], [8.480] gaming or wagering, [8.160] illegal contract distinguished, [8.520] illegality, for, [8.10] minors, [6.130] accounts stated, [6.130] bill of exchange, [6.130] payment of goods, [6.130] repayment of loan, [6.130] mistake of fact, for, [7.360] money paid under, recovery of, [8.630], [8.640] restraint of trade, [8.360], [8.440], [8.450] contrary to public policy, [8.360]–[8.390]

Voluntary assumption of risk advice, for, [14.290] awareness of risk, [14.570] defence, [14.55], [14.550], [14.570] duty of care, for, [14.290]–[14.300] economic loss, for, [14.290] reasonable foreseeable harm, [14.290] vicarious liability, [14.620]–[14.650]

W Warranties agent’s authority, breach of, [15.580] breach of, [9.120], [9.150], [11.260], [12.60] damages for, [9.120], [12.60] consumer guarantee, [13.1002] definition, [11.270] express, [13.1002], [13.1120] implied, [11.270] manufacturers’ liability, [13.1002] Western Australia Magistrates Court, [1.630] Wife — see Married women Words and phrases Acts of Parliament, [1.210] affected person, [13.1280] agreement, [2.17] aided and abetted, [13.830] alternative dispute resolution, [1.870] bare promise, [5.20] bodies corporate, [6.170] bottom line, [17.50] browse-wrap, [9.460] but for test, [14.508] click-wrap, [9.460] comfort, [4.220] conciliation, [1.900] conduct, [13.170] contract, [2.17] coverture, [6.190] customary law, [1.20] customer, [13.1020] direct discrimination [19.120] economic duress, [7.770] engage in, [13.51] fair, [5.40]

freedom of contract, [7.10] goods, [13.1200] gratuitous promise, [5.20] illegal, [8.10] indirect discrimination [19.140] in trade or commerce, [13.50] inhabited by no-one, [1.50] insider trading, [16.1040] invaded, [1.50] junk food, [17.120] law, [1.20] legislative instrument, [1.430] manufacturers, [13.1210] marriage brokerage, [8.350] mediation, [1.890] mercantile agent, [15.790] natural law, [1.20] necessaries, [6.40] novation, [10.140] obiter dictum, [1.550] occupied, [1.50] occupier, [1.50] passing off, [13.120] peppercorn rental, [5.40] positive law, [1.20] practical benefit test, [5.134] presumption, [4.15] profit à prendre, [5.330] proper purpose, [16.960] purposive constructive, [1.360] ratio decidendi, [1.550] reasonable person, [14.395] received, [3.690] religious law, [1.20] Royal Assent, [1.210] rule of law, [1.20] safety defects, [13.1190] sanctity of contract, [7.10] separation of powers, [1.130] settled, [1.50] sexual harassment [19.350] simple contract, [5.20] stare decisis, [1.540] subject to contract, [3.410] terra nullius, [1.50] triple bottom line, [17.50] unconscionable, [13.200] unfair, [13.300] unoccupied, [1.50] unwritten law, [13.210] value, [5.40] victimisation [19.400] vilification [19.440] without reserve, [3.130] Workers compensation defective goods, manufacturers’ liability, [13.1260] Workplace anti-discrimination and EEO principles [19.20], [19.140]

533