WEEK 1: The Australian Legal System

Introduction

1. Lecturer: Alex Wong

a. [email protected]
b. 041-444-6913
2. Final assessment: open book BUT no electronic stuffs.
3. Answering a question about law: (use this for your assignment!)
a. I - What is the legal Issue
b. R - What is the Relevant law
c. A – Apply the law to the facts of question
d. C – Come/State a Conclusion
4. Prescribed Textbook: Sweeney, B., O’Reilly, J. Coleman, A., 2016, Law in Commerce, LexisNexis
(in lib)
5. Participation is important! Hand in your tutorial questions (with answers, of course) for mark.
a. Use the IRAC method described in #3.
b. Hand write the answers!
c. Pick one problem, and spend around 25 minutes to write the answer, as it’s for practice
the exam!
d. Week 1: Lecture, on which tutorial 1 is based. -> Week 2: Week 1 tutorial Discussion ->
Week 3: Hand in week 1 tutorial at START of class.
6. Assignment: due on Week 10, 1,200 words (+/- 10%)
7. Contact the course coordinator, Dr. Shanthy Thuraisinghan for past exam papers.

The Australian Legal System

1. “Law is based on one party not keeping their promise.”

a. Law is enforceable in a court of law.
b. Multiple levels of law; international > national/federal > state > local
2. Doctrine of Precedent:
a. Ensures consistency in court rulings.
b. Lower courts must follow decisions made by higher courts.
c. The High Court (top court) does not need to follow own decisions made in the past.
d. A state supreme court does not have to follow higher or similar court in another state.
3. Binding Precedent vs Persuasive Precedent
a. Binding: you have to follow a higher court’s decision.
b. Persuasive: You don’t have to follow, you have a choice.
4. Australasian Legal Information Institute (AustLII): www.austlii.edu.au. GOOD REFERENCE!
5. Order of laws:
a. Legislation/Acts
i. If a word is not defined in the Dictionary, we have to find where it has been
interpreted -> Common Law: where a judge has interpreted the word
previously.
b. Statute Law
c. Civil Common Law
6. Common Law vs Statute Law
7. Regulators/enforcers of the Corporations Act: Australian Securities Investment Commission
(ASIC). They issue guidelines to help you.
8. Examples:
a. Corporations Act 2001 (Commonwealth)
b. Payroll Tax Act 1953 (VIC)
c. Abbreviate the legislations; eg a becomes “CA”, and b becomes “PTA”
d. In case of same abbreviation, you can easily differentiate them as “ITAA 36” and “ITAA
97” (Income Tax Assessment Act)
9. Law making process:
a. Proposal -> Bill -> House of Representative (green seat = house of rep., red seat =
senate) -> Senate -> Governor-General of Australia
b. The Constitution defines the conditions to create a legislation. One of the conditions is
that any law must be for order, peace and good government of the country, aka must
benefit the Australian society.
c. Law must be passed by majority (76 out of 150) of the house of rep (HOTR)
d. But even then, the law still needs to be passed by the Senate.
e. And finally, approved and signed by the governor-general of Australia.
10. Law of Equity: In case a decision by judge is unfair.
11. Separation of Power:
a. Legislature: Lawmakers. (Parliament)
b. Executive: Regulators / enforcers
c. Judiciary: Interprets legislation made by lawmakers, to be enforced by regulators.
d. In practice, executive & judiciary are appointed by Parliament….
12. Civil vs Criminal Law:
a. Criminal: Between person vs government, through the regulator. Purpose is to enforce
the wishes of society through fines, disqualification, jail.
b. Civil: Between 2 parties not involving government. Purpose is to get compensation
(damages + money).
c. Law can be both criminal and civil, eg frauds. The damaged party wants compensation,
the government add penalties on top of that.
13. Australian Courts Hierarchy: Slide 17
a. Family Law – Federal Law – State Law
14. Glossary:
a. Plaintiff: the one who complains
b. Defendant: against whom the complaint is directed
c. Appellant: The one who initiates appeal
d. Respondent: responds to the appeal
e. Plaintiff & Defendant are only in the first phase. If it’s appealed, then the parties
involved are known as Appellant and Respondent afterwards. And yes, they can keep
switching roles if the appeal results keep alternating.
15. Arbitration / Mediation:
a. Resolve disputes before going into courts.
b. You must do this first before going to court.
 c. This is one of the roles of Accountants.
16. Case Law Precedent (Slide 28)
a. Obiter Dicta = references used to come to the decision.
b. Ratio decidendi = reason for deciding, and sets the precedent.
17. Interpretation Rules:
a. Literal/Plain approach: literal reading
b. Golden Rule: the intent of the law
c. Mischief Rule: what mischief is the law trying to fix?
18. Maxims:
a. Noscitur a sociis: A word is known by the company it keeps
i. E.g: “You are not allowed to sell knives and other implements”. You cannot sell
‘pocket knife’ or ‘hobby knife’, but what about fork?
b. Ejusdem generis: A broad general word is limited to the more specific words preceding
it.
i. E.g: “Spirits, beer, alcohol, and other” -> ‘other’ means ‘other alcoholic drinks’,
and does not include water, milk, etc.
WEEK 2 – Contract Laws: Agreement, Intention, Consideration

1. Contract: agreement between 2 parties.

a. Normally doesn’t involve a regulator.
b. Purpose is for each party to agree to do/say/buy/sell/etc.
c. Enforceable by law.
i. Can go to court, so try to arbitrate/mediate beforehand!
d. As Accountants, you are involved when there is a dispute or when affected party wants
to claim the lost sales/revenue/profits caused by breach of agreement.
i. This claim must be accurate! You only have ONE CHANCE to make the right
claim, you can’t revise the claim amount if you make a mistake.
2. Elements of an enforceable contract:
a. Intention to enter into an enforceable agreement.
b. Offer and acceptance
c. Consideration (promise)
3. Intention:
a. Just because you agree does not necessarily mean it is an enforceable contract.
b. Express Intention: expressly state intention.
c. Implied Intention: the nature is implied.
d. Certain type of relationships (e.g commercial / non-family) would imply an intention to
create legal relations, while others (e.g family) would imply no such intention.
e. Non-Family (Commercial): always the intention unless otherwise stated when entering
into contracts.
i. Negotiation – no intention
ii. Heads of agreement & memorandum of understanding – no intention
iii. Create final contract – intention
 f. Family: Always no intention, BUT of course, exceptions.
i. 3 types of non-commercial agreements:
1. Social
2. Domestic
3. Voluntary
ii. Example: A promises B to give her house when she passes away if B takes care
of A. B sold her house, moved to A’s place, etc. But then A did not include B in
her will for the house.
1. Court decision: ENFORCEABLE despite family, because B relied on A’s
promise and would not have put herself at risk by selling her house,
leaving her job, and leaving her family/friends without relying on A’s
promise.
2. Of course, B has to prove her relying on the promise. Why would she
willingly be inconvenienced if she’s not being promised something?
4. Offer & Acceptance (Agreement):
a. Must accept exactly what is offered. You can counter-offer, but you can’t change it one-
sidedly. (e.g. I offer you the blue bottle. Okay, I accept your red bottle. Yeah, no.)
b. Process:
i. Invitation (e.g. retail shop invites you to buy for the price in the price tag)
ii. Offer (customer offers to buy)
iii. Acceptance (shop accepts your offer by taking your payment)
iv. Note that this is how it is from legal perspective, and who the offeror and
offeree can be different depending on cases.
1. Retail always INVITE you to buy. Customers OFFER to buy for the price.
2. I can OFFER you to sell you my car for AUD 1,000. You can ACCEPT,
reject, ask for more info, or counter-OFFER it. (and now the customer
becomes the offeror).
v. Consideration
5. Acceptance:
a. Must be communicated by word or conduct.
b. Postal Rule:
 i. Offer is effective as soon as it is received.
ii. Acceptance is effective as soon as it is posted.
iii. Revocation is effective as soon as it is received.
c. Instant Communication Rule: Electronic Transactions Act 1999
i. Offer & acceptance effective immediately when received.
6. Consideration:
a. In every agreement, there must be consideration for the agreement to be legally
binding. For example, you buying a product with money, both product and money are
consideration. In short, each party in the contract must promise to do something, or not
to do something. Consideration is the price asked for the promise.
b. Formal contracts do not require consideration, but informal/simple contracts (aka
social contracts) do require consideration to change from ‘agreement’ into ‘contract’.
Let’s say your friend promise to pay you if you fix his car, you fixed his car and he
reneged on his promise because “he’s just joking”. You can show your receipts of the
parts used to fix the car as proof of consideration, and the promise can be enforced by
court.
c. The aim of consideration: to differentiate between gratuitous promises freely given
(such as a gift) and ‘onerous contracts’ which incur a cost from both parties.
d. Consideration must move from the promisee, BUT it needs not move to the promisor.
e. Consideration must have sufficient value (which is any value), but need not be adequate
value (e.g. no need to be market price)
f. Consideration must be possible, definite, and legal.
7. Promissory Estoppel:
a. In short, it allows a promise to be enforced even when there’s no contract, if it would
be inequitable or unconscionable for the promisor not to be held to their promise. ->
Equity!

WEEK 3 – Contract Law: Capacity, Consent, Legality

1. For a contract to be binding, the parties need to have:

a. Capacity: Not a minor, not intoxicated, and mentally capable.
b. Consent: Free from Duress, Undue Influence, and Unconscionability.
2. Capacitity/Validty:
a. Under 18: considered a minor and no legal capacity to enter into contract.
b. That’s why they ask for ID when you buy some things, including mobile phones. Because
if something happens, they can run away because they are considered minor and the
contract can be canceled.
c. In certain circumstances, you can argue that certain things are necessary for the kid (e.g.
mobile phone for safety), thus the contract applies.
d. Contract with a minor can be voided. So that’s why they ask for proof of IDs.
e. Free from mental instability or intoxication. BUT, if they are capable of understanding,
and the other party doesn’t know of the condition, the contract is binding. (Hart v
 O’Connor 1985). Furthermore, if the contract is for the supply of necessaries, then it is
binding.
3. Misrepresentation of contract:
a. Representation is statement(s) that would encourage you to enter into a contract.
b. 3 types of Misrepresentation:
i. Fraudulent: I know something’s wrong, but I lied. (e.g., the car has been in
accident, I know it, and I say it hasn’t been in accident)
ii. Innocent: Misstatement of material fact, when the speaker DOESN’T KNOW that
it’s false. Lack of intentional deceit and the right to recover damage. Usual sales
tool, and this one is okay. (e.g., oh, the car suits your personality)
iii. Negligent: You misrepresent something due to ignorance. Almost the same as
innocent, except this time you did not check, thus being negligent. (e.g. you
didn’t know whether the car has been in accident, you didn’t check, you said it
hasn’t been in one, and turns out it has been)
c. Fraudulent contract is voidable.
d. Innocent BUT negligent can give rise to special relationship between parties:
i. That the party providing information must exercise duty of care for a serious or
business matter. The provider realizes that the recipient will act upon it, the
recipient has reasonable belief to rely on the advice, and recipient suffered
damage for relying on it.
4. Consent-Duress: Use of illegal threat or violence.
a. Example: You are building a house for fixed price. The house is 2/3 complete, then the
builder asks for more money to complete, otherwise he won’t finish the home. You as
the owner paid the balance under economic duress.
i. You can actually let the builder finish the house, then void the contract under
duress and ask for the money back.
ii. BUT this is why in this kind of work, the quoted price in the contract is
“price + any overruns”.
5. Consent-Undue Influence: Use of position, influence or power by one person over another to
induce that other party to act for their benefit.
a. Example: You hire a nurse as caretaker for your elderly parents, and your parents gave
their family home to the nurse because of the care given by the nurse. Are you as a child
happy? Of course not. The nurse exercised Undue Influence over your parents, which is
based on special relationships.
b. Examples of special relationship: elderly-caregiver, doctor-patient, minister-parishioner,
teacher-pupil, lawyer-client.
c. If special relationship exists, the onus to rebut the presumption lies with defendant. If
there’s no special relationship, the plaintiff must prove the undue influence. If undue
influence is proven, then contract is voidable.
d. This is not necessarily duress, but if you can prove that there is duress (if you don’t give
the house, im not gonna feed you), then it also goes under duress.
6. Consent-Unconscionability: acting without conscience & take advantage of someone with
special needs or disability.
a. Plaintiff needs to establish that:
 i. They were in position of special disadvantage, which substantially affected their
ability to protect themselves. Examples: age (elderly), no language skills, lack of
experience in these types of agreements, no opportunity to get independent
advice, no translator. -> CBA vs Amadio
ii. The defendant knew, or should have known, of plaintiff’s disability and not
taken advantage of it.
iii. Actions of defendant were unconscionable.
b. Commercial Bank of Australia vs Amadio.
7. Form of Contract:
a. Lack of compliance with required formalities for certain forms (e.g. written forms) may
make the contract void or unenforceable.
8. Process of a contract:
a. Negotiation – verbal
b. Put it in writing
i. Should contain all the key elements.
ii. 2 types of clauses: conditions (critical, and if not fulfilled, it means you fail to
enter into a contract and can be voided. E.g. car is roadworthy) and warranties
(not critical, if you fail to fulfil, you can’t cancel but you can claim for damages.
E.g. there’s a rattle in the hood).
c. To provided certainty in contract law, we have Parol Evidence Rule, which means only
the written contract matters. Anything we discussed verbally doesn’t count, and if it’s
important, it should be written down.
9. Post contractual statements:
a. Not binding after the contract’s formed.
b. Olley v Marlborough Court (1949).
c. Amendments can be made, but no post-contractual statement can form part of the
contract.
d. Exclusion Clauses: limiting liabilities (e.g. we are not responsible for loss of valuables). Is
this included before or after the contract? Most likely before, and when you sign it, it’s
active.
e. Lestrange vs Graucob. Signed contracts are binding, even if the person hasn’t read it.
f. Oral representation can be binding if it fulfils the ‘reasonable bystander test’.
10. Terms of a contract:
a. Conditions: Important terms. Breach can void the contract.
b. Warranty: Less important. Breach does not void the contract.
c. Exemption clause: Excludes the party from liability for certain breaches. MUST be
included in the contract, and any ambiguity in the clause will be interpreted against the
party relying on the clause (contra proferentem rule – against the drafter)
d.

WEEK 4 – Contract Law: Termination & Remedies

1. Based on last week, there are 6 elements of a contract. Try and explain it!
2. Contract is an agreement between 2 parties. Doctrine of privity (privacy) means that in general,
only the parties involved in the contract can sue each other for breach of contract.
a. Example: A promises to mow B’s lawn, if C looks after A’s child. If A does not mow B’s
lawn, can C sue A? Answer, because the contract and breach were between A & B, C is
not part of the promise. C may be a condition, but either way he can’t sue.
b. That being said, a third party who knows of the contract and intentionally induces a
breach may commit a tort.
3. Discharge of Contract:
a. Performance: complete the contract
b. Agreement: both parties agree to terminate, maybe because the other party does a bad
job of it.
c. Frustration: the object of the contract no longer exists. E.g. you booked a hotel for
reception, but the hotel got burned down before the wedding takes place.
d. Operation of Law: Change in law prevents the terms to be completed.
e. Lapse of Time: A set amount of time, usually 7 years, for action to be taken after a
breach occurs.
f. By Virtue of a Term: If a Condition is not fulfilled, the contract is void.
g. Breach: Conditions are fulfilled, but you renege on promise. NOT interchangeable with
the Virtue of Term / Condition!
4. Discharge by Performance.
a. Example: contract is to build a house for 300k. The builder only completes half for 150k.
b. If the builder hasn’t built anything (No Performance), the owner can terminate the
contract.
c. But the Builder has done some of the work; Builder has built half of a house for 150k
(Attempted Performance). Under law of Equity, partial performance/Quantum Meruit
the builder should be compensated on the partial work done.
5. Discharge by Agreement: Let’s say A owes me 100 dollars.
a. Waiver: I forgive you, no need to pay.
b. Substitution: Okay, you can’t pay me but you can give me something else worth 100.
Deal.
c. Accord & Satisfaction: You promised to do something for me for 35k. Accord &
Satisfaction means both parties agree to accept a lesser amount and be satisfied to the
obligation. Need to draft a new contract that amends/supplants the original one, which
is terminated.
d. Condition Precedent: A condition that must be fulfilled before the contract comes into
existence. If not fulfilled, no contract exists.
i. E.g. You agree to buy a property for 800k. You need a loan from bank for 640k.
You make it a condition precedent that unless a loan of 640k from CBA is
obtained within a month, then the contract will terminate.
ii. If CBA does not give the loan, then the contract is terminated.
iii. Now, if you do not include this condition precedent, when the time to pay
comes and you don’t have the money because CBA doesn’t give you the loan,
the seller can sue you for the amount. This clause is to protect you.
 e. Condition Subsequent: A condition that must be fulfilled after the contract comes into
existence.
i. e.g. You sign a contract to buy house subject to pest inspection of property.
ii. Contract signed on 10 April 2019 and inspection done on 12 April 2019.
iii. Condition Subsequent done, but if pests are found, contract is terminated.
6. Discharge by Frustration. Can only occur where:
a. Unforeseen event significantly changed the obligations.
b. Neither party caused the event.
c. Neither party contemplated (thought) it would happen (e.g. the hotel owner and the
event manager didn’t think the hotel would burn down)
d. It would be unjust to hold the parties to the original contract.
i. Example: you paid non-refundable deposit 20k with 30k to be paid later. But the
hotel you made reservation for burned down.
ii. In this case, the non-refundable deposit actually becomes refundable.
e. Five categories of frustration:
i. Physical impossibility because of destruction
ii. Physical impossibility of personal service: aka you’re DEAD.
iii. Change in law rendering performance impossible
iv. Impossibility due to non-occurrence of an event basic to the contract: e.g. lady
Gaga got boycotted and didn’t come to Indonesia.
v. Where the particular state of affairs ceases to exist: e.g. you hired hotel room to
watch the marriage of the prince. But then the prince changed his mind and
cancelled the marriage. iv and v are quite similar.
f. But there are differences in certain states:
i. Vic: pay the deposit back in full, claim your loss by insurance.
ii. NSW: adjusts the rights, aka adjusts the contract.
iii. SA: Equitable approach to try and ensure fairness.
7. Discharge by breach of term: contract void if condition precedent or condition subsequent is
unfulfilled.
8. Breach of Contract:
a. Actual Breach: Party fails to perform at the time required by contract.
b. Anticipatory Breach: Telling the other party that a breach is going to happen before the
time limit.
i. E.g. A buys furniture from B, due within a month. But B tells A a week later that
they no longer do deliveries for whatever reason. In advance.
ii. Then A & B can discuss remedies.
9. Remedies:
a. Common Law Damages (money)
b. Equity: to be fair
i. Specific Performance: give to me not money, but the item. E.g. a property or
land.
ii. Restitution: Restore the item and not money. E.g. your laptop is stolen, restore
the laptop. Usually used in criminal laws.
iii. Rescission: cancel the contract
 iv. Injunction: court order
v. Anton Piller: Order by the court for you to do something (specific performance)
vi. Quantum Meruit
10. Damages
a. Example: Your client is a music promoter, making money from ticket and merchandise
sale. Singer that was coming cancels because he had a better paid opportunity
elsewhere. Client sues singer for breach of contract, but how much damages can he
claim?
b. When you make a claim for damages, you only have ONE CHANCE to the court. So make
sure you are accurate to the cents. So in practice, people claims for much higher
because no one knows exactly the numbers, and ‘aim for the sky so even if you fall you
can grasp the cloud’.
c. The singer would say ‘prove it’. Well the most basic would be the numbers of tickets
sold, but then you could claim that there would be more tickets sold if you didn’t cancel.
11. Step-by-Step of Damages:

a. Contract
b. Breach
c. Suffer loss
d. Was the loss caused by the breach of contract?
e. The loss caused by the breach must have been foreseeable and known to both parties.
Rule in Hadley v Baxendale.
i. Example: You run a drycleaner and have a contract with maintenance company
to fix machinery within 24 hours. A machine breaks and they fixed it in 48 hours,
so that’s a breach of contract. What loss have you suffered?
1. Well, Loss is one day of sales, which is foreseeable. If it’s a public
holiday, then it could be non-damaging.
 ii. Example 2: You install a new machine which will be completed by 3 weeks. It
took 5 weeks for the company to install it. That’s a breach.
1. Damages is 2 weeks of sales.
2. But you claim the machine is special as it can also clean carpet, which is
potential 100k sales lost.
3. The fact that the machine can clean carpet and you can make extra
profit is exceptional circumstances. Law assumes dry cleaning machine
only cleans clothes. To make engineering company liable for exceptional
circumstances, the dry cleaners have to tell the engineering company
that the machine is special in the first place. Otherwise the loss is too
remote (the 2nd rule of Hadley v Baxendale)
f. What is the amount?
g. What steps have you taken to minimize damage? Example, breach of rent contract,
landlord asks for loss rent, but law also expects landlord to find other tenant to replace
loss.

WEEK 5 - The Law of Torts

1. Tort (French for wrong): A wrong you have done to a person (assault or injury in public place)
or their property (physical damage, trespass or defamation). For example, car accident
damaging a person or that person’s property.
2. As accountants, your tort cases will be negligence and misstatement
3. Torts can arise in 2 cases:
a. Performance of contract
b. No contract
i. E.g. you go into a shop (invitation, no contract formed), slip, fell and broke your
hips. You can sue.
4. Contract between client & accountant: Accountant is to provide correct advice to client. Every
accountant will have to provide their client with Letter of Engagement, the contract.
a. If you tell me something that is incorrect, I will sue you for negligence in performing the
contract.
5. Negligence: failing to fulfill what a reasonable person would do, which result in damages.
6. Steps to prove negligence:
a. Famous case is Donoghue v Stevenson (1932), Grant v Australian Knitting Mills (1935),
Romeo v Conservation Com. of NT (1998).
b. (1) Understand what negligence is. Does defendant owe it to plaintiff?
i. Who do you owe this duty of care to?
1. Person called your neighbor = Someone that you should reasonably be
expected to be affected by your duty of care. (e.g. as accountants, your
neighbor = your client, as shop owner that would be people coming into
the shop, as manufacturer that would be people consuming your
product). When talking about neighbor, it doesn’t matter whether you
buy it, was gifted, or stole it.
 ii. What is the duty of care? Don’t do harm to other people.
1. Provide appropriate advice
2. Provide safe/suitable environment
3. Provide safe/suitable goods
c. (2) Was there a breach of the duty of care by defendant?
d. (3) Did the breach cause damage/harm to plaintiff? (foreseeable)
e. (4) Did the defendant contribute to the harm, or voluntarily assume the risk?
i. e.g., you were injured by a product. You went to hospital, were given morphine
as painkiller, and are now addicted to it. Then your friend suggested you to take
heroin, which you took. Result: you can sue for hospital bill and morphine
addiction, but you can’t sue for the heroin addiction because that’s not directly
related to the original breach.
ii. e.g. you drive dangerously & hit someone. Someone (A) on the street saw the
incident and suffers trauma. Someone else (B) who’s a friend of the victim hears
the news and also suffers trauma. Result: A has a valid cause for lawsuit, B
doesn’t.
7. Test to determine duty of care:
a. Foreseeability: would a reasonable person foresee that the defendant’s act could cause
damage?
b. Vulnerability: if the damage was reasonably foreseeable, was there a vulnerable
relationship? (was defendant in a controlling position, was plaintiff reliant on defendant,
or was defendant in position to be protective of plaintiff?)
c. Policy considerations: Govt believes that there should be a duty of care (e.g. road uses)
8. Defences:
a. Contributory negligence:
i. Plaintiff has failed to take reasonable care for their safety, or the safety of their
property. This contributed to the accident which caused the injury, and resulted
in apportionment (reduction) of damages on what is fair and reasonable.
b. Voluntary assumption of risk
i. Plaintiff consents to or voluntarily assumes the risk of injury, so it is a complete
defence. There must also be precise knowledge and full appreciation of the risk.
If successfully pleaded, the plaintiff will not be able to recover anything.

WEEK 7 – Consumer Protection Law

1. Consumer Protection Law: Define what is a consumer.

2. Legislation: Australian Consumer Law 2010 (previously called Trade Protection Act 1974)
a. Purpose:
i. Protect consumer by imposing conditions on sellers/manufacturers/agents.
ii. Punish the sellers/manufacturers/agents by fines/imprisonments. So Punitive
Damages are available now.
b. Regulators: ACCC (Australian Competition and Consumer Commission)
3. What is a Consumer?
 a. Purchase goods worth less than AUD$ 40,000. Whether personal or business,
everybody is a Consumer.
b. If more than AUD 40,000, they’re consumer only if those goods are for personal
domestic or household purposes.
c. If goods are for resupply or to be used in manufacturing, that’s not consumer. So a
restaurant who buys a stove for cooking food is still covered.
d. Purchase must be made from person in the business of selling goods. If you buy it from
a friend, too bad, you might be able to sue for breach of contract, but you can’t use the
consumer protection law.
4. Conditions Applicable:
a. Statutory Guarantee: Specific conditions that ALL goods must fulfill. Sellers in fact,
cannot exclude these conditions. These conditions are assumed to be in contracts,
whether they’re written or not.
b. No misleading or deceptive conduct. Purpose or reason you made them for is irrelevant.
i. No lying. Negligent, fraudulent, or even innocent, they’re all considered lying,
unlike in Contract Law.
ii. If you know something that is important but don’t tell the other party and be
silent, that’s also misleading.
c. No unconscionable conduct.
i. Remember CBA v Amadio.
5. List of Guarantees of Goods: (slide 7)
a. Suppliers title: It’s not stolen.
b. Undisturbed possession: Once you paid for it, it’s yours, no one will claim it’s their
property and ask for it back.
c. Freedom from undisclosed securities: The item purchased is not used by the seller as
security for loan to their business. So the bank can’t come and claim the car as theirs if
the seller defaulted on loan.
d. Acceptable Quality: for the purpose it is for. So a car will have to work properly, safe to
drive, roadworthy, etc. But let’s say you buy a phone and cannot get
connection/coverage, that’s not the phone’s fault unless it’s specifically due to defect on
the phone.
e. Fitness for any disclosed purpose: Let’s say you buy a car, but you didn’t tell them that
you will use them for racing, driving off-road, etc. The car would still be in acceptable
quality because a car’s normal purpose is to be driven. BUT if you specifically ask for a
car for aforementioned purposes and the car fails to perform, then it’s not acceptable
quality.
f. Goods will correspond to description: If you buy something with a fault and you are
aware of the fault and you get injured. That’s still acceptable quality because you’ve
been told of it. This also applies to advertised pictures, but those picts often have
disclaimer “pictures for illustration only”.
g. Goods will correspond to sample
h. Repair and parts are reasonably available after purchase: So if it’s a unique one-of-a-
kind item, 6 months may still be considered ‘reasonable’.
i. Supplier will comply with any express warranty in respect to the goods
 6. List of Guarantees of Services: (slide 8)
a. Service is supplied with due care and skill.
b. Any materials supplied with the service will be fit for required purpose.
c. Service will be supplied within a reasonable time.
d. None of the guarantees for services or goods contracts can be excluded.
7. There are 2 notable exceptions where exclusions CAN apply (slide 9)
a. Liability is limited to replacing or repairing the goods for COMMERCIAL use, or
resupplying or paying for the services to be supplied again.
b. Recreational Service
8. Collins Marrickville v Henjo Investments (1987): Silence on important fact can be MISLEADING.
a. If you are silent because you don’t know when the fact is important enough, that would
also count for NEGLIGENCE.
9. Small business: Less than 200 employees.

WEEK 8 – Legal Nature of companies & Managing Companies

1. Purpose: to run an activity and own assets.

2. Types:
a. Sole Trader: Risk of loss & personal liability, can lose your own assets.
b. Partnership: Group of people coming together to run a business. Joint liability, so if 1
partner made a mistake, everyone becomes liable.
c. Limited Company: Limited liability.
3. Originally, there were 2 aspects in running a business:
a. The ones running the business wants to run the business without intervention from
investors, and not liable if business fails.
b. The investors want return on their investment, not have to continually contribute
money to the business venture, and a limit on investment liability.
c. Therefore, there’s a need to create something new, something with limited liability. So
they created a new body, Latin corpus, thus ‘corporation’.
d. Back then the richest people are the royalty. Of course they want limited liability, or else
they risk getting bankrupted. A bankrupt royalty? Lulz.
e. Thus the original companies are formed by Royal Charter.
f. In the 1800s, parliament took over responsibilities to create corporations. Done by
legislators: Companies Act (for UK), Corporations Act (2001) (for Australia)
4. Purpose of the Corporations Act (2001):
a. To create companies by following the process set out in the legislation.
5. The process:
a. Apply to regulator: Australian Securities Investment Commission (ASIC)
b. Provide unique Company Name.
c. Provide address of place of activity.
d. Provide address of registered office, where legal documents are kept in. In practice,
usually the accountant’s office.
e. Choose the type of company. In Australia there are 5 types.
 f. Define the rules of the company.
g. Assign someone to run the business, aka directors.
h. Need someone to invest. Investor, shareholder, member, all the same.
i. If ASIC approves, you will get the birth certificate of the company, Certificate of
Registration. Now your company exists by law.
6. A company is an artificial creation, but by following the process defined by law, the law
recognizes the company as a separate legal entity, thus they can do what they want to do
without causing problems for their ‘mother and father’ (directors and investors). So the
company can do the following, as described in s124 of Corporations Act.
a. Is liable for its own decisions & obligations.
b. It can do what a natural person can do.
c. It can issue shares.
d. It can give away its property.
e. It can offer its property as security for a loan.
7. When you want to work at a company, you get interviewed by a real person. That doesn’t mean
you work for the person; you still work for the company as all the person working for the
company act as agents on behalf of the artificial entity (the company).
8. Type of Companies:
a. Private: Pty Ltd (Proprietary Limited) = Pte Ltd = Mom & Dad Companies
i. No more than 50 shareholders.
ii. Does not ask the public to invest on the company.
iii. Can be small (no need to have an audit) or large (need to be audited), though
this depends on the country. Some countries need the company to be audited
regardless of size.
b. Public:
i. Unlimited shareholders.
ii. Can be Listed or Unlisted in the Securities Exchange.
iii. Comply with the rules to be listed, and being Listed allows you to raise money
from the public. If you have more than 50 shareholders but do not comply with
the rules, then you are Unlisted.
c. Unlimited:
i. Used for professional services such as doctors, dentists, lawyers, architects, etc.
ii. Unlimited liability, so like Sole Trader.
d. Limited by Guarantee:
i. Only get subscription from members, not investors. If the company goes broke,
then the member must pay under the guarantee in the rules (typically low
amount, 1-2 dollars) E.g. Sports Clubs, Charities
e. No Liability: NL
i. Used SOLELY for mining purpose in Australia
9. Consequences:
a. Private:
i. Director: separate legal entity means the company is separate to the director,
separated by the Corporate Veil / Brick Wall. E.g., Company cannot pay
supplier, supplier wishes they could get money from director (or the guy who
 ordered). But the corporate veil prevents the supplier from getting to the
director. Contract law says that you can only sue the parties directly involved,
and the contract is between supplier and company, not the director. This
principle comes from a case of Salomon v Salomon & Co Ltd (1897).
ii. From a legalistic point of view, if the company defaults on the debt to supplier,
bad luck for supplier, they can’t get their money back. But in practice, that
would make the supplier reluctant to sell or even close down, causing
unemployment, which will cost the government. So from an economic
perspective, exceptions exist for supplier to make the director personally liable.
The corporate veil can be removed by:
1. Legislation: section 588G: If director allows company to trade while
being insolvent (i.e. cannot pay its debts), then the director is personally
liable for the company debt. E.g. Company only has 30k, supplier wants
50k in credit to be paid. At this point, the company is insolvent, for now
the director is not liable yet. But if the director authorizes trade after
this point, then the director will be liable for that extra debt incurred
after the company is insolvent.
2. Case Law: If a company set up to avoid legal obligation (e.g. you create
a new company so you can break your contract of not talking to their
customer – you, but company is separate legal entity) or defraud
investors, then the principle of separate legal entity does not apply.
b. Public:
c. Unlimited:
d. Limited by Guarantee:
e. No Liability:

WEEK 09 – Directors’ Duties

1. Directors get their power to make decisions based on employment contract.

a. If director fail to act in the company’s best interests, they are very likely to breach the
contract, and the company can sue the director.
b. The board of director can sue the misbehaving director on behalf of the company.
2. If there’s a breach of Corporations Act, the regulators (ASIC) will:
a. Disqualify you from being a director
b. Fine you (up to 1 million PER SECTION)
c. Jail you (up to 10 years)
3. Directors’ duties:
a. Code of Behavior = Care & Skill = Act in the best interests of the company.
b. Did you get anything for helping people enter into contracts with company you are a
director of, or did you steal something from the company? (in practice though, as long
you keep making money, no one cares, everyone happy)
c. Specific Statutory Duty only (s588g): NO INSOLVENT TRADING
4. Process of Directors’ duties:
a. Need to know who the directors are. List them by names.
b. List their titles. Managing director? Finance director? Non-executive (independent)
director?
c. Look at what they did, did not do, took, stole or helped.
d. List their activities.
e. Compare what they did to their obligations.
f. Conclusion. Did a breach occur?
g. Any Defense?
h. Consequences if there’s no defense. Damages, disqualification, fine, jail.
i. So if you do get into trouble, you can get charged twice. Once by the company,
and the second time by the regulators.
5. Director’s Duty 1: Duty of Care & Skill
a. The behavior expected of a reasonable director.
b. If the director does NOT do something? Breach.
c. What you should do as director:
i. Understand the business of the company. Daniels v AWA Ltd
ii. Understand finance. Read financial statements, understand statements with
numbers, etc. Centro Properties v ASIC (ASIC v Healey): Misclassify short term
 liabilities as long term. Liable for 200 million, and the duty is shared between
directors.
iii. Delegate to others. But they must be capable. If you know they are not, you are
liable for their mistakes. (s190, s198)
iv. Must be diligent. Attend board meetings, ask questions, etc.
v. Report any corporate misconduct to the board of directors.
vi. Be knowledgeable about other areas of the company that you have no
expertise in. e.g., you are expert in finance, but you need to know about mining
to work at a mining company.
d. Business Judgement Rule (s180(2)): The court does not replace the decision the
directors made with their own, but they would like to see your reasoning in making the
decision or did not do something. There are 4 conditions for this defense, and ALL must
be fulfilled.
i. It is what a reasonable director would do.
ii. No personal interest in the matter.
iii. Kept yourself informed of the issue. E.g., attend board meetings.
iv. Acted in good faith. Putting company interest first. (s 181)
6. Director’s Duties:
a. Act with care & skill (s.180): breached if they do not do something or do certain things.
i. A director must understand finance and the business
b. Act in good faith in the interests of the company (s.18): put the company first
c. Prevent insolvent trading: s.588G
i. 4 Director’s defenses against Insolvent Trading (s.588H):
1. Reasonable grounds to believe the company is solvent. So, need to
understand the business and finance!
2. Relied on third party, and they gave the wrong information.
3. Absence due to illness, and not holidays.
4. Took steps to prevent the transaction.
d. Not have a conflict of interest.
7. What is Conflict of Interest?
a. Are you putting your or the company’s interest first?
b. Your reason or motive for doing the act is irrelevant.
c. Types of transactions caught by conflict of interest:
i. One person serving as directors of 2 companies trading together. Example: A is
director of company 1, making motor parts, which require freight service. A is
also director of company 2, providing freight service. Company 1 wants as low
freight price as possible to minimize cost, while Company 2 wants as high freight
price as possible to maximize profit. Thus conflict of interest, because the law
can’t see which company you’re looking after.
ii. Steal company property
iii. Steal company opportunities
d. S. 182: if director misuses his position to gain financial advantage and cause harm to the
company.
 e. S. 183: if director misuses the information to gain financial advantage and cause harm to
the company. -> almost always goes together with s.182.
f. Defense against conflict of interest:
i. S.191: disclosure, i.e. director must tell Company 1’s board of director BEFORE
contract is entered into, that he has interest in Company 2’s freight business.
g. Consequences of disclosure:
i. For private company (s.194): Director A can attend board meeting and vote in
favor of Company 2’s freight business.
ii. For public company (s.195): Director cannot attend board meeting, and cannot
vote.
8. Managing Cash flow:
a. Have a sinking fund / overdraft facility.
b. Raise funds, through loan or equity.
c. Negotiate payment plan with creditors.
d. Provide personal guarantee.
e. Give up & liquidate the company
9. Business Judgement Rule defense (s.180 (2)):
a. Actions of a reasonable director
b. No personal interest in transaction
c. Keep informed of matters
d. In best interest of the company
10.

Week 10 – Breach of Directors Duties & Members Benefits

1. Consequence of breach:
a. Compensate company
b. Regulators:
i. Disqualify you up to 5 years, but can be indefinite in case of fraud & insider
trading.
ii. Fines. 220,000 per section breached, but due to be increased to up to 1,000,000
per section now.
iii. Jail. Max 5 years, to be increased to 10.
2. If breach of s180, s181, s182+s183, then it’s civil breach. Civil penalties, no jail.
a. If breach s184, criminal, so extra fine and possibility of jail.
3. General defense against breach:
a. Officers acted honestly
b. Considering the circumstances, it is fair for the officer to be excused from liability.
4. Officer/Director Insurance: Insurance policy taken by company to provide money for:
a. The cost of breach by director
b. Legal fees incurred by director
c. But NOT penalties imposed by regulators.
d. Indemnification: You pay first, then insurance reimburse for what you paid.
 5. Members’ Remedies (s232): the principle of law is directors manage the business free from
shareholders interference. You can’t interfere with actual business decision, BUT you can look
at the motives / behavior of directors in coming/making to the decision. Tell the director to
justify themselves.
a. Was the directors’ action unfair as a whole? (100%). OR
b. Was it oppressive, discriminatory or prejudiced to some shareholders? (minority)
i. Oppressive: actions of the directors are not what a reasonable director would
do.
ii. Circumstances covered by s232 which affect minority: non-payment of
dividend, misuse of company property, removal from board of directors,
taking company opportunity. Example, Ballan Holden had 3 directors, A B C. A
and B kicked C out as director, but C is still shareholder. A & B paid themselves
bonus, thus reducing company profit and does not pay C dividend because
‘there’s no profit’. C is minority shareholder, and as it’s a private company, he
can’t really sell his shares. S232 found A & B guilty of oppressive conduct
6. Remedies (s233):
a. Court Injunction: court orders you not to do something.
b. Liquidate the company: just and equitable.
c. Sell your shares: but what’s the value and who will buy? Ask the accountant for the
value of company!
7. Actions (s236): where shareholders can sue directors on behalf of the company!
a. Remember that conceptually, board of directors manage the company and shareholders
only provide fund.
b. Let’s say out of 4 directors, 3 breached and 1 did not. Company was affected by breach
and should sue the 3 directors. The obligation to sue is a management decision, so only
directors can sue. But since decision is made by voting, 3 vs 1, they’re not gonna sue
themselves.
c. S236 says the 1 director should get 1 shareholder to represent the company and sue on
behalf of the company. This is what is called Derivative Action.
i. Shareholder/company must notify the 3 directors.
ii. Must be done in good faith. Nothing personal.
iii. Any proceeds recovered belong to the company, and not shareholders.

Week 11 – Transacting by Companies & Financing Companies

1. How does an artificial entity (that is, the company) enter into legally binding contract?
2. Debt Finance vs Equity Finance.
3. Companies enter into contract:
a. Directly:
i. with seal
ii. without seal
b. Through an agent
i. Actual authority: Express or Implied
 ii. Apparent authority
4. S.124: company is separate legal entity & responsible for own debts & obligations. So how can
we make the company liable to suppliers?
a. Remember that company has a contract with directors, senior staff, junior employees,
etc., to act in good faith. The employees are the company’s agents, and can act on
behalf of the company. Directors are the considered the company itself (see Direct
method below)
b. The law of agency: all agents are acting on behalf of the principal (i.e. the company), so
if they’re not acting in good faith, the principal can sue them.
i. Company has contract #1 with Agent, Agent negotiate with supplier, thus
company has contract #2 with supplier through the agent.
c. Issue: what authority do they have to do/enter into contracts on behalf of the
company?
d. Issue: if the company does not pay supplier, what authority did the agent have to enter
into contract on behalf of the company?
5. Direct method: s.127
a. The company itself enters into contracts.
b. The contract must be signed in the presence of 2 directors (or 1 director if sole
director), with or without seal. Also need to find the minute (record) of directors
authorizing the directors to sign and agreeing to purchase.
c. In this case, the director is the company, not the agent.
d. Typically, contracts signed this way are NOT your day-to-day purchases to run your
business.
i. Purchase of significant assets (e.g. land & building, new business, large
machine).
ii. Significant loans from banks
iii. Sale of large assets (one of balance sheet items)
6. Actual Authority:
a. Express: In writing. It will be in employment contract, board minutes, constitution.
b. Implied: if there’s no document about it, then it’s implied by title. E.g.
i. Managing Director: authority to enter into any contract to do with running the
business.
ii. Director only: no authority
iii. Chairman: no authority
iv. Sales/Finance/Marketing Director: authority based on description.
v. Company secretary: authority to do with administrative issues of company, e.g.
lodgement of documents with regulator.
c. If there’s no title to do that job, then you are implied to have been given that authority
by your superiors  Implied actual authority by acquiescence.
7. Apparent Authority: means it appears from what took place in the transaction, that the person
had authority. The law requires 3 conditions:
a. Person holds out / represents that they have authority
b. Person’s authority confirmed by their boss
c. Supplier enters into contract
 d. Example: you are a purchasing manager and go to a new supplier/ So for apparent
authority to exist:
i. Does purchasing manager hold out that he has the authority to buy? 
Business card, prior email/letters
ii. Supplier rings/writes to company to confirm purchasing manager has authority.
iii. Supplier then supply goods.
8. Authority is thus about the TYPE of contract authorized to enter into.
a. Next is the VALUE of the contract.
9. E.g. purchasing manager has authority to purchase up to 50k, any more and you will need CEO
approval. Then he purchases 80k without approval. Now the supplier is asking for payment.
a. Issues:
i. Does purchasing manager have authority?  Yes. (type of contract)
ii. Does the fact the company has not complied with internal rules to approve the
contract make it invalid?  No, because of Indoor Management rule.
iii. To protect creditors, court introduced “Indoor Management Rule”, which says
“any outsider/external party when dealing with a company can assume the
company has followed its internal processes to approve the contract, even if it
never did.”  s.129 (1), Royal British Bank vs Turquand
iv. The company is not liable to pay IF there is an exception to the Indoor
Management Rule, i.e. if the transaction with the outside party is unusual or
suspicious.
v. Suppliers needs to send invoice to the principal, not the agent, because that’s
who made the contract with, just THROUGH the agent.
10. Cannot rely on Indoor Management Rule if:
a. Actual knowledge
b. Put on Inquiry  Has outsider failed to make inquiries that would usually be made by
someone in their position? Would a reasonable person in outsider’s position have been
put on inquiry & investigated?
11. S.128 (3): if an agent commits forgery or fraud, the section says that the contract is still valid.
a. The dispute will be between company and agent.
12. FINANCES: you need money to run your business. But relying on profit is slow, as profit trickles.
Often you need that big lump sum quick.
13. Debts: from creditors  Debenture: document stating that you owe money to the bank.
a. Fixed obligation to pay monthly -> this will cause cash flow issue as they don’t care
whether you’re making profit or not
b. Repay principal -> creditors expect repayment of principal at the end of the agreed
term of loan
c. Provide security to lender -> if you don’t pay, they sell it to recoup their lost money
d. Director provides personal guarantee -> banks hate the corporate veil, so if the
company defaults, the bank will chase the director and hold them personally liable.
14. Equity: from shareholders
a. No fixed obligation to pay dividends
b. Must have profit to pay dividends
c. No security
 d. Value can increase or decrease
15. Different classes of shares:
a. Ordinary / Control Shares:
i. Right to vote
ii. Right to attend meeting
iii. Give up priority to dividends
b. Preference Shares:
i. Priority to dividends
ii. No voting rights
iii. No rights to attend meeting
16. Example, Bank lends 1M and gets security in land and plants & equipment. How does the bank
prove to the world that the security are theirs for the loan?  Registration!
a. Land: your name, the bank, is shown as mortgagee
b. Personal Properties Security Register (PPSR): bank notifies the public through the
register that the item is security for a loan.
17. Options: example, current share price is $5, market is volatile. I will give you an option to buy at
$4.90, but you need to pay me a fee – option fee. Option is open/available for 2 weeks. In 2
weeks, the share price can either be 5.50 or 4.00. If it increases, then you can buy the share at
the offered, cheaper price. If it drops, you can just walk away and losing the option fee only.