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Business Law for Accountants (University of Sydney)

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Australian legal system

Common Law legal systems
• Laws are found in legislation and the decisions of the judges developing the
judge made law (common law) and interpreting legislation.  Australia uses
Common Law
Civil Law legal systems
• Laws are codified – laid down in comprehensive statutory statements of the
law

The requisites of law

– Certainty: enabling people to engage in transactions and relationships, reasonably
secure in knowing the consequences.
– Flexibility: responding without undue delay to the challenge of change at all levels of
society.
– Fairness: if law is to be accepted by members of society, it should not be inequitable,
unfair or unreasonable.
– Accessibility: all people should have access to knowledge of the law, either directly
or through intermediaries.

Separation of Powers
– Legislative power is the power to make law.
>> Parliament (parliament question the government)
– Executive power is the power to administer the law.
>> the Government
– Judicial power is the power to interpret the law and apply it to individual cases.
>> the Courts
The ministers who comprise the executive council are members of the parliament.

The Division of power

Concurrent power S51

Commonwealth v Tasmania (1983)  Did section 51(xxix), the external affairs power,
support Commonwealth legislation prohibiting Tasmania building a dam on the Gordon
River to generate electricity?

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Tasmanian government challenged these actions, arguing that the Australian Constitution gave
no authority to the federal government to make such regulations. In May and June 1983, both
governments put their case to the High Court of Australia
The federal government had taken a range of actions, which they claimed were authorised under
specific subsections of section 51. The Tasmanian government disputed these claims.
Section 51(xxix) of the Australian Constitution gives the federal parliament the power to make
laws with respect to external affairs.
High Court held that the federal government had legitimately prevented construction of the dam,
and that the World Heritage Act was authorised under the "external affairs" power.

Concurrent Example 2:
CASE: The Commonwealth v Australian Capital Territory (2013) HCA 55:

INTRO: The ACT passed a Marriage Equality (Same Sex) Act 2013 (ACT) which provided
marriage equality for same sex couples.

CONFLICT: the marriage act 1961 (cth) which laid down marriage between a ‘man and a
woman’. however under s51 (xxi) it says that the concurrent powers include ‘marriage’ as one of
the heads of power, which the ACT used to legislate this 2013 Marriage Equality Act. However,
under s109, if there is a conflict between legislation regarding concurrent powers between
Commonwealth and State Governments, Federal Parliament prevails.

RESOLUTION: Thus, ‘the provisions of the ACT act remain inoperative because the marriage
act continues to define marriage differently’.

Under s51 (xxi) permits that the federal parliament to make law with respect to same sex
marriage

Exclusive Powers: the powers that only the government have, only parliament have invested
in the federal commonwealth parliament by the constitution. E.g. Customs and Excise Duties
= s90. Other exclusive powers granted by s52 - the seat of government.

Concurrent Powers: those exercisable by either federal or state parliament = overlapping

powers. S51 of the constitution says there are 39 specific heads of powers, e.g.
 1) trade and commerce with other countries
 8) Astronomical observations
 10) Fisheries in Australian waters beyond territorial limits
 28) The influx of criminals
Section 109: In the event of a conflict between state and federal parliament, the constitution
states that the federal parliament overrides.

Residual Powers: all powers that are non-exclusive and non-concurrent powers, “The rest”.
E.g. education, roads, transport, crime.

The legislative process

1. The original idea
2. Drafting of a Bill
3. Parliamentary process (1st reading – place bill before parliament; 2nd reading
[committee stage – all parties sit down and argue/compromise]; 3rd reading –
parties vote on it)

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4. Royal Assent (Governor General signs off)

5. Commencement

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Source of law
Liberal approach – make sense of intentions
Literal approach – interpret the words

The Acts Interpretation Acts

– Each jurisdiction in Australia has an Acts Interpretation Act.
– These Acts shorten the content of other Acts by, for example, prescribing meanings
for frequently used terms.
– They also contain provisions requiring a purposive approach (whether the purpose
of object is expressly stated in Act) to interpretation, and permitting the use of
extrinsic materials.

Using legislation in essay

– Competition and Consumer Act 2010 (Cth)
s 18 (1)
– Section 18
– Subsection 1
– How to refer to judges or judges:
– Crennan and Hayne JJ
– Justice Bell
– Official reports:
– Thomas v Mowbray
(2007) 233 CLR 307
– Medium Neutral Citation
– Thomas v Mowbray
[2007] HCA 33

The executive government

– The executive function of government is the carrying out, administration and
enforcement of the law.
– Under the Constitution, executive power is exercised by:
– the Governor-General and
– the Ministers comprising the Executive Council (Govt.)
– Making laws under powers conferred (delegated legislation)
– Making decisions:
– Parliament regularly passes legislation that grants Ministers or public servants
discretionary powers to make decisions with significant effects.
– Examples include the power to grant or refuse a license, the power to grant or
refuse a pension, the power to impose a penalty, etc.

Delegated legislation
– Delegated legislation is legislation made not by Parliament but by a delegate upon
whom Parliament has conferred legislative power.
– By-laws, rules, regulations

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– Reasons for delegated legislation

– The most common delegate of Parliament is the executive government.
– It is becoming increasingly common for Acts to simply provide a general framework
for the law, leaving delegated legislation to ‘fill in the gaps’.

Challenging executive decisions

– The Ombudsman
– Freedom of information laws
– The Administrative Appeals Tribunal – merits review
– Judicial review of administrative decisions

Legislation vs. Common Law

– Legislation operates from the general to the particular.
– Cases operate from the particular to the general.

Common Law
- System
- Judge made law
- Judge made in Common Law court and Equity court

The role of courts

– The courts possess the critical double function of:
– Interpreting and applying legislation
– Continuing the still important tradition of the common law

Equity
– King’s Law – through Governor General
– Development of the common law was restricted by procedural limitations
– Petitions for relief from the inadequacies of the common law were considered by the
Lord Chancellor
– Cases were initially decided according to the Chancellor’s ideas of “equity and good
conscience”
– In time, a complex body of law developed, supplementary to the common law, and
known as equity
– The UK Judicature Acts of 1873 abolished the separate court systems and established
a High Court of Justice, which administered both common law and equity.

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– Fusion of systems in NSW in 1972 (only one Supreme Court)

• Influential in the development of laws relating to

• Unconscionability
• Undue influence
• Fiduciary duties
• Confidential information
• Legal and equitable ownership and the Trust
• Used for tax purposes, flexibility

Beneficiary
Trustee
Settlor (equitable
(legal owner)
owner)
e.g. Father dies and uncle takes over the castle before father’s son become of age  this
make the uncle the Trustee (legal owner) managing on behalf of the son who is the
beneficiary (equitable owner)

Res judicata
“The thing has been decided”
– means that the decision reached by the court in determining the case before it is,
subject to any appeal, a final resolution of the issues raised in it, insofar as the parties
to the proceedings are concerned.
– The decision nevertheless has a life beyond the parties as it is a precedent which is
binding on lower courts in that jurisdiction in similar cases.
Stare decisis: the doctrine of binding precedent
– A court is bound to follow decisions of courts higher than itself in the same hierarchy
of courts within the particular jurisdiction.
– It promotes certainty, achieves equality, increases efficiency and creates justice.

The judicial hierarchy

– Decisions of courts outside the particular hierarchy – e.g. federal or particular state –
are not binding but may be persuasive depending upon the status of the court.
– A previous decision of a court on the same level is generally not binding but will not
be departed from unless the earlier decision was wrongly decided.
– Privity of contract – the relation between the parties in a contract which entitles them
to sue each other but prevents a third party from doing so.

Ratio decidendi
– The ratio decidendi is that part of the decision which is binding precedent or
persuasive  material facts plus decision
– It is the reason for the decision, or the principle underlying the decision, or the legal
proposition which the court has applied to the material facts of the case in order to
arrive at its decision / part of decision which is BINDING/PERSUASIVE
– Ratio decidendi = Material facts + Reason for Decision

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Obiter dicta
– Obiter dicta are the other legal arguments and statements of principle found in
judgements but not forming part of the ratio decidendi.
– The obiter are not binding on other courts, but may be persuasive.

Distinguishing prior authority

– Distinguishing involves the judge finding that the material facts of the two cases
differ so significantly that the earlier decision is not binding authority.
– It provides a mechanism by which earlier legal doctrine can be so severely restricted
that it is virtually abolished.

Rejecting prior authority

– An appeal court may declare an existing statement of common law to be wrong by
overruling or reversing the prior authority.

Persuasive authorities
– A previous decision may not be a binding precedent but may still be followed because
it is persuasive.

The Court System

Jurisdiction
Donoghue v Stevenson
– Opaque bottle – no opportunity for inspection
– Contained decomposed snail
– Suffered stomach illness and nervous shock
– No contract action
– Recovery in tort of negligence?
– Held (3/2): the manufacturer was liable to
the plaintiff in negligence.

– Most courts posses both original jurisdiction and appellate jurisdiction.

– Original jurisdiction is where the court is acting in “first instance” to determine a
matter for the first time.
– Appellate jurisdiction is where the court hears and determines an appeal from a
lower court’s decision.
Appeals
– Parties usually have rights of appeal.

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– Most appeals are restricted to re-examining questions of law rather than questions of
fact.
– Appeals are usually heard by three justices.

Federal tribunals
– At federal level, the constitutional separation of powers prevents tribunals from
exercising judicial functions, instead they have executive powers
– Boilermakers Case (1956) HCA
R v Kirby; Ex parte Boilermakers' Society of Australia,[1] known as the Boilermakers'
Case was a 1956 decision of the High Court of Australia which considered the powers of
the Commonwealth Court of Conciliation and Arbitration to punish the Boilermakers' Society of
Australia, a union which had disobeyed the orders of that court in relation to an industrial dispute
between boilermakers and their employer body, the Metal Trades Employers' Association.
The High Court held that the judicial power of the Commonwealth could not be vested in a
tribunal that also exercised non-judicial functions. It is a major case dealing with the separation of
powers in Australian law.

– Nevertheless exercise significant administrative, but non-judicial powers.

– E.g.: The Administrative Appeals Tribunal - Reviews the decisions of federal
administration agencies (such as the ATO).

– The Australian Law Reform Commission Report, For your information: Australian privacy law and
practice, Report No 108 (2008) explains (at [35.35]) that:

– Since federal tribunals are part of the executive arm of government, they are prohibited from exercising the judicial
power of the Commonwealth under s 71 of the Australian Constitution. They lack the power to make
determinative findings of law, and their decisions are subject to scrutiny by the courts, either through judicial
review or statutory appeal on questions of law. The decisions-making powers of tribunals are drawn from, and
cannot exceed, those of the primary decision maker. Tribunals only may interpret law incidentally in the course of
their proceedings, and such interpretations are not binding on the parties as a declaration of right and obligations.
They also have no power to enforce their own decisions.

State tribunals
– At state level, the constitutional separation of powers is not as rigid and tribunals can
exercise judicial and administrative roles.
– Examples include:
– NSW Civil and Administrative Tribunal
(22 former tribunals rolled into one)

LEGAL PROCEEDINGS
The judge
– Judges are appointed by the government but are otherwise independent.
– Judges’ salaries cannot be lowered and they are immune from liability for anything
they might say as judges.
– There is a fixed age of retirement.
– Judges cannot be removed except in extraordinary circumstances (established
misbehavior or incapacity).
The jury
– In criminal cases, only the most serious crimes are heard by a jury; most criminal
cases are dealt with by magistrates without a jury.

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– In civil cases, juries are used infrequently; in some cases either party may request a
jury.
The adversary system
– Either party “fights” through its lawyers in a procedure that awards a result after the
two opposing cases are assessed
– Essential features include:
– The conduct of litigation in the hands of the parties
– There is one continuous hearing
– Evidence is elicited by questions asked by the parties, not the judge
The inquisitorial system
– The inquisitorial system is common in civil law jurisdictions.
– The judge, usually a government official, is an inquisitor actively seeking out the
facts, rather than an impartial referee.
– What advantages does the inquisitorial system offer over the adversarial system?
– In Australia, inquisitorial procedures are increasingly adopted in non-judicial dispute
resolution processes.

Legal process – Pleadings

– In civil proceedings:
– The process is commenced by statement of claim, which outlines the demand
of the plaintiff.
– The defendant files a defence, which responds to each allegation.
– The defendant may file a counterclaim.
– In criminal proceedings, the process is commenced by issuing of summons or by the
arrest and charging of the accused.
Pre-trial procedures
– Interrogatories are a series of questions requiring written answers on oath.
– Discovery requires a person to declare on oath all relevant documents in his or her
possession, and to allow them to be inspected.
– Interlocutory orders are orders to correct incomplete pleadings or compliance with
interrogatories or discovery.
– Interim injunctions are urgent orders preserving an existing position or restraining a
party from doing something.
Trial
– The parties present their opening cases.
– Witnesses are called to give evidence in the following order:
– evidence in chief
– cross-examination
– re-examination.
– The jury decides questions of fact.
– The judge decides questions of law.
Burden and standard of proof
– Burden of proof: Which party has the onus of proving the truth?
– criminal trials: the prosecution
– civil trials: the plaintiff.
– Standard of proof: To what degree must the facts be established?
– criminal trials: beyond all reasonable doubt
– civil trials: on the balance of probabilities.
Elements of Justice

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– Clear and published rules of law

– Reasoned and public decisions
– Open justice: courts are open to the public
– Right of review and appeal against decisions made by government officials and
judges
– Independence of judges

DISPUTE RESOLUTION
Litigation
– Despite the massive achievement of a system that provides for the resolution of
disputes in accordance with the law by independent judges, there are problems.
– Access
– Cost
– Delays
– Formalities
– Publicity
– Damage to relationships
– Class actions
– Litigation funding
Alternatives to litigation
– Arbitration
– Alternative dispute resolution (ADR):
– Mediation
– Conciliation
– Early neutral evaluation
– Expert appraisal
– Mini trials

Answering problem solving Qs

1. Identify legal issues
2. State relevant legal principles for each issue, citing authority (legislative
provisions / case law)
3. Apply legal principles to the facts of the problem
• Apply/distinguish precedents
• Interpret / apply legislation
4. Conclusion

Week 3 – Contract Law

What is a contract?
– An agreement between two or more people… which the courts will enforce
– Almost exclusively an area of common law developed by judges through the doctrine
of precedent  court enforced

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The requirements of a contract: Agreement (Offer and acceptance of the offer e.g. carbolic
smoke ball  offer to cure and acceptance by buying the ball), Intention to create legal
relations, Consideration (e.g. buying the smoke ball), Capacity, Consent, Legality, Formality
(do not have to be in writing)

Standard from contract a written contract prepared by stronger party, imposed on weaker
party, with little wiggle room, on take-it-or-leave-it basis

Formalities and contracts

– Deeds (formal contracts)
– Do not need consideration
– Need special words: “signed, sealed and delivered”
– Rarely used in everyday practice however important in other areas of law. Most of
our discussion will revolve around simple contracts – ie contracts which are not deeds.
– Formalities
– Some agreements have to be evidenced in writing (e.g. contract for sale of
land)
– Some agreements have to be in writing (e.g. negotiable instruments)

Limits of contractual power

– Statutory interventions to combat abuse of superior bargaining power (The Australian
Consumer Law (ACL) which is a schedule to the Competition and Consumer Law
2010 (Cth))

OFFER AND ACCEPTANCE

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 – exhibits unilateral and bilateral
contracts.
"smoke ball" and claimed it to be a cure for influenza and a number of other diseases
claiming that it would pay £100 to anyone who got sick with influenza after using its product
according to the instructions provided with i
Mrs. Louisa Elizabeth Carlill claimed £100 from the Carbolic Smoke Ball Company
barristers representing her argued that the advertisement and her reliance on it was a contract
between the company and her, so the company ought to pay
(1) that the advertisement was not a unilateral offer to all the world but an offer restricted to those
who acted upon the terms contained in the advertisement (2) that satisfying conditions for using
the smoke ball constituted acceptance of the offer (3) that purchasing or merely using the smoke
ball constituted good consideration, because it was a distinct detriment incurred at the behest of
the company and, furthermore, more people buying smoke balls by relying on the advertisement
was a clear benefit to Carbolic (4) that the company's claim that £1000 was deposited at the
Alliance Bank showed the serious intention to be legally bound. The judgments of the court were
as follows.

Unilateral contract – when one party assumes an obligation. Put up a lost dog sign. You
assume obligation to pay if someone finds the dog. But not everyone who sees the sign has an
obligation to find the fucking dog.

Bilateral Contract - is when two parties assume an obligation. When you hire someone to
find your dog, the dog finder has an obligation to find the dog, and you as the dog owner
have an obligation to pay the dog finder.

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– An offer is a clear statement of terms on which an offeror is prepared to be

contractually bound without further negotiation
– Must NOT be an advertisement, display in window or ‘invitation to treat’ (an
invitation to make an offer; not intended to be bound as soon as accepted by
person) An offer means there is an intent to be bound.
E.g. Fisher v Bell 1961 – defendant was prosecuted under the Restriction of Offensive
Weapons Act (1959) (UK) with offering for sale a flip knife – considered an offensive
weapon. He had a price tag attached to the flip knife. He was acquitted because: “according
to the ordinary law of contract, the display of an article with the price on it in a shop window
is merely an invitation to treat. It is in no sense an offer for sale (LORD PARKER)”.

An invitation to treat: is a preliminary communication between the parties during

negotiations. Examples: ads, displays.

Revocation of an offer (the formal withdrawal of the offer by the offeror, terminating the
offer).

Terminated when lapse of time, death of party, conditions unfulfilled, acceptance by offeree,
rejection by the offeree.

displays of goods in shop windows: Fisher v Bell [1961] 1 QB 394

The case established that, where goods are displayed in a shop together with a price label, such
display is treated as an invitation to treat by the seller, and not an offer. The offer is instead made
when the customer presents the item to the cashier together with payment. Acceptance occurs at
the point the cashier takes paymen

Issue Notice of Revocation:

Dickinson v Dodds (1876) 2 Ch. D 463 – Dodds offered Dickinson some houses for 800
pounds, he was meant to respond to this offer by Friday 9am, however Dodds sold the houses
before on the Thursday. Dickinson was aware of this sale however still handed in his formal
acceptance on Friday. Court ruled that Dickinson had notice of revocation, even though not
communicated by offeror.

The offeror is the party who makes the offer. The offeree is the person who either accepts or
does not accept the offer.
Offeree can seek more info in order to make counter, reject, accept or ignore it
What is an acceptance?
Acceptance = final and unqualified assent by the offeree to the terms of the offer made in the
manner specified or indicated by the offeror objectively determined.
Requirements:
• must be final (no agreement to agree in the future)
• must be unqualified (accept only what was offered; otherwise it is a counter)
• must be communicated to the offeror in the way the offeror indicates (express
or implied; cannot be by silence)

The offeree’s response: Accept the offer: as opposed to what happened in The Crown v
Clarke (1927) 40.

Unilateral contracts – offer only accepted by performance of condition

Postal acceptance rules – contemplate acceptance by mail (expressed or implied),
acceptance complete when letter posted even if lost in post

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e.g. Andrew is looking to restock, sees Cary’s, his friend, ad for $45 of stock and messages
him saying ill give advertised rate
Question over whether the ad is an OFFER or an INVITATION
If Offer, Andrew has accepted the offer
If Invitation, Andrew has made an offer and Cary has to communicate
accepting the offer
Is it contractual between business or not enforceable if societal contract

Masters v Cameron
– Parties are fully agreed and have just committed that the agreement will be written up
in a bit more detail but not different effect: contract
– Parties are fully agreed and have just committed that the agreement will be written up
in a bit more detail but not different effect AND that 1 or more aspects of the
agreement are conditional on the contract being written out: contract
– No objective intention to make a concluded agreement until formal instruments have
been finalised and agreed to. An agreement to agree: no contract

INTENTIONS TO CREATE LEGAL RELATIONS

Business agreement – presumption DO create legally enforceable agreement
Social agreement – presumption DO NOT create legally enforceable agreement

CONSIDERATION
Exchange of one thing for another
Consideration required for simple contracts
– must not be past (it can’t have occurred before the agreement; need to fulfil
existing contract)
– must be sufficient (can’t be illusory but does not need to be
adequate)
– is not required for formal contracts and deeds
Chappell & Co v Nestlé Co Ltd [1960] AC 87  consideration must be sufficient but need
not be adequate.
– Chappell owes copyright in “Rockin’ Shoes” song
– Nestlé manufactures confectionery
– Nestlé offers the public “records” of the song in exchange for one shilling and
sixpence and the wrappers from 3 bars of Nestlé's chocolate
– The wrappers were part of the consideration because Nestlé had stipulated so
– That the 3 wrappers were considered to be of no value to Nestlé was irrelevant – a
contracting party can stipulate whatever consideration it chooses
Consideration may be described as the ‘price’ paid in exchange for the promise that the
promisee is attempting to enforce.

CAPACITY
Minors (persons under the age of 18 years)
Corporations (specific people have capacity to act for the corporation)
Incapacitated persons:
• Mentally impaired
• Intoxicated
• Bankrupts

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LEGALITY
– Statutory illegality is where the operation of a statute (legislation) makes a contract
illegal.
– Common law illegality makes contracts illegal in certain circumstances when bad for
the public good/concern

FORMALITIES
Some contracts require essential terms to be recorded in writing and signed
The main category is dealings in land need to be evidenced in writing but are ‘unenforceable’
as opposed to void.
– Equitable doctrine of part performance (allows court to enforce oral contract
despite its legal deficiencies) can assist innocent parties who partially perform their
obligations
Some other types of contract may be either void or unenforceable under specific statutes

CONSENT
Effect if the contract is void, voidable or unenforceable
Voidable contracts
• Contract does exist but one of the parties has the legal right to ‘avoid’ or not perform
• Contract is effective until one party takes action to terminate/rescind (restore
the parties to the position they were in before the contract; right may be lost if
3rd party affected)
Void contracts
• Contract does not exist and so is of no legal effect
• Null existence (has never come into existence)
• Contract ineffective with no need for parties to take any further action
• A third party impacted by the void contract has no rights and contractual protections
• No rights or obligations – neither party can recover damages for breach and neither
party can enforce the promises
• E.g. If Niko steals my car and sells it to Pin, the contract between Pin and
Niko is void, hence I can take the car back as it is still mine. Pin cannot sue
Niko
Misrepresentation
• Misrepresentation = a false statement of fact (NOT opinion), past or present, made
by one person (representor) to another person (representee) during pre-contractual
negotiations which induces the representee to enter into the contract.
• A misrepresentation is NOT a term or part of the contract.
• Makes the contract voidable
• Fraudulent – tort (wrongful act/infringement of right)
• Negligent - tort of negligent misstatement
• Innocent - no remedy in tort law or in contract (rescission only [cancellation
of law])
• Statutory - misleading or deceptive conduct

– Bisset v Wilkinson (1927)

Purported statement of fact, NOT opinion
New Zealand in May 1919 Mr Wilkinson entered into a binding contract to sell to Mr Bisset two
contiguous blocks of farmland for ₤13,260 [5].[6][7] These blocks comprised 2062 and 348 acres

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(1.41 km2) respectively. During negotiations Wilkinson told Bissett that "with a good six horse
team, his idea was that the farm would carry 2,000 sheep". After 2 years of unsuccessful
farming, Bissett concluded that the land could not support 2,000 sheep, and he brought an action
for misrepresentation to cancel the contract and get his money back
Lord Merrivale noted that Bisset had "failed to prove that the farm (if properly managed) was
incapable of being occupied by two thousand sheep". [10]
Viscount Dunedin, Lord Atkinson, Lord Phillimore and Lord Carson agreed

case clarifies that a misstatement of "fact" may be a misrepresentation, but misstatements of

opinion, intention or law are not. By contrast, in situations where one party has specialist
knowledge of the subject (so that his "opinion" is one which is effectively a "statement of fact")
then the misstatement becomes an actionable misrepresentation

Mistake: each type has a specific effect on the contract

– Common mistake
• both parties make the same mistake
– Non est factum
• mistake as to the nature of the document signed (different to what he/she
intended to sign
– Mutual mistake
• both parties are mistaken but about different things: misunderstand each other
and deal at cross-purposes
– Unilateral mistake
• only one party is mistaken and the other party is aware of the mistake and tries
to take advantage of that mistake

Duress
– Illegitimate pressure to contract exerted by one party over, and against the will of,
another party
– Effect: contract is voidable

– Barton v Armstrong (1973) 47 ALJR 781: threat to injure person

– Street J found Armstrong had indeed threatened to have Barton killed. But the NSW
Court of Appealsaid Barton failed to discharge the onus that the threat had caused him to
make the contract
– Barton could avoid the contract for being under duress, and it did not matter that he may
have agreed to the deal anyway
– 'that if Armstrong's threats were 'a' reason for Barton’s executing the deed he is entitled
to relief even though he might well have entered into the contract if Armstrong had
uttered no threats to induce him to do so.

Undue Influence
Undue influence = dominant/stronger party abuses the influence s/he has over the will of the
subservient/weaker party in order to obtain some undue benefit
– Special relationship required (e.g. professional and client)
– Here undue influence is presumed to exist unless proven otherwise –
rebuttable presumption
– ‘Other relationships’ can be caught (e.g. person and carer)

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– Where a high degree of trust and confidence has developed between the
parties
– Once established, the onus of proof is on the dominant party to prove that the contract
was voluntary
– Effect: contract is voidable – but the opportunity to avoid the contract may be lost if
there is delay

Gibbons v Wright (1954)

Gibbons and her two sisters-in-law became owners of land as joint tenants.
Subsequently the sisters executed documents converting the joint tenancy into a
tenancy in common.

After their death Gibbons claimed that these documents were ineffective because
the sisters lacked mental capacity (if this was the case she would become sole
owner).

There is no ‘fixed standard of sanity’ – simply a requirement that each party be of

‘such soundness of mind as to be capable of understanding the general nature of
what he is doing by his participation.’
Their Honours then considered if the lack of capacity rendered the contract void or
voidable; they concluded lack of capacity made a contract voidable only – so unless
the sisters, in their lifetime, sought to avoid the contract it remained valid and
enforceable.

TERMS OF THE CONTRACT

– Terms of the contract encapsulate what the parties have agreed to.
– Terms are either:
– Express: Those agreed to by the parties – the terms and their agreement being
objectively determined.
– Implied: Those implied by contract law (common law) OR by statute.

Express Terms: Term or mere representation?

– Express terms: what was expressly stated or written down (need to look at the
written document or if oral contract, need evidence of what the parties said)
– BUT what about oral statements made during negotiations of the contract?
Distinguish objectively between:
– statements made to induce entry into the contract (representations) 
damages CANNOT be awarded for innocent misinterpretation as they are not
a part of the contract
– statements meant to be obligations under the contract (terms)
• Pre-contractual statements may or may not be terms – depends on the objectively
determined intention of the parties
• Objective test: would a “reasonable person” consider that the statement was
intended to become part of the contractual obligation?
• Factors to consider include:
1. Importance of statement: for example, is it an opinion or a solid undertaking?

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2. Time between statement and contract

3. Special knowledge/skill or access to truth of one party
4. Inclusion of statement in any subsequent document
Parol evidence rule – evidence cannot be used from before the contract
Exceptions to this rule when:
• When ambiguity or uncertainty of meaning of words used
• Whether or not terms can be implied into the contract (e.g. based on
custom/trade use)
• Evidence of common mistake made when reducing the contract into
writing
• Evidence of oral agreement to vary or suspend the written agreement
• Evidence that the contract is not “entire” (i.e. partly written and
partly oral)
• Evidence of a prior collateral contract  An oral contract subsidiary
to the main written contract (the consideration for which is entry into
the main contract)

Term or Mere Representation Example:

Dick Bentley Productions v Harold Smith Motors [1965] 2 ALL ER 65,
Dick Bentley buys a second Bentley car from Harold Smith, Smith stated the car had only
driven 20,000miles since a new gearbox had been fitted, but the car had actually driven
100,000+ miles. When Dick discovered the actual fact, he sued for breach of contract and the
court held that the statement was a term and not a mere representation. This was because the
dealer had specialist knowledge the buyer relied on the dealer to supply accurate facts.

Implied terms
Implied terms are terms that are deemed to be in a contract by courts (on the basis of common
law or statute)
Past dealing between parties - Usually happens in cases of incompleteness or
uncertainty
Custom or trade usage - practice of doing business used so commonly that an
expectation arises
Business efficacy (ability to produce a desired or intended result) - the power to produce
intended results

Malik & Mahmud v Bank of Credit and Commerce International SA.19The

facts are as follows, two employees who lost their jobs in a bank brought a
claim for compensation on the basis that their association with the bank
had disadvantaged them from finding a new job. The misconduct was the
running of a corrupt and dishonest business by the bank. The Court held
that there was an implied obligation of an employer not to operate a
corrupt business, breach of which will entitle an innocent employee to
resign

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EXCLUSION CLAUSES
Terms in contract seeking to register rights of parties/disclaiming liability for a particular
event
 Terms in a contract used to limit or exclude a party’s liability for breach of contract
or negligence
Issues over definition of clause incorporated into a contract (through signature, by notice
[unsigned notice, e.g. ticket] or by prior dealings) and interaction with legislation
An exemption clause has no effect unless it is a term of the contract. Must cover the breach or
liability that has occurred. It can be incorporated into a contract via,

signature rule: bound if you sign it even if you don’t read it. CURTIS V CHEMICAL
CLEANING AND DYEINH CO [1951], Curtis took a dress to the dry cleaners, dry cleaners
said sign this receipt stating the dry cleaners were not liable for any damage whatever the
cause, however the dry cleaners mislead (misrepresentation) curtis by stating that it was not
accepting liability for JUST beads and sequins. Curtis signed this but the dress returned
stained, so signature rule was not applicable because of bold misrepresentation by the dry
cleaners.

PRIVITY OF CONTRACT
Only the parties to a contract can acquire rights or incur liabilities under the contract.
Can sue each other but prevent 3rd party from doing so

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Donoghue v. Stevenson
Since the contract was between her friend and the shop owner, Mrs. Donoghue could not sue
under the contract, but it was established that the manufacturer was in breach of a duty of
care owed to her.

Tweddle v Atkinson [1861]

William tweddle engaged to marry Miss Guy , the fathers of each of them entered a contract
under which each would pay William 100 pounds following the wedding, however Miss
Guy’s dad died before paying the money, so William tried to sue the executor of the deceased
father’s estate but what was held was that William was not entitled to the money because he
was not a party to the contract – William should have got his Dad to sue instead.

ENDING A CONTRACT
Discharge or termination means bringing the contract to an end and ending the parties
obligations under the contract
Ended by - Being performed [surprise surprise], Agreement, Operation of law, Frustration,
Breach
Discharge by performance
Exceptions to the requirement of complete and exact performance:
• ‘Divisible’ or ‘severable’ contracts (contrast: ‘entire’ contracts’)
• The de minimus rule (excusing of minute failures and defects)
• Doctrine of substantial performance (full price despite minor failure)
• Acceptance of partial performance (variation of subsisting contract)
Discharge by agreement
• Can be in the contract itself:
• Condition precedent that if not satisfied means all or parts of the contract don’t need
to be performed
• Condition subsequent that if satisfied the contract ends
• Provision in original contract or in subsequent agreement (general rules of formation
of contract apply)
Discharge by frustration
When performance of the agreed obligations will result in a radically different outcome
through no fault of either party, the contract is terminated and, thereafter, neither party can
demand further performance (no further rights or obligations)
Doctrine does not apply:
• When performance simply becomes more onerous, inconvenient or
expensive

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• When specific provision has been made for the event in the contract
• When the event should have been foreseen as a serious possibility
(reasonable foreseeability is not sufficient)
• When the particular event is self induced

Week 4 contracts in
business
ISSUES IN BUSINESS CONTRACTS
Incompleteness or uncertainty
If the contract will operate without the problematic bit, the courts will ignore it but sometimes
that’s not possible to see. Examples:
 Scammell v Nephew – Contracts not operative
 Hillas & Co v Arcos Ltd 1932 – Operative by relying on past dealings,
o Hillas purchased timber one year with an additional option agreement- under
an agreement that they could buy this timber at a discounted 5% the next year.
The next year Arcos refused to sell the timber at that rate and Hillas sued them
for breach of contract. Arcos claimed that the agreement was not valid because
it required further agreement in the future.
o The issue was: Whether or not the agreement into another agreement was
enforceable term of the first agreement. Whether or not the contract to enter
into a future contract was valid.
o HELD: The agreement was brought into existence by their initial purchase of
the wood, whilst a price was yet to be agreed for the next year this was only
because the price of wood is a naturally fluctuating good. The court held the
agreement, Hillas won.
 Nicolene v Simmonds – Operative without the problem clause.

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Agreements to agree – agree for something in the future  these are not enforceable – e.g.
May & Butcher V The King (HILLAS V ARCOS) (4th category)
Agreements to negotiate in good faith – may be enforceable if court determines not illusory
or not uncertain
Cannot threaten to breach existing contract to better new contract

Subject to contract – negotiations are still going on

- Parties fully agreed/committed but will be written up in detail  contract
- Parties fully agreed but 1 or more aspect are conditional on the contract being written out
 contract
- No objective intention to contract until formal instruments finalised and agreed to
(agreement to agree)  no contract/non-enforceable
- Expect to be immediately bound but expect to enter substitute to their contract 
contract

• Masters v Cameron – three alternatives:

• This High Court case considered whether a document expressing the terms for a sale of land was a
binding contract between the parties, or merely an agreement of negotiated terms upon which the
contract would be executed.
– Parties are fully agreed and have just committed that the agreement will be written up
in a bit more detail but not different effect: contract
– Parties are fully agreed and have just committed that the agreement will be written up
in a bit more detail but not different effect AND that 1 or more aspects of the
agreement are conditional on the contract being written out: contract
– No objective intention to make a concluded agreement until formal instruments have
been finalised and agreed to. An agreement to agree: no contract
– 4th Category: Parties OBJECTIVELY intend to be immediately bound BUT expect to
enter a new contract in the future to substitute their agreement: contract – Hillas v
Arcos.

Heads of Agreement –
“What you call a document is not determinative of its legal effect.”
HEAD OF AGREEMENT = document which usually summarises the matters on which the
parties have agreed and are intended to form the basis of later formal contract.
Heads of agreement are signed once an agreement has been reached in relation to the key
commercial terms of the transaction but prior to the preparation and entry into a formal
contract.
- Drawn up for the sale of business/property, binding/enforceable once adopted into a
parent contract. Various things agreed upon so far in negotiation prior to the final
contract/agreement
- If these documents (Heads of agreement) are looked at objectively to demonstrate the
elements of a contract they are treated as a contract (this is the 4th category)
Memorandum of Understanding expresses a convergence of will between parties.
Used when parties do not imply legal commitment
Both may or may not be binding depending on intention

Letters of Comfort – expresses willingness to enter contractual obligation without legal

enforceable contract (moral contract). A form of guarantee to meet obligation/liability but
not always binding – ‘it is our practice to pay within the discount period that is not a legal

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binding statement’ – moral agreement to pay quickly but this agreement to pay quickly is not
legally binding and not applicable in court.

Statements made during negotiations

 Promissory - statements that were intended to be binding. They become terms of the contract
and have contractual force  breach of contract. damages and maybe even termination are the forms
of compensation.
Dick Bentley Production v Harold Smith (Motors) Ltd  dealer misstated mileage of car
the experienced/expert party (a dealer) made a statement which proved to be false.
Due to his position of power, and ability to check, his statement is considered promissory

 Representational - statements that were not intended to be binding, and do not become terms.
They have no contractual force.

“Without prejudice” is a statement which is typically used in negotiations to denote when a

party does not want their statement to be admissible in court
May or may not be an offer that can be accepted

JES/ERIK
Promissory Estoppel:
- Stops a party from enforcing their strict contractual rights (ie. Party NOT allowed
to break promise)
- Important where: no consideration exists OR important where formalities of contract
have not been satisfied, P.Estoppel prevents unconscionable conduct (defies good
conscience)
Elements:
1) Promisee – on reasonable grounds, assumed legal relationship existed (initial
assumption)
2) Promisor – responsible for assumption
3) Promisee acted on reliance of this assumption
4) Detriment will be suffered by promisee if promisor reneges (go back on) on promise
5) Assumption can be either one of fact or of law

Examples:

SANJAN
Promissory estoppel – a party is not allowed to break their promise. Important when no
consideration OR formalities of contract not satisfied and will prevent unconscionable
conduct. Enforceable with formal consideration
Promisee assume promise exists, promisor is responsible for assumption, promisee
acts on reliance of the assumption, promisee will face detriment if assumption not
held by promisor

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Quantum Merit – if no legally enforceable contract, court can order reasonable

amount for work

• Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
• Party estopped from reneging on promise
• Need to identify just what that promise was
•
• Parties made an agreement in writing to reduce rent by half. However, neither party
stipulated the period for which this reduced rental was to apply. Over the next five years,
High Trees paid the reduced rate while the flats began to fill, and by 1945, the flats were
back at full occupancy. Central London sued for payment of the full rental costs from
June 1945 onwards (i.e. for last two quarters of 1945).
• BECAUSE the property was failing due to falling occupancy rates because of
the WAR starting in 1940, the rental rates were reduced to half for an
undefined period. However, once the property reached full occupancy
following WWII, there was no need for half rental rates – reasonable grounds
for the legal relationship to exist (initial assumption).
• Promisor (High Trees) purposely remained silent once full occupancy was
reached
• Promisee acted on the faith of the initial assumption (once occupancy rates are
full High Trees will pay full rent)
• However the promiser (High Trees) reneged on the promise to pay full rent
once full occupancy, therefore the promisee (CL) suffered economic detriment
from lost economic income.
• The assumption was one of fact not law.
• CONCLUSION: HELD: High trees was held liable for full rent since post war
period 1945.
• Denning J held that the full rent was payable from the time that the flats became fully
occupied in mid-1945. However, he continued in an obiter statement that if Central
London had tried to claim for the full rent from 1940 onwards, they would not have been
able to. This was reasoned on the basis that if a party leads another party to believe that
he will not enforce his strict legal rights, then the Courts will prevent him from doing so at
a later stage
• apply the principle that a promise intended to be binding, intended to be acted on and in
fact acted on, is binding so far as its terms properly apply. Here it was binding as
covering the period down to the early part of 1945, and as from that time full rent is
payable.
• I therefore give judgment for the plaintiff company for the amount claimed
• Denning commented that such an agreement should now be enforceable under the
doctrine of promissory estoppel, and indeed the plaintiff did not seek the full debt on the
basis of what was fair and, perhaps, thought was the law.
APPLY THE ELEMENTS OF PROMISSORY ESTOPPEL TO ALL RELEVANT
CASES IN ISSUES WITH CONTRACTS AND PROMISES.
Implied terms – be reasonable and equitable, give business efficacy (obligation to act in
good faith) so that the contract is effective without it implied, so obvious that “it goes
without saying”, capable of clear expression, not contradict expressed terms of the contract
(e.g. won’t pay in truck full of 5 cent coins or in Thailand dollar)
- Court can imply terms for parties to act in good faith for business efficacy (produce the
intended result)

Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187

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Contract provided for new stores based on Burger King giving approval
No approvals were given
The approvals were withheld with the intent to stifle the expansion of Hungry Jack’s and not
based on the conditions set in the contract
The withholding constituted a breach of a duty of IMPLIED good faith in the contract

Far Horizons Pty Ltd v McDonalds Australia Ltd [2000]

McDonalds opened two stores next to the franchisee’s [Far Horizons] two existing mcdonalds
stores and franchisee claimed damages alleging the decision by McDonalds not to offer the
franchisee a licence for the second of the two stores was in bad faith and aimed at
undermining the franchisee’s business.
Essentially franchisee had to establish ‘bad faith’ that Mcdonalds had exercised its powers for
a ulterior purpose – like to punish Mr Hackett (owner of far horizons) to force him to leave
the macca’s system.
Court concluded decisions made by McDonalds’ adverse to Mr Hackett ‘were not
substantially motivated by an intent to prejudice Mr Hackett” – and that McDonalds was
driven by legitimate commercial interests – whether commercially prudent or not, does not
act in bad faith.

Franchising Code of Conduct – Clause 6 (vi) = To avoid doubt, the obligation to act in
good faith does not prevent a part to a franchise agreement, or a person who proposes to
become such a party, from acting in his, her, or its legitimate commercial interests.

Assignment and novation of contracts

Assignment – transferring rights/benefits but NOT the obligations to a third party, usually
not satisfactory
Novation – the process whereby all the parties to the contract agree to rescind/revoke the
original contract and to enter into a new contract on the same terms as the original contract so
as to facilitate the replacement of an outgoing party with a new party to the contract (consists
of 3 parties where one parties obligations end up with another party)

Other ways of ‘changing’ contractual obligations

Variation by waiver:
voluntary relinquishment of legal rights
– If no consideration provided, needs a deed
– Consideration can be the non-enforcement of a party’s right to make the other party
perform their obligations
Subcontracting:
Outsourcing to subcontractors to complete the contract
– Only if permitted under the contract as interpreted by the court

Ending a contract
What constitutes a penalty – protect rights, commercial interests and in proportion
Penalty clause can determine, in advance, the cost of breach of contract by pre-
estimating cost of damage

PARTICULAR BUSINESS CONTRACTS

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Sale of goods, E-commerce, Guarantees, Insurance, Negotiable instruments, Restraints of

trade

STATUTORY MODIFICATIONS
Competition and Consumer Act 2010 (Cth)
Anti-competitive contracts, arrangements and understandings, and other practices that
substantially lessen competition
Misleading and unconscionable conduct in business
Unfair contract terms in consumer and small business contracts

MISLEADING CONDUCT IN CONTRACT NEGOTIATION

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive
or is likely to mislead or deceive (s18 Australian Consumer Law)
1. was the representation made to the applicant by or on behalf of the
respondent?
2. was the representation misleading or deceptive, in the case of a representation
as to future matters, did the person making the representation have reasonable
grounds for making it?
3. was the representation relied upon by the applicant, i.e. did it induce the
applicant to enter the agreement and cause the applicant to suffer loss or
damage?

A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or
a financial service, that is misleading or deceptive or is likely to mislead or deceive  failure
to comply not offense but can lead to civil liability

In negotiation, question over

Representation to induce contract, whether representation was meant to form [art of
the contract (making it a term)

Opinions
An expression of opinion will not be misleading or deceptive simply because it proves to be
wrong or inaccurate.
However, it will be misleading or deceptive:
 If it is not honestly held
 If it is given by a person who would be assumed to have a reasonable basis for
it.

Half-truths, Silence and Non-disclosure – silence or a failure to make a full and fair
disclosure of information can constitute misleading or deceptive conduct.
 Section 18 gives rise to no duty to provide information; however, silence or a
failure to make a full and fair disclosure of information can constitute
misleading or deceptive conduct.
Hai Quan Global Smash Repair v Ledabow Pty Ltd (2004

The vendor did not expressly guarantee that the NRMA work would continue, but it also
did not obtain the NRMA’s consent to the arrangement or tell the NRMA of the proposed
business sale. The NRMA then terminated its agreement with the business and the
purchasers did not receive any further work from the NRMA, which represented

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approximately 19 per cent of the business. The court held that the vendor had misled the
purchasers and focussed heavily on the fact that the vendor was aware of the
purchaser’s relatively low level of commercial sophistication. The case demonstrates
that a particular characteristic of a party may influence whether a reasonable expectation
exists in relation to disclosure of information.

Relaying false information – Persons who relay false information may be in breach of s18,
“conduit defense”, relaying or adopting information

Butcher v Lachlan Elder Realty Pty Ltd (2004)

 The Defendant gave the Plaintiff a brochure about the house, which had some false statement with
regards to the ability to renovate.

 However, the brochure also expressed that the Defendant is not totally sure of what is represented
(disclaimer).
 The Plaintiff alleges that the brochure constituted misleading or deceptive conduct and he is
entitled to damages or an order under the statutory law
 the disclaimer was significant. Although it was in rather small print, there wasn't much text on the
brochure and any reasonable reader should have noticed it.

 Thus, the brochure doesn't even assert that the information is accurate, or that the agent is the
source of information.

 No misleading conduct, the Plaintiff fails.

Promises, Predictions, Forecasts and Representations as to the Future

- a person makes a representation with respect to any future matter  no reasonable
grounds for making representation unless evidence is adduced to the contrary
- the person does not have reasonable grounds for making the representation, therefore
misleading

Exclusion clauses, disclaimers, acknowledgments – cannot exclude liability for misleading

or deceptive conduct. However, an exclusion clause or disclaimer is part of the surrounding
circumstances which must be considered in determining whether conduct is misleading or
deceptive.

Causation and reliance

applicant to additionally establish that the loss or damage was caused by the misleading or
deceptive conduct
Losses incurred by the applicant cannot be recovered unless they were “caused or materially
contributed to” by the respondent. When misleading conduct consists of a representation,
reliance upon it will satisfy the need to prove a causal link between such conduct and the
applicant’s loss or damage.
“no reliance clauses”

UNCONSCIONABLE CONDUCT
S21 of Aus consumer law

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21 Unconscionable conduct in connection with goods or services

(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed
public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than
a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
(2) This section does not apply to conduct that is engaged in only because the person engaging in the
conduct:
(a) institutes legal proceedings in relation to the supply or possible supply or in
relation to the acquisition or possible acquisition; or
(b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or
in relation to the acquisition or possible acquisition.
3) For the purpose of determining whether a person has contravened subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably
foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the
commencement of this section.
(4) It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable conduct; and
(b) this section is capable of applying to a system of conduct or pattern of behaviour,
whether or not a particular individual is identified as having been disadvantaged by the conduct
or behaviour; and
(c) in considering whether conduct to which a contract relates is unconscionable, a
court's consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.

A person who signs a document which is known by that person to contain contractual terms,
and to affect legal relations, is bound by those terms, and it is immaterial that the person has
not read the document.
A person must not engage in conduct that is unconscionable (action so unreasonable it defies
good conscience)  But a distinction between adopting an “opportunistic approach to strike
a hard bargain” and “acting unconscionably”

Unconscionable conduct where the conduct can be seen in accordance with the ordinary
concepts of mankind to be so against conscience that a court should intervene. At the least the
conduct must be unfair

The “fairness” doctrines

- Unconscionability
• a party can act in self-interest provided not exploitative

- Good faith
• a party can act in self-interest but must have regard to the legitimate interests
of the other
- Fiduciary duties
• a party must act in the interests of the other

The Unconscionability Criteria

 Not exclusive – the court may have regard to other matters

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 Not mandatory – the court may have regard to the listed matters
 No special weighting is given to any criterion
 An individual matter cannot be regarded as a gateway to relief
 Have a crucial influence in unconscionability but do not offer clear guidelines for the
concept of unconscionability
 Included to offer a “better prospect for establishing an efficacious doctrine of
unconscionability” than simply granting the court a discretion to set aside
unconscionable contracts without providing any guidance as to what
unconscionability entails.

ACCC v Samton Holdings

The ACCC alleged that, after the failure of the tenant to exercise an option to
extend the term of a lease, the tenant was required to pay $70,000 to Samton
Holdings for the assignment of a lease for seven years. The ACCC believed the
tenant was at a special disadvantage because of his financial dependence on
extended tenure of the business premises and because of the level of debt. The
ACCC alleged it was unconscionable for Samton Holdings and the individuals to
take advantage of their superior bargaining position to obtain the $70,000 from
the tenant.

Hart v O'Connor
Old man sold farm at very low price and buyer only had to be paid in two year. Brothers of
old man who also owned farm, found out. Oldie has dementia  unconscionable to make
decision and won the case in court

UNFAIR CONTRACT TERMS

Standard form contracts are often offered on a ‘take it or leave it’ (non-negotiable) basis
can be one-sided and have terms that are embedded in fine print. As some parties can lack the
resources or skills to fully understand the implications of contract terms, businesses that offer
standard form contracts have an incentive to include ‘unfair’ terms, that is, terms that
advantage their position beyond their legitimate business interest and, if exercised, can cause
detriment to the other party. Ask:
– is it a small business contract?
– is it a standard form contract?
– Is it unfair?
ACCC v Simply No Knead

 unreasonably refusing requests from the franchisees to negotiate matters

in dispute with SNK and to discuss matters of concern to the franchisees;
 producing and distributing advertising and promotional material which
omitted the names of the franchisees and their franchised businesses;
 selling and offering to sell its products in the territories of the franchisees
and in areas proximate to their territories; and

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 refusing to provide current disclosure documents to the McKinnon,

Heidelberg and Canterbury franchisees in response to written requests.
This item was also alleged to be a contravention of s.51AD of the Act,
regarding compliance with an applicable industry code, namely, the
Franchising Code of Conduct which is a prescribed mandatory industry
code.

Week 5 - tort
A tort is – a wrongful act that leads to civil liability
– A tort is a breach of duty imposed by law, as opposed to duty imposed by agreements

Law of torts
– a range of different and discrete torts
– an area of judge made law with minimal legislative interference
– all torts involve an unlawful interference with the interests of other recognised by the
law whether intentional (eg deceit) or unintentional (eg negligence)
Include:
- Economic interests (e.g. breach of contract)
- Property Rights (e.g. trespassing)
- Personal Rights (e.g. assault)

TORT OF NEGLIGANCE

Donoghue v Stevenson [1932] AC 562 go lec slides

Issue: No contract action against retailer (as did not buy drink) or manufacturer but did the
manufacturer of an article intended for consumption and contained in a receptacle which
prevented inspection owe a duty to the ultimate consumer?
‘A manufacturer of products which he sells in such a form as to show that he intends them to
reach the ultimate consumer in the form in which they left him with no reasonable possibility
of intermediate examination, and with the knowledge that the absence of reasonable care in
the preparation or putting up of the products will result in an injury to the consumer’s life or
property, owes a duty to the consumer to take that reasonable care’

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is a form of carelessness recognised by law which carries legal consequences

1. Duty of care
2. Breach of care
3. Damage cause by lack of care
– imposes a duty on every person to take reasonable care not to cause harm to their
“neighbours”; (e.g. car accident, workplace injury)
– only fault NOT ‘no fault’
– as society develops and becomes increasingly complex there are increasing
opportunities for unintentional harm  the law of negligence (being largely judge-
made) develops gradually, responding to societal change; not confined judicially
– The defendant owed the plaintiff a duty of care
– The defendant fell below the required standard of care (breach of duty) by a
negligent act or omission
– The Plaintiff suffered damage:
– Caused by the breach of duty
– Not too remote (could reasonably have been foreseen)
–

Insurance
– common practice of insuring against liability
– introduction of compulsory insurance schemes (eg Greenslip)
– “fault” v “no fault” liability
– introduction of “no fault” compensation schemes

DUTY OF CARE
– the role of the duty of care
– question of law
– standard categories and novel situations
– determining the existence of a duty of care
– precedent  is there sufficient proximity to create duty of care?
– Policy  factors that negate/limit duty of care?
– the question of liability for negligence cannot arise at all until it is established that
there is a duty of care [owed to the plaintiff by the defendant]
– a person is not liable for damage to another unless a duty of care is owed
– the duty of care is the “filter” which determines what duties are owed, and to whom,
and when in contemporary society

Reasonable foreseeability test – basis of finding duty of care; a necessary but not sufficient
condition
proximity test – analysis focuses on whether the defendant was 'dangerously close' to
completing the crime or 'so near to the result that the danger of success is very great.'
Later rejected as appropriate test
salient features test - Current test places emphasis on “salient features”:
– reasonable reliance by plaintiff on the conduct and protection of the defendant
– vulnerability of the plaintiff
– whether the defendant has voluntarily assumed responsibility for protecting
the plaintiff against harm
– capacity of the defendant to control the situation
–

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Salient features test: After

recognising the category, you must explore certainty, coherency and
vulnerability. These are listed below including other general categories. This test is still used
and is the contemporary test:

- Nature of harm;
- Control;
- Vulnerability (could the Plaintiff have done anything to protect themself).;
- Reliance of plaintiff on defendant;
- assumption of responsibility;
- Physical or relational closeness;
- Nature of Risk or Danger;
- Knowledge by defendant of plaintiff or class;
- Indeterminacy (the flood gates argument);
- Autonomy and freedom;
- Coherence with other laws;

High Court currently use Reasonable foreseeability and salient features

5I No liability for materialisation of inherent risk

1) A person is not liable in negligence for harm suffered by another person as a

result of the materialisation of an inherent risk.
2) An "inherent risk" is a risk of something occurring that cannot be avoided by
the exercise of reasonable care and skill.
3) This section does not operate to exclude liability in connection with a duty to
warn of a risk.

Breach of duty of car - a defendant breaches his/her duty of care if he or she fails to do what
a reasonable person would have done in the same circumstances  this is negligence

Foreseeability
– The defendant need only take precautions against foreseeable risks
– Liability for negligence arises when there is a failure to take precautions against the
reasonably foreseeable risk of causing harm. In other words, tort law only requires
people to take reasonable precautions against risk that are reasonably foreseeable
– Risk a reasonable person would have foreseen

key elements
– Probability – “Many foreseeable risks are extremely unlikely to happen and
cannot be guarded against except by almost complete isolation”
– Bolton v Stone [1951] AC 850
Miss Stone was hit on the head by a cricket ball that had been hit out of a cricket
ground during a game. Evidence that a cricket ball had only been hit over the
fence about 6 times in long history of the club. Reasonably foreseeable but not a
significant risk.
“Many foreseeable risks are extremely unlikely to happen and cannot be guarded
against except by almost complete isolation” per Lord Oaksey

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“I think that reasonable men do, in fact, take into account the degree of risk and
do not act on a bare possibility as they would if the risk were more substantial”
per Lord Reid
Held: risk of someone being injured by being struck by a cricket ball hit out of the
cricket ground was so negligible/small that a reasonable man would have ignored
it
– seriousness of risk – Employer’s duty to take reasonable care for the safety of
employees is related to both the risk and the degree of injury
– burden of precautions – Did the Respondent owe a duty of care to the
Appellant? Was there a breach of duty of care?
– social utility of the risky activity
– Romeo v Conservation Commission of the Northern Territory [1998] HCA 5
Facts
Romeo fell off the cliff-edge in a coastal reserve which was controlled and
managed by the defendant/respondent. Earlier, Romeo had been drinking alcohol
at the car park situated at the top of the cliff, the perimeter of which consisted of
low log fencing.
Issues
Did the Respondent owe a duty of care to the Appellant?
Was there a breach of duty of care?
should the cliff top have been fenced?
should warning signs have been erected?

Given the prominence of the danger, past usage of the site and accident experience it was
not reasonable to expect the defendant to anticipate the inadvertance of the plaintiff in this
case
The proposition that such precautions were necessary to arrest the passage of an
inattentive young woman affected by alcohol is simply not reasonable. The perceived
magnitude of risk, the remote possibility that an accident would occur, the expense,
difficulty and inconvenience of alleviating conduct and the other proper priorities of the
Commission confirm the conclusion that breach of the Commission's duty of care to the
appellant was not established. The Commission's failure to provide protection against the
risk that occurred was not unreasonable”.

DAMAGE
– The defendant is only responsible for damage that was:
– caused by the breach of duty
– not too remote

Defences to negligence
– Contributory negligence:
– Damage are reduced to the extent that the plaintiff contributed to their own
loss
– Voluntary assumption of risk:
– The plaintiff fully comprehended the risk involved and consented to the risk of
injury
– This is a complete defence.
– Disclaimers

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Vicarious liability – Employers are vicariously liable for the torts committed by employees
acting within the scope of their employment.
control test specifies that the greater degree of control one has over another, the more likely that he will be
vicariously liable

Prince Alfred College Incorporated v ADC [2016] HCA 37

school may be vicariously liable for sexual assaults perpetrated by its teachers,

In 1962 the respondent, ADC, was sexually abused by his housemaster, Dean Bain. ADC
was then 12-years-old and a boarder at PAC. Bain was employed by PAC as a
housemaster.

In December 2008 ADC brought proceedings against PAC in the Supreme Court of South
Australia.

The Full Court of the South Australian Supreme Court in A, DC v Prince Alfred College
Inc [2015] SASCFC 161held that PAC was vicariously liable for the assaults committed by
Bain because of the "close connection" between the boarding master and the opportunity to
abuse, given the relative power, intimacy and authority he had at the college

NEGLIGENCE CAUSING PURE ECONOMIC LOSS

Pure economic loss refers to financial loss that is not a result of direct physical injury or
property damage and is more commonly associated with business and commercial activities

Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad

[1976] HCA 65
– a dredge damaged an oil pipeline in Botany Bay in Sydney while digging up the floor
of the bay to deepen the water
– the damaged oil pipeline resulted in Caltex incurring significant cost in using
alternative means of transporting oil
– NOTE: Caltex did not own the oil pipeline. What would be the difference if it did?
– the particular relationship...was such that both the dredge [Defendant] and Decca owed a duty of
care to Caltex to take reasonable care to avoid causing damage to the pipeline and thereby
causing economic loss to Caltex

Purely economic loss is now recoverable in certain situations including:

– Relational interests: distinct interest/relations with others
– a relational interest exists where the plaintiff is not directly affected by
the defendant’s actions but is a third party to the negligent event who
becomes affected, secondarily, because of his or her relationship with
the primary victim.
– Negligent misstatement: claim which is brought by one party against
another who was negligent

Economic loss caused by negligent misstatement is recoverable where:

– a special relationship exists between the parties
– the defendant accepted responsibility in the circumstances of the advice

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– the plaintiff relied upon the misrepresentation.

Where a representor gives information or advice on a serious or business matter, intending

thereby to induce the representee to act on it, the representor is under a duty of care in giving
that advice or information if three conditions are satisfied.
1. First if the representor realises or ought to realise that the representee will trust in his
especial competence to give that infromation or advice;
2. Second if it would be reasonable for the representee to accept and rely on that
information or advice
3. Third if it is reasonably foreseeable that the representee is likely to suffer loss should
the information turn out to be incorrect or the advice turn out to be unsound

Week 6 – business structure

Issues of accountability and transparency (corporate governance practice) are critical
How shareholder rights are protected
The Corporation is separate to the Actors (e.g. shareholders, employees)

A company is a type of corporation (group of people united for a common purpose); device
by which rights, powers, duties and liabilities may be attributed to fictional entity (equated to
a natural person)  legal vs natural person

A company is an artificial entity (IT IS MERELY ONE TYPE OF CORPORATION)

through legal process of incorporation (company registration) to create a recognised
separate legal person, with own rights and liabilities. Acquires right/liability of the acts of
those behind it. Possible to have a company with one member/shareholder/director.

Members/proprietors are either original shareholders or transferee shareholders

Directors are the managers of the company (can be both members and directors)

Life-cycle: birth, creation of registered corporation, normal ops, abnormal ops, winding up
(selling assets), deregistration

Corporation Act 2001 (Cth.) draw halo. Contemporary cases care more about meaning of
words in act

Corporations Law is the area of law that regulates “corporations”, compromised of:
CORPORATIONS LAW = Statute Law + General Law
Statute Laws/Corporations Legislation:
• Corporations Act 2001 (Cth)
• Administered and enforced by ASIC Act 2001 (Cth)
• Rules of court (federal courts and state courts)
General Law
• the principles and rules of the Common Law and of Equity
• principles and rules derived from Case Law through precedent and the application and
interpretation of the Statute Law

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Corporate law developed to regulate relationship between corporations and participants,

states and those who the corporation has dealings. Designed for large companies but features
also attractive to small business. Listed companies don’t make up large % of corporations;
most are private/propriety companies.
It is important due to regulation, tax, money

Contingency factors - is a provision that the cost estimator makes to cover unforeseeable
expenses the project may incur
• Size and ability to expand business
• Establishment and operating costs involved
• Exposure to liabilities at an individual level
• Ability to participate in management and scope of control
• Taxation considerations
• Privacy/accountability considerations

UNINCORPORATED – sole trader, business held in persons name and is not separate
ownership and management. Assets and liability cannot be separated from the individual
owner
Profits need not be shared, need name and ABN registration
Personally liable and high degree of commercial privacy
Can include partnership association but only for commercial purposes in a joint profit
making process  members can be artificial legal person with capacity to make partnership
contracts with each liable for amount of the contract (joint [either must pay full amount] and
several liability)
Become agents for each other
If ownership changes, partnership is dissolved and new one formed
If more than 20 partners, must incorporate
Unincorporated entities – If association’s common purpose does not include direct
acquisition of profit by members. May be an unincorporated non-profit association Not
aiming to make a profit (o/wise partnership), if it does must be used for assoc.
• Cannot hold property in its own name – must be held in names of individual
members of assoc (or as co-owners)
• Members cannot make contracts in association’s name
• Unable to sue/be sued in its own name
• Members not liable for debts like partners – creditors must look for payment
from those with whom they deal directly
• Unincorp’d assoc does not provide for limited liability
• sets out statement of common purpose, eligibility, rules for regulation of group
activities, provisions for election to run group
• figures as a contract b/w members unless contrary indication appears that no change
to legal relations intended

Sole trader
• Formation – limited formalities, low compliance, not sperate
• Liability – unlimited
• Transfer / Succession – difficult
• Management – individual
• Fundraising – limited to personal assets

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• Tax implications – personal tax

Partnership
• Formation – relatively informal, low compliance, not separate legal entity
(partnership deed required for certainty and to vary the operation of Partnership Act
1892 (NSW) – “PSA”)
• Liability – unlimited liability (partial exception: Limited Partnerships)
• Transfer / Succession – complex, requires unanimous consent of partners, valuation
• Management –
• Fundraising – difficult, limited by partners’ personal assets, partners’ personal ability
to borrow
• Tax implications – individual marginal tax rate
Trust
• Formation – complex structure, trust deed, not separate legal entity
• Liability
• Trustee: unlimited liability (indemnity from trust)
• Beneficiary: limited to share in trust / fiduciary of trustee
• Transfer / Succession – complex, subject to trust deed
• Management – trustee (in accordance with trust deed)
• Fundraising – difficult (subject to trust deed)
• Tax implications
• Beneficiaries: individual marginal rates
• Trustee: penalty rates (top marginal rate)
Company
• Formation – registration with ongoing compliance, separate legal entity
• Types – proprietary or public (may be “special purpose company” for not-for-profit
purposes)
• Liability – liability (except for unlimited liability companies)
• Transfer / Succession – generally simple (e.g. transfer of shares – can be subject to
board discretion)
• Management – by directors
• Fundraising – security interests, mortgages, securities (Ch 6D)
• Tax implications – Income Tax implications

INCORPORATED – companies differs from an incorporated non-profit association in that:

• Can also hold property in its own name
• If intends to trade or engage in business or make profits and distribute to members,
cannot incorporate under Associations Incorporation Act
• Associations (unincorp’d or incorp’d) not business organisations, like say sole
proprietor or partnership
Company forms – Creation or incorporation (process of becoming a body corporate)
effected through registration by ASIC
• Companies usually classified according to liability or public status (public or
proprietary, sometimes called private…)

Salomon v A Salomon and Co Ltd [1897] AC 

Salomon transferred his business of boot making, initially run as a sole
proprietorship, to a company (Salomon Ltd.), incorporated with members
comprising of himself and his family.

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the liquidator, on behalf of the unsecured creditors, alleged that the

company was sham, was essentially an agent of Salomon, and therefore,
Salomon being the principal, was personally liable for its debt. In other
words, the liquidator sought to overlook the separate personality of
Salomon Ltd., distinct from its member Salomon, so as to make Salomon
personally liable for the company's debt as if he continued to conduct the
business as a sole trader.
Pierced corporate veil  The Court of Appeal, declaring the company to be a
myth, reasoned that Salomon had incorporated the company contrary to
the true intent of the then Companies Act, 1862, and that the latter had
conducted the business as an agent of Salomon, who should, therefore, be
responsible for the debt incurred in the course of such agency.

Establishment of the veil as protection  The House of Lords, however,

upon appeal, reversed the above ruling, and unanimously held that, as the
company was duly incorporated, it is an independent person with its rights
and liabilities appropriate to itself, and that "the motives of those who
took part in the promotion of the company are absolutely irrelevant in
discussing what those rights and liabilities are".3 Thus, the legal fiction of
"corporate veil" between the company and its owners/controllers 4 was
firmly created by the Salomon case.

Proprietary companies Limited by shares

Unlimited with share capital
Public companies Limited by shares
Limited by guarantee
Unlimited with share capital
No liability company

Unlimited company – Separate legal liability, must have share capital but members have no
limit placed on their liability. Members liable for all debts in winding up without limit if coy
has insufficient assets to meet debts; joint and several liability so can be liable for full amount
if other shareholders can’t pay

Limited by shares – Most common, 99% of all coys. Formed on principle of having liability
of members limited to amount, if any, unpaid on shares held. Shares usually paid in full at
time of issue, but can be issued as partly-paid shares – some on allotment remainder in
instalments when ‘called up’

Limited by guarantee – Nearly all companies limited by guarantee are not-for-profit

organisations, which raise funds from outside sources, donations, subscriptions, public
appeals, social activities
- Liability of members limited to amounts members have undertaken to contribute
to property of company in event of winding up

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- Does not have share capital. Members not required to contribute capital to coy
while operating, but if wound up and assets insufficient to meet liabilities,
members liable to pay up to level of guarantee
- no need to contribute any capital until winding up, so no injection of working
capital when coy formed or new people become members
- retain advantage of being legal entities – liability limited to amount of guarantee

No liability company
• acceptance of shares in NL coy, not a contract to pay calls or contribute to
debts/liabilities of coy
• Developed for use in speculative mining sector
• not entitled to calls on the unpaid issue price of shares

Proprietary and public companies

More onerous obligations on public companies b/c disclosure and investor protection
important where large no’s of s/h may exist…Pty usually small no of s/h: not as heavily
regulated
• All coys whose members have ltd liab must have Ltd in name
• To distinguish small closely held coys conducting small scale busns enterprises from
larger pty coys, often subsidiaries of public coys  Sml subject to fewer requirements
in relation to preparation, lodgment and audit of fin reports

Propriety (Pty.) less than 50 non-employee shareholders. Cannot engage in any activity
requiring disclosure under Ch6D (eg issuing shares or debentures), unless to existing s/h or
e’ee
Public – anything other than a Pty Coy; obligated to AGM, lodge financial reports, 3Ds, 1
secretary
• More suited to large businesses which require many investors to participate in
fundraising: greater disclosure obligations exist
• Whole point of distinction to ensure reduced regulatory burden on smaller businesses
– larger coys need more onerous accountability obligations for public policy reasons
(protection of creditors and investors)
• Public coys may be listed or unlisted, but all coys on ASX are public coys
• Greater ability to raise funds and grow larger business
Listing
• Once listed may be bought and sold freely – organised, liquid, transparent
• Helps coy to raise additional capital – investor preference for liquidity  lower cost
of capital (less risk)
• Meet test of profit and asset value to ensure viability. Further admission fees

Lee v Lee’s Air Farming (1961)

• Mr Lee was a director of Lee’s Air Farming Ltd – crop dusting business
• Mr Lee was also a pilot who performed crop dusting for the company (i.e. a worker)
• While performing crop dusting, Mr Lee was killed when his plane crashed. Mr Lee’s
widow made a claim for workers’ compensation
• Insurer argues Lee was not a “worker” because, as
governing director, he could not give directions to
himself as chief pilot
• Issue - could Mr Lee be both the controller of the
company and its employee?

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• On the basis of Salomon’s case, the Court held that:

• A company (Lee’s Air Farming Ltd) is a separate legal entity (from Mr Lee)
• A company can create contracts, including contracts for services (contractor)
and contracts of service (employee)
• As a director, Mr Lee could make an offer of employment on behalf of the
company
• As a person, Mr Lee could accept that offer of employment
• Mr Lee was a director of the company and also an employee of the company –
workers’ compensation was payable for death at work

Registration
• Creation or incorporation (process of becoming a body corporate) effected through
registration by ASIC whether operating in one state, territory, nationally
• Already in existence but has not yet traded – name change and shares transferred

The Corporate veil

• limited circs courts have been willing to lift the veil and treat coy + participants as
same person
• Existence of coy accepted, but instead of coy remaining opaque it is made transparent
so that in a proper case the persons behind it can be seen as the persons to whom the
corporate right, privilege, duty or liability can be ascribed
• Fraud – if coy used as vehicle for fraud
• Avoidance of legal obligations –sham to avoid under C or statute Gilford
Motor Co Ltd v Horne [1933]
Previous employment contract said he could not poach/solicit customers. When fired set up
business in wife’s name and poached these customers. Corporate veil was lifted so that
Gilford could be tried for breach onf contract
I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the
effect carrying on of a business of Mr EB Horne. The purpose of it was to enable him, under what
is a cloak or sham, to engage in business which, on consideration of the agreement

•
• Assistance with breach of fiduciary duties
• Can be pierced by statute:
• Insolvent trading: s588G
• Uncommercial transactions s588FB (not explainable by normal commercial
practice)
• Unreasonable director related transactions (including payments, transfer of
property or issue of securities) made in favour of a director or close associate
in circumstances where a reasonable person in the company’s position would
not have entered into the transaction

Consolidated fin statements – treats all members of corporate group as single entity to
provide more meaningful info to investors/mkt:
Corporate group as taxpayer – single consolidated tax return for entire group – parent coy can
lift veil and treat corporate group as single taxpayer

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WEEK 6 – JESURAN:
What is a corporation and why has it flourished?

What are companies popular legal structures for conducting business?

How are companies managed and what are the duties of company officers?

Why have accountability and transparency issues (that is corporate governance practices)
emerged as issues of critical importance?

How are shareholders’ interests legally protected?

Most importantly for our purpose, what role does the law play in answering these questions?

What is a corporation?
Corporation – group of people united for a common purpose (Latin: corpus = body)
 device by which rights, powers, privileges, immunities, duties, liabilities, attributed to a
fictional entity

What is a company?
An artificial entity created by the law through the process of incorporation and recognised
as a separate legal person with its OWN rights and liabilities.
 merely one TYPE of corporation  done through process of company registration
- Possible to have company with 1 member/shareholder/director

CASE ON SEPARATE ARTIFICAL ENTITY: SALOMAN VS SALOMON & CO LTD

[1897]

Salomon initially operated his boot-making business as a sole trader  created a new
company called Salomon Ltd under Companies Act 1862 (UK). Sold cobbling business to
newly created corporation for 39 000 pounds, since business did not have sufficient funds,
Salomon lent purchase price to corporation, secured by 10k pounds in debentures.
Additionally, sought 5k pound loan from lender secured by half debenture. When cobbling
business liquidated, Salomon’s claim to debentures preceded claims of unsecured creditors


Members
- Original shareholders (corporators) who begin company, or
- Transferee shareholders – purchase shares from an original shareholder
- Members / proprietors
- Directors – are managers of company

Re’g coy is a legal structure

Developed through CL + legisl

Life Cycle of a Coy:

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(Corporator/s + ASIC:s119, creation, normal operation, abnormal operation, winding up

(selling assets, creditors, shareholders if any left), deregistration).

Corporations Act 2001 (Cth) , ASIC Act 2001 (Cth)

Contemporary cases more about meaning of words in CA
Separate legal entity / perpetual succession

Corporations Law – area of law that regulates “corporations”

General Law = Common Law + Equity
Statue Law – administered and enforced by ASIC (DPP Director of Public Prosecution, re
crime)
CORPORATIONS LAW = Statue Law + General Law

- Regulate relationship between coy and:

 Participants
 State
 Those with whom coy has dealings – creditors, customers etc
Listed – small percentage
Mostly unlisted, private, or proprietary companies

Contingency Factors: (anything that cannot be accurately predicted/forecasted in future)

- Size and ability to expand business
- Establishment and operating costs involved
- Exposure to liabilities at an individual level
- Ability to participate in management and scope of control
- Taxation considerations
- Privacy/accountability considerations

Unincorporated entities:

SOLE TRADER:
- Sole proprietor as sole trader – simplest form
- Business held in person’s own name – no separate body, assets and liabilities of
business, cannot be separated from individual owner
- No real separation of ownership and management – proprietor personally liable for
debts of business
 Unlimited liability, no protection of things go wrong

PARTNERSHIPS:
‘relation which subsists between persons carrying on a business in common with a view to a
profit’ – in association for commercial purposes
- Collection of individual traders, come together for joint profit making = partnership
- Individual partners own assets and incur obligations in own names
- Agents for each other (one can incur, all others responsible)
- Right to be partner – cannot be assigned without unanimous consent
- Profit taxable in hands of individuals – income tax
- Joint (if one cannot, other must) and several liability (split up)
 No legal existence separate from partners

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Unincorporated Associations:
- If association’s common purpose DOES NOT include direct acquisition of profit 
NOT a partnership
- Constitution, statement set out for purpose, eligibility, rules ec

Incorporated Entities:

Incorporated Associations:

COMPANIES:
No

liability – only for mining companies (due to risk)

Limited by Shares:
- Most common, 99% of all coys
- Liability of members limited to amount, if any, unpaid on shares held
- Personal guarantee to finance – no real ltd liability

Public companies – more onerous obligations, disclosure and investor protection, large no.
of shareholders, financial reports

Proprietary – max 50 non employee shareholders

Large vs small

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IGR – internal governance rules

Week 7 relationship in
business
Employees
- Employed under a contract of service
- Express and implied terms
• Supplemented by minimum wages conditions in enterprise agreements
(negotiated/tailored for particular enterprises) or awards (safety net for
particular industries/occupations).
- Minimum standards set by National Employment Standards
• State workplace health and safely laws
• State workers compensation laws – “no fault” schemes under which employees
suffering a workplace injury are compensated without having to prove negligence on
the part of the employer
• Employees vicariously liable for acts of employees acting in the course of their
employment

Independent contractors
• Engaged under a contract for services
• Not employees and not entitled to the statutory protections conferred on employees
• No vicarious liability in respect of their conduct

Control test – does the person who pay control what they do
Integration/organisation test – work is done as ‘an integral part of the business’ or whether it
is merely an accessory to it

Agency
• Agency is a relationship that arises when one person (the Principal) authorises
another person (the agent) to act on the Principal’s behalf
Types:
• Universal - person authorized to transact all the business of his/ her principal of every
kind
• General – authorised to act for several principals in normal course of business
• Special -

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• Del Credere - agent acts not only as a salesperson or broker for the principal, but also
as a guarantor of credit extended to the buyer.

Source of authority
• Actual
• Express actual authority
• Implied actual authority
• Apparent/Ostensible – principal’s conduct lead to reasonable person believing the
agent was authorized
• Ratification – principal has to give consent for the agent to act
• Operation of law

Licensing
… a contractual arrangement pursuant to which a party/licensor, grants to another
party/licensee, the right to use the licensor’s patents, know-how and/or trade marks in
connection with the manufacturing and/or distribution of a certain product.

Franchising
The Franchising Code of Conduct Competition and Consumer Act 2010 (Cth)
2014 Franchising Code of Conduct
6 Obligation to act in good faith
Obligation to act in good faith
(1) Each party to a franchise agreement must act towards another party with
good faith, within the meaning of the unwritten law from time to time, in respect of any
matter arising under or in relation to:
(a) the agreement; and
(b) this code.

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 ACCC v Kyloe Pty Ltd [2007] FCA 1522

Argued that they were just a sub-distributer and not a franchise as no agreement was made
involving business plans

Franchising is essentially a strategy for cloning a business through the replication of proven
management and business systems.

as a marketing strategy
– “…the dominating force in the distribution of goods and services”
Bullet point
– “…the single most successful marketing concept ever”
as a financing strategy
– “…one of the greatest inventions of western capitalism”
as a management strategy
– “…the most dynamic business arrangement since the emergence of the corporation’

An agreement incorporating:
• system or marketing plan substantially determined, controlled or suggested by
franchisor (or associate)
• business substantially or materially associated with franchisor's trade mark,
advertising or commercial symbol
• payment of fee
• Franchise agreements are “not ordinary contracts” but “contracts giving rise to
long term mutual obligations in pursuance of what amounted in substance to a
joint venture and therefore dependent upon coordinated action and co-
operation”

a sui generis(different/unique) contract between independent contractors which resembles,

but is legally distinct from partnerships, employment, agency, joint venture

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First Generation Franchising:

• Franchisor provides product/ ingredient/ know-how and trademarks but does not
prescribe detailed operational formats
• Essentially exclusive, branded distribution arrangements
• Includes product distribution and manufacturing/processing/ distribution
arrangements

Second Generation Franchising

• Key to the development of business format franchising was the realisation that
elaborate business formats and management systems could be cloned
• Characterised by an ongoing and comprehensive business relationship

A franchisor develops a unique or individual manner of doing business AND Permits the
franchisee to use that system, in a controlled fashion, in the operation of the franchisee’s
independently owned business

Franchising Benefits
Franchising is an increasingly popular form of economic organisation providing an
alternative means of:
• expanding an existing business (franchisor)
• entering an industry (franchisee)

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Benefits for the franchisor flow from:

‫ ־‬Capital furnished by franchisee
‫ ־‬Motivated management of franchisee
Benefits, for the franchisee flow from provision of:
• The entire business concept
• A process of initiation and training in all aspects of running the business,
according to the concept; and
• A continuing process of assistance, support and guidance.

Economic Impact
• The franchising sector contributes substantially and beneficially to the strength of the
domestic economies
• Enhances the viability and efficiency of small businesses
• Encourages entrepreneurial activity
• Creates new business units, new entrepreneurs, new jobs, new services, new export
opportunities
• Enhances and encourages competition

Commercial Impact
• Provides training in managerial and service skills for franchisees and staff
• Incorporates technology and skills transfer
• Raises standards of business operations and customer service
• Encourages development of supply line logistics and supporting services
• Consistency in standards and quality
Social Impact
• Encourages diversity and the servicing of niche markets
• Delivers greater consumer choice, confidence and convenience
• Promotes consistent quality in the system’s products and services
• Provides a way to purchase known goods and services in a reliable and predictable
manner
• Provides benefits of proprietorship to those franchisees who would otherwise be
employees

International Impact
• Internationally expanding systems bring more than their distinctive branded products
• Transfer knowledge
• New technologies
• New ideas
• New standards
• New ways of thinking about business
• Promote private sector entrepreneurship
• The catalyst for local franchise development
• Particularly significant in developing countries

The Franchising Code of Conduct

The franchising sector is “contributing substantially and beneficially to the strength of the
Australian economy”.

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BUT:
– “unfair conduct by franchisors is a major concern”
– information imbalance - differing expectations about the obligations of each
party
– power imbalance - asymmetric power dynamic within franchise relationships
has potential to lead to abuse of power
– loss of independence

Competition and Consumer Regulation

Prior Disclosure
› disclosure is the principal regulatory strategy to redress the information imbalance
inherent in the franchise relationship
› prior disclosure has emerged as the appropriate regulatory strategy for addressing
opportunistic conduct issues
› primary focus of proposed reforms is not to eradicate unfairness but to provide
information necessary for franchisees to make an informed assessment of the
opportunity and the risks

Advice and certification

At least 14 days before franchise agreement entered into or non-refundable payment made
franchisor must provide:
– Franchising Code of Conduct
– Disclosure Document
– Agreement in the form it will be executed
Franchisee must certify re
– Documentation received
– Independent advice

Conduct
– A seven day cooling off period
– Freedom to associate with other franchisees
– Prohibition on general release of the franchisor from liability or waiver of franchisor
representation
– Restrictions on franchisor right to terminate – notice and opportunity to remedy
– Right of franchisee to transfer the franchise subject to franchisor consent which can
be withheld only on reasonable grounds

Dispute Resolution
– Franchise agreement must provide for a complaint handling procedure
– Mediation a prerequisite to litigation or arbitration
– Parties must act in good faith in attempting to resolve the dispute

2008 Opportunity not Opportunism Report

– Information imbalance
– “prior disclosure obligations are for the most part adequately addressed”
– Power imbalance

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– concerns because of the “continuing absence of an explicit overarching

standard of conduct”
– …“interdependent nature of the franchise relationship leaves the parties
vulnerable to opportunistic conduct”
– recommended standalone “good faith” obligation
– Rejected by government as “uncertain” - “undefined obligation could have
adverse commercial consequences for franchisees”

Refining the regulatory scheme: the 2014 Franchising Code of Conduct

Led to introduction of new 2014 Franchising Code of Conduct with significant reforms:
– the introduction of pecuniary penalties for certain Code breaches
– a new general duty for franchisors and franchisees to act in good faith
– Provision of an “Information Statement”
– Capital expenditure reforms; and
– New requirements regarding end of term restraint clauses
Obligation to act in good faith
– (1) Each party to a franchise agreement must act towards another party with good
faith, within the meaning of the unwritten law from time to time, in respect of any
matter arising under or in relation to:
– (a) the agreement; and
– (b) this code.
Information statement to prospective franchisees
Capital expenditure
– A franchisor is prohibited from requiring a franchisee to undertake significant capital
expenditure
– Exemptions:
– disclosed in Disclosure Document
– franchisee, or majority of franchisees, agree
– necessary to comply with legislative obligations
– considered by franchisor to be necessary a capital investment in the franchised
business justified by written statement to each affected franchisee
Marketing and advertising fees
– franchisor must maintain a separate bank account for marketing and advertising fees
– fees to be paid on same basis for franchised and company –owned outlets
– funds to be used only for disclosed purposes unless expenditure agreed to
End-of-term arrangements
– no right to renew, no requirement of good cause for non-renewal, no entitlement other
than contractual to franchisee goodwill
– requirement to disclose process that will apply in determining end-of-term
arrangements including whether or not there is a right of renewal f
– franchisors to give 6 month’s notice of non-renewal
End-of-term restraints
Any restraint of trade clause will not be enforceable if franchisor does not renew an
agreement without paying genuine compensation if the franchisee
– wishes to have the agreement renewed
– is not in breach of the agreement
– abides by all confidentiality clauses and does not infringe franchisor’s IP
Dispute resolution

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– a new dispute resolution framework to allow disputes to be dealt with by an internal

dispute resolution procedure while preserving mediation option
– franchise agreements cannot require mediation or litigation to take place outside the
state in which the franchised business is based
– franchise agreements cannot require franchisees to pay franchisor’s costs

Week 8 – Intellectual property

protection
INTELLECTUAL PROPERTY
Statutory protection of intellectual property

Copyright
Collection of rights conferred by the Copyright Act 1968 (Cth)
 Protection from copying is granted for 70 years.
 Protection is automatic on the particular work being created.
 Copyright does not protect ideas, only the form in which they are expressed.
 The basic prerequisite for copyright is that the work be ‘original’ in the sense of not
copied and not in the sense of requiring quality or style.

Dallas buyers club LLC v iiNet limited

Dallas attempt to obtain info on customers of various Aust internet providers who allegedly
engage in piracy; in an attempt to coerce parties to settle in court rather than risk being sued
 case thrown out due to large money being claimed

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Fair use – using copyrighted material without seeking permission due to balance with public
interest in wider distribution

PATENTS

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In Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd [2017] FCA 250 the Federal Court
has awarded damages of over $25m to Bayer
By way of background, Bayer holds a patent which protects an oral contraceptive which it
markets as "Yasmin". In 2012 Generic Health entered the market with a competing oral
contraceptive product known as "Isabelle". Subsequently, Bayer also marketed its own generic
product under the name "Petibelle".
Bayer elected to seek damages for patent infringement, rather than an account of profits. In
support of its claim, it argued that every sale of Isabelle, and of its own generic Petibelle, was in
reality a lost sale for Yasmin.

Note// for (a) manner of manufacture is opposite to discovery (hence discovery cannot be
patented)

PROTECTING BUSINESS GOODWILL

Targetts Pty Ltd v Target Australia Pty Ltd [1993] FCA 191
 As its name might suggest, this case arose from a dispute between two traders using
very similar names and very similar logos.
 The applicant Targetts Pty Ltd has for many years carried on a retail clothing and
footwear business in Launceston.
 The respondent Target Australia Pty Ltd operates some 82 discount department stores
throughout mainland Australia and was about to commence trading in Launceston.
 Targetts claim that by so doing Target will contravene s 52 of the Trade Practices Act
1974 (Cth) (now s 18 of the Australian Consumer Law) and also commit the tort of
passing off.
Used TORT OF PASSING OFF as they deceived customers

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Trademarks
‘a sign used, or intended to be used, to distinguish goods or services dealt with or provided in
the course of trade by a person from goods or services so dealt with or provided by any other
person’ (s17 TMA)
Sign - ‘any letter, word, name, signature, numeral, device, brand, heading, label, ticket,
aspect of packaging, shape, colour, sound or scent’ (s6 TMA)

 Differentiate an enterprise’s goods or services from those of its competitors;

 Indicate the source or origin of the good or services;
 Represent and secure and goodwill of the enterprise;
 Serve as a symbol of the value or quality of the goods or services; and
 Build brand loyalty
Marks entitled to be registered
any “letter, numeral, device, brand, heading, label, ticket, aspect of packaging, shape, colour,
sound or scent”:
• which is used or intended to be used
• which can be represented graphically
• which is capable of distinguishing the applicant’s goods
or services in respect of which the trade mark is sought
to be registered from the goods or services of other
persons
• which is not substantially identical with or deceptively
similar to another person’s trade mark registration or
application for registration in respect of a similar or
closely related goods or services with an earlier priority
date

 the requirement of distinctiveness

• invented/ arbitrary
• suggestive
• descriptive/ geographic
• generic
marks may be “inherently adapted” to distinguish
 marks may not be inherently distinctive but may in fact distinguish through a
secondary meaning
• McDonald’s
• Australian School of Business
• Sydney Business School

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Registration is granted not to a trade mark in isolation but in relation to particular goods or
services distinguished by the trade mark.
Registration grants:
• exclusive rights to use the mark in relation to the goods and/or
services in respect of which it is registered
• exclusive rights to authorise others to use the mark in relation
to the goods and/or services in respect of which it is registered
Registration is for 10 years initially but can be renewed indefinitely
Removal if:
• improperly obtained
• non – use
• becomes generic

 A registered trade mark is infringed if:

- another person uses a trade mark that is ‘substantially identical with or
deceptively similar to the trade mark in relation to goods or services in respect
of which the trade mark is registered’: s 120(1), or
- a substantially identical or deceptively similar trade mark is used on goods or
services similar to those covered by the registered trade mark: s 120(2), or
- the registered trade mark is well known in Australia and another person uses a
substantially identical or deceptively similar trade mark (even in relation to
goods or services that are not of the same description as the registered trade
mark), if such use is likely to be taken as indicating a connection between the
infringer’s goods or services and the registered trade mark proprietor: s
120(3).

Unregistered trade marks

 Trade mark law has its origins in the protection, through “passing off”
action, which the common law developed to protect the reputation of a
proprietor of a distinctive mark used in business
 The tort of passing off and the statutory misleading or deceptive
conduct action protects traders by preventing their competitors from
“passing off” their goods or services as those of the mark’s proprietor
 Today the tort of passing off has evolved from an action to protect
goodwill in marks to a wider and more versatile action to protect
business reputation and goodwill more generally.

 Protection is nevertheless dependent on establishing reputation (which

may be limited to geographical area) and misrepresentation (which
may be removed by disclaimers) which may, “generate a mass of
difficult and expensive litigation”
 The registered trade mark system overcomes these difficulties through
allowing registration without proof of reputation which confers a
monopoly infringed by another who uses the same or similar mark on
the same or similar goods or services

• Trade mark systems are territorial (e.g. burger king and hungry jacks)

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• Even if a trade mark is a copy of an overseas registered mark the first applicant for
registration, or the first user of the mark, in Australia can become the proprietor of the
mark for the purpose of registration in Australia
• Opportunities for
› “passive name pirates” operating legally but perhaps unethically
› local enterprises whose adoption of a trade-marked name overseas may be
coincidental or serendipitous:
› to defeat the local claims of the owner of the foreign protected mark.
• Buying back the right to use “its” own name is common which disguises the extent of
the practice

Where a trade mark has not been used commercially in the marketplace
• A claim to ownership is found in “the combined effect of authorship of the mark, the
intention to use it upon or in connection with goods and the applying for registration”
• “Ownership” in this context does not mean that the applicant must have “invented”
the mark or can establish that it is novel
• It is sufficient that the mark was first adopted by the applicant as a trade mark for the
goods or services in question
• The fact that ‘another’s idea, word or design has been taken does not preclude an
application: the objection that “I thought of it first” has not of itself been a ground for
opposition

Registration of a trade mark may be opposed on the ground that

 there was a substantially identical or deceptively similar
trade mark;
 which had acquired a reputation in Australia;
 amongst a significant section of the public;
 such that use of the opposed trade mark would be likely
to deceive or cause confusion.
There is no requirement that the opponent should have used or even intended to use
the mark in Australia and the reputation need not relate to the exact goods or services
specified in the application

Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157
At the time of the litigation there were about 25 energy drinks currently available for sale in
Australia and sold in 250ml cylinder cans with silver a prominent colour on most.
Red Bull alleged misleading conduct and passing off by a competitor’s product, “LiveWire”,
arising from:
(i) the almost identical red, blue and silver colour scheme of the packaging of
both products;
(ii) the similar ingredient platforms of both products;
(iii) the similar design and layout of the front panels for both products, each
incorporating a diagonal thrust element counter-balanced by a horizontal line
element;
(iv) identical product container designs, being the distinctive 250 ml cylinder can;
and
(v) an almost identical positioning of both products in the minds of the target
market, each conveying associations of "youth, energy, vitality, strength and
the like", due to their colour, packaging and labelling.

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Although the names of the product were clearly different it was argued that the “gestalt” of
the Red Bull brand - the “overall identity of the brand as it relates to consumers including not
only the name, colour, physical properties and packaging, but also associations with the brand
and branding defects used to create associations, including its advertising and the ‘channels’
through which it sold - was a very significant factor. Red Bull’s expert witness argued that
many buyers of packaged goods recognize and differentiate between brands on the basis of
the overall look and feel of the product, and the total image of the product, where no single
brand identity element is dominant, and where the whole is greater than the sum of the parts,
such concepts falling within his description of the “gestalt” of the product. It followed that
where the “gestalt” of two products is almost identical, then without more information about
such “look-a-like” products, some consumers are likely to perceive them as comprising the
same brand and/or as derived from the same source”.
Held: the actions for misleading conduct and passing off were made out.

DESIGNS PROTECTION

PROTECTING TRADE SECRETS

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The IP regimes comprises common law and statutory mechanisms that recognise and protect
creative effort – the major components of which are:
 Patents for inventions for new or improved products or processes
 Trade marks for words, symbols, logos, sounds, smells, shapes, colours which
distinguish the goods and services of one trader from those of another
 Designs for the shape or appearance of manufactured goods
 Copyright for original material in literary, dramatic, artistic or musical work, films,
broadcasts, multimedia and computer programs
 Circuit layout rights for the three-dimensional configuration of electronic circuits in
integrated circuit products or layout designs
 Plant breeders rights for new plant varieties
 Confidential information including trade secrets and other proprietary information

IP legislation
 Copyright Act 1968 (Cth)
 Patents Act 1990 (Cth)
 Designs Act 2003 (Cth
 Trade Marks Act 1995 (Cth)
 Circuit Layout Act 1989 (Cth)
 Plant Breeder’s Rights Act 1994 (Cth)
Other legislation
 s 18 ACL – misleading or deceptive conduct
Common Law
 Tort of passing off
 Contract law
 Equitable action for breach of confidence

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Week 9 – business conduct

RESTRICTIVE TRADE PRACTICES

competition policy should:

• Make markets work in the long-term interests of consumers;
• Foster diversity, choice and responsiveness in government services;
• Encourage innovation, entrepreneurship and the entry of new players;
• Promote efficient investment in and use of infrastructure and natural Resources;
• Establish competition laws and regulations that are clear, predictable and reliable, and
• Secure necessary standards of access and equity

The Restrictive Trade Practices

• horizontal arrangements between firms at the same level of the business
chain
– cartel (collusive) conduct (eg. price fixing, boycotts) not sold
• vertical arrangements between firms at different levels of the business chain
– exclusive dealing
– RPM (resale price maintenance)
• aggregation and abuse of market power i.e. conduct affecting the structure
and competitiveness of markets through mergers, and unilateral conduct by
firms possessing substantial market power which adversely affects the level of
competition.
– mergers
– abuse of market power

Illegal if purpose or effect of substantial lessening of competition in a market for goods or

services e.g. exclusive dealing
Per se illegal prohibited irrespective of any anti-competitive purpose or effect e.g. price
fixing

Can be placed outside the law if public benefit overcomes; authorisation and notification
processes in the CCA sanction anti-competitive arrangements on public benefit grounds

 To determine whether conduct substantially lessens competition, the court will:

• define the appropriate market or markets
• determine the probable nature and extent of competition that will exist in the
market but for the conduct in question
• ascertain the likely effect of the conduct on competition in the market
• assess whether the conduct may substantially lessen competition.

A market is the ‘area of close competition between firms’, or the ‘field of rivalry between
them’. Can be defined in terms of multiple dimensions: (Product, Geographic, Functional,
Time)

Remedies
Private actions can be brought in the Federal Court for:
– damages (s 82)
– ‘such orders … as [the court] thinks appropriate’ to compensate for, or
prevent, loss or damage (s 87)

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– injunctions (except in the case of mergers (s 80)

Public actions may be brought by the ACCC in the Federal Court for:
– civil pecuniary penalties (s 76)
– criminal penalties for cartel conduct (Part IV Div 1)
– corrective advertising orders (s 86C)
– adverse publicity orders (s 86D)
– injunctions (s 80)
– divestiture orders in the case of mergers (s 81)
– enforcement of written undertakings (s 87B)
– declarations (s. 163A).

Cartel conduct
Cartel conduct – ACCC v Visy [2007] FCA 1617
A cartel provision is a provision relating to:
– a) price fixing;
– b) restricting outputs in production and supply;
– c) allocating customers, suppliers or territories, or;
– d) bid-rigging
– Per se illegal – no need to go through the substantially lessening competition test
Price war ended by ‘negotiations’ b/w Visy and Amcor, in Melbourne hotels between top
executives - to retain respective market shares and not enter into contracts with each other’s
principal customers

Anti-competitive agreements
– A corporation must not:
a) make a contract or arrangement or arrive at an understanding …
b) give effect to a contract, arrangement or understanding…
c) engage with one or more persons in a concerted practice …
…if it has the purpose, or would be likely to have the effect, of substantially lessening
competition.

Exclusive dealing is the imposing of restrictions (other than price restrictions – see RPM) by
a firm at one stage in the production/distribution process on the conduct of firms at another
stage; prohibited if purpose or effect of slc
s47 prohibits:
- supply on exclusive dealing conditions
- refusal to supply for the equivalent reasons
s47 impacts on:
- Product supply/acquisition restriction
- Customer restriction
- Territory restrictions

solus agreements: a supplier imposing as a condition of its supply to a retailer that the
retailer deal exclusively with it
tying and forcing arrangements: arrangements where the sale of two or more products are
‘tied’, i.e. the seller will only sell unrelated products as a bundled package or offers one
product only on the condition that the buyer also purchases one or more other products.
third line forcing: supplying goods or services on the condition that the acquirer will
acquirer particular goods or services from a third party

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Resale price maintenance

Per se illegal; Section 48
– Prohibits suppliers from specifying a price below which goods cannot be resold or
supplied.
Practices constituting RPM (s.96)
 making it known that….
 inducing or attempting to induce…
 agreement or offering to enter agreement…
 withholding supply for the reason that…
 using a statement also which is likely to be understood as is minimum sale price

RRP (recommended retail price) not RPM if

• not a genuine recommended price
• steps taken to ensure compliance with recommended price.
withholding supplies
- for genuine commercial reasons – Not RPM
- for genuine commercial and RPM reasons – RPM

 ACCC v Jurlique [2007] FCA 79  RPM

 Jurlique found to have engaged in resale price maintenance through:
- Inducing retailers not to sell Jurlique products at prices less than those
specified
- Withholding supply of products to retailers that did sell below the prices
specified
- Making statements to retailers that were likely to be interpreted as setting
prices below which products were not to be sold

Misuse of market power

– Section 46 old legislation:
A corporation that has a substantial degree of power in a market shall not take advantage of
that power for the purpose of:
a. eliminating or substantially damaging a competitor of the corporation…
b. preventing the entry of a person into that or any market, or
c. deterring or preventing a person from engaging in competitive conduct in that,
or any other market.
Elements:
– Substantial degree of power (threshold)
– Taking advantage for power (predation)
– Damage, prevent entry or deter from engaging in competitive conduct

Misuse of substantial market share

(Section 46(1AA) old legislation
– A corporation that has a substantial share of a market must not supply or offer to
supply goods or services for a sustained period at a price that is less than the relevant
cost to the corporation of supplying such goods or services, for the purpose of:

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– Eliminating or substantially damaging a competitor of the corporation or of a

body corporate that is related to the corporation in that or any other market; or
– Preventing the entry of a person into that or any other market; or
– Deterring or preventing a person from engaging in competitive conduct in that
or any other market.

Misuse of market power – the new legislation

– Section 46 as amended:
A corporation that has a substantial degree of power in a market must not engage in conduct
that has the purpose or is likely to have the effect of substantially lessening competition.
Elements:
– Substantial degree of power (threshold)
– Substantial lessening of competition (as discussed earlier)

Mergers
– Section 50
– prohibited if direct or indirect acquisition of shares or assets
– having effect or likely effect of substantially lessening competition in a
substantial market
– ACCC merger guidelines incorporate a market concentration test as a filter.
– Informal and formal clearance procedures
– Authorisation on public benefit grounds

CONSUMER PROTECTION AND FAIR TRADING

Australian Consumer Law

ADVERTISING
• s 18 misleading or deceptive conduct
• ss 29-38 specific false or misleading representations

– ‘Engaging in conduct’ is broadly defined in CCA section 4(2) to include:

– doing or refusing to do any act

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– giving effect to a provision of a contract or arrangement

– arriving at or the giving effect to an understanding…
– Includes actions and statements (e.g. advertisements; quotations; any written or oral
representations) and may also include inactivity/silence (e.g. such as failing to
disclose information)

Who is liable?
– ‘person’ engaged in conduct will be liable
– any other person ‘knowingly concerned’ in the conduct will also be liable
– Person liable must be responsible for the misleading or deceptive conduct
E.g. real estate agent not responsible when survey diagram and other information
was provided by the vendor and the agent was merely passing on the information
without adopting or endorsing it

Taco Co of Aust Inc v Taco Bell Pty Ltd (1982) 42ALR 177

CONSUMER GUARANTEE

What are the consumer guarantees?

In relation to the supply of goods, the ACL imposes the following guarantees:
a guarantee that the supplier has the right to sell the goods: section 51
a guarantee that the consumer will have undisturbed possession of the goods: section 52
a guarantee that the goods are free from any undisclosed security : section 53
a guarantee that goods are of acceptable quality*: section 54

a guarantee that goods are reasonably fit for a particular purpose made known to the
supplier by the consumer: section 55
where goods are sold by description, a guarantee that goods will correspond with the
description: section 56
where goods are sold by sample or demonstration model, a guarantee that the goods
correspond with the sample or model: section 57

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a guarantee that the manufacturer will take reasonable action to ensure that facilities for
repair of the goods and parts for goods are reasonably available for a reasonable period
after goods are supplied: section 58
where the manufacturer or supplier provides an express warranty, a guarantee that the
manufacturer or supplier will comply with any express warranty: section 59

Product liability- the law of negligence

Donoghue v Stevenson
[1932] AC 562
Found slug in drink
Business owed duty of care to customer even if she did not buy the drink

Week 10
 Businesses are either vicariously liable or the company themselves is seen to blame as
committing the crime through the employee
decision of Bell J in  ABC Developmental Learning Centres Pty Ltd v Wallace  [2006] VSC
171
VICARIOUS LIABILITY AND CRIMINAL PROSECUTIONS FOR REGULATORY
OFFENCES
In the afternoon of 17 April 2003 a two-year-old child (the escapee) was one of 12 being
cared for at a child care centre run by ABC Developmental Learning Centres Pty Ltd. He
was in the direct care of three staff – two employees and one other brought in from an
agency
The essence of the decision of Bell J in ABC Developmental Learning Centres Pty Ltd v
Wallace was to interpret these authorities as legitimising the imposition of criminal
liability on a company where the actions of employees result in a breach of a regulatory
provision provided only that the employees' work involves the performance of a
regulatory obligation on the company's behalf
the consequence of the reasoning of Bell J, unless modified, appears to be that in many
circumstances where a corporation is wholly lacking in fault, if its employees breach a
regulatory provision through failure, for instance, to comply with protocols, the
corporation will be found guilty of the criminal offence. 

o If the company has the mind and will of the action they are liable over the
employee
S124 A company has the legal capacity and powers of an individual both in and outside this
jurisdiction
 Company has legal capacity/powers of individual  thus can make contracts
 Member have power to vote directors, but directors have the power to manage the
business (people can be both)  statutory contract

Entering a contract s127

 Direct with or without seal

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o Need resolution that they are entering the contract and another resolution that
they have agreed
o Without seal if signed by 2 directors, director and secretary
 Indirectly through agents
o ostensible/apparent – haven’t been given or appointed a position OR board
hasn’t acquiesced to the agents actions
o actual which is either expressed or implied

Look at ANZ v Frenmast case

S129 A person may assume that the company's constitution (if any), and any provisions of
this Act that apply to the company as replaceable rules, have been complied with.
s128 A person is entitled to make the assumptions in section 129 in relation to dealings with a
company. The company is not entitled to assert in proceedings in relation to the dealings that
any of the assumptions are incorrect.

ANZ made assumption under the idea that Robert was in a position to be “dealing with the
company”, thus someone who has actual or ostensible authority to enter into the transaction
Robert Tiricovski had actual authority to enter into the guarantee on behalf of the company

For internal governance rules,

S1.5.1 company does not need to have a separate constitution of its own; it can simply take
advantage of the rules in the Corporations Act. The company will need a constitution only if
it wants to displace, modify or add to the replaceable rules.

 Own constitution
 Replaceable rules s135 in Corporation Act  not specifically part of the act, therefore
breaking a contract NOT the Act
o There a contract between company and members, members and other
members, directors and company, but NOT directors and members
 Or, mix of the two
 ASIC requires some companies to adopt their own rules

Corporate Governance Rules v Corporate Governance Principals (more outward facing shit)

Issues in corporate governance

 mechanisms that play a role in corporate governance;
 information about Australian boards or directors;
 reports that have been influential in the corporate governance debate;
 the role of the ASX in corporate governance;
 disclosure, structure and approval of remuneration;
 investor activism;
 the independence of auditors; and
 the global financial crisis and governance.

Influences on corporate governance

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 Directors’ and officers’ legal duties which have, as their objective, ensuring that
directors and officers act with reasonable care and diligence, in the interests of the
company, and for a proper purpose.
 The structure of the board, including matters such as the proportion of non-
executive directors constituting the board or the proportion of independent directors
constituting the board and the splitting of the positions of chairperson of the board and
chief executive officer. An important question is whether non-executive directors or
independent directors are better at monitoring managers on behalf of members than
their executive counterparts. There is a definition of independent director at
 Auditors, who assist in the monitoring of managers by attesting to the accuracy of
companies’ financial statements.
 Institutional investors. A major debate is occurring regarding the extent to which
institutional investors are effective monitors of the companies in which they invest.
This is an important issue given that institutional investors own approximately 45% of
the capital of companies listed on the ASX
 Takeovers
 Disclosure of info
 Product, capital, labour market

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Week 11
Directors manage the business of the company, and manage the officers
S198A The directors may exercise all the powers of the company
except any powers that this Act or the company's constitution (if
any) requires the company to exercise in general meeting.

FUNDRAISING
To establish or keep running a business
Businesses need disclosure/transparency to help investors make decisions
Cost v protection cost of making disclosure statements to protect investors

The owner of asset is whoever registers first

Directors may determine that a dividend is payable and fix amount, time and method of
payment

Corporate veil can be lifted for fraud, avoidance of legal obligation or assistance with breach
of fiduciary duties

In agency problems, the principal is the company and the agents are members and directors

If body is in accordance with the person’s instruction then they are a directors (can be another
corporation or even a shadow director)

Propriety has to have 1 and public has to have 3 directors (at least 2 within Aust.)

OFFICERS
Executive directors day-to-day and non-executive do not
Managing director is executive, appointed by other directors to manage day-to-day;
different to a CEO as CEO does not have to be on the board
Chair person, chairs meeting of members

CEO, CFO, CIO, COO (etc.) are directors who are not always on the board

A fiduciary is a person who holds a legal or ethical relationship of trust with one or more
other parties (e.g. director and company); act on or behalf of another person

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Week 12
Members cannot take away rights (usurp) of directors and vice versa  unless specific to the
constitution of the business
There is no overlap between members and directors (each has own sovereignty)

Need independent and non-independent directors

Governing director usually stared business and has given themselves a lot of power in the
constitution of the business
Nominee director nominated into the position to represent particular interests (e.g. creditor’s
representation)

Directors cannot remove other directors

Members can ban directors  Automatic where convicted of offence or ‘undischarged

bankruptcy’
ASIC and courts can ban directors for a period of time (up to 20 years)

Officer is someone who participates in making decision that effect the business
Secretary appointed by directors to manage reporting, enter administrative contracts, ASIC
and interface with board and CEO – keeping operation between officers smooth (is an officer
themselves)

Directors nowadays cannot be a sleeping director, they are just as liable if things go wrong

Directors duty can be used as defence in common law and equity, if they make judgement in
good faith, without material personal interest, worked in best interest of company  only
used for shirking defence, NOT looting
SA v Clark (1996) where clark got SA govt to buy company that owned him money
Shirking by ignoring the overvaluation of the company
Looting by taking money from the SA govt

Role of director is to ask questions

Go over section 180-183

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S180 (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
(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
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.

S181 Good faith--directors and other officers

(1)  A director or other officer of a corporation must exercise their powers

and discharge their duties: 

 (2)  A person who is involved in a contravention of subsection (1)

contravenes this subsection.

S182 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.

ASIC v Adler
Adler non-executive director at HIH and controlled PPE. HIH give PPE $10 mill loan and
then PPE buy HIH stock to give false impression HIH was doing well
Breach all S180-183
S180 William (director for HIH) failed to ensure there were proper safeguard
before HIHC gave the loan to PEE. As the executive directors of the
company they failed to carry out their role properly without informing the
HIH board of their intention.
Adler, had contravened the section 181(1) to act in good faith by properly
excising his powers and discharging his duties for the best interest of the
company. This is because, the transactions that occurred in the HIH, HIHC
and PEE had been improperly used, for the sake of his personal interest.
S182 - Adler was held that he had improperly used his position as a director
of HIH, officer of HIHC and director of PEE to gain advantage for the Adler
Corporation.

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Common law created by judges is then put into legislation where it is referred to in the future
by judges

If subjective use of money is outside the objective acquisition on money it is wrong

Conflict of interest having conflict between an interest and a duty

Regal (hastings) ltd v Gulliver chairperson and directors took opportunity that the business
failed to fulling take, breaching of contract

Squeeze out techniques – withhold information, dismiss minority members from executive
positions, distribute profits through salaries instead of dividends

Personal (from owning shares, as a member) v derivative (from company rights) rights

Breach is breaking contract and common law

Contravention is breaking statute – criminal (beyond reasonable doubt, 90%) or civil
(balance over 50% as a remedy, restoring position)
Civil Penalty Provision is combination of both

Continuous Disclosure Rule continue providing financial information for companies on

ASX, keep the market informed

Insider trading using information

Insolvent trading involves making company take on more debt when it already has too much
 director can be liable, lifting the corporate veil

FINAL EXAM

Tues 1-3 for consult or send email

2hr
10 Qs equal marks each (12 mins each  2 mins plan, 10 min writing)

Open Book
Notes
Cases
Laws
Answer Plans

Idea in the question/statement to respond to  make argument with intro and conclusion

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