LECTURE AND EXAM SUMMARY

NOTES

BTF1010:
BUSINESS
LAW
Semester 1 -2020

TEXTBOOK: CONCISE AUSTRALIAN

COMMERCIAL LAW (5TH EDITION)
 Table of Contents

WEEK 1 – AN INTRODUCTION TO THE LAW AND THE AUSTRALIAN LEGAL SYSTEM ............................. 3

WEEK 2 – THE LAW OF CONTRACT – INTRODUCTION; AND THE CONTRACT FORMATION: OFFER AND
ACCEPTANCE ........................................................................................................................................ 10

WEEK 3 – THE LAW OF CONTRACT: INTENTION, CONSIDERATION, FORMALITIES, CAPACITY, GENUINE

CONSENT.............................................................................................................................................. 15

WEEK 4 – THE LAW OF CONTRACT: CONTENTS AND INTERPRETATION OF THE CONTRACT............... 23

WEEK 5 – THE LAW OF CONTRACT: TERMINATION AND REMEDIES ................................................... 33

WEEK 6 – CONSUMER PROTECTION .................................................................................................... 43

WEEK 7 – CONSUMER PROTECTION (DECEPTION) .............................................................................. 52

WEEK 8 – LAW OF TORTS: LIABILITY FOR NEGLIGENT ACTS (PHYSICAL HARM) .................................. 59

WEEK 9 – LAW OF TORTS: PROFESSIONALS AND NEGLIGENT STATEMENTS....................................... 75

WEEK 10 – THE LAW OF BUSINESS ORGANISATIONS – AGENCY AND PARTNERSHIPS ........................ 87

EXAM SUMMARY NOTES: WEEK 6-12 ................................................................................................ 101

WEEK 6: CONSUMER PROTECTION ............................................................................................................ 102

WEEK 7 ................................................................................................................................................ 111
WEEK 8: LAW OF TORTS: LIABILITY FOR NEGLIGENT ACTS .............................................................................. 116
WEEK 9: LAW OF TORTS: PROFESSIONALS AND NEGLIGENT STATEMENTS ........................................................ 128
WEEK 10: LAW OF BUSINESS ORGANISATIONS: AGENCY AND PARTNERSHIPS ................................................... 134
WEEK 11: LAW OF BUSINESS ORGANISATIONS: CORPORATIONS..................................................................... 147
WEEK 12: BUSINESS ETHICS AND THE LAW ................................................................................................. 159

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 Authors Note

• This file contains lecture notes (week 1 -10) and exam summary notes (week 6-12)
for the unit BTF1010: Business law completed in Semester 1 2020.
• The lecture notes for weeks 11 and 12 are the same as the exam summary notes.
• I used the lecture notes to do both mid semester tests for which I received 97.5%
and 80% respectively.
• The notes have been created using material from the lectures, tutorials and all
examinable content from the prescribed textbook.
• References have also been made for the respective topics in the textbook.
• The “What to do in an exam” box can be used to identify the objectives of the topic
prior to studying and as a guideline for answering legal problem questions relevant
to that topic.
• All case law is highlighted in blue.
• Relevant abbreviations
- P: Plaintiff
- D: Defendant
- CACL: Concise Australian Commercial law (textbook reference)
• Good Luck! J

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 Week 1 – AN INTRODUCTION TO THE LAW AND THE AUSTRALIAN LEGAL
SYSTEM

Nature and concept of law (CACL 1.20)

What is the law?

Body of rules of conduct, made by parliaments and/or the courts, that regulates or controls
the behaviour or relations between individual groups.

Who makes our laws?

Parliament and the court

Role/function of the law?

To regulate behaviour – What we can/cannot do, how we should do it

Roles of law in society/ functions of the law

Reflects basic community
Provides rules and values: - community
Promotes justice and the
structures for dispute values change overtime
rule of law
resolution and laws need to change
eg: same sex debate

Promotes stability and

Regulatory function
cohesion

Criminal law Civil law

Aim is to provide remedies when things go
Aim is to punish wrong doers
wrong (monetary)

Legal proceedings are brought by the Legal proceedings are brought by one person
crown/state on behalf of the society (plaintiff) against another (defendant)

Higher burden of proof -beyond reasonable Lower burden of proof - on a balance of

doubt. probabilities

eg: Murder, robbery, burglary, assault eg: Breach of contract, negligence

Legal structures of businesses:

1. Sole trader e.g.: electrician
2. Agency e.g.: Real estate agent

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 3. Partnership e.g.: accounting firm
4. Company/ corporation e.g.: Google
5. Trust e.g.: family business
6. Franchise e.g.: Mc Donald’s
7. Association (may be incorporated) e.g.: Dairy farmers

Business relationships and the law (governed by common law and the statute)
1. Public
- Reputation
- Advertising
- Promotion
2. Government/ statutory authorities
- ASIC
- ACCC
- CAV
- ATO
3. Customers
- Goods/ services
4. Creditors
- Lenders/ banks
- Unpaid suppliers
5. Employees
6. Suppliers
- Equipment
- Inputs

Types of business liability and harm to others

- Criminal liability
- Tortious liability
- Statutory liability
- Vicarious liability
- Contractual liability

Consequences of the business failing to comply with the law

- Compensation payouts
- Penalties (hefty fines)
E.g.: Apple was fined $9 million for misleading consumers
- Damage to the reputation of the business: loss of customers, suppliers and share
holders
- Decreased profitability and value of the business

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 THE AUSTRALIAN LEGAL SYSTEM

Key concepts:
- Doctrine of precedent
- Common law
- Separation of powers
- Rule of law
- Legislation

History (CACL 1.70 -1.130)

- 2nd Feb 1788: British claimed sovereignty (right to govern)
- Land was regarded as terra nullius (land belonged to no one)
- All the laws of England were immediately in force
- What about Australia’s indigenous people?
o Indigenous Australians have occupied land for over 50,000 years prior to
English.
o There was an ongoing conflict between Europeans and indigenous
Australians.
o In the struggle for indigenous land rights in the 1980’s and 1990’s the
courts had to determine whether the complex social systems and
customary laws of the indigenous people were capable of being ‘a system
of laws’.
Case: Milirrpum v Nanalco (CACL 1.70)
§ Terra Nullius and native title (CACL 1.90 -1.30)

Case: Mabo v Queensland (No. 2) (1992) 175 CLR 1

o Challenged the Australian legal system and fought for
recognition of Torres and strait islanders, as the traditional
owners of the land.
o The high court of Australia decided that terra nullius
should not have been applied to Australia.
o Decision known as the ‘mabo decision’ recognised that
aboriginal and strait islanders have right to the land.
o Terra nullius was rejected.
o Native Title Act 1993 (Cth) – continuous connection to the
land.

What is the rule of law? (CACL 1.30-1.60)

- Rule of law: A basic principle underpinning liberal democratic societies: ‘no one is
above the law’.
- Four principles:
1. The law applies to everyone equally regardless of social or political status,
culture, religion or race -justice is blind.
2. The laws are clear, publicised, stable and just.
3. The process by which the laws are enacted, administered and enforced are
accessible, fair and efficient.

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

Australia’s Federal System (CACL 1.140 – 1.170)

- Three separate branches of government:

i. Legislative
ii. Executive
iii. Judicial

- Federal system:
o Australia is a federation.
o Consists of a central or federal government, six states and two
territories and approximately 560 local councils.
o Feature of a federal system – a written constitution which is a document
setting out the powers of the federal government and its legal
relationships with the states.
o This is the Commonwealth of Australia Act 1900 (IMP) – contains the
commonwealth constitution.
o In addition to the commonwealth constitution, each of the states has its
own constitution which determines the system of government for that
state.
o The law-making power of the territory legislatures is constrained by
statute that provides for territory’s self-governance.

- The Australian Constitution:

o A set of rules setting out how Australia is set up and run.
o Highest law of the land.

- On 1st Jan 1901, the Australian government:

o Established Australia as a constitutional monarchy with the British
monarch as head of state (Queen Elizabeth II) – her representative in
Australia is the Australian Governor General.
o Created a federal system of government, with powers divided between a
central government and state governments.
o Each state also has a constitution.

Framework of government (reflects the separation of powers) – (CACL 1.180)

The Separation of powers between our legal institutions (CACL 1.180)

*Separation of powers – The body that makes the law and the body that executes or
administers the law and the body that adjudicates or interprets the law should be separate.

• Each has its own powers.

• Each of these bodies should be as far as possible separate from each other and
achieve their responsibilities separately.

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 • Helps to ensure transparency and fairness.
• Prevents corruption and the abuse of power.
• Stops the government from becoming an oppressive government.

Division of legislative powers (CACL 1.190-1.200)

Federal system: key institutions

* Federal laws apply across the whole of Australia.

* Laws made within the state, territory only apply within the boundaries of the state/
territory.

• Parliaments:
- Federal/ commonwealth
- State/ territory
• Governments:
- Central government (federal/commonwealth)
- State/ territory governments (e.g.: Victorian government)
- Local governments / councils in states and territories
• Courts
- Federal/ commonwealth
- State/ territory

Amending the Australian Constitution (CACL 1.240-1.250)

• The constitution is the highest law of the land and cannot be changed the same way
other laws are changed.
• Both houses of parliament must propose any amendments to the constitution and a
referendum of voters aged 18 and over is required with a double majority needed –
A majority of voters in a majority of states entering Yes needs to occur.
• EG: In history with 44 referenda since 1901 only 8 have been passed.
i.e. difficult to make changes to the law.
• Australia is a federation – Meaning there are two legal systems that apply to each
citizen.

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Sources of law (CACL 1.270- 1.280)

Legislation Common law

Made by parliement

Acts (Also referred to as legislation or statutes) Made by the judges (courts)

Parliament is the sovereign/ supreme law maker

Legislation prevails over the common law to the extent of any inconsistency.

Cases (also referred to as case law, judge made law, judge made law or
Parliament can make/ unmake laws within its own constitutional power.
precedent).

Eg: made new laws, repeal old laws, amend laws, codify existing laws.

To make a valid law parliament must follow the proper legislative procedure
(Fig. 1.5 p 20 CACL). eg: S18(1) Australian Consumer Law (Cth)

Examples of interpreting legislation given in links in slide 36 of lectures Courts sit in hierarchies and there is a right to appeal a decision made by a
lower court to a supreme court.

Parliaments have passed legislation on interpreting legislation. eg: S15AA Acts

Interpretation Act 1901 (Cth)

Interpreting legislation: Australian court hierarchy:

What is a legal case?

- Legal cases are disputes between opposing parties that have been resolved by
the courts.
- The court has given a judgement, which is its decision on the case.
- The judgement may then set precedents for future disputes.

How does the common law word?

Doctrine of Precedent (CACL 1.360- 1.370)

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• Underlying principle: ‘Stare decisis’ – What was decided today should be decided in
the same way tomorrow (if, the facts are similar).
• Higher courts bind lower courts in the same court hierarchy.
• Only the ratio is binding; not the obiter.
• ‘Old’ precedent is still good precedent.
• Courts are not bound by their own previous decisions – but they rarely depart from
previous decisions.
• Decisions from other jurisdictions (interstate or other common law countries) can be
persuasive and influence decisions. But not binding.

Ratio Decidendi
- Reasons for decision.
- Ruling on a point of law.
- Binding under the doctrine of precedent.
- The ratio (reason for underlying principle) must be applied to a future case
where the facts are similar.
- Cases can be distinguished if the material facts are not similar.

Obiter dicta (By the way)

- Judicial views, comments – statements made in passing
- Not essential to the decision.

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 Week 2 – THE LAW OF CONTRACT – INTRODUCTION; AND THE CONTRACT
FORMATION: OFFER AND ACCEPTANCE

*A contract is an agreement between two or more parties which under legal rights and
obligations are created which can be enforced, if necessary, in the courts (CACL 2.10).

- Contracts are legally enforceable promises.

- Contracts can be written, oral or a combination of the two.

- Functions of a contract:
i. Securing expectations
ii. Facilitating planning
iii. Establishing market values for goods and services
iv. Allocating risk
v. Providing for dispute resolution

- Elements of a contract:
i. Offer, acceptance and certainty = agreement
ii. Intention to create a contract
iii. Consideration
iv. Capacity
v. Formalities (if any)
vi. Genuine consent
vii. Legality of obligations

Contract formation: OFFER

What to do on an exam?

• Identify an offer:
- Communicated proposal of a deal? To whom?
- Determine if it is or is not an offer
- Following are no an offer:
i. Not serious (puff)
ii. Negotiating/ discussing a potential deal (invitation to treat)
iii. Just supplying information (statement supplying information)
- Was the offer revoked/ lapsed before acceptance? Expire? No deal? Counteroffer?
- Was there an agreement not to revoke? Pay to guarantee a time to consider the
deal (option).

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*An offer is a proposal by one party (offeror) that is communicated to another party
(offeree) to enter into a legally binding agreement (CACL 3.20).

- Offeror: can either be the buyer or seller

- If the other party accepts the offer, then the contract is made.
- Only offers are capable of being accepted.
- How do you know if a proposal is an offer?
§ Identify a communication
§ Determine if it is or is not an offer
§ If a communication is NOT an offer, it cannot be accepted, and we
have no contract.

1. Puff

*A mere puff is a statement containing exaggerated claims and assertations about products
or services that no reasonable person would take seriously (CACL 3.30-.60).

- A mere puff has no contractual significance and is not an offer.

E.g.: World’s best coffee

Case: Carlil v Carbolic Smoke Ball Co. (CACL 3.40)

Leonard v PepsiCo Modern ‘mere puffery’ (CACL 3.60)
Carlill

Indications
Puff of
Seriousnes
s

Leona
rd

2. Invitation to treat

*An invitation to treat (or an invitation to deal) is an indication that the person is prepared
to negotiate, but it is not an offer so can’t itself be accepted and lead to a contract (CACL
3.70- 3.110).

- Catalogue advertisements are not advertisements. They are invitations to treat.

Gibson v Manchester City Council (CACL 3.80)
o Councils letter was an invitation to treat -not an offer
- Window displays, catalogues, price list circulars are invitations to treat. Not
offers
Pharmaceutical Society of Great Britain v. Boots Cash Chemists (CACL 3.100)
o Customer picking up the product from the shelves is making an offer
o Acceptance occurs when the transaction is processed by the cashier
- Advertisement can be regarded as offer if it is sufficiently definite in its terms
(relation to quantity, quality and price) and is communicated in such a way that a
reasonable person may say that the advertiser intends to enter into a contract.
Harvey v Facey
Smythe v Thomas (CACL 3.170)

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§ An offer can be made to: (CACL 3.190)
- A specific person or persons (Andrew) or
- A particular class of persons (anyone in this class)
- To the world at large (anyone)

§ Offer must be communicated (CACL 3.200-.210)

- An offer must be communicated.
- If there is no communication, there can be no acceptance and no contract.
Case: R v Clarke (CACL 3.210)
- Suspect points finger at murderer
- Claims reward
- But didn’t know about the reward before

§ Four things permanently end an offer:

i. Revocation
ii. Time expires
iii. A party expires
iv. A counteroffer is made

i. Revocation

*An offer can be revoked when the offeror formally withdraws the offer.

§ On revocation the offer dies

§ The offeror can give notice of the revocation of the offer any time before the
acceptance.
§ Revocation must be communicated to the offeree before acceptance
Case: Byrne v Van Tienhoron (CACL 3.260)
§ Options prevent revocation (a contract not to revoke an offer of contract).

*An option is a promise, supported by consideration to keep an offer open for a period of
time. (CACL 3.230 -3.240).
E.g.: I am selling you a pen. But if you pay a down payment of $1, I will keep the offer open
for a week.

§ A promise to keep an offer open for a period of time will not be enforceable – the offer
is still a valid offer, but it still can be revoked as normal unless there is consideration
(something of value) is given to by the offeree in return for the promise to keep the
offer open.
Case: Goldborough Mort v Quinn (CACL 3.240)

ii. Time expires (CACL 3.240)

§ An offer will lapse if time expires:

- If no acceptance within a reasonable time
- If not accepted within the time stated.

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 iii. Counter – offer

§ An offer will lapse if a counteroffer is made

§ A counteroffer is a proposal to change one of the material terms (price, quality or
quantity)
Case: Hyde v Wrench (CACL 3.290)
Stevenson Jacques v McLean (CACL 3.310)

iv. A party expires

§ Death before acceptance

Contract formation: ACCEPTANCE

What to do on an exam?
• Identify an acceptance:
- Is it communicated to the offeror?
o Can be communicated by actions, words etc
o Can’t be communicated by silence
- Is the accepting party the party to whom the offer was made?
o Can’t accept an offer that excludes you
- Is acceptance unconditional?
o If not it’s a counteroffer
- Does acceptance follow conditions set out in an offer?
o Acceptance communicated before revocation or lapse.

Rules of acceptance:

1. Acceptance must be communicated to the offeror: by words, writing, conduct,

performance (CACL 3.340 – 3.400)
2. Acceptance may be implied by conduct.
Case: Empirnall Holdings Case (CACL 3.360)
3. The offeror cannot make the offerees silence a method of acceptance
Case: Felthouse v Bindley (CACL 3.380)
R v Clarke (CACL 3.390)
4. Acceptance must be unconditional
Qualified or conditional acceptance = counteroffer (CACL 3.410)
Case: Masters v Cameron (CACL 3.420)
5. Acceptance must follow the conditions (if any) in the offer.
6. Only a party to whom the offer was made can accept.
7. Acceptance can be revoked an any time prior to the acceptance being
communicated.

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§ Special rules of e-communication (CACL 3.520-.610)
- Emails can create binding agreements
Case: Vantage Systems v Priolo Corporation (2015)

Case: Stellard Pty Ltd v North Queensland Fuel Pty Ltd

§ Parties intended to be bound immediately by the terms they had agreed upon, with
the intention that they would be formally recorded later.

- An electronic communication is taken to have been received by the addressee

when it becomes “capable of being retrieved” by the addressee at an electronic
address designated by the addressee.

Contract formation: DEFINITENESS

§ Agreements must be certain to form the basis of a legally binding contract.

§ The contract should have the essential terms
§ Essential terms and gaps (CACL 3.620-3.660)
- If the parties have not agreed upon essential terms, there can be no valid
agreement.
- If the parties have reached an agreement, but it is arguable about when it means
-then there will be a binding contract.
- If the parties have reached an agreement about how missing terms will be
worked out, then there can be a binding contract.

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 Week 3 – THE LAW OF CONTRACT: INTENTION, CONSIDERATION,
FORMALITIES, CAPACITY, GENUINE CONSENT

Agreements that are not contracts because the parties did not intend to enter into contract,
or the agreements are not supported by value:
1. Intention to create legal relations
2. Consideration
3. Formalities, capacity, genuine consent

1. Contract formation: INTENTION TO CREATE LEGAL RELATIONS

What to do on an exam?
I. Identify if the parties are in a domestic or social relationship.
• Spouses, family members, co-religionists – priest and a nun
• If yes determine if the presumption against contract is rebutted:
- Clarity of terms – does this look more like a contract
- Cost
- Inconvenience -is one of the parties going to be severely
inconvenienced
- The true flavour of the agreement.
II. Identify if the parties are commercial entities.
• If yes, likely intent to contract unless there is a specific no contract clause.
III. Identify if one of the parties is a government.
• If yes, and matter is a policy promise, no contract.
• If matter is normal contract transaction, then contract.

Þ Definition: Intention to create contract (CACL 4.10)

• An agreement will not in itself create a contract.
E.g.: an agreement to meet your friends for lunch.
• The parties must intent for their agreement to be legally binding.
• The intent to be legally bound by a deal is called the intention to create legal
relations.

Þ Determining intention (CACL 4.10)

• Often, parties will not indicate what they intended.
• The court applies an objective test (a reasonable person test) to determine if
the parties intended to make a contract.
• Two presumptions based on agreement type:

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 - Social or domestic = No intention
- Commercial = Yes intention
• Courts presume, friends, spouses, family members or members of a religious
community might not intend to enter into a contract.
• However, the opposite presumption exists for business dealings because
people assume that individuals won’t take their family and friends to court
however in a business setting, they are more likely to.

Þ Rebuttal presumptions (CACL 4.10 -.20)

• Presumptions be rebutted (overcome) with all the circumstances to be
looked at objectively.
• Presumptions can be overcome -not fixed and strict rules.
Case: Ermogenous v Greek Orthodox Community of SA
- Priest seeks stipend after leaving church service
- Was a contract and has to be honoured.

Þ Intention to create: Social or domestic (CACL 4.40 -4.110)

• Presumption – no intention to create legal relations
• But you must consider:
- Clarity of terms – the more spelled out the terms are the more likely it
is to be a contract.
- Cost of the contract
- Inconvenience to one of the parties
- The true flavour of the agreement – does the agreement look like an
everyday contract.
• Courts presume spouses might not intend to enter into contract, but do not
have the same presumption for ex or estranged spouses.

Case 1: Balfour v Balfour (CACL 4.60)

- Husband promised to pay wife 30 pounds per month
- She later initiates divorce and asks husband to continue paying.
- No contract
Case 2: Merritt v Merritt (CACL 4.80)
- Husband and wife separated
- Husband agreed to transfer house to wife as she paid mortgage
- Contract
• Courts may consider family arrangements to not be contracts. However, the
clarity of terms, cost and inconvenience, the true flavour of the agreement
may make it a contract.

Case 1: Todd v Nicol (CACL 4.100)

- Australian family members ask family in NZ to come live with them
rent free.
- NZ family sells everything and moves.
- The high cost of selling and relocating, the inconvenience of
relocating.
- Contract

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 Case 2: Ashton v Pratt (CACL 4.110)
- Rich man Richard Pratt enters into an agreement with Ms. Ashton to be his
mistress for an allowance, an establishment of a trust for her children and a
car (sugar daddy scenario)
- Never gets written down.
- When he dies, she sues the estate.
- No contract – no clear definition of the services Ms. Ashton gave.

Þ Intention to create: Commercial agreements (CACL 4.120 -4.190)

• Presumption: there is intention to create legal relations when in a business
deal.
• Unless there is a clause in writing that there is no intention to enter into
contract.
• In the following cases there was nothing that said that they do not intend to
not be bound.
Case 1: Malago Ptd Ltd v AW Ellis Engineering (CACL 4.130)
- Involved a ‘heads of agreement’ (term sheet)
Case 2: Banque Brussels v Australian National Industries (CACL 4.190)
- Involved a ‘letter of comfort’ (parent company vouching for child company
for loan).
• Rebuttal: express exclusion of interest (written on the face of the agreement
that this is not a contract, only an agreement of honour).
• Only thing keeping this contract alive is the honour of the parties, there is no
legal obligation.
Case 1: Rose & Frank Co v JR Crompton & Bros Ltd (CACL 4.150) – an honour
clause
Case 2: Jones v Vernon’s Pools Ltd (CACL 4.170) – another honour clause

Þ Intention: Government policy proposals and contracts (4.200-.210)

• Courts are reluctant to hold governments to promises they make in policy
proposals – they are not legally binding under contract law as there was no
intention to create legal relations.
E.g.: ‘If elected, we will build a train line to Melbourne Airport’.
• Where a government enters into normal commercial transactions, there is a
presumption that the parties to such an agreement intended to make a
contract.
E.g.: Enters into an agreement with Holden to buy a fleet of cars.

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2. Contract Formation: CONSIDERATION

What to do on an exam?
I. Identify if anything of value is exchanged in the deal
• Need not be even or fair, just needs to exist.
• Must pass from the promisee.
II. Identify if the obligation or price measurement is certain
• Can’t have contract when you can’t measure performance
III. Identify if the obligations and price are NOT IN THE PAST
• OK if consideration is a present act (Executed)
• OK if consideration is a future promise (Executory)
• NOT OK if consideration is for past act.
IV. Identify if consideration is for new obligation.
• NOT OK if new consideration extorted for existing obligation.
V. When in doubt, see if one party benefited or promised.

Þ Definition and why is it important? (CACL 5.20 -5.30)

• A promise is only legally enforceable as a contract if the promise provides
consideration in return for the promise.
E.g.: Lecturer promises to give a car to everyone listening to the lecture. That
is not enforceable because there’s nothing of value that we are giving up to
enforce that promise.
• Consideration is the price paid for a promise (it has a legal meaning, not its
ordinary meaning in contract law).
• It can be:
- Something of value to the promisor; or
- A detriment to the promise;
- And it doesn’t have to be money
• No consideration = no legally enforceable agreement (However, there are a
few exceptions to this rule – the practical benefit test, formal contracts
(deeds), promissory estoppel).
• Four different rules of consideration:
1. Rule 1: Can be tiny (CACL 5.40- 5.50)
- Consideration must be sufficient but need not be adequate (consideration
can be small or unfair).
- E.g.: If a car dealership agrees to sell a car to a customer for $40,000 when
its actually worth $80,000 there is sufficient (even if not adequate)
consideration.
- Consideration can even be a token (e.g.: peppercorn worth $1).
Case: Thomas v Thomas (CACL 5.50)
§ Wife is going to be the rentor and later owner of a home.
§ She pays a rent of $1.
§ This is sufficient consideration.
2. Rule 2: Must not be uncertain (CACL 5.60-5.70)
- Consideration must not be illusory or uncertain.

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- It must be possible to objectively evaluate the promise.
- E.g.: A loan is given, but there is a promise that the money does not need
to be repaid if the person who has borrowed the money stops complaining.
Did the new promise that the loan doesn’t need to be repaid result in
a legally binding contract?
Case: White v Bluett (CACL 5.70)
3. Rule 3+4: Present or Future (CACL 5.80-.100)
- Consideration can be executed or executory, but it cannot be past.
- Executed: one party performs an actual act in exchange for the other
party’s promise
E.g.: One party pays, and the other party promises to deliver
Case: Carlil v Carbolic Smoke Ball Co
- Executory: one party gives a promise in exchange for the other party’s
promise
E.g.: A promises to deliver goods in a week and B promises to pay a
week after that.
- Past: the act is already done before the promise.
E.g.: a person works all weekend and is then promised a bonus. The
promise of a bonus is not backed by consideration because the act
for it already occurred.
E.g.: annul bonus schemes for outstanding performance over the
course of the previous year.
- An exception exists to soften this harsh rule if three criteria are met – see
CACL 5.100 (and the example of Jane working in a law faculty).

4. Rule 5: New Obligation (CACL 5.110-.150)

- Performing an existing obligation (under the law or under an existing
contract) is not good consideration. Because you are not providing
anything of new value.
Case: Stilk v Myrick (CACL 5.140)
- Captain says that he will pay sailors extra wages if they don’t dessert ship
and make it back to the port.
- They make it back to the port and the captain refuses to pay – that is
correct.
- Because the sailors already had an obligation not to dessert the ship.
- They had already agreed to do the work.
Case: Glasbrook v Glanorgan CC (CACL 5.130)
- There was a strike at the coal mine.
- The company asked the police to permanently station themselves at the
coal mine.
- The coal mine agreed to pay the police an extra 2200 pounds in order to be
outside the coal mine. The police did
- Coal mine then decided not to pay the police. The police had a public duty,
but this was already on top of the duty and that provided good
consideration.

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Þ The practical benefit test: Williams v Roffey Bros (CACL 5.190)
- The Williams test explains a practical beneficial test – means that a benefit
that is derived by a promise to perform an existing contractual duty can be
valuable consideration provided that no duress was applied in order to
extract the promise.
- You can’t extort your employer but if it looks like your employer may need
to give additional incentive then you can take that incentive because it
gives everyone a benefit
- Case facts:
- There is a contract with Williams an RB which includes price.
- W is a subcontractor and he underbid. W is not going to be able to
complete the contract on time and because of that RB is not going to be
able to get an extra bonus.
- RB agrees to increase the contract price. Later RB argues that Williams
provides no consideration.
- Court concluded that there was a practical benefit that RB realised and
since RB wasn’t put under duress by W this does not look like bullying.

Þ Consideration: Deeds don’t need consideration (CACL 5.220)

- Simple contracts are not subject to any particular formal requirements and
always require consideration.
- Deeds are a particular type of formal legal document.
- When a promise is made in a deed, it is legally enforceable even if there is
no consideration.
- Consideration helps show that a promise is serious, which is one of the
reasons why it is required by the law.
- However, in the case of a deed the seriousness is instead shown by the fact
that a very formal type of legal document has been used.
- Deeds are sometimes (but not commonly) encountered in business, and
sometimes do involved consideration anyway.
E.g.: a deed of release – settling a legal dispute between an employer
and an employee.

Þ Consideration: Promisory estoppel (CACL 5.230-5.320)

- Promisory estoppel has been developed to stop people from breaking a
promise even if that promise was not supported by consideration.
- A judge sitting in equity can step in and enforce the promise even though
there is no consideration. However, only occurs in very specific
circumstances.
- Not examinable

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3. Contract formation: FORMALITIES, CAPACITY AND GENUINE CONSENT

Þ Formalities (CACL 5.330-5.410)

• Contracts can be made orally – oral transactions are common for minor transactions.
• Written contracts may be sensible in business contexts because they can preserve
the evidence of the existence of a contract and its content and terms, but they are
not usually legally required.
• However, certain kinds of contracts must be in writing or must be in evidence of
writing to be enforceable.
E.g.: When a contract is very serious and can be triggered by fraud, we can request
that the contract be written.

Þ Capacity (CACL Ch 6 -not required reading)

• Certain classes of persons are regarded by the law as incapable of entering into a
valid contract. These include but are not limited to:
- Minors
- Mentally incapacitated/ intoxicated persons
E.g.: digital transactions entered by children
• Not examinable

Þ Genuine consent (CACL 7.240 -7.250 only)

• Even if a contract has all the other essentials – offer, acceptance, certainty, intention,
consideration, formalities (if any) and capacity – it may still be invalid if the consent of
both parties is not genuine.
• This applies in particular circumstances only with a large body of law defining how
these legal categories work:
- Mistake – Party A thinks you’re buying cow 1 and a party B thinks you’re
buying cat 1
- Misrepresentation – Seller or buyer is misrepresenting some aspect of the
deal
- Duress – Someone’s under pressure and feels like they have to take the
deal
- Undue influence
- Unconscionable conduct
• Not examinable
• Statutory law plays a role here, in addition to the common law of contract -many
cases that would previously have now argued as involving mistake and
misrepresentation are now dealt with under the Australian Consumer Law.

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Þ Genuine consent – Misrepresentation (CACL 7.240 -7.250 only)

• Misrepresentation is one type of genuine consent issue.

• Misrepresentation only leads to a remedy at common law if it is fraudulent or
negligent, but not if it is innocent.
• Important to understand the pre-contractual statements might be puffs,
representations or part of the contract.

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 Week 4 – THE LAW OF CONTRACT: CONTENTS AND INTERPRETATION OF
THE CONTRACT

The Life Cycle of a Contract:

Legally binding contract is formed

Contract performance ( what

does the contract require us to
do?) - Week 4

Bringing a contract to an end, and

working out what to do when
something goes wrong - Week 5

We need to understand what a contract requires us to do. In order to understand this, we

need to ask two questions:
1. What are the legally enforceable promises in the contract? (INCORPORATION)
- The terms of the contract.
- Is this term part of the contract
- Is this term incorporated in the contract?
2. What do those promises require us to do? (INTERPRETATION)
- What do the terms actually mean

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 I. THE TERMS OF THE CONTRACT

What to do on an exam?
§ Identifying terms
1. Identify if the communication possibly includes a term
- Determine if that communication occurred BEFORE the contract
2. Identify if the communication is a puff
- An exaggeration that would not reasonably be understood to be serious.
3. Identify if communication is a representation or a term
- Importance of statement
- Time between statement and contract
- Expertise and knowledge of parties
§ Identifying parol evidence
1. Identifying if the parol evidence rule applies ( is there a written contract?)
2. If yes, identify if a communication is a collateral contract
§ Identifying conditions or warranty
1. Identify the relative importance of the term
- If important – condition
- If less important - warranty

Terms: Two broad types (CACL fig 9.1)

• The rights and obligations of the parties to a contract (i.e. the legally enforceable
promises) are determined by the terms of the contract.
• The terms of the contract are generally worked out by looking at the agreement –
what was contained in the offer and acceptance?
• Two types of contractual terms:
1. Express terms: terms that the parties specifically agreed to.
2. Implied terms: terms not specifically agreed to but are still part of the contract
because the law provides this result.

Þ Expressed terms (CACL 9.20 -9.70)

• To identify express terms, we look at what terms are contained in the offer, that has
been accepted.
• Identifying express terms may be simple in some cases, for example if there is a
written contract signed by both parties.
• In other cases, it might be more difficult, such as cases involving oral contracts, and
partly written/ partly oral contracts.
• The parties may have made many statements in their negotiations – which of these
statements are actually terms of the contract?
• It might also be unclear whether statements are displayed in another place.
e.g.: terms and conditions on a website, a notice on a wall – are part of the contract.

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Types of pre- contractual statements (CACL 9.40 – 9.70)

Identifying express terms (CACL 9.40 -9.70)

How to determine if a pre contractual statement was a term (part of a contract):

- The importance of the statement in the context of the contract.
- The time lapse between the time the statement was made and the time at
which the contract was formed – the closer to the point of contract the
more likely the statement is a term
- The relative knowledge and expertise of the parties

• Case 1: Oscar Chess v Williams (CACL 9.50)

- Car owner mistakenly believes the year of manufacture of the car is 1940
instead of 1930 and intends to sell to a car lot.
- This occurs because the previous owner of the car altered documents to
make it look like the car was manufactured in 1940 instead of 1930.
- The court held the statement was innocent misrepresentation and not a
contractual term.
- Based on the fact that seller was not a person of expertise in this field.

• Case 2: Dick Bentley v Harold Smith (CACL 9.60)

- Used car seller misstates number of miles driven by car to buyer.
- The court finds that the statement is a contractual term.
- The salesman has expertise on determining car mileage.

• Case 3: Ross v Allis Chalmers

- The sale of a harvester.

- Buyer looking for a harvester that makes 120 units per day.
- The seller states that the harvester can only do less around 80-90 units per
day.
- Was later discovered that the harvester produced less than that.
- Court finds statement a representation and not a contractual term.
- Was a stamen of opinion and not a stamen of fact.

The Parole Evidence Rule (CACL 9.30)

• Parole Evidence Rule – where parties intended their written contract to contain all
the agreed terms, evidence of other terms will not be allowed.
• Where a contract is in writing and appears to be the entire agreement between the
parties, courts all of the express terms.
• Evidence of other (e.g.: oral) terms will not be allowed to be given – the written
contract is controlling.

25
Collateral contracts (CACL 9.80 – 9.120)

• A promise might not be a term of the main written contract but might form part of a
collateral contract – the second (oral) contract.
• Collateral contracts are an exception to the parole evidence rule.
• For a valid collateral contract, three conditions must be satisfied:
1. The statement must be a promise and be intended to have contractual effect –
looks like it is a contract.
2. The statement must not be inconsistent with the main contract.
3. The promise must be given consideration for the collateral contract (usually by
entering into the main contract).

• Case 1: Van Den Esschert v Chappell (CACL 9.90)

- The buyer, before entering into a contract to buy a home asked if it had
termites.
- The buyer said it didn’t have termites.
- This statement about termites is not in writing because it was asked right
before the signing of the contract.
- However, this is a very important statement that is likely to have
contractual effect.

• Case 2: Crown Melbourne v Cosmopolitan

- There was extensive renovation but there was a short lease.
- Current lease holder wanted to know if the lease was renewed, otherwise
they were not going to undertake such an expensive renovation.
- The landlord said they will look after them during the next lease period.
- This is not a collateral contract because that statement does not sound like
a promise that will have contractual effect.

Different kinds of express terms (CACL 9.130 – 9.220)

• There are three kinds of express contractual terms:

1. Conditions – are terms that are of fundamental importance to the contract,
going to the contracts heart (e.g.: without this term, I wouldn’t have entered
unto the contract)
Case: Associated News v Bancks (CACL 9.160)

2. Warranties – are terms of lesser importance than conditions but are still legally
binding.
Case: Bettini v Gye (CACL 9.180)

3. Innominate (or intermediate) – terms are neither, until the effect of their breach
is known.
Case: Hong Kong Fir Shipping (CACL 9.200)

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 II. HOW ARE EXPRESS TERMS INCORPORATED INTO (MADE PART OF) A
CONTRACT?

What to do on an exam?
• Identify Terms incorporated by signature
1. Identify if a written contract exists with the term
2. Identify if the written contract is signed (either by signature or mouse click)
3. Identify if the written contract would clearly be a contract to the signer
- Recall that it is NO DEFENSE to say you DID NOT READ the contract
• Identifying terms incorporated by reasonable notice
1. Identify a communication of term
2. Identify if term brought to attention BEFORE/ AT TIME OF contract

Term incorporation: How terms become part of a contract

• There are two main ways in which an express term may be incorporated into a
contract:
1. By signature
2. By reasonable notice

Exclusion clauses as examples

• We will look at the legal rules concerning how terms can be incorporated into
contracts by focusing on a particular type pf term that is often the basis of legal
disputes: exclusion clauses.

• An exclusion clause if a clause that purports to limit to exclude one party’s liability
for loss incurred by the other.

E.g.: Owner takes no liability for damage in car park

• We encounter these regularly (in business and in life).

i. Term incorporation: By signature (CACL 9.245 – 9.270)

• As a general rule, where a party signs a document known to contain contractual

terms, that party will be bound by its terms.

• This is so regardless of whether or not the party has read and understood the
document.

Case: Toll v Alphapharm (CACL 9.250)

- Involved the distribution of a flu vaccine.
- Drug manufacturing company enters into a contract with Toll and toll has
an agreement which says they will not be liable for damage to items.

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 - The refrigeration of the trucks didn’t work, and the vaccine became too
warm and was unsuitable for use.
- Toll said the contract excluded them from liability and the drug company
said they didn’t read the contract.
- Conclusion – this was part of the contract.

• However, IF the document is one which a reasonable person would not expect to be
contractual in nature, then the party will not be bound by its terms.
• Ask: would a reasonable person have expected that the document contained
contractual terms, or would he/she have presumed it served some other purpose?
Case: Le Mans Grand Prix v Illadis (CACL 9.270)
- There was a brochure which needed to be signed in order to go g-karting.
- A reasonable person would not think they are signing a contract.
- A person needs to know that they are signing a contract.

ii. Term incorporation: Reasonable notice (CACL 9.280 – 9.350)

• Where there is no signed document, an express term can be incorporated into a

contract by the giving of reasonable notice.

• The party seeking to rely on the term must show that the clause was brought to the
notice of the other party before or at the time the contract was made.

E.g.: There is a notice behind the cashier which you notice before purchasing the
product saying NO REFUNDS; or
The receptionist of a hotel tells you before you get a room that this is a NO
SMOKING hotel, then that term can be incorporated.
“We assume no risk”

• Exclusion clauses made clear AFTER the contract is formed is NOT EFFECTIVE.
Case 1: Causer v Browne (CACL 9.300)
- No reasonable notice
- A dry cleaner provided a ticket after receiving the goods to be dry cleaned
and at the back of the ticket, in small print there was an exclusion clause.
- However, a person would not think to look at the back of a ticket therefore
there is no reasonable notice.
Case 2: Olley v Malborough Court
- Exclusion clause was displayed inside the hotel room.
Case 3: Alameddine
- Mother booked a quad biking excursion.
- After entering the location there is a document to be signed excluding
liability.
- As this is after the contract has been entered into, no reasonable notice.
Case 4: Thornton v Shoe Lane Parking

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 - Thornton parks his car at a car park and then is run down at the car park
and is severely injured.
- Signpost outside the carpark “All cars parked at owners’ risk”, a set of
conditions were displayed on pillar opposite the ticket machine excluding
car park from liability to customers including as a result of negligence,
printed words in ticket issued upon car parks entry,
- 1st sign – is an exclusion clause but not relevant to this type of injury
- 2nd sign – this is displayed after the contract was entered into therefore not
valid.
- Even though there is the sign, it is displayed too late.

III. INTERPRETATION OF CONTRACTUAL TERMS

What to do on an exam?
Ways to interpret unclear terms in general
1. Look for common/ ordinary meaning
2. Look at past usage by parties/ industry (commercially sensible)
3. Interpret Contra Proferentem (against the party relying on caluse)
Ways to interpret unclear terms in exclusion clauses
1. Identify type of contract (Commercial or consumer)
- If commercial, interpret broadly
- If consumer, interpret narrowly
2. Identify if the act causing harm was outside the scope of the contract

Term interpretation: What does the term mean?

• Many contractual disputes are not about whether or not a term forms part of a
contract, but about what the term(s) actually mean.
• That is: What are the rights and liabilities of the parties?
• Or in other words: what does the contract (i.e. the legally binding promises) actually
require the parties to do?
• We need to interpret contracts because words can have different meanings, and
those meanings are often affected by their context.
• The courts have developed principles that apply when interpreting ambiguous or
uncertain terms in contracts.

Contra Proferentum (CACL 9.380)

• One guiding principle when the parties do not have equal bargaining power is Contra
Proferentem (meaning, interpret against the party relying on clause)
• Against the party relying on the clause.
• In a case where two parties do not have equal bargaining power, the clause should
be interpreted in the favour of the party that is not relying on that clause.

29
Exclusion clauses

• Courts tend to approach exclusion clauses in consumer contracts more strictly than
in commercial contracts.

• Consumer contracts:
Case: Insight Vacations v Young (CACL 9.390)
- Insight vacations is a bus tour company and Young had purchased a ticket
to ride on that bus.
- There was a clause incorporated into the contract that where a passenger
occupies a motorcoach seat fitted with a safety belt, the company will not
be liable if injury occurs while the passenger had not fastened the safety
belt.
- Young stand to adjust luggage, the bus breaks and Young is injured.
- Does the exclusion clause limit liability? NO
- According to the clause it literally means liability is excluded from a
passenger being seated without a seatbelt. However, in this scenario the
passenger was standing.

• Commercial contracts – exclusion clauses are an efficient way to allocate risk

(remember, you don’t have to agree to it, and you don’t have to enter into a
contract).

Negligence Exclusion Clauses (CACL 9.400-.460)

• An exclusion clause can protect against breach of contract as well as negligence (lack
of care) but needs clear words to protect against negligence.
Case: Alameddine v Glenworth Valley Horse Riding (CACL 9.420)

An exclusion clause will not normally be interpreted by the court as covering acts
done outside the scope of the contract.
Case 1: Council of the City of Sydney v West (CACL 9.440)
Case 2: Photo Protection v Securicor (CACL 9.460)

IV. TERMS IN ONLINE CONTRACTING

What to do on an exam?
1. See if the contract has been signed (by signature or click)
2. See if terms were easily accessible before or at time of signature

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Click as Signature (CACL 9.470-9.480)

• Contract law principles, even if developed in older cases and in relation to very
different types of contracts, still apply to modern forms of contracting – including
online contracts.
• Think – how would the principles we study this week apply to contracts formed in
app stores, through in-app purchases on websites etc.
Case 1: Gonzales v Agoda (CACL 9.480)
- Clicking a ‘book now’ button on a Travel website has the same effect as
signing a written contract.
- This is important because contract terms required disputes to be resolved
in the courts of Singapore only.

Click and Browse Wrap (CACL 9.490-.520)

• How do the signature rule and reasonable notice work in relation to online
contracting?

• Terms with agreement button:

Click Wrap Agreements – clicking ‘accept’ is equivalent to signing a written contract; ‘I
agree”, “I have read”.
Case: Toll v Alphapharm

• Terms on different page:

Browse wrap agreements – question will be whether reasonable notice was given on the
terms; terms and conditions linked to another page.
Case: Olley v Marlborough Court
Specht v Netscape Communications (CACL 9.500)
- Download button was before the terms and conditions button
- Was only seen after scrolling past the download button.

Meyer v Kalanick (CACL 9.510)

- Terms and conditions on Uber can only be viewed through a multi-step
registration process.
- Not easy to access and in in highly legal terminology.
- Held – not reasonable notice as users had to scroll past multiple pages to
access terms and conditions.

Why were these cases important? In both cases the contract terms required disputes under
the agreements to be settled by arbitration, rather than through the courts.

V. IMPLIED TERMS

Terms required by law or custom (CACL 9.530)

• Terms may be implied by:

31
 - The court (common law)
- Custom or trade usage (common law)
- Parliament (statute)

• Why the law implies terms into contract:

- It may be impossible to include everything in a contract.
- Often there are no real pre-contractual negotiations
E.g.: Buying a hamburger or buying a coffee.
- Some events may not be predicted or anticipated by the parties
E.g.: A flood destroys a farmer’s crop
- The law recognises that some groups of people are particularly vulnerable
and need protection
E.g.: Consumers

Implied terms: the different types

• Terms implied by the court to give ‘business efficacy’ to the contract – implied term
goes without saying.
Case: BP Refinery v Hastings Shire Council (CACL 9.570)
- Successful
- Rating concession survives company’s reorganisation

Codelfa construction v State Rail Authority of New South Wales (CACL 9.580)
- Unsuccessful
- Time limit of the contract not extended
• It’s always better to make sure important details are contained in the express terms
of the contract – it might not be possible to show that an implied term (that you
really need) applies when something goes wrong.
• Terms implied by the court in specific types of contracts.
- E.g.: it is implied that goods hired will be reasonably fit for the purpose of
hiring, and skill and labour supplied will be done with reasonable care.
• Terms implied by the court as a result of custom or trade usage.

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 Week 5 – THE LAW OF CONTRACT: TERMINATION AND REMEDIES

I. TERMINATION OF THE CONTRACT: BY PERFORMANCE & AGREEMENT

What to do on an exam?
Performance
1. Identify if the parties both fully performed.
- If yes, the contract has been completed (terminated by performance)
2. Identify if a party is partially performed
- If the contract is in stages (divisible), party will be paid for stages completed.
- If the contract is not in stages, but party substantially performed, will be paid
contract price, minus the cost to complete/ fix.

Agreement
1. Identify if the parties have agreed for the contract to end.
- In the original agreement?
- In the subsequent agreement?

Termination: Performance (CACL 11.20 – 11.60)

• The most desirable termination of a contract is when the parties complete their
promises (that is, they do exactly what they promised to do).
• This is called termination by performance – exact performance.

Termination: Partial Performance – Divisible (11.20 -11.60)

• There might still be a legal entitlement to be paid, if the work is not full and exactly
completed if:
1. The contract is a divisible contract (rather than an entire contract) – a contract
that is to be performed (and paid for) in stages – paid for the stages they
performed.
- There might still be a legal entitlement to be paid, if the work is not fully
and exactly completed if;
- There has been substantial performance.
- That is, you did not exactly perform but you did perform (with defects;
omissions or errors).
- The court, in determining if performance was a ‘substantial’ will look at:
§ Nature of contract
§ Nature of defects
§ Relative cost of correcting or completing

Case: Hoenig v Isaacs (CACL 11.50)

- Interior decorating work was not properly completed.

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 - Contract was 750 pounds but would cost 55 pounds to fix.
- Substantial performance.

Case: Bolton v Mahadeva (CACL 11.60)

- Major defects in installing a central heating system.
- 560-pound contract would cost 174 pounds to fix.
- Not substantial performance.

Termination: By agreement (CACL 11.100 – 11.120)

• The parties may agree in the original contract as to how the contract may be
terminated.
- Example 1: When a specific event happens (e.g. A fixed term lease is
automatically terminated at the end of the period agreed, such as 6
years).
- Example 2: There is no specific right to terminate after any
particular period in the contract, but the court might imply to a
right to terminate on giving reasonable notice to the other party.
• The parties may terminate their contract subsequent agreement.
- The earlier contract is terminated in accordance with the terms of a
later contract (that itself satisfies all the requirements for a valid
contract).
- The later contract effectively supersedes the original contract.

II. TERMINATION OF THE CONTRACT: BY BREACH

What to do on an exam?
Repudiation
1. Identify if party has indicated it is unable/ unwilling to perform contract.
§ If yes, then this is a breach by repudiation.
- If the contract has been repudiated, you do not need to analyse specific
terms.
- Innocent party may insist on performance or accept repudiation and treat
as terminated.

Breach in performance (Breach of Term)

1. Identify if the party breached a term of the contract.
2. Identify if the term was fundamentally important.
- If YES, is a condition, innocent terminates and/ or seeks damages.
- If NO, is a warranty, CANNOT TERMINATE, seek damages only.

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Termination: By breach (CACL 11.130 -11.240)

• Breach is an example of termination in a situation where something has gone wrong.

Contracts can be terminated (brought to an end) when one party breaches the
contract, but only in some circumstances.
• Contracts are always legally binding, and all breaches of the contract, but only some
breaches allow a contract to be terminated.
Two broad situations:
- Repudiation – rejecting the whole contract (innocent party can
terminate).
- Breach in performance – breaching one or more particular terms
(innocent party can possibly terminate for breach of condition).

Termination by breach: Repudiation (CACL 11.140 -11.200)

• A contract is repudiated when one party indicates, by its words or actions that it will
not or cannot perform to complete the contract.
- Example: a developer hires a construction company to build an
apartment building. Halfway through, the company informs the
developer that it is not able complete the building. It is repudiated
the contract.
• Anticipatory breach: This is a particular form of repudiation that occurs before the
time when the contract was due to start being performed.
- Example: A developer hires a construction company to build an
apartment building. Before starting construction, the company
informs the developer that it is not able to undertake the
construction work. It has repudiated the contract through an
anticipatory breach.
• Conduct amounting to repudiation:
- Express refusal: specifically stating that a party is unwilling or
unable to perform the contract.
- Implied refusal: Inferred from the conduct (actions) of a party.
Case: Laurinda v Capalaba (CACL 11.170)
Repeated failure to organise for a lease in shopping centre to be
registered, which was what the contract required.

Case: Progressive Mailing House v Tabali

A number of breaches of a lease contract (including failure to pay
rent), all considered together.
• Effect of repudiation: the innocent party can,
i. Ignore the breach and insist upon performance; OR
ii. Accept the repudiation and treat the contract as terminated.

Termination: Breach – Performance (Term) – 11.210-11.240)

• Where one party breaches a term of the contract.

• Condition: a term that is of fundamental importance to the contract.

35
 • Warranty: a term that is of lesser importance.
• Innominate term: test is whether the breach has given rise to a situation where the
innocent party has been deprived of substantially the whole benefit which they are
entitled to.
• Remedy: Breach of condition (or a serious breach of an innominate term) –
terminate the entire contract and/ or seek damages.
• Breach of warranty – damages only (cannot terminate).

III. TERMINATION OF THE CONTRACT: BY FRUSTRATION

What to do on an exam?
Go through all five elements of frustration:
1. Did the event occur after the contract was made?
2. Did the event cause a fundamental change to the nature of the contract and the
obligations of the parties under the contract?
3. Was the event not the fault of either party?
4. Was the event unforeseeable by either party?
5. Overall, would it be unfair to enforce the contract under the changed circumstances?

If yes to ALL elements, then there is legal excuse to breach by frustration (terminate contract,
future obligations gone, pay current obligations).

Termination: by frustration (CACL Fig 11.4)

• The general rule is that the parties to a contract must do what they have promised
to do, and failure to perform the terms will constitute a breach of the contract.
• In very unusual circumstances, a court may recognise that a party/ parties are
excused from performing because an event has ‘frustrated’ the purpose of the
contract. This excuse is called frustration.
• “… frustration occurs whenever the law recognises that, without default of either
party, a contractual obligation has become incapable of being performed because
the circumstances in which performance is called for would render, it a thing too
radically different from that which was undertaken by the contract. It was not this
that I promised to do.” – Davis Contractors Case (11.370)
• To establish termination by frustration there are five elements that must (all) be
met:
1. An event that occurs after the contract is made.
2. That causes a fundamental change to the nature of the contract and the obligations
of the parties under the contract.
3. The event was not the fault of either party
4. The event was not foreseeable by either party; so that
5. It would be unfair to enforce the contract under the charged circumstances.

Note that if it is simply a case that a party didn’t do what they were required to do, and
these five elements are not met, it is an ordinary case of breach of contract.

36
• Examples of circumstances that have been recognised by courts as frustrating a
contract:

- Destruction of the subject matter of the contract: making

performance of the contract impossible.
Case: Taylor v Caldwell (CACL 11.300)
§ Concert hall burnt down.
§ Because there is no concert hall there can be no concert
therefore frustration.
- Common objective of the contract is no longer possible:
Case: Krell v Henry (CACL 11.320)
§ Henry wants to rent an apartment from which he can view
the coronation of the king.
§ However, King turns ill so coronation will be cancelled.
§ Purpose of the contract was to view the coronation.
§ Frustration applied here.
Case: Herne Bay v Hutton (CACL 11.330)
§ Hire of the boat to view coronation and cruise around.
§ Frustration doesn’t apply because coronation was 1 of 2
objectives for hiring the boat.
- Other supervening factors resulting in a ‘radical difference’ to the
performance of the contract:
Case: Codelfa Constructions v State Rail Authority od New South
Wales (CACL 11.380)
§ Construct to construct a railway station.
§ There was an injunction that prevented them from carrying
out around the clock construction.
§ There was an injunction.

• Examples of circumstances that have NOT frustrated a contract (because the five
elements were not met):
- A change in the law, where the change did not challenge the basis
on which the parties contracted:
Case: Scanlon’s New Neon v Tooheys (CACL 11.410)
§ A hiring of neon advertisement signs.
§ During the war there was a rule saying no Neon signs.
§ You could view the signs without neon lighting illumination.
§ Therefore, no frustration.
- Simply incurring extra costs or suffering inconvenience:
Case: Tsakiroglou v Noblee Thorl (CACL 11.430)
§ Simply incurring an extra cost or suffering inconvenience is
not frustration.
§ Suez Canal was closed which increased the price of shipping.
§ But the contract didn’t have a delivery date.
§ No contract.

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 • Frustration does not apply (because the five elements are not met) where:
- The contract itself covers the event
- The frustrating event is one that the parties could have reasonably
foreseen or
- There is fault, or self-induced frustration.

What is the effect of frustration?

• Automatic termination of the entire contract from the date of the event.
• Future obligations are discharged (i.e. don’t apply), but rights and liabilities already
accrued (i.e. that came due before the frustrating event) remain.
• Australian Consumer Law and Fair-Trading Act 20120(Vic) ss 37-38: the court has
discretion to fairly distribute the loss.
• An example of statue law providing a contract law rule for a specific legal point,
when most of our contract law rules otherwise come from the common law.

IV. REMEDIES FOR THE BREACH OF A CONTRACT – DAMAGES

What to do on an exam?

Go through ALL FOUR steps of damages:

1. What is the measure of damages?

- Expectation damages must be demonstrated ($ made if contract performed).
- If not, then reliance damages (costs incurred).
2. Was the loss caused by the breach?
- Apply “but for” test (but for breach, loss would not have occurred)
3. Is the loss foreseeable (not too remote) from the breach?
Loss is foreseeable and not too remote if:
- Loss arises naturally from breach, or
- Loss was contemplated by parties (did one party tell other of unusual risk of loss?)
4. Is the loss one that the innocent party should have taken steps to avoid, by way of
mitigation?
• What are the legal remedies available when there is a breach of contract?
Did innocent party take reasonable steps to lesson losses?

- Damages: monetary compensation for loss

- Termination: bringing a contract to an end
- Equitable remedies: specific performance, injunctions.
- We have already considered termination for breach of contract
earlier on in today’s lecture (and in Week 4), so here we focus on
the other remedies.
- In particular: damages.

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 • When working out whether damages can be claimed for a breach of contract, we
always consider the following four steps:
1. What is the measure of damages?
2. Was the loss caused by the breach?
3. Is the loss too remote from the breach?
4. Is the loss one that the innocent party should have taken steps to avoid by way
of mitigation.

Step 1: Measure of damages (CACL 12.50-12.80)

• General principle: Where a party sustains a loss by reason of a breach of contract,

damages are to be awarded so as to place the innocent party, as far as money can do
so, in the same position that they would have been in if the contract had been
performed.
• This is known as ‘expectation damages’ (ie damages based on your expectation that
the contract would be performed).
Case: Robinson v Harman (CACL 12.50)

• But: Where it is not possible for the innocent party to demonstrate whether, or to
what extent, the performance of the contract would have resulted in profit, they can
seek to recover the expenses that they have reasonably incurred in reliance on the
breaching party’s promise to perform its obligations under the contract.
• This is known as ‘reliance damages’ (ie costs incurred on the basis of relying on the
contract).
Case: Commonwealth v Amann Aviation (CACL 12.60)
§ Company was to provide air surveillance.
§ Company didn’t prepare all their planes in time and government had to
cancel the contract.
§ They cancelled the contract which they didn’t have the right to terminate
which in itself is a repudiation.
§ Airplane company was able to recover the costs that went into purchasing
the aircrafts.

Step 2: Causation (CACL 12.90 – 12.95)

Were the damages caused by the breach?

• Damages can only be recovered where the loss suffered is actually caused by the
breach (we call this question causation).
• The test is the ‘but for’ test – but for the breach, would the loss have been incurred?
(In other words – did the loss arise because of the breach, or because of something
else and it would have arisen anyway?)
Case: Reg Glass v Rivers Locking Systems (CACL 12.95)
§ Anti-burglary device was supposed to be installed but was not installed
correctly.
§ Burglars burgled the home.

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 § If the anti -burglary device had been installed properly the burglars wouldn’t
have been able to break in.
§ But for the breach the loss would not have occurred.
§ Therefore, there was causation.

Step 3: Foreseeable (Remoteness) (CACL 12.98-12.140)

Are the damages too remote to be recovered?

• Even if damages are caused by a breach, they can only be recovered if they are
foreseeable (that is, they are not too remote). The loss must be reasonably
foreseeable at the time of contracting.
Case: Hadly v Baxendale (CACL 12.100)
§ Hadly involves a mill which needs a part which broken.
§ The deliverer was supposed to deliver the part in two days but took a week –
the mill was not in operation for a week.
§ In this instance there was no recovery. Loss didn’t arise naturally and the
particular circumstances (no spare parts) weren’t brought to the deliverer’s
attention.
§ In this example there are two possible ways that losses can be foreseeable:
i. The loss that naturally arises from the breach.
ii. The loss was reasonably within the contemplation of the parties.

Case: Victoria Laundry v Newman Industries (CACL 12.110)

§ Laundromat needed to buy a boiler.
§ Needed to have it installed in time to compete in government contract for
dying cloth.
§ The boiler is not installed in time.
§ Victoria Laundry sued for the operating cost of the laundry plus the
government contract.
§ Awarded – normal costs and not government profits.
§ Boiler installer was not aware of government contract therefore too remote.

Case: Day v O’Leary

§ Reflooring of a home – flooring is put in poorly therefore have to refloor the
home.
§ They will receive the replacement costs for the flooring.
§ Also claims damages that they were not able to rent the house while the
house was being re-floored.
§ No evidence that the flooring company was informed of the fact that the
owner was looking to rent.

• Make sure you can answer the following questions:

- In Hadley v Baxendale, why did the plaintiffs fail in their action to
recover the lost profits they suffered?

40
 - In Victoria Laundry, why were the plaintiffs compensated for their
normal lost profits but not for the loss of profits from the lucrative
government contracts?
- In Day v O’Leary, why did the plaintiffs receive damages for the cost
of replacing the floor but not damages for their lost rent?

• As a businessperson what should we do if we are entering into a contract and we

need to make sure it is performed for particular business reasons that are important
to us, that the other side might not necessarily expect.

Step 4: Mitigation (CACL 12.150 -12.180)

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

• If the other side breaches a contract, you have to take reasonable steps to mitigate
(i.e. limit) the loss you suffer.
• In other words – you aren’t able to sit back, let the losses pile up (even though you
could have avoided them), and then claim damages for the entire amount.
• Failure to mitigate means that damages are reduced by the amount that could
reasonably be avoided.

A business example – a coffee shop finds out that its supplier is not able to deliver its coffee
beans this week, as required by their contract. Can the business simply close, and claim an
entire week’s worth of lost profits? What is the business actually required to do?

Damages: some other important points (CACL 12. 190 -12.300)

• Difficulty of quantifying damages is no bar to recovery.

- It may be difficult to assess loss, but this does not relieve the court
of the duty to estimate:
Howe v Teefy (CACL 12.200)
• Damages are not usually recoverable for inconvenience and/or disappointment
and/or injured feelings.
- Falko v McEwan (CACL 12.220)
- Jarvis v Swans Tours (CACL 12.240)
- But see Baltic Shipping v Dillon (CACL 12.250) and Boncristiano v
Lohmann (CACL 12.260)
Note the three types of damages:
- Ordinary
- Nominal – court will award a minor amount to signify that
something went wrong.
- Exemplary

V. REMEDIES FOR BREACH OF CONTRACT: EQUITTABLE REMEDIES

Specific Performance (CACL 12.350 -.400)

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 • An order of the court requiring a party to perform their obligations under the
contract (Rare).
• General principle: the common law favours awards of damages and will only order
specific performance where damages are inadequate compensation (e.g.: where an
item being purchased under a contract is unique, or where a contract involves the
sale of land).
• Specific performance will not be granted:
- Where damages are adequate; or
- Where the contract is for personal services; or
- Where the ongoing supervision of the court is required.

Injunction (CACL 12.410)

• An order of the court restraining a person from doing a wrongful act (like breaching
a contract).
• An injunction will not be granted:
- Where its effect would be to compel someone to do something for
which the court would not have ordered specific performance.
- E.g.: where its effect would be to require a contract for personal
services to be specifically performed.

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 Week 6 – CONSUMER PROTECTION

I. OVERVIEW OF AUSTRALIAN CONSUMER LAW

Overview of Australian Consumer Law (13.10-13.20)

• There are general standards of honesty and fairness that are imposed by
the law that affect all players in the market regardless of agreement.
• The law that accomplishes this is Australian Consumer law (ACL).
• This covers an enormous part of Australia’s economy (roughly 75% of
final GDP spending protected by ACL.

Dual purposes of consumer protection

1. Protect Consumers:
- Prohibits misleading conduct, specific misrepresentations,
certain unfair practices, unfair contract terms and
unconscionable conduct.
- Provide statutory guarantees

2. Protect competitors
- Prevent competitors form gaining dishonest competitive
advantage.

Need for statutory protections

• Why not just rely on common law?

• Inherent imbalance of bargaining power.
• Need to provide extra protection (statutory) protection.

Administration of ACL (13.30 -13.40)

• Administered by Australian competition and consumer commission

(ACCC).
- Applies broadly to Australian citizens and residents, to
natural persons and corporations.
• Applies to companies with online customers in Australia (even if no
physical presence)

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 Case: Valve v ACCC
§ Steam (gaming platform) has no refunding policy.
§ Valve (steam) although they don’t have an
Australian office, by reaching out to Australian
consumers visa website they have to comply to
ACCC.

II. CONSUMER GUARUNTIES

• ACL provides for statutory guarantees in contracts for the supply of

goods and service to consumers (CACL 13.1280)
- Imposed by legislation
- Remedies are set out in ACL (not private remedies)
• There are 9 statutory guarantees in contracts for the supply of goods to
consumers, including Guarantees to:
- Acceptable Quality (s 54)
- Fitness for Disclosed Purpose (s 55)
(Basically, goods will work for disclosed purposed, as
demonstrated or described).

What to do on an exam?

1. Determine if consumer guarantees apply

2. Determine what CG was violated
- Acceptable quality? (s54)
- Disclosed purpose (s 55)
- Apply test and cases
3. Determine remedy
- Major or minor violation?

Step 1: Always determine if CG applies (CACL 13.1320)

• Define ‘consumer’ good or service: s3(1)

- Amount of goods/ services is <$40,000 (i.e. any g/s under
$40,000) or
- Goods/ services are of a kind ordinarily required for
personal, domestic or household use or consumption or
- Goods are a vehicle acquired for use on public roads
(Also: Goods are not acquired for re-supply, using up in
production or in the repair of other goods: s3(2)

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 - Examples:
§ Interpreted very broadly (Bunnings Group v
Laminex (CACL 13.1330)
§ Airplane < $40,000 = Ok
§ Mercedes Benz > $40,000 = Ok
§ Carpet > $40,000 = Ok

Þ Goods – Acceptable Quality (CACL 13.1370)

• S 54(1) – seller ‘supplies’ goods to a ‘consumer’ in trade or commerce;

there is a guarantee that the goods are of ‘acceptable quality’
- Fit for all purposes for which the goods are commonly
supplied.
- Acceptable in appearance and finish, free from defects,
safe, durable
• Reasonable consumer (CACL 13.1050) fully acquainted with the state
and conditions of the goods would regard as acceptable having regards
to
- The nature of the goods
- Price
- Statements on labels or packaging
- Representations by supplier or manufacturer
- Any other relevant circumstances
• Case: Thomson v Excel
- Ebay seller sells a larger garden shed with a picture of a
car in it describing it as heavy duty.
- Ended up being too flimsy for a car
- Unacceptable quality for its usual purpose

Þ Consumer Guarantees – Disclosed Purpose (CACL 13.1390)

• s55(1) – Fitness for Disclosed Purpose

• Guarantee that goods are reasonably fit for a disclosed purpose and for
any purpose for which the supplier represents that they are reasonably
fit for.
• Case: Merke, Sharpe & Dohme v Peterson
- Patient has very sensitive stomach and inherent cardiac
risk.
- Asked for a pill that doesn’t hurt the stomach.

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 - Pill stopped the stomach from hurting but increased heart
pain.
- This did not violate disclosed purpose – because patients
disclosed purpose was for the stomach-ache.
• What is a ‘disclosed purpose’ (CACL 13.1410)
- Particular purpose made known to supplier by consumer,
expressly or by implication in pre-contractual
negotiations.
- Particular purpose made known to manufacturer directly
or by supplier in pre-contractual negotiations.
- Consumer must show relied on supplier’s skill and
judgement: s 55(3) – consider experience of salesperson.

Þ Consumer guarantees – As described or Demonstrated (CACL 13.1420)

-Not examinable

• Correspondence with description: s 56(2)

- Goods must be the same as those described on packaging
or in print.
• Goods must comply with sample or demonstration model: s 57(1)
• Often brought with violations of acceptable quality.

Þ Consumer Guarantees – Services (FN 18-13.1490)

• See definition for services: s 2(1) – see FN 18, CACL 13.1490

- Contract for work including professional work
- Contract for amusement, entertainment, recreation or
instruction
- Insurance contract
- Contract between banker and customer
- Loan contracts
• The guarantees:
- Services must be rendered with due care and skill: s 60
- Where a consumer makes know the result he or she
wishes to achieve, guarantee that the services will be
reasonably fit for that purpose: s 61(1)
- And will be of such a nature and quality, state or condition
that they might reasonably be expected to achieve that
result: s 61(2)

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 - Guarantee does not apply where consumer does not rely,
or it is unreasonable to rely on supplier’s skill and
judgement: s61(3).
- Guarantee as to reasonable time of supply: s 62

Þ Consumer Guarantees – Limiting Liability (CACL 13.1500)

• General rule: cannot exclude the guarantees or limit liability for

‘consequential losses’ in contracts for supply of goods and services:
s 64(1).
• However, there are two exceptions.
1. Unordinary (CACL 13.1500)

Where good are not of a kind ‘ordinarily acquired for personal, domestic or
household use’, supplier can limit its liability as follows:
- Contract for goods – supplier can limit liability to
‘supplying the services again’
- Provided that it is ‘fair and reasonable’: s 64(3) – see
factors:
§ Relative strength of the bargaining positions
§ Were there alternative sources that did not have
the term
§ Did buyer know of the term?
§ Special order of the buyer

2. Recreation (CACL 13.1500)

CCA s 139A(1), (3) – Recreational activities -supplier can limit liability for death
or injury
- Sporting activity or leisure time pursuit
- Any other activity that involves a ‘significant degree of
physical exertion or physical risk’.

Þ Consumer Guarantees -Remedies (CACL 13.1510)

• Broadly similar for both goods (s 259) and services (s267-8)

• Distinguish major and minor failures (can it be fixed?)

1. Major failure: s 260

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 • Goods would not have been acquired if buyer knew of the failure.
• Goods don’t match the description.
• Goods substantially unfit for a purpose -either common or disclosed
and can’t be easily remedied to fit that purpose.
• Goods not of acceptable quality because they are unsafe.
• If ‘major failure’ occurs consumer can:
- Reject the goods (provided with reasonable time) or
recover compensation for any reduction in value: s
259(3).
- Recover damages for reasonably foreseeable loss or
damage: s 259(4) unless failure caused by problem after
goods left supplier.

2. Minor Failure (CACL 13.1510)

• Not major – consumer may require supplier to remedy the failure within
a reasonable time or, if supplier doesn’t, then buyer can reject the goods
or recover reasonable costs: s 259(1)(2)
• E.g.: chain saw doesn’t work
- Repair
- Replace
- Refund

What if the goods are a gift?

• Same as buyer: s 266

• Buyer to return goods (or if significant cost, supplier must collect the
goods): s 263(2)-(3). Supplier must refund the money or replace the
goods: s 263(4).
• Broadly same remedies for failure to comply with guarantees in relation
to services: ss 267-8.

III. UNFAIR CONTRACT TERMS

Effect (CACL 13.1190-.1230)

• An unfair term in a standard form consumer contract is void s 23(1)

- If contract can operate without the unfair term it won’t be
void s 23(2).
• Meaning of ‘standard form’ contract: s 27(2)

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 - See 6 relevant factors: s 27(2)(a)-(f)
- Look at bargaining power/ ability to negotiate
- “Take it or leave it”
- Rebuttal Presumption – standard form
• Meaning of a ‘consumer’ contract: s 23(3)
- Contract for supply of goods and services or sale of land to
person who acquires them wholly or predominantly for
personal or household use.
- Compare definition of consumer in relation to consumer
guarantees).

• Meaning of ‘unfair’: s 24(1):

Three elements: The term:
1. Causes a significant imbalance in the parties’ rights and obligations.
2. Is not reasonably necessary to protect legitimate interests of stronger
party.
3. Causes detriment to other.

• Determining “unfair” (13.1220)

- Apply s24(1) the court must consider:
§ The extent to which the term is ‘transparent’.
§ The contract as a whole
§ Legislative examples: s 25
What to do on an exam?

1. Determine if this is a standard form contract

2. Determine if term is unfair
- Look for automatic renewal or unilateral price increase
- Apply test and cases
3. Determine remedy

• Automatic renewal term = unfair

Case: ACCC v Chrisco Hampers
- After a final instalment was paid, customer’s bank account
would continue to be debited in anticipation of a future
order.
• Automatic Renewal term and many exclusive rights = unfair
Case: ACCC v JJ Richards
- JJR could unilaterally raise prices
- Customers cannot terminate if they had debt

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 - Automatic renewal (need to cancel in 30 days)
- JJR had exclusive rights to remove waste.
• Automatic Renewal term and many exclusive rights = unfair
Case: ACCC v Servcorp
- Automatic renewal provision
- Unilateral price increase
- Kept security deposit if consumer didn’t ask for it back.

IV. STATUTORY UNCONSCIONABLE CONDUCT (13.1060)

• Terrible terrible conduct.

• ACL prohibits persons from engaging in unconscionable conduct: ss 20-
21.
• Three categories:
- Unwritten law
- Goods and services
- Conduct against small businesses
- “Shocks the conscious”

What to do on an exam?

1. Look for especially vulnerable victim (Power Imbalance)

- Elderly? Immigrant? Socially Disadvantaged? Child?
2. Determine if conduct is shockingly bad
3. Determine remedy

1. Under the unwritten law (or common law): s 20

Case: ACCC v Berbatis – Was OK
- Tenant was suing a shopping centre, but tenants lease
was about to expire.
- Centre agreed to renew lease if tenant dropped the suit.
- This scenario is not nice but is not shockingly bad either.
Case: ACCC v Samton Holdings – Was OK
- New tenant must pay extra for right to renew expiring
lease from old tenant.
- Threat to some extent.
Case: Amadio (CACL 7.540) – Not OK
- Elderly immigrant’s son talked them into signing
unfavourable loan.

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 - They didn’t quite understand the terms and had a low
proficiency of English.
- Bank agent should have recognised this before allowing
them to sign the loan.

2. Unconscionable conduct in connection with goods or services: s 21

• Meaning of unconscionable not defined but:
- S 22(1)(a) –(I) lists the matters to consider
Case: ACCC v Lux
- Salespeople targeted old grandmas’ homes to evaluate
whether their vacuum cleaners were good and then tried
to sell their own ones.
Case: NRM v ACCC
- NRM sold pills for erectile disfunction.
- Made it incredible difficult to cancel and were being
prescribed in an aggressive way.
- Targeted and pressured group with sensitive illness.
- ‘Immoral to seek and harness the fears and anxieties of
men suffering from ED’ (Pressuring vulnerable patients)

3. Unconscionable conduct and small business (CACL 13.1150)

• Sections 21 and 22 also protect small businesses from unconscionable

conduct of large businesses. Same factors as listed in s 22(1) apply.

Remedies (CACL 13.1180)

- Pecuniary penalty
- Damages
- Injunction

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 Week 7 – CONSUMER PROTECTION (DECEPTION)

I. REVIEW THE AUSTRALIAN CONSUMER LAW

• There are general standards of honesty and fairness that are imposed by
the law that affect all players in the market regardless of agreement.
• We are concerned with imbalances in:
- Bargaining power
- Information
• Dual purposes of consumer protection:
§ Protect consumers
- Prohibit misleading conduct, specific misrepresentations,
certain unfair practices, unfair contract terms and
unconscionable conduct.
- Provide statutory guarantees
§ Protect competitors
- Prevent competitors from gaining dishonest competitive
disadvantage.

Overview of ACL – Prohibiting Deception (CACL 13.60- 13.390)

• ACL prohibits deception in conduct or representations.

• Misleading or deceptive conduct:
- Section 18 of the Australian Consumer Law
- Has broad remedies but no penalties
- Conduct false into this category.
• Specific false or misleading representations
- Primarily section 29 of the Australian Consumer Law
- Broader remedies (civil remedy +penalties +fines)
- False representation falls into this category.

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 II. MISLEADING OR DECEPTIVE CONDUCT

• Section 18(1) – ‘A person must not, in trade or commerce, engage in

conduct that is misleading or deceptive or is likely to mislead or deceive’.

What to do on an exam?
1. Determine if ACL applies
- In trade? Or conduct?
2. Determine if s 18 is violated
- State dominant message
- State target audience
- State if likely to mislead
- Cases very important (try to match facts)
- Always look to see if s 29 is also violated

Key points (CACL 13.40 -.370)

• S 18 applies to ‘persons’ (natural persons) and ‘corporation’ (legal

persons).
• S 18 only applies to conduct occurring ‘in trade or commerce’ – it must
have commercial flavour (e.g.: not private sales)
• S 18 applies to a wide range of ‘conduct’… broader than
‘representations’.
• S 18 applies where conduct is misleading or deceptive or is likely to be.
• S 18 creates strict liability and cannot be excluded – no need to prove
fault or fraud or breach of good faith. Only question is whether the
conduct occurred, and it was relied on, or may be relied on.
• Remedies for breach s 18 are very broad and include damages,
injunctions, corrective advertising and variation or rescission of
contracts.

i. Misleading Conduct – Person (CACL 13.70)

• 'A person must not,..’

- A ‘person’ – both ‘natural’ and ‘legal’ persons are included
- S 18 applies to ‘persons’ (natural persons) and
corporations (legal persons)
- Covers basically everything

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 ii. Misleading conduct – Trade (CACL 13.50)

• In trade or commerce
- S 18 only applies to conduct occurring ‘in trade or
commerce’ – it must have a commercial flavour
- “The conduct of corporation towards persons.. with
whom it.. as or may have dealings with.. bear a trading or
commercial character.
- Private, One-time sales = NO
- Case: O’Brien v Smolonogov
- Non-commercial topics with no sales = No
- Case: Plimer v Roberts (CACL 13.90)
o Researcher claimed that the top of a mountain was
Noah’s Ark.
o Professor sues for s18
o Nit in trade – free lectures, non-commercial,
creationism.

iii. Misleading conduct – Engage in conduct (CACL 13.80)

• Engage in conduct

III. SPECIFIC FALSE OR MISLEADING REPRESENTATIONS

False representations – ACL s 29(1) – (CACL 13.390)

• Specific false or misleading representations:

- Similar threshold requirement
o In trade
- More specific prohibitions
- Don’t mislead as to
o The product (price, nature, origin, need, benefit)
o Reviews/ endorsements
o ACL consumer guarantees

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Specific false or misleading representations:

See threshold requirements (CACL 13.400)

Then see s 29(1)(a)-(n)

o (a) that good are of a particular standard, quality, value, grade,

composition, style or model or have had a particular history or particular
previous use
o (b) that services are of a particular standard, quality, value or grade
o (c) that goods are new
o (d) that a particular person has agreed to acquire goods or services
o (e) that purports to be a testimonial by any person relating to goods or
services
o (f) concerning:
i. A testimonial by any person
ii. A representation that purports to be such a testimonial; relating
to goods or services
o (g) that goods or services have sponsorship, approval, performance
characteristics, accessories, uses or benefits
o (h) that the person making the representation has a sponsorship,
approval or affiliation
o (i) with respect to the price of the goods or services
o (j) concerning the availability of facilities for the repair of goods or of
spare parts for goods
o (k) concerning the place of origin of goods
o (l) concerning the need for nay goods or services
o (m) concerning the existence, exclusion or effect of any condition,
warranty, guarantee, right or remedy (including guarantee under
division 1 of part 3-2)
o (n) concerning a requirement to pay for a contractual right that:
i. Is wholly or partly equivalent to any condition, warranty,
guarantee, right or remedy
ii. A person has under a law of the commonwealth, a state or a
territory (other than an unwritten law)

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What to do on an exam?

1. Determine if ACL applies

- In trade? Representation?
2. Determine if s29 is violated
- Identify the statement/ representation
- Why is that false
- Determine what sub section of 29
- Cases very important (try to match facts)

*Always look to see if s18 is also violated

Case: ACCC v Thermomix (CACL 13.410) – s29(1)(a)

- Mixing bowl is burning customers
- Company keeps selling product even after learning of the
safety issue
- This creates the FALSE IMPRESSION that it is safe
- “(a) that good are of a particular standard, quality, value,
grade, composition, style or model or have had a
particular history or particular previous use”

Case: ACCC v Turi (CACL 13.420) -s29(1)(a)

- Selling eggs from free range hens
- Eggs are not free range
- False representation of the history of the goods
- “(a) that good are of a particular standard, quality, value,
grade, composition, style or model or have had a
particular history or particular previous use”

Case: Optus v Telstra (CACL 13.430) – s29(1)(b)

- Unlimited plan
- The plan is always limited
- “that services are of a particular standard, quality, value
or grade”

Case: ACCC v Heinz (CACL 13.440) -s29(1)(g) -benefit

- Sells fruit sticks for toddlers
- Shows happy active toddler, “99% fruit and veg” (implies
it is healthy)
- Loaded with sugar

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 - “(g) that goods or services have sponsorship, approval,
performance characteristics, accessories, uses or benefits”

Case: ACCC v Jetstar (CACL 13.450) -s29(1)(i)

- Advertised prices didn’t include booking fees
- “(i) with respect to the price of the goods or services”

Interaction with s.54 (CACL 13.460)

• Can’t misinform customers about availability of remedies under ACL

Case: ACCC v Apple (CACL 13.460) -s29(1)(m)
- Acceptable quality is protected by ACL (s54)
- Apple has an error that breaks some iphone and ipads
- Apple tells customers no remedy if a third party repaired
their device
- It is misleading to tell customers they cannot receive
remedy under ACL
Case: ACCC v LG (13.470)
- Says customers have no remedy if warranty has expired
- But ACL s54

Country of origin (CACL 13.480)

• Country of origin: s29(1)(a) or (k) and ss 255-257: CACL 13.480 (when

can you say, ‘made in Australia’? Not when made in another country!
ACCC v Marksun)
• Whether the goods were ‘substantially transformed’ in the claimed
country of origin.
• Goods will be ‘substantially transformed’ if, as a result of one or more
processes undertaken in that country, the goods are ‘fundamentally
different in identity, nature or essential character from all of its
ingredients or components’.

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Remedies

• Pecuniary penalties: s 224 (CACL 13.710)

- Corporations $10 million, or 3x value of benefit or 10%
annual turnover
§ Specific false representations and other unfair
practices and unconscionable conduct
§ NV does not apply to misleading or deceptive conduct
or unfair contract terms
§ Corporations are responsible for the conduct of their
employees: CCA s139B(2) –(CACL 13.810)
§ Defences (CACL 13.680)
• Injunction: s 233 (CACL 13.830)
- Belle Gibson Case
• Damages: s 236 (CACL 13.900)
- NB liability of persons involved in the conventions; s2(1)
makes employees etc personally liable in damages
- Case: Yorke v Lucas
• Other orders: s 237 – relating to a contract that has been made as a
result of a breach of ACL -including misleading or deceptive conduct
(CACL 13.900)
- Declaring contract or part of it void
- Varying the terms of the contract
- Refusing to enforce any or all of the terms of the contract
- Directing a fund
- Directing a person to repair etc
• Other enforcement provisions (CACL 13.930)
- Undertakings
- Substantiation notice
- Adverse publicity order – Turi case
- Disqualification order for directors (CACL 13.1050)

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 Week 8 – LAW OF TORTS: LIABILITY FOR NEGLIGENT ACTS (PHYSICAL
HARM)

What to do on an exam?

1. Determine what type of negligence

§ Physical Harm (Week 8)
§ Negligent Misstatement (Week 9)
2. Apply the four steps
§ Duty of care?
- Physical Harm : Donoghue v Stevenson – reasonable foreseeability of
harm and proximity
§ Breach of that duty?
- 2 steps s. 48 – foreseeable risk, reasonable response (4 factors)
§ Did the breach cause harm? (damages)
- Causation; remoteness
§ Is there a defence? Contributory negligence? Voluntary assumption of
risk?

I. OVERVIEW OF TORTS AND NEGLIGENCE

What is a tort? (CACL 14.10)

• “Tort” is a Latin word meaning twisted’, ‘crooked’, or ‘wrong’.

• Tort law is concerned with legally binding obligations that arise when
one person’s wrongful conduct infringes another persons’ rights and
loss, or damage is caused.
• Wrongful interference with an individual’s person or property
• Torts are ‘civil wrongs’ (contrast with ‘criminal wrongs’= crimes)
• Creates corresponding ‘duties’ and ‘rights’
- Protecting general rights enjoyed by all individuals
- Not dependant on a contractual agreement between the
parties involved
- The rights and duties exist and are imposed by the law
(common law and legislation)

• Examples of torts:

59
 - Tort of battery – right to be safe from intentional physical
harm to your body
- Tort of defamation – right to enjoy a good reputation
- Tort of trespass – right to enjoy property free from
interference – land and personal items
- Tort of nuisance – right to peacefully enjoy land
- Tort of negligence – right to be safe from unreasonable,
careless conduct of others

Overview of negligence (14.40-14.50)

• An action for negligence if about careless behaviour and can, therefore,

be applied to any form of human or business activity. It does not involve
a specific form of conduct.
• Negligence law requires members of society (including those engaged in
business activities) to adhere to minimum standards of conduct, to avoid
injury to others.
• Not about perfection – but about reasonable conduct
• Negligence may cause;
- Physical harm (includes injury, illness and property
damage)
- Psychological harm
- Economic loss (financial loss) – includes loss of income,
medical expenses
• If the plaintiff is successful in establishing negligence, damages are
recoverable to compensate the plaintiff for the injury/ losses. The
defendant is liable.
• Policy issue – when someone is injured, who should bear the loss? The
person who caused the injury. The state? What role does fault play? The
tort of negligence is about finding fault (i.e. ‘negligence’) in the personal
who caused the loss.
- Legislation as created compulsory compensation schemes
for injury at work (WorkCover) and for road accidents
(Transport Accident commission) – under these schemes
no-fault liability arises – the question is only whether you
were injured – Not whether the employer/ other driver
was at fault
- Part 3-5 ACL – strict liability for manufacturers of goods
with safety defects that injure (could sue under both areas

60
 of law (negligence and ACL) – BUT ONLY COMPENSATED
ONCE)
- Part 3-5 ACL- Not examinable

• Common law
- The common law principles governing negligence liability
have been reformed by legislation.
- E.g.: Modifying common law principles (breach/damage)
and caps on liability
- Topic 1- statutory law can modify the common law (as
parliament is the sovereign law-making body
• Legislations
- Wrongs Act 1958 (Vic) -check Moodle for extracts

Overview of Negligence: Elements of Negligence (Fig. 14.2)

1. Does D owe a duty of care to • Reasonable foreseeability
P? • Proximity
• Broader policy considerations
when a new situation arises
2. If so, has D breached that duty • Was it a foreseeable risk?
of care? • If yes, how would a reasonable
person in D’s position have
responded?
3. If so, has P suffered damage? • Was damage caused by the
breach? (‘but for ’ test)
• Is the damage too remote?
(reasonable foreseeability test)
4. Are there any defences? • Contributory negligence
• Voluntary assumption of risk
• Peer professional opinion
(Week 9)

II. ELEMENTS OF NEGLIGENCE – DUTY OF CARE

® Step 1: Establishing a duty of care – Does D owe P a duty of care?

Case: Donoghue v Stevenson (CACL 14.70)

- “Snail in the bottle” case

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- May Donoghue and a friend went to a café, ordered and paid for an
ice-cream drink
- The café owner pored the ginger beer into a glad containing the ice
cream
- Donoghue drank some of the ice cream drink and lifted the bottle to
pour the remainder of the ginger beer into the glass.
- The remains of a decomposed snail dropped out of the bottle into the
glass
- Donoghue later complained of stomach pain and the doctor
diagnosed her as having gastroenteritis and being in a state of
nervous shock.

- Who could May Donoghue sue?

- Her friend who bought her the ginger beer>
- The café owner who sold it to her friend. But there is no contract
between May and the retailer
- The manufacturer who made it. But there is no contract between
May and the manufacturer
- Donghue sued manufacturer.
- Duty of care: You must take reasonable care to avoid acts or
omissions which you can reasonably foresee would be likely to injure
your ‘neighbour’ (‘reasonable foreseeability of harm’ test)
- Who is your neighbour in law? Who does the duty of care extend to?
Those who are ‘so closely and directly affected’ by the defendant’s
act that the defendant should have foreseen the consequences to the
plaintiff. (‘neighbour/ proximity test)
- Why limit scope of the tort of negligence in this way? If injury is not
foreseeable and there is no neighbour test, liability is too broad.
- Broad principle established: Duty of care can arise in any context
where loss or injury was ‘reasonably foreseeable’ and where the
parties were in sufficiently close ‘proximity’ that it required one party
not to cause harm to the other. Established negligence as a tort,
independent of contract.
- Applied the broad principle/ rule to the specific facts in the case.
- Narrower principle also established: A manufacturer owes a duty of
care to consumers to take reasonable care when manufacturing
products to protect consumers from reasonably foreseeable injury to
their person or to their property.
- Must not allow foreign objects to enter items for consumption. Doing
so is failing to take reasonable care and is negligent.
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 - Verdict: Donoghue won the case and was awarded damages.

DUTY OF CARE IN FIVE SPECIFIC SITUATIONS (CACL FIG 14.4)

1. Acts causing physical harm

2. Acts causing mental harm
3. Liability for omissions
4. Acts causing pure economic loss
5. Statements causing pure economic loss

1. Acts causing physical harm (CACL 14.130-14.150)

• Does D owe a duty of care to P?

Explain and then apply, the legal tests established in Donoghue v

Stevenson

® Reasonable foreseeability of harm test

o Was it reasonably foreseeable that the D’s acts or omissions could
cause harm to others?

® Proximity/ neighbour test

o Does P belong to a class of people that D should have regarded as
being “at risk” of being injured or suffering loss? I the P closely
and directly affected by D’s acts? Are the parties in sufficiently
close proximity?

• Example – Manufacturers: manufacturers owe a duty of care to

consumers. Must take reasonable care to protect consumers from injury
(to person or property) that are reasonably foreseeable – ensure
product is safe for use of consumption by consumers.
• Cases:
Donoghue v Stevenson

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 Grant v Australian Knitting Mills (14.90)
- Dr Grant and his underpants
- Severe dermatitis (rash) due to chemicals in the underwear – nearly
died
- Manufacturer breached duty to take reasonable care in the
production of the underwear to not cause injury to Grant
• Example – Occupiers of premises: Owe a duty of care to those who
lawfully enter the premises. Must take reasonable care to ensure that
the premises are safe – e.g.: Clean, in good condition, free from hazards
and not in a state of disrepair
• Cases:
Australian Safeway Stores v Zaluzna (CACL 14.140)
- Customer slipped on wet floor
- General duty of care exists
- Foreseeability of harm and customer is in a relationship of close
proximity with the supermarket (occupier)

Argo v Al Kammesy (CACL 14.470)

- Clean and check floors often

Modbury Triangle Shopping Centre v Anzil (CACL 14.470)

- Car park lights not on – manager of shop attacked at night in car park
- Duty does not extend to taking reasonable care to prevent physical
injury resulting from the criminal behaviour of third parties (unfair
burden)
- Duty of care did not arise

2. Acts causing mental harm (CACL 14.170)

• Mental harm by itself (not associated with physical harm to P)

• Test from the High Court of Australia:
Tame v NSW (14.110)
Annets v Australian Stations (14.200) (CACL 14.190)
• Reasonable foreseeability taking into account:
a. Relationship between the parties
b. P’s physical and temporal proximity to the event that cause the
mental harm
c. What the expected response of a person of normal fortitude might
be

64
• Victoria – Wrongs Act reforms – must be recognised psychiatric illness or
disorder and other limitations in certain circumstances (CACL 14.210)

3. Liability for omissions (CACL 14.220-14.260)

• General principle: no liability or for failing to act except where there is a

positive duty to act. Look for a relationship that establishes a duty.
• In what circumstances is there a positive duty to act? Where the parties
are in a pre-existing relationship that contains elements of reliance or
dependence, or where the defendant is in a position of control:
- Parent and child
- School authority and student
- Employer and employee
- Doctor and patient
Rogers v Whitaker
o Doctors have a duty to warn patients of the risks associated with a
surgical procedure
o Needed to warn patient that he might go blind in the other eye.
- Occupier and visitor
Nagle v Rottnest Island
o Need to warn visitors of shallow water

4. Acts causing pure economic loss (CACL 14.280)

• What is “pure economic loss”?

- Financial loss that is not a result of personal injury or damage to
property.
- If financial loss flows on from injury (e.g.: loss of oncome, medical
expenses), or property damage (e.g.: loss of profits due to negligent
fire) this is not a case of pure economic loss – this financial loss is
clearly recoverable.
• General principle: courts are reluctant to find a duty of care is owned in
circumstances where D’s negligent acts result in P suffering a pure
economic loss.
- Why? Indeterminacy of liability: Ultramares (CACL 14.280)
• To establish a duty of care, more than reasonable foreseeability of harm
and proximity is required.
• Key factors to consider: “salient features” outlined in Perre v Apand
(CACL 14.300)
1. Reasonable foreseeability? Yes

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 2. Indeterminacy of liability? No – growers could be identified within a
particular area
3. Individual autonomy? No – Unreasonable interference here
4. Vulnerability to risk? Yes – P totally dependent on D and could not
protect self (compare with Johnson v Esso; Marsh v Baxter)
5. Defendant’s knowledge of the risk and its magnitude? Yes – aware of
break out of disease and repercussions
6. Decision: duty of care owed (compare with Johnson v Esso; Marsh v
Baxter)

III. ELEMENTS OF NEGLIGENCE: BREACH OF THE DUTY OF CARE

® Step 2: Has D breached the duty of care?

• Test: Has D met the standard of care required by the law of negligence?
• What is the standard of care expected of someone who owes a duty of
care?
- Perfection? No (D does not “guarantee” safety of P or P’s property)
- Reasonable behaviour? Yes
• The principles to consider in determining whether D has failed to
exercise the proper level of care are set out in s. 48 of the Wrongs Act
(Vic).

Breach of duty (14.1450-14.520)

• To determine breach: two step approach – need to consider:

1. Step 1 – Reasonably foreseeable risk: s. 48(1) Wrongs Act (Vic)
- Is the risk one which requires a reasonable person to respond?
2. Step 2 – Reasonable person’s response: s. 48(2) Wrongs Act (Vic)
- How would a reasonable person respond to the risk?

1. Reasonably foreseeable risk: s. 48(1)

§ A person is not negligent in failing to take precaustions against a
risk of harm unless:
o The risk of injury was reasonably foreseeable: s 48(1)(a)
o The risk is not insignificant: s 48(1)(b)
o A reasonable person would not have taken precautions in the
circumstances: s 48(1)(c)

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 2. How would a reasonable person respond to the risk? s. 48(2) –
(14.460;14.520-14.650)
§ The standard of care expected is that of a reasonable person
§ What would a reasonable person, in the position of the D, do by
way of response to the risk?
§ This is assessed objectively – it is an impersonal test
§ The reasonable person is equipped with the same skills and
expertise expected of a person exercising a particular trade or
profession.
§ Consider in context of circumstances at that time (without the
benefit of hindsight)
Case: Argo v Al Kammessy (14.460)
§ Consider four factors to determine what a reasonable person
would do: Section 48(2) Wrongs Act 1958 (Vic):
(2). In determining whether a reasonable person would have
taken precautions against a risk of harm, the court is to consider the following
(amongst other relevant things):

a. The probability that the harm would occur if care was not
taken
b. The likely seriousness of the harm
c. The burden of taking precautions to avoid the risk of harm
d. The social utility of the activity that creates the risk of harm

Balancing test

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1. Probability of the risk of harm/ injury

• When a risk is small, a reasonable person can ignore it. What a

reasonable person must not do is create a risk that is substantial. The
greater the likelihood of the risk occurring, the more that is expected of
D to take reasonable steps to prevent it occurring.
Case: Bolton v Stone (CACL 14.530)
- Struck by a cricket ball (outside the grounds)
- Duty of care? Yes
- Breach? No. Why? Very unlikely

RTA v Dederer (CACL 14.540)

- Boy dived off bridge into river – struck submerged sandbar –
quadriplegic

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 - Duty of care? Yes. Breach? No. Why? People dove for 40 years
without injury (no other reported incidents) – very low probability.

2. Gravity of the harm/ seriousness of consequences if risk happens (CACL

14.550)

• The more serious the risk, the greater the need for precautions. What
are the potential consequences and how serious are they?
• E.g.: harm to a person – death, permanent injury, concussion, broken
bone etc
• Of particular relevance where:
- The activity is dangerous
- P has a particular vulnerability that D knows about
Paris v Stepney Borough Council (CACL 14.570)
- Issue: Employer’s liability for one-eyed worker
- Duty of care? Yes
- Breach? Yes
- No goggles provided to welder – spark in eye
- Gravity of harm of injury to eye = high – complete blindness

3. Burden on D of eliminating the risk (CACL 14.590)

• ‘One must balance the risks against the measures necessary to

eliminate the risk’; Watt v Hertfordshire (CACL 14.590)
• The earlier it is to eliminate the risk, the less likely a D’s failure to
take precautionary steps will be justifiable.
• The court could take into account the cost and inconvenience/
difficulty involved in taking precautionary measures, and any risk that
these steps may themselves involve: Mercer v Commissioner (CACL
14.590)

Case: Graham v Barclay Oysters

- To stop selling oysters or to relocate the fishery altogether -Too
difficult, expensive and inconvenient
- Unreasonably high burden on the D.

Woods v Multi-Sport Holding Pty Ltd (CACL 14.600)

- Indoor cricket player suffered serious eye injury
- Evidence showed eye injuries are common – helmets not available at
that time.

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 - D not expected to design and manufacture helmets for use by players
in indoor cricket game
- No negligence for not providing helmet

4. Utility of D’s conduct (CACL 14.620)

• Did the conduct have such high social value that we forgive the breach
(e.g.: ambulance driving at speed; rescuing people from flood)

Watt v Hertforshire (CACL 14.630)

- The risk of injury to the firefighters was weighed against the
lifesaving activity engaged in by the fire service.
- The emergency of the situation and utility of the defendant’s conduct
in saving a life outweighed the need to take precautions.

Wilson v Nilepac (CACL 14.640)

- P suffered spinal injury as a result of a crunch exercise involving a
medicine ball
- Did the personal trainer breach their duty of care?
- Does physical activity have “social utility”? Yes, generally speaking
- But the focus is on the “social utility of the activity that creates the
risk of harm” – the activity here was the crunch exercise, this itself
has no relevant social utility.
- Limited notion of social utility for the purposes of assessing the
breach.

Evaluating Response (CACL 14.610)

• When evaluating the reasonableness of D’s response, the following is to

be considered (s. 49 Wrongs Act):
- Burden of taking precautions to avoid risk of harm includes the
burden of taking precautions to avoid similar risks (e.g.: the burden to
do it at National Park A, plus you have to do it at National Park B, C D
etc)
- The fact that the risk could have been avoided by doing something a
different way does not itself give rise to liability (hindsight is always
20/20)
- The fact that subsequent action was taken does not constitute an
admission of liability.

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 • When analysing a scenario, make sure you reach an overall assessment
as to whether it is likely that there has been a breach of the duty or not,
taking into account the four factors – weigh the factors/ balance them
against each other overall in the circumstances.
• Can be difficult assessment to make.
RTA C Dederer (14.540)

IV. ELEMENTS OF NEGLIGENCE: DAMAGES

® Step 3: Has P suffered loss/ damage/ injury as a result of D’s

breach? Is P entitled to damages to compensate them for the loss/
damage/ injury? (14.680)

• Aim of damages is to put the plaintiff 9as far as money can do so), back
in the position that he or she was in before the tort was committed.
• Two aspects:
1. Causation: the negligence was a “necessary condition” of the occurrence
of the harm: s 51(1)(a)(factual causation)
Loss/ damage/ injury suffered by P was caused by D’s negligence
- Ask: Did the breach of duty cause the loss?
And

2. Remoteness: It is appropriate for the ‘scope of D’s liability’ to extend to

the loss or damage or injury: s 51(1)(b). The loss must not be too remote
for the breach.
- Ask: is the loss reasonably foreseeable?

Causation (14.690)

• The negligence was a “necessary condition” of the occurrence of the

harm: s 51(1)(a)(factual causation)
Loss/ damage/ injury suffered by P was caused by D’s negligence.
• P must show that ‘but for’ the breach, the loss or damage would not
have occurred.
• If the circumstance of the case were the same, except for the D’s
negligence, would the P have suffered the loss? If not, it is the D’s
negligence that is taken to be the cause of the damage. (Need not be the
sole cause: March v Stramare (14.820)

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 Strong v Woolworths (14.700)
- The HC has affirmed that the main question in an injury into
causation remains whether it was more probable than not that D’s
breach was the cause of P’s loss.
- Woman on crutches – slips and falls on chip on the store floor
- Floor cared for. Proper systems of cleaning and inspection in place?
- Likely that if the floor had been cared for, the chip wouldn’t have
been there (more probable than not they violated the duty)
- Did not have to establish the exact time of when the chip was
dropped or exactly how long it had been there.

• Causation often clear in cases of physical injury. May be more difficult to

establish in other cases, or where there is more than one act or even
that would cause Ps loss.
Richtoll v WW lawyers (14.720)
- Lawyers negligent in not conducting a further search of ASIC register
before client advanced money ($4.5 million) in pursuant to a loan.
Borrower default on the loan.
- The search would have shown the borrower was in financial trouble
and had had receivers appointed.
- The court found the client would have lend the money, anyway, given
the nature of their lending activities.
- The lawyer’s negligent conduct did not cause the loss, Breach of duty,
bur no causation.
March v Stramere (14.820)

Remoteness (14.760)

• The loss must not be too remote from the breach. Is it appropriate for
the ‘scope of D’s liability to extend to the loss or damage or injury? (s.
51(1)(b))
• Policy question: to what extent should a defendant be made responsible
for all the loss ‘caused by’ the breach?
• Answer at common law and statute (Wrongs Act s51(1)(b)) – a
defendant should only be responsible for damage that is reasonably
foreseeable – to demand more is too harsh.
• Losses that are not reasonably foreseeable are too remote, and
therefore not recoverable.
• This question is different to the duty of care question – here we ask if a
loss is reasonably foreseeable in the abstract. The loss suffered by P

72
 must be reasonably foreseeable, or, of the same type or kind as the
foreseeable damage.
Wagon Mound (No 1) (14.770)
- Oil spill in Sydney harbour from ship
- Oil floats to wharf, mixes with cotton waste.
- Gets set on fire by molten metal during welding
- Would not normally ignite on water
- P’s wharf was damaged
- Not reasonably foreseeable.
- ‘Although there was a clear casual connection between the events
that took place, that was not enough. D is only liable for the harm
caused if the harm was of a kind that was reasonably foreseeable’.
- To demand more is too harsh; to demand less ignores the minimum
standard of conduct expected
§ Later case succeeds when it is shown that the carrier actually
knew real risk of fire – negligent to allow oil spill knowing this –
Wagon Mound (No. 2)

V. ELEMENTS OF NEGLIGENCE: DEFENCES

® Step 4 – Does the Defendant have a defence? Will damages be

reduced or prevented altogether?

• Contributory negligence (apportions loss and reduces damages

accordingly)
- “I was careless, but you were careless too”
• Voluntary assumption of risk (complete defence)
- “You were doing something that you knew was risky”
• Peer professional opinion

Contributory Negligence (14.810-14.840)

• D’s defence: P failed to take reasonable care of own safety. “I was

careless, but you were careless too”
• Damages that are assessed will be reduced to reflect the P’s own
contribution to the damage: Wrongs Act ss 62-63:

March v Stramere (14.820)

- Drunk driver strikes truck parked in the middle of the road at night
- Drunk driver sues truck driver for injuries

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 - Both were careless
- 70% drunk drivers’ fault, 30% truck drivers’ fault
- Drunk driver can get 30% of damages

Alzawy v Coptic Church (14.830)

- Falls after slipping on broken step
- But was not using handrail
- Use handrail (50% at fault =50% damages)

Voluntary assumption of Risk (14.850)

• A person cannot complain of damage which results from a risk which

was accepted (Wrongs Act s 54)
• Aware of the risk, fully appreciated it and accepted it freely and willingly
– may be difficult to establish
• “You knew it was risky and accepted the risk”
• If obvious risk – presumption of awareness – P must show not aware (s.
54)
• Complete defence – no damages payable

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 Week 9 – LAW OF TORTS: PROFESSIONALS AND NEGLIGENT STATEMENTS

WHAT TO DO ON AN EXAM?

1. Determine what type of negligence?

– Physical Harm (week 8)
– Negligent Misstatement (week 9)
2. Apply the 4 Steps (negligent misstatement)
§ Duty of Care? Legal test depends on:
– Is it a two-party scenario/P requested the advice/information? (apply Hedley
Byrne; MLC; Shaddock) OR
– is P a third party? (apply Esanda factors)
§ Breach of that Duty?
– (2 steps s.48 – foreseeable risk, reasonable response – professional standard
of care)
§ Did that breach cause harm? (damages)
– Causation; remoteness
§ Is there a defence? Peer Professional Opinion? Contributory negligence?
Voluntary assumption of risk?

I. OVERVIEW OF NEGLIGENT STATAMENTS CAUSING PURE ECONOMIC LOSS (14.340)

• Negligent statements causing pure economic loss:

- Negligent advice
- Negligent supply of information

• “words” rather than “acts”, which cause pure economic loss – because the advice or
information is incorrect/ false/ inaccurate.
• Distinguish from (i.e. need to look at the scenario/ facts provided):
- Physical harm (e.g.: physical injury, property damage)
- Mental harm
- Acts which cause pure economic loss
• Of particular relevance to professional advisers, such as:
- Accountants
- Auditors
- Financial advisers
- Bankers
• Liability for negligent misstatement is governed by the same broad rules that we
establish last week:
- Duty of care
- Breach of duty
- Damage

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 - Defences
• BUT the legal tests that we need to apply are NOT the same for all of the steps.
• There are some important differences in applying the steps, that we cover this week:
- Duty of care – we need more than ‘reasonable foreseeability’ and ‘proximity’ –
test from Donoghue v Stevenson not suitable
- Breach – The four factors are a poor fit here – do not apply these. Instead, use
professional standard of care.
- Damages – the same
- Defences – the same, but extra defence – Peer professional opinion

1. Elements of negligent misstatement (Fig 14.4)

Elements of Negligent Misstatement

5. Does D owe a duty of care to • Special relationship:
P? - An assumption of
responsibility by D and
- Reasonable reliance by P
• Esanda factors if P is a third
party/ advice or information
was not provided at P’s
request
6. If so, has D breached that duty • Was it a foreseeable risk?
of care? • If yes, how would a reasonable
person in D’s position have
responded? Standard if care of
ordinary person exercising and
professing to have that skill.
7. If so, has P suffered damage? • Was damage caused by the
breach? (‘but for’ test)
• Is the damage too remote?
(reasonable foreseeability test)
8. Are there any defences? • Contributory negligence
• Voluntary assumption of risk
• Peer professional opinion

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II. DUTY OF CARE

• For a long time, courts said no duty of care was owned by professionals
for negligent advice causing pure economic loss.
• Why?
- Th reason was summed up in 1931 in Ultra v Touche (CACL 14.280)
where Cardozo J said that no duty of care was owned by the auditor
to its client because such a finding of liability for an indeterminate
amount of money for an indeterminate (period of) time to an
indeterminate class of possible plaintiffs.
- A statement may potentially have far wider repercussions than a
physical act
- The law adjusted to address this issue
- Special relationship? Hedley Byrne v Heller (1964) (CACL 14.350)

• Breakthrough case – Hedley Byrne v Heller

- HB wants to know if it should do business with Easipower
- HB asks Heller if Easipower is credit worthy
- Heller: Easipower – credit worthy – but actually is not
- But, disclaimer in advice: “confidential. For your private use and
without responsibility on the part of the bank or its officials”
• Issue: Is Heller liable for the negligent advice it gave to HB that caused
the pure economic loss?
• Decision: Recognised (for the first time) that a duty of care could arise
- A duty of care can exist provided there is a “special relationship”
based on some element of “reliance”.
- On the facts, however, there was no duty of care (and no liability)
because of the disclaimer = the limitation clause saved Heller in the
case (no liability)
- An appropriately worded disclaimer makes reliance unreasonable
• To establish a duty of care, P must prove that there was a special
relationship based on:
- An assumption of responsibility by the defendant;
And
- Reasonable reliance by the plaintiff

• A number of following cases have fleshed out what is required in terms

of a special relationship, and reliance
- MLC v Evatt (CACL 14.370); Shaddock v Parramatta City Council
(14.390)

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 - Esanda Finance v PMH (CACL 14.430) – Duty of care and third parties
• When does a ‘special relationship’ arise? MLC v Evatt (14.370): Barwick
CJ :
- Whenever a person gives information or advice (whether that
information actively sought or merely accepted by the other person);
- Upon a serious matter (especially a business matter); and
- The relationship of the parties arising out of the circumstances is such
that the speaker realizes, or ought to realise, that they are being
trusted;
- Particularly if they have access to information or expertise on the
matter in question;
- THEN: The speaker, choosing to give information and advice, comes
under a duty to provide that information or advice with reasonable
care.
• Shaddock V Paramatta City Council (CACL 14.390)
- The paramatta city council was asked by Shaddock, a developer,
whether the land that it intended to acquire was affected by a road-
widening proposal.
- The council advised the developer that the land (pictured on the
north-west corner of Macquarie and O’Connell St) was not affected
by a road-widening proposal, when in fact it was
- Shaddock suffered pure economic loss as a result of the council’s
failure to disclose information – the development had to be scaled
back and Shaddock argued it would not have bought the property if it
had been aware of the road widening proposal.
- Shaddock argued the Council owed it a duty of care in responding to
its inquiry
- The HC posed three questions:
i. Was the advice given in respect of a serious business matter>
ii. Were the circumstances such that the adviser should have
realised that he/ she was being trusted and relied upon to give
correct advice on which the advice intended to act? And
iii. In the circumstances, was it reasonable for the other person to
have relied on the advice?
- The HC answered these questions in the affirmative
- Held there was no distinction between providing advice (as a
professional such as an accountant does) and ‘merely’ providing
information (as the council officer did) because it was the kind of
information that required ‘skill and competence’ that the council had,
and the council knew or ought to have known that the plaintiff

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 intended to act or rely on the information. Where else to you get this
information?
- This was sufficient to create a ‘special relationship’ and a duty of care
- The council was liable for the plaintiff’s economic losses
- Duty extends to merely supplying information

Duty of care: Elements (14.360)

• As demonstrated in Hedley Byrne; MLC v Evatt; Shaddock , to succeed in

establishing duty of care, the plaintiff must prove that there was a
special relationship based on:
§ An assumption of responsibility by the defendant, indicated by:
- Advice/ information is on a serious matter or business matter; and
- The defendant should have realised he or she was being relied on to
give correct advice/information; and
§ Reasonable reliance by the plaintiff
- Was reliance on the advice or information by P reasonable in the
circumstances?
- It is reasonable to rely on experts or people with exclusive access to
knowledge
- It is not reliable to rely on advice or information with disclaimers.
§ If P is a client of D, and has paid for Ds services this would support an
assumption of responsibility by D and reasonable reliance by P(but it is
not necessary for P to be D’s client- negligence is independence of
contract)

• In San Sebastian the High Court held that although usually there would
be an antecedent request from P to D (e.g. ‘please provide me with
information about road widening or credit worthiness’) as a means of
establishing reliance and the special relationship that must exist, this
prior request is not essential.
• A duty of care can arise where a Defendant has volunteered information
or advice, such as making it publicly available: San Sebastian (14.410)
(but Plaintiff failed based on the facts in that case)
• Often see disclaimers on websites where general information is provided
– e.g. By lawyers, accountants, professional bodies etc.
DISCLAIMER
The information on this website:
- is not legal advice
- is general in nature
- should not be relied upon

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 - may not reflect the most recent developments (both in the law and generally)
For legal advice that is relevant and applicable to your particular circumstances, you should
consult a lawyer directly.
ABC Lawyers do not accept any liability in connection with the use of this website or the
information found here.
All users of this website access and use the information found here at their own risk and
they are entirely responsible for any damage they experience from such access or use.

• If a third party relies on a negligent statement made by another person,

such as a solicitor, accountant, auditor or financial adviser, and suffers
loss, can that third party sue?
• Can the duty of care extend to a third party who did not request the
advice or information from the D? (indirect relationship with the D)
• Example: auditor – duty of care owed to company. Audit report
prepared at the request of and for the purposes of the company.
• Potential third parties who may rely on the audit report:
o Creditor/lender (e.g. supplier; bank)
o Shareholders
o Potential investors

Third party situations (14.430)

• Esanda Finance v PMH (CACL 14.430)

- Esanda Finance - Financier
- Excel – Guarantee of repayment to Esanda for loaning money to various
companies associated with Excel.
- Peat Marwick Hungerfords (PMH) - Excel’s auditor
- Esanda wants to know if it should lend money to Excel-backed
companies
- Excel provides Esanda with an Audit report (done by PMH)
- Esanda lends, Excel goes bankrupt
- Esanda sues PMH (which it never spoke with) for the bad audit
- There was no suggestion that the audit report was prepared specially for
Esanda
- Esanda claimed that PMH owed it a duty of care, as Esanda relied on the
audit report and belonged to a class of persons who might reasonably
have done so.

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Esanda v PMH continued:
Issue: Did PMH owe a duty of care to Esanda in auditing Excel’s accounts? Is a
duty of care owed where P did not request the advice or information from D?
Decision – PMH did NOT owe a duty of care to Esanda.
§ Mere knowledge that someone might see the advice and act on it is not
enough (mere reasonable foreseeability is not sufficient)
§ Heightened “reasonableness of reliance” test. P must show:
– D knew or ought to have known that the information or advice
would be communicated to the P individually or as a member of a
class to which P belongs (e.g. investors, shareholders or lenders)
– For a purpose that would be very likely to lead P to enter into a
transaction of the kind P did enter into
– In reliance on the information or advice
§ without seeking further advice or making their own
inquiries
– and thereby risk incurring the economic loss if statements were
untrue
§ This is essentially an “intention to induce” standard – one way to show
reasonable reliance is to establish that the auditor’s intention was to
induce the P to act on the advice or information in the way that they did
– Esanda was not able to establish this
§ Esanda was in a position to appoint accountants and conduct its own
inquiries before deciding to enter into financial transactions with Excel
§ There was nothing to suggest that it was reasonable for Esanda to act on
the audited reports without further inquiry - reliance without further
inquiry was not reasonable in the circumstances
§ Court finds it is unreasonable to rely on audits without further inquiry
§ No duty of care
§ It is much more difficult for a third party to establish that a duty of care
is owed.

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III. BREACH OF DUTY

Breach of duty (14.450-14.520) – 2 steps:

® Step 2: Has D breached the duty of care?

® Test: Has D met the standard of care required by the law of negligence?

To determine breach: same two step approach – need to consider:

§ Step 1 - Reasonably foreseeable risk: s.48(1) Wrongs Act
(Vic)
– is the risk one which requires a reasonable person to
respond?
§ Step 2 - Reasonable person’s response: s.48(2) Wrongs Act
(Vic)
– How would a reasonable person respond to the risk?

Step 1: Reasonably foreseeable risk: s.48(1)

A person is not negligent in failing to take precautions against a risk of harm

unless:
– The risk of injury was reasonably foreseeable: s
48(1)(a)
– The risk is not insignificant: s.48(1)(b)
– A reasonable person would have taken precautions in
the circumstances: s.48(1)(c)
– THIS STEP IS EXACTLY THE SAME (SEE WEEK 8)

Step 2: How would a reasonable person respond to the risk? S.48(2)

§ The standard of care expected is that of a reasonable person.

§ STILL LOOKING AT HOW A REASONABLE PERSON WOULD RESPOND, BUT
DO NOT APPLY THE 4 FACTORS
§ The four factors do not work well with negligent misstatement cases
causing pure economic loss (or professional negligence generally)

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Professional standard of care (14.480, 14.560)

• Instead, we consider the professional standard of care and use the legal
test established in Rogers v Whitaker: (part of judgment extracted at
CACL 14.560 p. 316):
– For professionals and persons with special training or skills
(accountants, engineers, lawyers, doctors, financial planners etc.):
– ‘the standard of reasonable care and skill required is that of the
ordinary skilled person exercising and professing to have that
specialized skill’.
• Consider in context of the circumstances at that time (without the
benefit of hindsight): Argo v Al Kammessy [14.460] [14.480]
• SKM Industries v. Australian Reliance [14.490]
- Standard of Care: Insurance Brokers à steps reasonable insurance
brokers are expected to take to discharge the duty of care:
- Understand nature and extent of client instructions
- Advise client about optimal insurance
- Consider and take into account
- Client’s commercial sophistication
- Previous advice given
- Any reason to disbelieve client’s information
- If do not take these steps, fail to meet the required
- standard of care
• Specialists – if the Defendant advertises themselves as a specialist –
then held to a higher standard of care – e.g. Specialist tax accountant
• This standard of care is often informed by peer professional opinion
defense - did the defendant do what other competent professionals in
their field do?

IV. DAMAGES, DEFENCES

Damages (14.680)

Step 3: Has P suffered loss as a result of Ds breach? Is P entitled to damages

to compensate them for the loss?

• Same two requirements as for negligent acts. Need to establish:

• Causation: ‘but for’ test / Wrongs Act s51(1)(a) – the negligence was a
“necessary condition” of the occurrence of harm. Ask: Did the breach of
duty cause the loss?

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 • BUT FOR THE WRONG ADVICE/INFORMATION, the Plaintiff would
not have taken the action that incurred the loss

• Remoteness: It is appropriate for the ‘scope of D’s liability’ to extend to

the loss or damage or injury: s.51(1)(b). The loss must not be too remote
from the breach. ASK: is the loss reasonably foreseeable?
• Wagonmound case
• Recall Richtoll v WW Lawyers [14.720]
- The lawyer was negligent – a reasonable lawyer would have conducted a
further search of the ASIC register shortly before the loan amount was
advanced.
- The lawyer’s negligent conduct did not cause the loss.
- The court found the client would have lent the money, anyway, given the
nature of their lending activities.
- Breach of duty, but no causation.
- Pure economic loss of $4.5 million not recoverable.

Defenses

Step 4 – Does the Defendant have a defence? Will damages be reduced or

prevented altogether?

§ Same principles apply as in week 8

§ Remember to check:
– Contributory negligence (partial defence)
– Voluntary assumption of risk (total defence)
– BUT AN ADDITIONAL DEFENCE
§ PEER PROFESSIONAL OPINION (complete defence)

Peer Professional Opinion (14.660)

• This is a defense once a breach has been established.

• Once P proves breach of professional standard of care, D is liable unless
he or she can show he or she acted in accordance with peer professional
opinion.
• If successfully argued, it is a complete defense and D will not be liable
for any damages.

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Wrongs Act ss 59-60 - factors to consider (CACL 14.660):
• A professional does not incur liability if he or she acted in a manner that
was widely accepted by peer professional opinion as competent
professional practice.
• However, court can overrule if the opinion is irrational.
• There may be differing opinions on a matter.
• Peer professional opinion does not need to be unanimous to be
considered widely accepted.
• Closely related to standard of care for professionals
• The type of evidence that could be brought forward is:
- independent expert reports and testimony;
- professional standards directions from a professional association (if
applicable)
- Common practices and customs in the particular profession or industry.
• Court can consider professional standards and customs – but these are
not conclusive – can still be found negligent even if these were complied
with
• Court reluctant to accept peer opinion:
- Peer must accurately and exhaustively comment on the D’s conduct
- Peer must be appropriately qualified and hold appropriate expertise
- Must comment objectively and not demonstrate any bias towards D
• Defense failed in Cam & Bear v McGoldrick – peer not independent –
avoided giving objective evidence
• Court may also make findings of fact that are inconsistent with the D’s
version of events – if the peer professional opinion is based on
assumptions associated with the D’s version of events, and is
inconsistent with the court’s finding of facts, the peer professional
opinion defense will fail (see e.g. Mules v Ferguson (14.670))

V. OTHER LEGAL ACTIONS

• Uncertainties and difficulties exist in mounting a common law action for

negligent misstatement.
• Statutory causes of action may also be relevant and can be brought in
conjunction with an action for negligent misstatement.
• Examples under the ACL:
• S.18 – misleading or deceptive conduct
• S.60 – consumer guarantee that services will be rendered with due care
and skill
• May be easier to satisfy and remedies may be broader.
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Section 18 of the ACL

• Section 18 of the ACL is used in many negligent misstatement cases,

often in conjunction with common law negligence
• Review the s 18 criteria and see why it is attractive and may be
preferable:
– “Engage in conduct” – broadly defined, including silence and
omissions
– “Misleading or deceptive” – “lead into error” - not a high barrier –
“strict liability” - no intention or fault is required – catches
innocent, negligent and fraudulent conduct - compare to
negligence where fault is at the heart of the claim
– Causal connection between conduct and loss is required but, if
shown, no fault is required
– No exclusion of s 18 is permitted – though P can be put on notice
that it cannot rely on the statements: Butcher v Lachlan Realty
– Wide remedies are available including damages under s 236

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 Week 10 – THE LAW OF BUSINESS ORGANISATIONS – AGENCY AND
PARTNERSHIPS

What to do on an exam?

§ Determine type of dispute FIRST

§ Does a partnership exist? Section 5 definition (plus s.6)
§ Carrying on a business
§ In common
§ With view of Profit
– Plus s.6 – discuss any rules relevant based on facts
– Note: whether a partnership exists may not be in dispute (facts may make it clear
there is a partnership) – if not in dispute, no need to discuss.
§ Is there an internal dispute between the partners?
– Has partner violated a duty to other partners? Fiduciary and statutory duties
(ss.32-34)
– Did partner bring in extra property? Does it belong to the partnership?
§ Is there Liability to a Third Party?
– Did partner enter into binding transaction (contract)? (ss.9 and 13)
§ In scope of business?
§ In usual way?
§ Did third party know or believe there was no authority or not dealing with
partner?
– Did partner commit a wrongful act? (ss.14 and 16)
§ In ordinary course of business?

I. TYPES OF BUSINESS ORGANISATIONS

• Sole Trader/Proprietor (e.g. electrician)

• Agency (e.g. real estate agent) – week 10
• Partnership (e.g. accounting firm) – week 10
• Company/Corporation (e.g. Google) – week 11
• Trust (e.g. family business)
• Franchise (e.g. McDonalds)
• Association (may be incorporated) (e.g. Dairy farmers)

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 II. AGENCY

The law of agency (15.10)

§ Agency = “Acting through another person”

§ Law of agency allows one person to authorize another person to do any
act that he or she has capacity to do themselves.
§ When the agent does act, the principal has to bear the consequences.
§ In BTF1010 we focus on agency as it relates to partnerships and
corporations.

Principal and agent relationship (15.10)

Principal Agent Third Party

Appoints agent Deals with the third Contract created
party on behalf of the between third party and
principal principal
Authorises agent to Agent’s role has been
act. completed (drops out of
the picture).

Nature and scope of an agent’s authority (15.2)

Authority

Actual Apparent

Implied
Express (Oral
(Necessariliy
or written)
incidental)

Actual Authority (15.220-15.270)

ACTUAL AUTHORITY: Agent has ACTUAL authority to do X

– Express – Agreement/instructions
§ E.g. Salesperson in a retail shop - authorized to sell
goods/make sales at normal prices – may have a limit on
express authority – not allowed to give any discounts
without obtaining the manager’s approval

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 – Implied – as a matter of necessity or incidental to carrying out
acts within express authority – to do everything in the usual
course of business to complete the transaction
§ e.g. salesperson
- Receive cash and other forms of payment from customers
– Issue receipts
Arrange delivery of goods

Apparent Authority (15.280)

APPARENT AUTHORITY: Agent APPEARS TO OTHERS to have authority to do X

§ Protects third parties
§ Acting outside/exceeding actual authority
– E.g. Salesperson – gives a discount on the goods, but is not
authorized to do so
§ Principal still bound if within apparent authority
– E.g. by hiring the person as a salesperson, the company is representing
to customers that they have the power that one would expect a salesperson of
that type to normally have. How would a reasonable person in the position of
the customer have seen the salesperson’s authority?

III. PARTNERSHIPS – FORMATION AND NATURE

Created by Agreement (16.20)

§ Arises from agreement between two or more persons who decide to go

into business together = contractual relationship
– Express (oral or written) or implied by conduct
– Pool assets and abilities
– May not be a formal partnership agreement - e.g. wife and
husband running a café – may not have written anything down
§ Existence of a partnership depends on the true nature of the
relationship between the parties (even if parties describe themselves as
being or not being in a partnership, court may find otherwise)
§ No formalities to create – contrast with creation of a company which
requires approval and registration

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Formation and nature (16.20 -16.70)

§ Restrictions on size – at least two people and up to 20 – s.115

Corporations Act (except where it is a professional practice (see
footnote 6, p.366))
§ Choose a business name - Must use the full name of all of the partners–
e.g. Joanna Boderick & Marcia Lee (not practical if many partners – e.g.
some law firms and accounting firms have 100s of partners) OR register
a business name for trading purposes (Business Names Registration Act),
e.g. “Snazzy Cuts Hairdressers”
§ Eclipsed by rise of corporations. Common structure for:
– Small businesses and family businesses
– Accounting and law firms
– Medical practices
– Pharmacists
– Architects

Personality liability of partners

§ Not a separate legal entity (contrast with company)

§ Partners are personally liable - unlimited liability for the debts and
liabilities of the partnership
§ Possible to establish a limited partnership under the Partnership Act,
and register with ASIC (16.780-16.790)
– One or more partners can limit liability to a fixed amount – but
cannot take part in the management of the firm or bind the firm
– At least one partner must have full liability for the debts and
liabilities of the partnership
– Not popular – company preferred
– Some professions have adopted – e.g. law and accounting firms
(as were historically barred from incorporating)

Does a partnership exist? (16.80)

– Disputes may arise over whether a partnership exists or not - the

court will decide if a partnership exists - Existence of a partnership
depends on the true nature of the relationship between the
parties (even if parties describe themselves as being or not being
in a partnership, court may find otherwise)
– Why is it important to know if there is a partnership?

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 § One party might want to share the profits (‘I am a partner
and therefore I’m entitled to a share’)
§ One party might not want to share the losses/expenses (‘I
am not a partner and therefore I do not have to share the
losses/expenses’)
§ One party might argue they are owed an account of profits
due to breach of a fiduciary obligation (‘We are partners
and you have breached your fiduciary duty’)

Is there a partnership? Legal definition of partnership (16.80)

§ Section 5 of the Partnership Act 1958 (Vic) defines a partnership as:

the relation that exists between persons
– carrying on a business
– in common
– with a view of profit
– All 3 elements must be satisfied – may establish 2 out of 3 – will
not be enough
– can be difficult to apply to the facts

Essential elements of a partnership – “Carrying on a business” (16.90)

‘Carrying on a business’
§ ‘business’ - any ‘trade, occupation or profession’ – systematic,
organised, records kept (compared to a hobby)
§ ‘carrying on’
§ repetitive or regular acts
– Need a pattern or series of acts
– a one-off transaction is more likely to be a joint venture
At which point do parties start ‘carrying on a business’?

Khan v Miah [16.110]

– need not have commenced trading – pre-trading activities will
amount to carrying on the business (have “embarked on the
business”) – e.g. Acquiring the premises, work to prepare the
restaurant, acquiring furniture and equipment, advertising the
business
– Why was this important?
– Relationship had broken down – other partners were not sharing
proceeds with Khan

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 – Court found Khan was a partner - entitled to profits and to a share
in the partnership property on dissolution of the business
Contrast with Goudberg v Herniman [16.130] – creation of business plan,
market research and other exploratory activities does not = carrying on a
business – just at idea stage

Essential elements of a partnership –“in common” (16.140-16.150)

“in common”
§ Need to establish a ‘mutuality of rights and obligations’
§ The business must be operated by or on behalf of all the partners
– All members need not be active in day to day management as long
as it is being carried on on their behalf (e.g. B is an agent of A and
is carrying on the business on behalf of both A and B)
– BUT must have a right to a say in the management of the business
– Reciprocal rights and obligations
§ E.g. sharing in profits and losses/expenses
– Consider the facts and circumstances - e.g. Degiorgio v Dunn
[16.150] – no partnership – no share in profits – paid flat fee for
performances, no sharing of expenses, absent overseas for 17
months

Essential elements of a partnership – “with a view to profit” (16.160)

‘with a view to profit’

§ Need to intend to make a profit (even if you don’t) – and to divide the
profit amongst partners
– sporting clubs, societies or charitable organisations are not
‘partnerships’ – profits are not shared among the members (and
members also not liable for debts (beyond membership fee))

Evidence of a partnership – Section 6 – Statutory Rules (16.170 -16.240)

Supplementary guidance: s.6 statutory rules

In determining whether or not a partnership exists “regard shall be had” to the
following rules:
§ S.6(1) - Common Ownership
§ S.6(2) - Sharing of Gross Returns
§ S.6(3) - Profit Sharing

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 § The rules in section 6 have been included in the Act to supplement, not
replace, the statutory definition in section 5. Particularly assist in
assessing whether the parties are “acting in common”.
§ Factors that may indicate a partnership but are not sufficient on their
own. Critical to establish carrying on business in common (s.5).

Rule 1: common ownership - s6(1)

§ Common or joint ownership of property (like land or buildings) does not
necessarily mean that the common owners are in a partnership.

Rule 2: sharing of gross returns - s6(2)

§ Sharing of gross returns does not of itself mean the sharers are in a
partnership.
Cribb v Korn (CACL 16.190)
§ Landowner received share in gross returns in exchange for use of the
land.
§ But no involvement in the farming of the land or right to direct or
control the farming.
§ No mutuality of rights and obligations.
§ Not carrying on a business in common.

Rule 3: profit sharing - s6(3)

§ Sharing of profits creates a strong presumption (prima facie evidence)
that there is a partnership – but is not conclusive.
§ The other party has the onus of proving that there is not a partnership
§ This presumption does not apply in the circumstances set out in
s.6(3)(a)-(e)

Examples where the presumption does not operate (not presumed to be a

partner in these situations):
§ s6(3)(a): a debt repaid in instalments out of profits.
- e.g. Cox v Hickman (CACL 16.210) (debts paid to creditors out of profits
does not mean creditors are partners)
§ s6(3)(b): remuneration paid to an employee on the basis of a share of
profits.
- e.g. Plummer v Thomas (CACL 16.220) (Plummer paid 50% of profits as
wage, but does nothing else = not a partner)
§ s6(3)(c): payment of an annuity to a widow or child of a deceased
partner.
§ s6(3)(d): loan with the interest dependent on profits.

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 § s6(3)(e): annuity for goodwill part of sale of business dependent on
profits.

IV. PARTNERSHIPS – RELATIONSHIP OF PARTNERS WITH EACH OTHER

§ Internal dealings and management of the partnership – rights and duties

towards each other
§ Hallmarks:
– Contractual relationship
– Agency relationship
– Fiduciary relationship
– Rights and duties under the common law and statute (Partnership
Act 1958 (Vic))

Contractual Rights and Duties (16.260)

§ Partnership agreement
§ oral or written or implied by conduct
§ A formal written partnership agreement might exist
(accountants, doctors, lawyers, etc) - might deal with
membership, capital, entitlements, % share in profits,
losses and capital, management, accounts,
dissolution, dispute resolution, goodwill, etc
§ Terms implied under the Partnership Act: s.28
– if not dealt with in the partnership agreement
– “Fills in any gaps”

General rights and duties under Partnership Act: s 28

Examples:
– Share equally in capital and profits and losses: s 28(1)
(regardless of initial investment - see Popat v Schonchhatra (CACL
16.280))
– Firm indemnifies every partner for firm-related
expenses: s 28(2)
– Every partner may take part in management: s 28(5)
– No partner entitled to remuneration: s 28(6)
– No person can be introduced without consent of all: s
28(7)
– Decisions to be decided by majority: s 28(8)

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 – Books to be kept at the place of business and all have
access: s 28(9)
– Also: Restriction on right to expel a partner: s 29
(CACL 16.270)

Agency Relationship (16.420 -16.450)

§ Partners are both principals and agents of each other

– A partner is an agent of the other partners and may bind them (as
an agent can bind his/her principal); and
– A partner is also a principal and may be bound by the acts of the
other partners (as a principal may be bound by the acts of an
agent)
– Law of agency under the common law and s.9 of the Partnership
Act – consider actual authority (express and implied) and
apparent authority
• Liability to third parties for debts and obligations.

Fiduciary relationship (16.290)

Fiduciary relationship - partnership is founded on mutual trust and confidence

Fiduciary duties:
– Act in good faith for the benefit of the partnership
– avoid any actual or potential conflict of interest
– Make full disclosure towards each other
– Continues after dissolution until partnership wound up: Chan v
Zacharia (16.300)

Statutory Duties (16.290)

Statutory duties (reflect common law fiduciary duties)

§ Partners must render true accounts and full information of all things
affecting the partnership: s.32
§ Duty to account for benefits derived without consent from dealings
concerning the partnership or from use of the partnership property,
name or business connection: s.33
§ Duty not to compete with partnership (without consent) – if do, must
account for all profits: s. 34

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Fiduciary duties and statutory duties

§ Example – A and B are in partnership as builders. The partnership enters

into a lucrative contract with Mega Developers Pty Ltd. A is a major
shareholder and director of Mega Developers Pty Ltd, but does not
disclose this to B.
§ Example – A and B are in a partnership as architects. The partnership has
submitted a tender to design a new house. Without telling B, A submits
a tender in his own name and undercuts the partnership tender so as to
win the project and does win.

Partnership property – Definition and rights (16.360)

§ Under s 24 partnership property includes:

– Items originally brought into the partnership as partnership
property (depends on intention)
– items acquired on account of the firm
– items acquired for the purposes of and in the course of the
partnership business
– Goodwill
§ Under s 25:
– items bought with partnership money are deemed to have been
bought on account of the firm, unless contrary intention appears.
– What right does each partner have to the partnership property?
– Partners have no title to specific property (e.g. the painting on
the wall, or the car) but a right to his/her proportion of the
surplus after the sale of assets and the payment of debts
– Fluctuates over the course of the business – determined on
dissolution

Personal Property of the partner – partnership property? (16.360)

§ If a partner’s property is used for the partnership, does it remain the

separate property of the partner, or does it become partnership
property?
– E.g. a partner uses her own personal computer for bookkeeping
purposes – is kept on the business premises
– E.g. a partner uses his own personal van to make deliveries, but
also for private use (and does not own another motor vehicle)

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 § determining what is the property of the partnership is important
particularly at the end of the partnership relationship
§ Can the partner demand the return of the computer? Can
the partner demand the return of the van? Can have it only
if it is his or her property (and has not become partnership
property).
§ Depends on intention – either as expressly agreed or as evidenced by
the conduct of the parties and manner in which the business was
conducted e.g. Harvey v Harvey (CACL 16.370) – Land never became part
of the partnership property – even though improvements to the
property were made. Clear intention that it was intended to remain the
property of Harvey so it could be taken over by his son when old
enough.

V. PARTNERSHIPS – RELATIONSHIP OF PARTNERS TO THIRD PARTIES

§ Liability to third parties (those external to the partnership) for:

– Debts and obligations (ie. contracts) – ss.9 and 13
– Wrongful acts and omissions – ss.14 and 16

Liability of partners to third parties – Contracts (16.420 – 16.550)

Liability for debts and obligations (contracts): ss 9 & 13

§ Each partner is liable jointly with the other partners for all debts and
obligations of the firm incurred while he/she is a partner: s.13
§ The type of liability that might arise is:
– A supplier might be owed money
– A lender might be owed money
– A client/customer might sue for damages for breach of contract
§ When is the partnership bound?
§ Partner acted within scope of actual authority (16.430)
§ What if the partner exceeded their actual authority? Did the partner act
within apparent authority?
§ Section 9 (16.470) – apply to see if partnership bound – reflects
principles of agency in context of partnership

Elements of s.9:
A partner (acting as an agent) will bind co-partners where:
§ he/she does any act or enters into a transaction;

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 § that is within the scope of the kind of business carried on by the
partnership; and
§ the transaction is carried out in the usual way that partnerships of that
kind conduct business.
UNLESS (proviso)
§ the partner had no authority to so act; and
§ the third party knew this; or
§ the third party did not know or believe that the person was a partner.
The law protects third parties acting in good faith.

§ Two steps:
– 1. Ask: ‘what is the kind of business of the partnership?’ Was the
act/transaction within the scope of this?
§ Mercantile v Garrod (16.510)
Outside express authority. But, common for garage businesses to sell cars -
buyer would have no reason to suspect transaction (and had no knowledge
there was no authority).
– 2. Ask: Was it done in the usual way? Even if the action of the
partner was within the scope of what that type of partnership
normally does, it must be done in the usual way if it is to bind the
other partners.
§ Goldberg v Jenkins (16.520) (borrowed money at 60%
interest (normally 6-10%). Not an ordinary business
transaction. Lender = should suspect no authority.)

PROVISO in s.9: Did the third party know there was no authority or not know
or believe they were dealing with a partner?
- If the third party knows there was no authority, there
cannot be apparent authority, and they are not acting in
good faith
- If the third party is unaware the person they are dealing
with is a partner, then the partnership is not bound – there
is no apparent authority
- Construction Engineering v Hexyl (CACL 16.540)
- T has no authority to enter construction contract (no
express authority)
- T signed contract in its own name AND construction
company thought T was acting on its own behalf (did not
know of H) (no apparent authority)

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 - Joint liability: s 13 (CACL 16.550)
- Each partner is jointly liable up to the full amount
- Only one legal action is permitted – should sue all partners
collectively, at the same time
- If for some reason not all partners are sued (e.g. third party
not aware of a silent partner), then the partner or partners
sued can insist that other members be ‘joined’ in the legal
action
- If the partners are sued in the firm name, rather than
naming individual partners (which is now allowed), then the
judgment applies to all partners
- If the partnership assets are insufficient to meet the liability to the
third party, then the partners will be required to draw on their
personal assets – if the assets of one partner are insufficient, then
the other partner(s) would have to make up the difference – one
partner could potentially be liable for the whole amount to the
third party

Liability of partners to third parties – Wrongful Acts (16.620 – 16.670)

Liability of partners to third party for wrongful acts of a partner: ss.14 and 16
§ Each partner is liable for any loss or harm caused to a third person while
acting ‘in the ordinary course of the business of the partnership’ or ‘with
the authority of the co-partners’: s.14
‘Acts’? Wrongful act or omission:
– Tort (e.g. negligence)
– Breach of ACL (misleading or deceptive conduct)
– Breach of fiduciary duty to client (conflict of interest)
– Crime (fraudulent misappropriation of funds)
– NB: does not include breach of contract.

§ Test: was the act done in the ordinary course of the business of the
firm?
§ This needs to be answered by looking at:
– the nature and scope of the business of the partnership; and
– the partnership agreement

§ Walker v European Electronics (CACL 16.630)

– Accounting firm, 3 partners (receivership, tax, and liquidation)
– Fraudulent misappropriation of funds by G (crime and in jail)

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 – G bankrupt
– The receivership work was in the ordinary course of the business
– it did not matter that G was the only partner doing receivership
work – the fees went into the partnership
– the other partners were jointly and severally liable

§ National Commercial Bank v Batty (CACL 16.650)

– Davis was not acting in the course of the firm’s business or within
authority when he fraudulently deposited cheques into the firm’s
account and then misappropriated them

§ Polkinghorne v Holland (CACL 16.660)

– Law firm, but one partner (H) habitually gave investment advice
– Why were the solicitors liable to P even though H provided
investment advice and not legal advice?
– Within usual course of business for that firm – usual for solicitor
to enquire on behalf of the client and provide information and
assistance

§ Joint and several liability –s.16 (CACL 16.670)

§ Each partner is liable both jointly and severally for losses suffered by
third parties under s.14
§ More than one legal action is allowed – can sue the partners jointly
(collectively) or severally (individually) – if only one partner is sued, and
the full amount is not recovered, can keep suing until full amount
recovered
§ If only one partner is sued, that partner can be held liable for the full
amount to the third party (It is then up to the partner who has been
sued to get the others to contribute according to their share of the
liability.)
§ If the third party sues the partners under the firm name, then all
partners are caught by the legal action (overcomes the distinction
between joint and several liability).

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 Exam Summary Notes: Week 6-12

• The exam summary notes were used to do the e-assessment for the end of semester
exam (Semester 1 -2020)
• It is a more summarized version of the lecture notes and were used to study for the
final exam.
• It is what I used during the open-book final exam for quick reference.
• Case law highlighted in blue.

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 Week 6: Consumer Protection

AUSTRALIAN CONSUMER LAW

• ACL replaced the consumer protection provisions of the former TPA and
State and Territory consumer protection legislation, such as the Fair-
Trading Acts and the door-to-door sales legislation.
• It is administered by the Australian Competition and Consumer
Commission (ACCC) and the State and Territory consumer law agencies
and enforced by all Federal, State and Territory courts and tribunals.
• Applies to conduct engaged in and outside Australia by:
- Australian Citizens
- Ordinary resident of Australia
- Natural persons and corporations engaging in conduct
involving postal, telegraphic or telephonic services, the internet
- Foreign corporations that have no physical presence in
Australia but have online customers in Australia.

Case: Valve Corporation v ACCC

Facts: Valve operates Steam gaming platform which operates in the
US. Made false or misleading representations, engaged in misleading
or deceptive conduct
Held: That the platform had engaged in content in Australia (2.2
million Australian subscribers), despite the lack of physical presence
in Australia.

CONSUMER GUARAUNTEES

• ACL, Pt 3-2 provides for statutory guarantees in contracts for the supply
of goods and services to consumers.
• In relation to the supply of goods to consumers, there are 9 consumer
guaranties.
• Depending on which consumer guarantee is breached, the consumer may
have an action against the supplier or manufacturer.
• Sections 59-59 of the ACL set out 9 consumer guaranties that apply to
goods supplied to a consumer.
• Consumer guarantees relevant to this unit:

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 ® Guarantee as to acceptable quality (s 54): The goods are of
“acceptable quality”
® Guarantee as to fitness for any disclosed purpose (s 55): The goods
are reasonably fit for
i. A purpose for which the supplier represents they are fit
ii. A purpose the consumer makes known to the supplier or
manufacturer that they will use the goods for

Answering an ACL question

Step 1: Determine if consumer guarantees apply

Step 2: Determine what CG was violated

- Acceptable quality? (s54)
- Disclosed purpose (s 55)
- Apply test and cases
-
Step 3: Determine remedy
- Major or minor violation?

Step 1: Determine if consumer guarantees apply

® Define ‘consumer’ good or service s3(1)

• A consumer acquires goods/services as a ‘consumer’ only if:
– The amount payable for the goods does not exceed
$40,000; or
– The goods are of a kind ordinarily acquired for personal,
domestic or household use or consumption; or
– The goods consisted of a vehicle or trailer acquired for
use principally in the transport of goods on public roads:
ACL, s 3(1)
– *A person does not acquire goods as a consumer if they
acquired them for the purpose of resupply or for the
purpose of using them up in the course of production or
in the repair of other goods or fixtures on land: s 3(2).
– These are interpreted very broadly
Case: Bunnings Group Ltd v Laminex Group Ltd
Step 2: Determine what CG was violated
1. Acceptable Quality (s 54); or
2. Fitness for any Disclosed Purpose (s 55)

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® 1. Acceptable Quality (s 54)

• s 54(1): Where a person supplies goods to a consumer in trade or

commerce (other than a sale by auction), there is a guarantee that
the goods are of acceptable quality.
• Goods are of ‘acceptable quality’ if:
– Fit for all purposes for which goods of that kind are
commonly supplied;
– Acceptable in appearance and finish
– Free from defects
– Safe
– Durable
• S 54(2): A ‘reasonable consumer’ fully acquainted with the state
and condition of the goods (including any hidden defects of the
goods) would regard them as acceptable by having regard to the
following matters:
– The nature of the goods
– The price of the goods
– Statements on labels or packaging
– Representations made by supplier or manufacturer
– Any other relevant circumstances.
Case: Thomas v Excel Intelligent Pty Ltd
Facts: Thomas purchased a garden shed on eBay which
described ‘large garden shed’ and ‘heavy duty’. Later found
out the shed was not suitable to be a garage or workshop.
Held: Excel was in breach of s 54 and s 56; product was not of
acceptable quality as did not fit for use as a garage and was
not durable.

® 2. Fitness for Disclosed Purpose (s 55)

• s 55(1): If a person supplies goods to a consumer in trade or

commerce (other than in a sale by auction), there is a guarantee
that the goods are reasonably fit for any ‘disclosed purpose’ and
for any purpose for which the supplier represents that they are
reasonably fit.
Case: Merck Sharp and Dohme Pty Ltd v Peterson

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 Facts: Pharmaceutical company supplied a prescription drug to a
patient. Use of the drug increased the risk of a heart attack in
some patients.
Held: Did not violate disclosed purpose because patient had not
expressly or impliedly made known a purpose that the drug be
absolutely safe for or completely free from side effects
• What is a ‘disclosed purpose’?
– Particular purpose made known to supplier by consumer,
expressly or by implication in pre-contractual negotiations.
– Particular purpose made known to manufacturer directly or
by supplier in pre-contractual negotiations.
– S 55(3): Consumer must show relied on supplier’s skill and
judgement– consider experience of salesperson.

Consumer Guarantees: Supply of Services

• The ACL provides for certain guarantees in relation to contracts for the
provision of services.
• S 2(1): Definition of services:
- Contract for work including professional work
- Contract for amusement, entertainment, recreation or instruction
- Insurance contract
- Contract between banker and customer
- Loan contracts
• If a person supplies services to a consumer in trade or commerce, the
following guarantees will apply:
- S 60: The services will be rendered with due care and skill
- S 61(1); The services and any product resulting from the services
will be reasonably fit for that purpose
- S 61(2): The services and any product resulting from the services,
will be of such nature and quality, state or condition that they might
reasonably be expected to achieve the results
- S 61(3): There are no guarantees if the circumstances show that the
consumer did not rely, or that it was unreasonable for the
consumer to rely, on the supplier’s skill or judgement.
- S 62: That the services will be supplied within a reasonable time.

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Consumer Guarantees: Limiting Liability

• S 64(1): General rule – cannot exclude the guarantees or limit liability for
‘consequential losses’ in contracts for supply of goods and services.
• However, there are two exceptions:
1. Unordinary
o Where good are not of a kind ‘ordinarily acquired for personal,
domestic or household use’, supplier can limit its liability as
follows:
- Contract for goods – supplier can limit liability to ‘supplying
the services again’
- Provided that it is ‘fair and reasonable’: s 64(3) – see
factors:
§ Relative strength of the bargaining positions
§ Were there alternative sources that did not have
the term
§ Did buyer know of the term?
§ Special order of the buyer

2. Recreation
o CCA s 139A(1), (3) – Recreational activities -supplier can limit
liability for death or injury
- Sporting activity or leisure time pursuit
- Any other activity that involves a ‘significant degree of
physical exertion or physical risk’.

Step 3: Remedies

• Distinguish major and minor failures; can it be fixed?

• Broadly similar for both goods (s 259) and services (s 267-8)

1. Major Failure: s 260

• Goods would not have been acquired if buyer knew of the failure.
• Goods don’t match the description.
• Goods substantially unfit for a purpose -either common or disclosed
and can’t be easily remedied to fit that purpose.
• Goods not of acceptable quality because they are unsafe.
• If ‘major failure’ occurs consumer can:

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 - Reject the goods (provided with reasonable time) or
recover compensation for any reduction in value: s
259(3).
- Recover damages for reasonably foreseeable loss or
damage: s 259(4) unless failure caused by problem after
goods left supplier.

2. Minor Failure

• Not major – consumer may require supplier to remedy the failure within
a reasonable time or, if supplier doesn’t, then buyer can reject the goods
or recover reasonable costs: s 259(1)(2)
• E.g.: chain saw doesn’t work
- Repair
- Replace
- Refund

What if the goods are a gift?

• Same as buyer: s 266

• Buyer to return goods (or if significant cost, supplier must collect the
goods): s 263(2)-(3). Supplier must refund the money or replace the
goods: s 263(4).
• Broadly same remedies for failure to comply with guarantees in relation
to services: ss 267-8.

UNFAIR CONTRACT TERMS

• Section 23 of the ACL provides that a term of a consumer contract or a

small business contract is void if the term is unfair and the contract is a
standard form contract.
• The contract will continue to bind the parties if it is capable of operating
without the unfair term.
• 23(1): An unfair term in a standard form contract is void
- 23(2) If contract can operate without the unfair term it
won’t be void.
• 27(2): Meaning of ‘standard form’ contract
- Six relevant factors explained in 27(2)(a)-(f)

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 • 23(3) Meaning of ‘consumer contract’: One for the supply of goods or
services or the sale of land to an individual who acquires them wholly or
predominantly for personal, domestic or household use or consumption.
• 24(1): Meaning of ‘unfair’: the term is unfair if it:
(a): would cause a significant imbalance in the parties’ rights and
obligations;
(b): is not reasonably necessary to protect the legitimate interests of the
advantaged party; and
(c): would cause detriment to a party if it was applied
• Determining ‘unfair’:
- Applying 24(1) the court must consider:
§ The extent to which the term is ‘transparent’.
§ The contract as a whole
§ Legislative examples: s 25

Answering an Unfair Contract Terms question?

4. Determine if this is a standard form contract

5. Determine if term is unfair
- Look for automatic renewal or unilateral price increase
- Apply test and cases
6. Determine remedy

• Automatic renewal term = unfair

Case: ACCC V Chrisco Hampers Australia
Facts: After a final instalment was paid, customer’s bank account would continue to
be debited in anticipation of a future order.
Held: The automatic renewal term was found to be unfair. The term was declared
void.

• Automatic renewal term and many exclusive rights = unfair

Case: ACCC v JJ Richards and Sons
Facts: JJR could unilaterally raise prices. Customer cannot terminate if they had debt.
Automatic renewal (need to cancel in 30 days). JJR had exclusive rights to remove
waste.
Held: The unfair terms in the contract were not transparent.

• Automatic renewal term and many exclusive rights = unfair

Case: ACCC v Servocorp
Facts: Automatic renewal provision. Unilateral price increase. Kept security deposit if
consumer didn’t ask for it back.
Held: Terms were unfair and therefore void.

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STATUTORY UNCONSCIONABLE CONDUCT

• Refers to conduct that is more than simply unfair or harsh – it must have been an
element of bad conscience.
• S 20-22: ACL prohibits persons from engaging in unconscionable conduct.
• Three categories:
1. Unwritten law
2. Goods or services
3. Small businesses

How to answer an unconscionable conduct question?

4. Look for especially vulnerable victim (Power Imbalance)

- Elderly? Immigrant? Socially Disadvantaged? Child?
5. Determine if conduct is shockingly bad
6. Determine remedy

1. S 20: Unconscionable conduct within the meaning of the unwritten law

• 20(1): “A person must not, in trade or commerce, engage in conduct that is

unconscionable, within the meaning of the unwritten law from time to time”.
Case: ACCC v CG Berbatis -WAS OK
Facts: Tenant was suing shopping centre nut tenants lease was about to expire.
Centre agreed to renew lease if the tenant dropped the suit. This scenario is not nice but is
not shockingly bad either.

Case: ACCC v Samton Holdings – WAS OK

Facts: New tenant must pay extra for right to renew expiring lease from old tenant.
Threat to some extent.

Case: Amadio – NOT OK

Facts: New tenant must pay extra for right to renew expiring lease from old tenant.
Threat to some extent.

2. S 21: Unconscionable conduct in connection with goods or services

• ACL S 22(1)(a)-(l) lists the matters to consider

Case: ACCC v Lux
Facts: Salespeople targeted old grandmas’ homes to evaluate whether their vacuum
cleaners were good and then tried to sell their own ones.

Case: NRM v ACCC

Facts: NRM sold pills for erectile disfunction. Made it incredible difficult to cancel and
were being prescribed in an aggressive way. Targeted and pressured group with sensitive

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illness. ‘Immoral to seek and harness the fears and anxieties of men suffering from ED’
(Pressuring vulnerable patients)

3. Unconscionable conduct and small businesses

• S 21-22: Also protect small businesses from unconscionable conduct or large

businesses. Same factors as listed in 22(1) apply.

Remedies:
§ Pecuniary penalty
§ Damages
§ Injunction

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 Week 7

• There are general standards of honesty and fairness that are imposed by the law
that affect all players in the market regardless of the agreement.
• We are concerned with imbalances in:
- Bargaining power
- Information
• Dual purposes of consumer protection:
1. Protect consumers
- Prohibit misleading conduct, specific misrepresentations, certain
unfair practices, unfair contract terms and unconscionable conduct.
- Provide statutory guarantees
2. Protect competitors
- Prevent competitors from gaining dishonest competitive
disadvantage.

MISLEADING OR DECEPTIVE CONDUCT

Overview

• ACL prohibits deception in conduct or representations.

• Misleading or deceptive conduct:
- Section 18 of the ACL
- Has broad remedies but no penalties
- Conduct falls into this category
• Specific false or misleading representations:
- Primary section 29 of the ACL
- Broader remedies (civil remedy +penalties +fines)
- False representation falls into this category
• S 18(1): ‘A person must not, in trade or commerce, engage in conduct that is
misleading or deceptive or is likely to mislead or deceive’.

Answering a misleading or deceptive conduct question?

3. Determine if ACL applies

- In trade? Or conduct?
4. Determine if s 18 is violated
- State dominant message
- State target audience
- State if likely to mislead
- Cases very important (try to match facts)
- Always look to see if s 29 is also violated
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Key points:

• S 18 applies to ‘persons’ (natural persons) and ‘corporation’ (legal

persons).
• S 18 only applies to conduct occurring ‘in trade or commerce’ – it must
have commercial flavour (e.g.: not private sales)
• S 18 applies to a wide range of ‘conduct’… broader than
‘representations’.
• S 18 applies where conduct is misleading or deceptive or is likely to be.
• S 18 creates strict liability and cannot be excluded – no need to prove
fault or fraud or breach of good faith. Only question is whether the
conduct occurred, and it was relied on, or may be relied on.
• Remedies for breach s 18 are very broad and include damages,
injunctions, corrective advertising and variation or rescission of
contracts.

Misleading Conduct

• A person (legal or natural) who suffers loss or damage as a result of the misleading
conduct may sue for damages or a number of other remedies.
• The criteria that need to be met are:
§ The conduct must be “in trade or commerce”
- S18 only applies to conduct occurring ‘in trade or commerce’.
- The court said, “The conduct of a corporation towards persons (must
bear a trading or commercial character”.
- Private, one-off transaction does not satisfy.
Case: O’Brien v Smolonogov
- Non- commercial topics with no sales do not qualify
Case: Plimer v Roberts
Researcher claimed that the top of a mountain was Noah’s Ark.
– Professor sues for s18
– Nit in trade – free lectures, non-commercial, creationism.

§ The person must have “engaged” in conduct.

- The person “engages” in conduct when it makes a statement, a claim
or a promise or performs some action (or refuses to).

SPECIFIC FALSE OR MISLEADING REPRESENTATION

• Chapter 3 of the ACL contains provisions designed to protect consumers against

specific false representations made by a person in connection with the promotion
and supply of goods, services and land.

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False representation – Summary of types

• S 29(1)(a)-(n):
o (a) that good are of a particular standard, quality, value, grade,
composition, style or model or have had a particular history or particular
previous use
o (b) that services are of a particular standard, quality, value or grade
o (c) that goods are new
o (d) that a particular person has agreed to acquire goods or services
o (e) that purports to be a testimonial by any person relating to goods or
services
o (f) concerning:
iii. A testimonial by any person
iv. A representation that purports to be such a testimonial; relating
to goods or services
o (g) that goods or services have sponsorship, approval, performance
characteristics, accessories, uses or benefits
o (h) that the person making the representation has a sponsorship,
approval or affiliation
o (i) with respect to the price of the goods or services
o (j) concerning the availability of facilities for the repair of goods or of
spare parts for goods
o (k) concerning the place of origin of goods
o (l) concerning the need for nay goods or services
o (m) concerning the existence, exclusion or effect of any condition,
warranty, guarantee, right or remedy (including guarantee under
division 1 of part 3-2)
o (n) concerning a requirement to pay for a contractual right that:
iii. Is wholly or partly equivalent to any condition, warranty,
guarantee, right or remedy
iv. A person has under a law of the commonwealth, a state or a
territory (other than an unwritten law)

How to answer a specific false or misleading representation question?

3. Determine if ACL applies

- In trade? Representation?
4. Determine if s29 is violated
- Identify the statement/ representation
- Why is that false
- Determine what sub section of 29
- Cases very important (try to match facts)
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*Always look to see if s18 is also violated
Case: ACCC V Thermomix
Facts: Mixing bowl is burning customers. Company keeps selling product even after learning
of the safety issue
Held: This creates the FALSE IMPRESSION that it is safe. “(a) that good are of a particular
standard, quality, value, grade, composition, style or model or have had a particular history
or particular previous use”

Case: ACCC v Turi

Facts: Selling eggs from free range hens. Eggs are not free range
Held: False representation of the history of the goods. “(a) that good are of a particular
standard, quality, value, grade, composition, style or model or have had a particular history
or particular previous use”
Case: Optus v Telstra
Facts: Unlimited plan. The plan is always limited.
Held: “That services are of a particular standard, quality, value or grade”.

Case: ACCC v Heinz

Facts: Sells fruit sticks for toddlers. Shows happy active toddler, “99% fruit and veg” (implies
it is healthy. Loaded with sugar
Held: “(g) that goods or services have sponsorship, approval, performance characteristics,
accessories, users or benefits”.

Case: ACCC v Jetstar

Facts: Advertised prices didn’t include booking fees.
Held: “(i) with respect to the price of the goods or services”

Country of origin representations

• S 29(1)(k) prohibition of false or misleading representations about the place of origin

of goods developed in more detail in Part 5-3 (ss 255-257) of the ACL.
• S 255: A representation as to the country of origin of goods (e.g.: “Made in
Australia”) can only be made if the goods are subsequently transformed in Australia
and at least 50% of the cost of producing or manufacturing the goods has occurred
in Australia.
• S 255(3): The requirement that the goods must be “substantially transformed”
means that the goods must have undergone a fundamental change in their form,
appearance or nature, such as the sewing of cloth into a shirt or the moulding of
sheet metal into a panel.

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Remedies

• Pecuniary penalties: s 224

- Corporations $10 million of 3x value of benefit or 10% annual
turnover.
§ Specific false representations and other unfair practices and
unconscionable conduct
§ NV does not apply to misleading or deceptive conduct or unfair
contract terms
§ CCA s 139B(2):Corporations are responsible for the conduct of
their employees.
• Injunction
- Case: Belle Gibson Case
• Damages
- NB liability of persons involved in the conventions; s 2(1) makes
employees etc personally liable in damages
Case: Yorke v Lucas
• Other orders: s 237
- Relating to a contract that has been made as a result of a breach of
ACL -including misleading or deceptive conduct.
§ Declaring contract of part of it void
§ Varying the terms of the contract
§ Refusing to enforce any or all of the terms of the contract
§ Directing a fund
§ Directing a person to repair etc
• Other enforcement provisions
- Undertakings
- Substantiation notice
- Adverse publicity order – Turi case
- Disqualification order for directors

115
 Week 8: Law of Torts: Liability for negligent acts

What to do on an exam?

3. Determine what type of negligence

§ Physical Harm (Week 8)
§ Negligent Misstatement (Week 9)
4. Apply the four steps
§ Duty of care?
- Physical Harm : Donoghue v Stevenson – reasonable foreseeability of
harm and proximity
§ Breach of that duty?
- 2 steps s. 48 – foreseeable risk, reasonable response (4 factors)
§ Did the breach cause harm? (damages)
- Causation; remoteness
§ Is there a defence? Contributory negligence? Voluntary assumption of
risk?

TORTS AND NEGLIGENCE

Tort

• The “law of torts” is primarily concerned with providing a remedy for

one person’s wrongful interference with another’s personal or property
rights.
• Such “rights” arise as a result of corresponding “duties” imposed by law.
• Thus, the tort of nuisance that involves a duty not to interfere with an
occupier’s use and enjoyment of land creates a corresponding right in
the occupier to be able to use and enjoy.
• Examples of torts:
- Tort of battery – right to be safe from intentional physical
harm to your body
- Tort of defamation – right to enjoy a good reputation
- Tort of trespass – right to enjoy property free from
interference – land and personal items
- Tort of nuisance – right to peacefully enjoy land

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 - Tort of negligence – right to be safe from unreasonable,
careless conduct of others

Negligence

• An action for negligence is about careless behaviour and can therefore

be applied to any form of human claim.
• Negligence may cause;
- Physical harm (includes injury, illness and property
damage)
- Psychological harm
- Economic loss (financial loss) – includes loss of income,
medical expenses
• If the plaintiff is successful in establishing negligence, damages are
recoverable to compensate the plaintiff for the injury/ losses. The
defendant is liable.
• Policy issue – when someone is injured, who should bear the loss? The
person who caused the injury. The state? What role does fault play? The
tort of negligence is about finding fault (i.e. ‘negligence’) in the personal
who caused the loss.
- Legislation as created compulsory compensation schemes
for injury at work (WorkCover) and for road accidents
(Transport Accident commission) – under these schemes
no-fault liability arises – the question is only whether you
were injured – Not whether the employer/ other driver was
at fault
• Common law
- The common law principles governing negligence liability
have been reformed by legislation.
- E.g.: Modifying common law principles (breach/damage)
and caps on liability
- Topic 1- statutory law can modify the common law (as
parliament is the sovereign law-making body
• Legislations
- Wrongs Act 1958 (Vic)

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 Overview of Negligence: Elements of Negligence (Fig. 14.2)
9. Does D owe a duty of care to • Reasonable foreseeability
P? • Proximity
• Broader policy considerations
when a new situation arises
10.If so, has D breached that duty • Was it a foreseeable risk?
of care? • If yes, how would a reasonable
person in D’s position have
responded?
11.If so, has P suffered damage? • Was damage caused by the
breach? (‘but for ’ test)
• Is the damage too remote?
(reasonable foreseeability test)
12.Are there any defences? • Contributory negligence
• Voluntary assumption of risk
• Peer professional opinion
(Week 9)

® Step 1: Establishing a duty of care – Does D owe P a duty of care?

Case: Donoghue v Stevenson

Facts: “Snail in the bottle”. Café owner poured ginger beer into ice
cream, Donoghue drank some of the ice cream and proceeded to pour
the remaining ginger beer. Remains of a decomposed snail appeared.
Donoghue complained of stomach pain and doctor diagnosed her.
Held: Was able to sue manufacturer for tort of negligence. Judge
delivered “neighbour principle”:
- Duty of care: “You must take reasonable care to avoid
acts or omissions which you can reasonably foresee would
be likely to injure your neighbour”.
- Who is my neighbour? “Persons who are so closely and
directly affected by my act that I ought reasonably to have
them in contemplation of as being so affected when I am
directing my mind to the acts or omissions which are called
in question.

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 • Broad principle established: Duty of care can arise in any context where
loss or injury was “reasonably foreseeable” and where the parties were
in sufficiently close proximity that it is required one party not to cause
harm to the other.

Duty of care in five specific situations

6. Acts causing physical harm

7. Acts causing mental harm
8. Liability for omissions
9. Acts causing pure economic loss
10.Statements causing pure economic loss

1. Acts causing physical harm

Does D owe a duty of care to P?

• Reasonable foreseeability of harm test: The existence of the duty

depends on whether the harm suffered by the plaintiff was “reasonably
foreseeable”.
• Proximity/ neighbour test: Does P belong to a class of people that D
should have regarded as being “at risk” of being injured or suffering
loss? I the P closely and directly affected by D’s acts? Are the parties in
sufficiently close proximity?
• E.g.: Manufacturers owe a duty of care to consumers.
• Cases:
Case: Donoghue v Stevenson

Case: Grant v Australian Knitting Mills

Facts: Dr Grant and his underpants. Severe dermatitis (rash) due to
chemicals in the underwear – nearly died
Held: Manufacturer breached a duty to take reasonable care in the
production of underwear.

Case: Australian Safeway stores v Zaluzna

Facts: Customer slipped on wet floor
Held: General duty of care exists. Foreseeability of harm and customer is
in a relationship of close proximity with the supermarket (occupier).

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 Case: Argo v Kammesy
Facts: Need to clean and check floors more often
Case: Modbury Triangle Shopping Centre v Anzil
Facts: Car park lights were on; manager of shop was attacked in the
night in the car park.
Held: Duty of care does not extend to taking reasonable care to prevent
physical injury resulting from the criminal behaviour of third parties.
Duty of care did not arise

2. Acts causing mental harm

• The duty of care extends to the duty not to cause a person psychological
damage, independent of physical injury.
Case: Tame v NSW
Case: Annets v Australian Stations

• Reasonable foreseeability taking into account:

d. Relationship between the parties
e. P’s physical and temporal proximity to the event that cause the
mental harm
f. What the expected response of a person of normal fortitude might
be

3. Liability for omissions

• The common law imposes no liability for omissions or failing to act.

• The only circumstance in which a person may be liable for omissions is
where a person has a positive duty to act.
• Positive duties may be imposed where the parties are in a pre-existing
relationship that contains elements of reliance or dependence or where
the defendant is in a position of control.
Examples:
- Parent and child
- Doctor and patient
Case: Rogers v Whitaker
Facts: Needed to warn patient that he might go blind in one
eye.
Held: Doctors have a duty to warn patients of the risks
associated with a surgical procedure.
- School authority or teacher and student

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 - Employer and employee
- Occupier and visitor
Case: Nagle v Rottnest Island
Held: Needed to warn visitors of shallow water

4. Acts causing pure economic loss

• A pure economic loss occurs where the plaintiff suffers a financial loss
due to the negligence of the defendant and this financial loss was not
the result of personal injury or damage to property.
E.g.: Loss of profit or an opportunity to make profit, A loss of earnings or
expenditure.

• Two types of pure economic loss:

1. Negligent acts causing pure economic loss
2. Negligent statements causing pure economic loss

• In determining whether a duty of care exists, the courts will consider a

number of “salient features”:

• In the following pure economic loss case, the High Court outlines five
criteria that were relevant in determining that a duty of care existed:

Case: Perre v Apand

Facts:
i. Reasonable foreseeability? Yes (i.e. the economic loss
suffered by Perre was reasonably foreseeable)
ii. Indeterminacy of liability? No (i.e. imposing the duty on
Apand did not expose it to indeterminate liability
because there were a finite number of growers within
the radius who may have been affected by the
defendant’s careless conduct)
iii. The individual autonomy factors. No (Imposing the duty
did not unreasonably interfere with Apand’s commercial
freedom)
iv. The vulnerability of Risk? Yes (i.e. the plaintiff’s
business was exposed to Apand’s conduct because they
were not in the position to protect themselves against
the effect of Apand’s negligence).

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 v. The defendant’s knowledge of the risk and its
magnitude? Yes (i.e. Apand was aware of the risk that
the bacterial wilt disease would break out and was
aware of the potential repercussions)

® Step 2: Has D breached the duty of care?

• Test: Has D met the standard of care required by the law of negligence?
• To determine breach: two step approach – need to consider:
3. Step 1 – Reasonably foreseeable risk: s. 48(1) Wrongs Act (Vic)
- Is the risk one which requires a reasonable person to respond?
4. Step 2 – Reasonable person’s response: s. 48(2) Wrongs Act (Vic)
- How would a reasonable person respond to the risk?

3. Reasonably foreseeable risk: s. 48(1)

§ A person is not negligent in failing to take precautions against a
risk of harm unless:
o The risk of injury was reasonably foreseeable: s 48(1)(a)
o The risk is not insignificant: s 48(1)(b)
o A reasonable person would not have taken precautions in the
circumstances: s 48(1)(c)

4. How would a reasonable person respond to the risk? s. 48(2) –

§ The standard of care expected is that of a reasonable person
§ This is assessed objectively – it is an impersonal test
§ The reasonable person is equipped with the same skills and
expertise expected of a person exercising a particular trade or
profession.
§ Consider in context of circumstances at that time (without the
benefit of hindsight)
Case: Argo v Al Kammessy
§ Consider four factors to determine what a reasonable person
would do: Section 48(2) Wrongs Act 1958 (Vic):
48(2): In determining whether a reasonable person would have
taken precautions against a risk of harm, the court is to consider the following
(amongst other relevant things):

e. The probability that the harm would occur if care was not
taken
f. The likely seriousness of the harm

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 g. The burden of taking precautions to avoid the risk of harm
h. The social utility of the activity that creates the risk of harm
a. The probability of the risk or injury

• When a risk is small, a reasonable person can ignore it. What a

reasonable person must not do is create a risk that is substantial. The
greater the likelihood of the risk occurring, the more that is expected of
D to take reasonable steps to prevent it occurring.

Case: Bolton v Stone

Facts: Struck by a cricket ball (outside the grounds)
Held: Duty of care? Yes. Breach? No. Why? Very unlikely

Case: RTA v Dederer

Facts: Boy dived off bridge into river – struck submerged sandbar –
quadriplegic
Held: Duty of care? Yes. Breach? No. Why? People dove for 40 years
without injury (no other reported incidents) – very low probability.

b. Gravity of harm

• The more serious the risk, the greater the demand for precautions on
the part of the defendant.
Case: Paris v Stepney Borough Council
Facts: No goggles provided to welder – spark in eye, Gravity of harm of
injury to eye = high – complete blindness.
Held: Issue: Employer’s liability for one-eyed worker, Duty of care? Yes,
Breach? Yes

c. Burden of eliminating the risk

• One must balance the risks against the measures necessary to eliminate
the risk.
• The easier it is to eliminate a risk, the less likely a defendant’s failure to
take precautionary steps will be justifiable.
• The court can take into account not only the cost and inconvenience
involved in taking the precautionary measures but also any risk that
these steps may themselves involve.

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Case: Graham v Barclay Oysters
Facts: To stop selling oysters or to relocate the fishery altogether -Too
difficult, expensive and inconvenient
Held: Unreasonably high burden on the D.

Case: Woods v Multi-Sport Holding Pty Ltd

Facts: Indoor cricket player suffered serious eye injury. Evidence
showed eye injuries are common – helmets not available at that time.
Held: D not expected to design and manufacture helmets for use by
players in indoor cricket game. No negligence for not providing helmet.

d. Utility of the defendant’s conduct

• Did the conduct have such high social value that we forgive the breach
(e.g.: ambulance driving at speed; rescuing people from flood)
Case: Watt v Hertfordshire
Facts: The risk of injury to firefighters was weighted against the
lifesaving activity engaged in by the fire service
Held: The emergency of the situation and utility of the defendant’s
conduct in saving a life outweighed the need to take precautions.

Case: Wilson v Nilepac

Facts: P suffered spinal injury as a result of crunch exercise involving a
medicine ball.
Held: Did the personal trainer breach their duty of care? Yes., Does
physical activity have social utility? Yes, but the focus is on the social
utility of the activity that creates the risk of harm – the activity here was
the crunch exercise, this itself has no relevant social utility.

Evaluating Response (CACL 14.610)

• When evaluating the reasonableness of D’s response, the following is to

be considered (s. 49 Wrongs Act):
- Burden of taking precautions to avoid risk of harm includes the
burden of taking precautions to avoid similar risks (e.g.: the

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 burden to do it at National Park A, plus you have to do it at
National Park B, C D etc)
- The fact that the risk could have been avoided by doing
something a different way does not itself give rise to liability
(hindsight is always 20/20)
- The fact that subsequent action was taken does not constitute an
admission of liability.
• When analysing a scenario, make sure you reach an overall assessment
as to whether it is likely that there has been a breach of the duty or not,
taking into account the four factors – weigh the factors/ balance them
against each other overall in the circumstances.
• Can be difficult assessment to make.
RTA C Dederer

® Step 3: Has P suffered loss/ damage/ injury as a result of D’s breach?

Is P entitled to damages to compensate them for the loss/ damage/
injury?

• The final element that a plaintiff must prove for an action of negligence
to succeed is that:
1. It was caused by the defendant’s negligence (causation); and
2. It is appropriate for the ‘scope of the defendant’s liability’ to extend
to the loss or damage or injury (remoteness)

1. Causation

• The negligence was a “necessary condition” of the occurrence of the

harm: s 51(1)(a)(factual causation)
Loss/ damage/ injury suffered by P was caused by D’s negligence.
• P must show that ‘but for’ the breach, the loss or damage would not
have occurred.
Case: Strong v Woolworths
Facts: Woman on crutches slips and falls on chip on the store floor.
Held: If the floor had been cared for, the chip wouldn’t have been there.

• Causation if often clear in cases of physical injury.

Case: Richtoll v WW lawyers
Facts: Lawyers negligent in not conducting a further search before client
advanced money ($4.5 million) in pursuant to a loan.

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 Held: The lawyer’s negligent conduct did not cause the loss. Breach of
duty, but no causation.
Case: March v Stramere

2. Remoteness

• The loss must not be too remote from the breach. Is it appropriate for
the ‘scope of D’s liability to extend to the loss or damage or injury? (s.
51(1)(b))
Case: Wagon Mound (No 1)
Facts: Oil spill in Sydney harbour from ship. Oil floats to wharf, mixes
with cotton waste. Gets set on fire by molten metal during welding. Would not
normally ignite on water. P’s wharf was damaged.
Held: Not reasonably foreseeable. ‘Although there was a clear casual
connection between the events that took place, that was not enough. D is only
liable for the harm caused if the harm was of a kind that was reasonably
foreseeable’.

• Later case succeeds when it is shown that the carrier actually knew real
risk of fire – negligent to allow oil spill knowing this – Wagon Mound
(No. 2)

® Step 4: Does the defendant have a defence? Will damages be

reduced or prevented altogether?

Contributory Negligence

• No compensation could be recovered where the plaintiff suffered

damage partly through their own negligence and partly through the
negligence of another.
Case: March v Stramere
Facts: Drunk driver strikes truck parked in the middle of the road at
night. Drunk driver sues truck driver for injuries. Both were careless
Held: 70% drunk drivers’ fault, 30% truck drivers’ fault. Drunk driver can
get 30% of damages

Case: Alzawy v Coptic Church

Facts: Falls and slips on broken step. But was not using handrail.

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 Held: Use handrail (50% at fault =50% damages)

Voluntary assumption of risk

• A person cannot complain of damage which results from a risk which

was accepted (Wrongs Act s 54)
• Aware of the risk, fully appreciated it and accepted it freely and willingly
– may be difficult to establish
• “You knew it was risky and accepted the risk”
• If obvious risk – presumption of awareness – P must show not aware (s.
54)
• Complete defence – no damages payable

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 Week 9: Law of Torts: Professionals and Negligent Statements

WHAT TO DO ON AN EXAM?

3. Determine what type of negligence?

– Physical Harm (week 8)
– Negligent Misstatement (week 9)
4. Apply the 4 Steps (negligent misstatement)
§ Duty of Care? Legal test depends on:
– Is it a two party scenario/P requested the advice/information? (apply Hedley
Byrne; MLC; Shaddock) OR
– is P a third party? (apply Esanda factors)
§ Breach of that Duty?
– (2 steps s.48 – foreseeable risk, reasonable response – professional standard
of care)
§ Did that breach cause harm? (damages)
– Causation; remoteness
§ Is there a defence? Peer Professional Opinion? Contributory negligence?
Voluntary assumption of risk?

Negligent statement causing pure economic loss

• Recovery for economic loss arising out of a statement made by another

person was limited to cases where the statement was intentionally false
or was made in breach of a fiduciary relationship.
• A person could owe a duty of care for negligent statements provided:
- The advice was given in respect of a serious or business matter;
- The adviser should have realised he or she was being relied upon
to give correct advises; and
- It was reasonable for the other person to have relied on the
advice.

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 Elements of Negligent Misstatement
13.Does D owe a duty of care to • Special relationship:
P? - An assumption of
responsibility by D and
- Reasonable reliance by P
• Esanda factors if P is a third
party/ advice or information
was not provided at P’s
request
14.If so, has D breached that duty • Was it a foreseeable risk?
of care? • If yes, how would a reasonable
person in D’s position have
responded? Standard if care of
ordinary person exercising and
professing to have that skill.
15.If so, has P suffered damage? • Was damage caused by the
breach? (‘but for’ test)
• Is the damage too remote?
(reasonable foreseeability test)
16.Are there any defences? • Contributory negligence
• Voluntary assumption of risk
• Peer professional opinion

1. Does D owe a duty of care to P?

• For a long time, courts said no duty of care was owed by professionals
for negligent advice causing pure economic loss;
Case: Ultra V Touche

• Breakthrough case;
Case: Hedley Byren v Heller
Held: Recognised for the first time that a duty of care could arise
- A duty of care can exist provided there is a “special relationship”
based on some element of reliance.
- There was no duty of care because of the disclaimer = the
limitation clause saved Heller in the case (no liability)
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 - An appropriately worded disclaimer makes reliance
unreasonable.

• To establish a duty of care, P must prove that there was a special

relationship based on:
- An assumption of responsibility by the defendant;
And
- Reasonable reliance by the plaintiff
• When does a special relationship arise? Laid out in MLC V Evatt
– Whenever a person gives information or advice (whether that
information actively sought or merely accepted by the other
person);
– Upon a serious matter (especially a business matter); and
– The relationship of the parties arising out of the circumstances is
such that the speaker realizes, or ought to realise, that they are
being trusted;
– Particularly if they have access to information or expertise on the
matter in question;
– THEN: The speaker, choosing to give information and advice, comes
under a duty to provide that information or advice with reasonable
care.

Case: Shaddock v Paramatta City Council

Duty of care: Elements

• To succeed in establishing duty of care, the plaintiff must prove that

there was a special relationship based on:
§ An assumption of responsibility by the defendant, indicated by:
- Advice/ information is on a serious matter or business matter;
and
- The defendant should have realised he or she was being relied on
to give correct advice/information; and
§ Reasonable reliance by the plaintiff
- Was reliance on the advice or information by P reasonable in the
circumstances?
- It is reasonable to rely on experts or people with exclusive access
to knowledge
- It is not reliable to rely on advice or information with disclaimers.

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Third party situations

Case: Esanda Finance v PMH

Facts: Esanda claimed that PMH owed it a duty of care, as Esanda relied on the
audit report and belonged to a class of persons who might reasonably have
done so.
Held: PMH did not owe a duty of care to Esanda.

Breach of duty

2. Has D breached the duty of care?

Test: Has D met the standard of care required by the law of negligence?

• To determine breach: same two step approach – need to consider:

§ Step 1 - Reasonably foreseeable risk: s.48(1) Wrongs Act
(Vic)
– is the risk one which requires a reasonable person to
respond?
§ Step 2 - Reasonable person’s response: s.48(2) Wrongs Act
(Vic)
– How would a reasonable person respond to the risk?

Step 1: Reasonably foreseeable risk: s.48(1)

A person is not negligent in failing to take precautions against a risk of harm

unless:
– The risk of injury was reasonably foreseeable: s
48(1)(a)
– The risk is not insignificant: s.48(1)(b)
– A reasonable person would have taken precautions in
the circumstances: s.48(1)(c)
– THIS STEP IS EXACTLY THE SAME (SEE WEEK 8)

Step 2: How would a reasonable person respond to the risk? S.48(2)

§ The standard of care expected is that of a reasonable person.

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 § STILL LOOKING AT HOW A REASONABLE PERSON WOULD RESPOND, BUT
DO NOT APPLY THE 4 FACTORS
§ The four factors do not work well with negligent misstatement cases
causing pure economic loss (or professional negligence generally)

Professional standard of care

• Instead, we consider the professional standard of care and use the legal
test established in Rogers v Whitaker: (part of judgment extracted at
CACL 14.560 p. 316):
– For professionals and persons with special training or skills
(accountants, engineers, lawyers, doctors, financial planners etc.):
– ‘the standard of reasonable care and skill required is that of the
ordinary skilled person exercising and professing to have that
specialized skill’.
• Consider in context of the circumstances at that time (without the
benefit of hindsight): Argo v Al Kammessy
• SKM Industries v. Australian Reliance
• Specialists – if the Defendant advertises themselves as a specialist –
then held to a higher standard of care – e.g. Specialist tax accountant
• This standard of care is often informed by peer professional opinion
defense - did the defendant do what other competent professionals in
their field do?

Damages, Defences

3. Has P suffered loss as a result of D’s breach? Is P entitled to damages to

compensate them for the loss?

• Same two requirements as for negligent acts. Need to establish:

• Causation: ‘but for’ test / Wrongs Act s51(1)(a) – the negligence was a
“necessary condition” of the occurrence of harm. Ask: Did the breach of
duty cause the loss?
• BUT FOR THE WRONG ADVICE/INFORMATION, the Plaintiff would
not have taken the action that incurred the loss

• Remoteness: It is appropriate for the ‘scope of D’s liability’ to extend to

the loss or damage or injury: s.51(1)(b). The loss must not be too remote
from the breach. ASK: is the loss reasonably foreseeable?
• Wagonmound case

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 • Recall Richtoll v WW Lawyers

4. Does the D have a defence? Will damages be reduced or prevented

altogether?

§ Remember to check:
– Contributory negligence (partial defence)
– Voluntary assumption of risk (total defence)
– BUT AN ADDITIONAL DEFENCE
§ PEER PROFESSIONAL OPINION (complete defence)

Peer Professional Opinion

• This is a defense once a breach has been established.

• Once P proves breach of professional standard of care, D is liable unless
he or she can show he or she acted in accordance with peer professional
opinion.
• If successfully argued, it is a complete defense and D will not be liable
for any damages.
• A professional does not incur liability if he or she acted in a manner that
was widely accepted by peer professional opinion as competent
professional practice.
• However, court can overrule if the opinion is irrational.
• There may be differing opinions on a matter.

Other legal actions

• Uncertainties and difficulties exist in mounting a common law action for

negligent misstatement.
• Statutory causes of action may also be relevant and can be brought in
conjunction with an action for negligent misstatement.
• Examples under the ACL:
• S.18 – misleading or deceptive conduct
• S.60 – consumer guarantee that services will be rendered with due care
and skill
• May be easier to satisfy and remedies may be broader.

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 Week 10: Law of Business Organisations: Agency and Partnerships

What to do on an exam?

§ Determine type of dispute FIRST

§ Does a partnership exist? Section 5 definition (plus s.6)
§ Carrying on a business
§ In common
§ With view of Profit
– Plus s.6 – discuss any rules relevant based on facts
– Note: whether a partnership exists may not be in dispute (facts may make it clear
there is a partnership) – if not in dispute, no need to discuss.
§ Is there an internal dispute between the partners?
– Has partner violated a duty to other partners? Fiduciary and statutory duties
(ss.32-34)
– Did partner bring in extra property? Does it belong to the partnership?
§ Is there Liability to a Third Party?
– Did partner enter into binding transaction (contract)? (ss.9 and 13)
§ In scope of business?
§ In usual way?
§ Did third party know or believe there was no authority or not dealing with
partner?
– Did partner commit a wrongful act? (ss.14 and 16)
§ In ordinary course of business?

THE LAW OF AGENCY

• The law of agency allows one person to authorise another person to do

any act that he or she has the capacity to do themselves.
• Negotiate or enter into contracts, receive information, perform work, buy
and sell real estate or other property and make representations.

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• Principal and agent relationship:

Principal Agent Third Party

Appoints agent Deals with the third Contract created
party on behalf of the between third party and
principal principal
Authorises agent to Agent’s role has been
act. completed (drops out of
the picture).

• Nature and scope of an agent’s authority

Authority

Actual Apparent

Implied
Express (Oral
(Necessariliy
or written)
incidental)

1. Actual Authority

• An actual authority is a legal relationship between the principal and the

agent created by a consensual agreement to which they alone are parties.
• The actual authority of an agent is either;
- Actual express authority; or
- Actual implied authority

Express authority
The authority the principal has expressly given the agent in words
or in writing.

Implied authority
In addition to the express authority contained in the agency
agreement, the agent may have a further implied authority to do

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 whatever is necessarily incidental to carrying out the principal’s
express instructions.

2. Apparent Authority

• There is no actual authority but instead the mere appearance of authority.

• It is a device to protect third parties who contract or otherwise engage
with an agent based on authority that he or she appears to have.
• Where a principal represents either by words or conduct that an agent
has authority to contract on the principal’s behalf, the principal will be
bound by those acts of the agent which fall within that represented
authority.

PARTNERSHIPS

• A partnership is created by agreement.

• This agreement may be oral, written, under seal or inferred from a course
of dealing adopted or agreed upon by all partners.
• Existence of a partnership depends on the true nature of the
relationship between the parties (even if parties describe themselves as
being or not being in a partnership, court may find otherwise)
• Formation and nature:
– Restrictions on size – at least two people and up to 20 – s.115
Corporations
– Choose a business name - Must use the full name of all of the
partners
– Eclipsed by rise of corporations. Common structure for:
o Small businesses and family businesses
o Accounting and law firms
o Medical practices
o Pharmacists
o Architects
• Personality liability for partners:
– Not a separate legal entity (contrast with company)
– Partners are personally liable - unlimited liability for the debts and
liabilities of the partnership
– Possible to establish a limited partnership under the Partnership Act,
and register with ASIC

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 o One or more partners can limit liability to a fixed amount – but
cannot take part in the management of the firm or bind the firm
o At least one partner must have full liability for the debts and
liabilities of the partnership
o Not popular – company preferred
o Some professions have adopted – e.g. law and accounting firms
(as were historically barred from incorporating)
• Does a partnership exist?
– Disputes may arise over whether a partnership exists or not - the
court will decide if a partnership exists - Existence of a partnership
depends on the true nature of the relationship between the
parties (even if parties describe themselves as being or not being
in a partnership, court may find otherwise)
– Why is it important to know if there is a partnership?
§ One party might want to share the profits (‘I am a partner
and therefore I’m entitled to a share’)
§ One party might not want to share the losses/expenses (‘I
am not a partner and therefore I do not have to share the
losses/expenses’)
§ One party might argue they are owed an account of profits
due to breach of a fiduciary obligation (‘We are partners
and you have breached your fiduciary duty’)
• Is there a partnership? Legal definition of a partnership:
– Section 5 of the Partnership Act 1958 (Vic) defines a partnership
as: the relation that exists between persons
1. carrying on a business
2. in common
3. with a view of profit
o All 3 elements must be satisfied – may establish 2 out of 3 –
will not be enough
o can be difficult to apply to the facts

1. Carrying on a business

The tests to determine if people are carrying on a business

involve an assessment as to whether the activities have a
commercial “look and feel” and are of an ongoing or
repetitious kind.

Case: Khan v Miah

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 Held: Court found Khan was a partner - entitled to profits and
to a share in the partnership property on dissolution of the
business

Case: Goudberg v Herniman

Held: creation of business plan, market research and other
exploratory activities does not = carrying on a business – just at idea stage

2. In common

There must be a mutuality of sharing rights and obligations.

Business must be carried on by (or on behalf of) all the
partners.

3. With a view of profit

Partnerships must be created with a view of profit.

• Evidence of a partnership – Section 6 – Statutory Rules:

– Supplementary guidance: s.6 statutory rules
– In determining whether or not a partnership exists “regard shall be had”
to the following rules:
o S.6(1) - Common Ownership
o S.6(2) - Sharing of Gross Returns
o S.6(3) - Profit Sharing
o The rules in section 6 have been included in the Act to
supplement, not replace, the statutory definition in section 5.
Particularly assist in assessing whether the parties are “acting
in common”.
o Factors that may indicate a partnership but are not sufficient
on their own. Critical to establish carrying on business in
common (s.5).

S6(1): Common ownership (Rule 1)

§ Common or joint ownership of property (like land or buildings) does not

necessarily mean that the common owners are in a partnership.

S6(2): Sharing of gross returns (Rule 2)

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 § Sharing of gross returns does not of itself mean the sharers are in a
partnership.
Case: Cribb v Korn
Facts: Landowner received share in gross returns in exchange for use of
the land. But no involvement in the farming of the land or right to direct
or control the farming.
Held: No mutuality of rights and obligations. Not carrying on a business
in common.
S6(3): Profit sharing (Rule 3)

§ Sharing of profits creates a strong presumption (prima facie evidence)

that there is a partnership – but is not conclusive.
§ The other party has the onus of proving that there is not a partnership
§ This presumption does not apply in the circumstances set out in
s.6(3)(a)-(e)

Examples where the presumption does not operate (not presumed to be a

partner in these situations):
§ s6(3)(a): a debt repaid in instalments out of profits.
- e.g. Cox v Hickman (CACL 16.210) (debts paid to creditors out of profits
does not mean creditors are partners)
§ s6(3)(b): remuneration paid to an employee on the basis of a share of
profits.
- e.g. Plummer v Thomas (CACL 16.220) (Plummer paid 50% of profits as
wage, but does nothing else = not a partner)
§ s6(3)(c): payment of an annuity to a widow or child of a deceased
partner.
§ s6(3)(d): loan with the interest dependent on profits.
§ s6(3)(e): annuity for goodwill part of sale of business dependent on
profits.

Relationship of partners with each other

• Hallmarks:
- Contractual relationship
- Agency relationship
- Fiduciary relationship
- Rights and duties under the common law and statute

Contractual Rights and Duties

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 § Partnership agreement
§ oral or written or implied by conduct
§ A formal written partnership agreement might exist
(accountants, doctors, lawyers, etc) - might deal with
membership, capital, entitlements, % share in profits,
losses and capital, management, accounts,
dissolution, dispute resolution, goodwill, etc
§ Terms implied under the Partnership Act: s.28
– if not dealt with in the partnership agreement
– “Fills in any gaps”

• General rights and duties under Partnership Act: s 28

Examples:
– Share equally in capital and profits and losses: s 28(1)
(regardless of initial investment - see Popat v Schonchhatra (CACL
16.280))
– Firm indemnifies every partner for firm-related
expenses: s 28(2)
– Every partner may take part in management: s 28(5)
– No partner entitled to remuneration: s 28(6)
– No person can be introduced without consent of all: s
28(7)
– Decisions to be decided by majority: s 28(8)
– Books to be kept at the place of business and all have
access: s 28(9)
– Also: Restriction on right to expel a partner: s 29
(CACL 16.270)

Agency Relationship

§ Partners are both principals and agents of each other

– A partner is an agent of the other partners and may bind them (as
an agent can bind his/her principal); and
– A partner is also a principal and may be bound by the acts of the
other partners (as a principal may be bound by the acts of an
agent)
– Law of agency under the common law and s.9 of the Partnership
Act – consider actual authority (express and implied) and
apparent authority

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 • Liability to third parties for debts and obligations.

Fiduciary relationship

Fiduciary relationship - partnership is founded on mutual trust and confidence

Fiduciary duties:
– Act in good faith for the benefit of the partnership
– avoid any actual or potential conflict of interest
– Make full disclosure towards each other
– Continues after dissolution until partnership wound up: Chan v
Zacharia (16.300)

Statutory Duties

Statutory duties (reflect common law fiduciary duties)

§ Partners must render true accounts and full information of all things
affecting the partnership: s.32
§ Duty to account for benefits derived without consent from dealings
concerning the partnership or from use of the partnership property,
name or business connection: s.33
§ Duty not to compete with partnership (without consent) – if do, must
account for all profits: s. 34

Partnership property – Definition and rights

§ Under s 24 partnership property includes:

– Items originally brought into the partnership as partnership
property (depends on intention)
– items acquired on account of the firm
– items acquired for the purposes of and in the course of the
partnership business
– Goodwill
§ Under s 25:
– items bought with partnership money are deemed to have been
bought on account of the firm, unless contrary intention appears.
– What right does each partner have to the partnership property?
– Partners have no title to specific property (e.g. the painting on
the wall, or the car) but a right to his/her proportion of the
surplus after the sale of assets and the payment of debts

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 – Fluctuates over the course of the business – determined on
dissolution

Personal Property of the partner – partnership property?

§ If a partner’s property is used for the partnership, does it remain the

separate property of the partner, or does it become partnership
property?
– E.g. a partner uses her own personal computer for bookkeeping
purposes – is kept on the business premises
– E.g. a partner uses his own personal van to make deliveries, but
also for private use (and does not own another motor vehicle)
§ determining what is the property of the partnership is important
particularly at the end of the partnership relationship
§ Can the partner demand the return of the computer? Can
the partner demand the return of the van? Can have it only
if it is his or her property (and has not become partnership
property).
§ Depends on intention – either as expressly agreed or as evidenced by
the conduct of the parties and manner in which the business was
conducted e.g. Harvey v Harvey– Land never became part of the
partnership property – even though improvements to the property were
made. Clear intention that it was intended to remain the property of
Harvey so it could be taken over by his son when old enough.

Relationship of partners to third parties

§ Liability to third parties (those external to the partnership) for:

– Debts and obligations (ie. contracts) – ss.9 and 13
– Wrongful acts and omissions – ss.14 and 16

Liability of partners to third parties

Liability for debts and obligations (contracts): ss 9 & 13

§ Each partner is liable jointly with the other partners for all debts and
obligations of the firm incurred while he/she is a partner: s.13
§ The type of liability that might arise is:
– A supplier might be owed money
– A lender might be owed money
– A client/customer might sue for damages for breach of contract

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 § When is the partnership bound?
§ Partner acted within scope of actual authority (16.430)
§ What if the partner exceeded their actual authority? Did the partner act
within apparent authority?
§ Section 9 (16.470) – apply to see if partnership bound – reflects
principles of agency in context of partnership

Elements of s.9:
A partner (acting as an agent) will bind co-partners where:
§ he/she does any act or enters into a transaction;
§ that is within the scope of the kind of business carried on by the
partnership; and
§ the transaction is carried out in the usual way that partnerships of that
kind conduct business.
UNLESS (proviso)
§ the partner had no authority to so act; and
§ the third party knew this; or
§ the third party did not know or believe that the person was a partner.
The law protects third parties acting in good faith.

§ Two steps:
– 1. Ask: ‘what is the kind of business of the partnership?’ Was the
act/transaction within the scope of this?
§ Mercantile v Garrod (16.510)
Outside express authority. But, common for garage businesses to sell cars -
buyer would have no reason to suspect transaction (and had no knowledge
there was no authority).
– 2. Ask: Was it done in the usual way? Even if the action of the
partner was within the scope of what that type of partnership
normally does, it must be done in the usual way if it is to bind the
other partners.
§ Goldberg v Jenkins (16.520) (borrowed money at 60%
interest (normally 6-10%). Not an ordinary business
transaction. Lender = should suspect no authority.)

PROVISO in s.9: Did the third party know there was no authority or not know
or believe they were dealing with a partner?
- If the third party knows there was no authority, there
cannot be apparent authority, and they are not acting in
good faith

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 - If the third party is unaware the person, they are dealing
with is a partner, then the partnership is not bound – there
is no apparent authority
- Construction Engineering v Hexyl (CACL 16.540)
- T has no authority to enter construction contract (no
express authority)
- T signed contract in its own name AND construction
company thought T was acting on its own behalf (did not
know of H) (no apparent authority)

- Joint liability: s 13 (CACL 16.550)

- Each partner is jointly liable up to the full amount
- Only one legal action is permitted – should sue all partners
collectively, at the same time
- If for some reason not all partners are sued (e.g. third party
not aware of a silent partner), then the partner or partners
sued can insist that other members be ‘joined’ in the legal
action
- If the partners are sued in the firm name, rather than
naming individual partners (which is now allowed), then the
judgment applies to all partners
- If the partnership assets are insufficient to meet the liability to the
third party, then the partners will be required to draw on their
personal assets – if the assets of one partner are insufficient, then
the other partner(s) would have to make up the difference – one
partner could potentially be liable for the whole amount to the
third party

Liability of partners to third parties – Wrongful Acts (16.620 – 16.670)

Liability of partners to third party for wrongful acts of a partner: ss.14 and 16
§ Each partner is liable for any loss or harm caused to a third person while
acting ‘in the ordinary course of the business of the partnership’ or ‘with
the authority of the co-partners’: s.14
‘Acts’? Wrongful act or omission:
– Tort (e.g. negligence)
– Breach of ACL (misleading or deceptive conduct)
– Breach of fiduciary duty to client (conflict of interest)
– Crime (fraudulent misappropriation of funds)
– NB: does not include breach of contract.

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§ Test: was the act done in the ordinary course of the business of the
firm?
§ This needs to be answered by looking at:
– the nature and scope of the business of the partnership; and
– the partnership agreement

§ Walker v European Electronics (CACL 16.630)

– Accounting firm, 3 partners (receivership, tax, and liquidation)
– Fraudulent misappropriation of funds by G (crime and in jail)
– G bankrupt
– The receivership work was in the ordinary course of the business
– it did not matter that G was the only partner doing receivership
work – the fees went into the partnership
– the other partners were jointly and severally liable

§ National Commercial Bank v Batty (CACL 16.650)

– Davis was not acting in the course of the firm’s business or within
authority when he fraudulently deposited cheques into the firm’s
account and then misappropriated them

§ Polkinghorne v Holland (CACL 16.660)

– Law firm, but one partner (H) habitually gave investment advice
– Why were the solicitors liable to P even though H provided
investment advice and not legal advice?
– Within usual course of business for that firm – usual for solicitor
to enquire on behalf of the client and provide information and
assistance

§ Joint and several liability –s.16 (CACL 16.670)

§ Each partner is liable both jointly and severally for losses suffered by
third parties under s.14
§ More than one legal action is allowed – can sue the partners jointly
(collectively) or severally (individually) – if only one partner is sued, and
the full amount is not recovered, can keep suing until full amount
recovered
§ If only one partner is sued, that partner can be held liable for the full
amount to the third party (It is then up to the partner who has been
sued to get the others to contribute according to their share of the
liability.)

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§ If the third party sues the partners under the firm name, then all
partners are caught by the legal action (overcomes the distinction
between joint and several liability).

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 Week 11: Law of Business Organisations: Corporations

What is a company?

• Upon incorporation and registration, a company is “born” – it is a

separate legal person – core feature of this business structure.
• Exists separately from its owners (called members), management
(directors and officers) and employees.
• Owners of most types of companies have limited liability for the debts of
the company – another key feature of a company.

Corporate Personality

Case: Saloman v Saloman & Co Ltd

Facts: Business was operated as a sole trader, created a company and
sold the business to the company. Creditors argued Saloman and the
company were the same person.
Held: The company was validly incorporated and a separate legal entity,
distinct from its shareholders and directors

• Corporations Act permits a sole shareholder, sole director company-

even where they are the same person.

• Corporate Veil
- Once registered “veil of incorporation” comes down
- Shields owners (members/shareholders) and managers
(directors/officers) from personal liability

• A company has the legal capacity and powers of an individual: s.124

Corporations Act – “separate legal person”

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Forming a company

• Regulated by the Corporations Act 2001 (Cth)

• Australian Securities and Investments Commission (ASIC) administers and
enforces the legislation – regulatory body.
• Must be registered with ASIC – Australian Company Number issued:
s.118.
• Company comes into existence at the beginning of the day on which it is
registered: s.119
• Must choose a distinctive name, which also indicates the type of company
and whether liability of members is limited (e.g. “Pty Ltd” for a proprietary
company or “Ltd” for a public company) or be known by Australian
Company Number.
• Company must have directors (minimum number depends on type of
company) and at least one member.

Types of companies

Proprietary (e.g. “Pty Ltd” in name)

• No offering or issue of shares to the public (but new rules allow crowd-
sourced equity fundraising in some situations)
• Up to 50 members (not including employees, and unless using crowd-
sourced equity fundraising)

Public (e.g. “Limited”/”Ltd” or “NL” in name)

• unlimited members
• Can raise funds from public
• May be listed on the Australian Securities Exchange (ASX)

Types of liability for members

• Liability limited by Shares

• Liability limited by Guarantee (no share capital; non-profits)
• Unlimited liability with shares (very rare)
• No Liability (mining companies ONLY)

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Members

• There must be at least one member of a company.

• Members are the “owners” of the company - company is required to keep
a register of members.
• But do not own the property of the company – this belongs to the
company as it is a separate legal person.
• Limited liability of members:
– The debts of the company are its own, and in most companies’
members will have limited liability.
– Major attraction and advantage of the corporate structure.
– Depending on the type of company, the members may have shares in
the company - “shareholders” – majority of companies do.
– Shareholders have limited liability – liability is limited to any unpaid
amount on shares.
– Cannot be held liable for the debts of the company. Safe from
creditor’s claims.

Management and control of the company – Directors

• Company is a separate legal person – but is a legal fiction – no “beating

heart” – can’t do anything on its own - must act through its directors,
officers and other agents
• All corporations must have directors:
• Proprietary – minimum 1 (s 201A(1))
• Public – minimum 3 (s 201A(2))
• Types of directors:
– The Board - will usually appoint a managing director or Chief
Executive Officer (CEO)
– Executive directors run the company (e.g., CEO, Chief Financial
Officer)
– Non-executive directors are on the Board but do not take part in day
to day management. (NB: are liable for decisions of Board).
• Power of directors:
o Can exercise all the powers of the company (except matters
requiring shareholder approval)
§ Elect / dismiss CEO, appoint and remove employees
§ Take out loans
§ Enter contracts and appoint agents

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 § Buy, sell, lease goods or land
Set and monitor policy and strategy

ENTERING CONTRACTS AND LIABILITY FOR THE ACTS OF AGENTS

Company entering into contracts

• A company has the power to enter into contracts (s.124)

• Can do so in its own name.
• How does a company execute a written contract?
• S.127 – document signed by:
– 2 directors of the company; or
– A director and company secretary; or
– For a proprietary company with one director who is also the company
secretary – that director
– With or without the common seal of the company

Power to appoint agents

• A company has the power to appoint agents to act on its behalf, including
entering contracts on its behalf (s.124).
• When is a company liable for the acts of its agents (including officers,
directors and employees)?
• Recall – agents have actual authority and apparent authority.
• S.126 reflects actual authority:
• A company’s power to make, vary or ratify or discharge a contract may be
exercised by an individual acting with the company’s express or implied
authority and on behalf of the company. The power may be exercised
without using a common seal.
• Apparent authority is the authority the agent would reasonably be
expected to have in the circumstances given the holding
out/representation to the third party by the company. (E.g. Freeman v
Buckhurst (CACL 15.290)) – see also s.129(3)

Liability for acts of agents

• Statutory Assumptions – Entitlement to make s.128

• Persons dealing with the company are entitled to make the assumptions
outlined in s 129: s 128.
• Transactions will be binding on the company
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 • This is essentially the equivalent of the common law’s apparent
authority.
• These assumptions can be made even if the director, officer or agent had
acted fraudulently or had forged a document in connection with the
dealing: s 128(3) (e.g. Panorama (17.220)
• UNLESS third party knows or subjectively suspects that the particular
assumptions are not correct: s 128(4) – lose the right to rely on s 129
assumptions
• Law protects innocent 3rd parties dealing with the company
• Section 129 lists the assumptions that persons dealing with the company
are entitled to make.
• The effect of these provisions: a third party acting in good faith can
presume that the person with whom they are dealing has authority to
bind the company and all procedures and documents are in order.

Duties of directors and other officers

Who is an officer?

• s.9 – definition of “officers” includes “directors”, “secretary” and more

generally a person who participates in or makes decisions that can have a
substantial effect on the business

• Duty of care, skill and diligence – common law and s.180(1)

– Directors, including non-executive directors, and other officers must
exercise the degree of care and diligence that a reasonable person
would exercise if they were a director/officer in the circumstances and
were in the position of the director/officer (same responsibilities)
– Objective standard of care
– Circumstances at the time – without benefit of hindsight: ASIC v
Mariner (17.400)
– Must safeguard the corporate assets

• What needs to be done to satisfy the duty? (ie. meet the required
standard of care) – at a minimum:
– be familiar with fundamentals of business
– keep informed of activities and make inquiries
– monitor affairs and policies

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 – keep informed of financial status of company – review financial reports
on a regular basis, read and understand the reports
• cannot avoid liability by claiming do not know how to read financial
statements
– Attend board meetings
– Think beyond financial consequences – consider:
– Reputational harm
– Consequences of non-compliance with the law
– Corporate culture

Case: ASIC V Healey

Facts: Significant mistake in the financial accounts -balance sheet did
not disclose a liability of approximately $4.4 billion
Held: Duty of care and diligence breached

Case: ASIC v Cassimatis

Facts: Vulnerable elderly clients with little income and few assets
targeted.
Held: By allowing/ not preventing the inappropriate advice, the
directors breached their duty of care.

Defence – Business Judgement Rule

• Section 180(2) - business judgment rule - defense

• Provides a defense for what otherwise may be a breach of s 180(1).
• Directors and other officers will have acted with due care and diligence if,
in making a business judgment, ALL of the following factors are satisfied:
– s 180(2)(a) – Decision made in good faith for a proper purpose; AND
– s 180(2)(b) – Director does not have a material personal interest in
the subject matter; AND
– s 180(2)(c) – They inform themselves about the subject matter; AND
– s 180(2)(d) – They rationally believe that the decision is in the best
interests of the corporation
• There has to be a business judgment.
• Definition: s 180(3) “any decision to take or not to take action in respect
of a matter relevant to the business operations of the corporation”.
• This seems to predicate an actual decision, not mere inactivity.
• “Safe harbor” for honest and informed decisions that ultimately end up
bad for the company. Business environment is uncertain and difficult to
predict and carries risks.

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 • How is “rational belief” under s.180(2)(d) assessed?
• Assess objectively = would a reasonable person hold that belief?
• cannot be reckless and decision must be justifiable
• look at what director knew or ought to have known at the time – not with
the benefit of hindsight (ASIC v Mariner 17.400)

Case: ASIC V Rich

• When assessing “reasonableness” of belief look for:

– Importance of business judgment
– Time and cost of obtaining information
– Availability of information
– Overall confidence
– State of company

Case: ASIC V Adler

Held: Adler had a material personal interest in violation of s.180(2)(b)

Duty to act in good faith and for a proper purpose

• Directors have duties to act in good faith in the best interests of the
company and to exercise their powers for proper purposes: s181 (and
common law):
– Good faith: act honestly in the best interests of the corporation as a
whole.
– Proper purpose: for the benefit of the corporation and not for any
extraneous purpose or to obtain an advantage for themselves or
someone else.
– E.g. issuing shares to thwart a takeover = improper purpose

§ ASIC v Adler (CACL 17.420) - loan was not in good faith, it was not in the
best interests of HIHC, and it was for an improper purpose – it was for the
personal benefit of Adler and his associated entities (loan used to invest
in his other company, increase the share price of HIH (of which he was a
shareholder) and to benefit other entities associated with Adler)
§ Whitehouse v Carlton (CACL 17.410) – shares issued to sons to dilute the
voting control of ex-wife and entrench own position. Motivated by
improper purpose. (Proper purpose of issuing shares is to raise capital.)

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Duty to not misuse position

• Duty not to misuse position – s.182 (and common law duty to avoid
conflicts of interest)
• Duty not to improperly use position to:
• gain an advantage for themselves or someone else; OR
• cause detriment to the company
• This duty applies to directors, secretaries, other officers and employees
• ASIC v Adler
• Cummings v Claremont (CACL 17.450)
– Directors voted to give themselves fancy cars and huge severance
packages
– Breach of s.182 misuse of position, as well as breach of s.181, and
fiduciary duties
– Directors put themselves in a position where their personal interests
conflicted with the interest of the company they served.
• Duty not to misuse information – s.183 (and common law duty to avoid
conflicts of interest)
– Duty not to improperly use information obtained by virtue of position
held in the company to:
– gain an advantage for themselves or someone else; OR
– cause detriment to the company
– This duty applies to directors, secretaries, other officers and
employees
– information found out in the course of carrying out the company’s
business
• ASIC v Adler (17.440) – found s.183 contravened at first instance – but
overturned on appeal (other breaches upheld on appeal)
• ASIC v Vizard (17.460)
– Vizard was a non-executive director of Telstra.
– As a director of Telstra, he received highly confidential information
about what investment decisions Telstra would be making (buying and
selling shares in other companies)
– Vizard established his own investment company and the transactions
it engaged in mirrored those of Telstra.
– This was improper use of information he obtained as a director of
Telstra for personal gain, breaching s183. There was also a breach of
s.182 (misuse of position).
– Vizard was fined $390,000 and disqualified from acting as a director
for 10 years

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Consequences of breach of civil duty

• Consequences for breach of ss 180 – 183

– Civil penalty orders up to $200,000 (for each breach – payable to
ASIC)
– Prohibition from managing companies in the future (for a specified
period)
– Orders to compensate the company
– May be enforced by company, members or ASIC
• Common law - equitable remedies:
– Termination of appointment contract
– Rescission of contract created with company in conflict of interest
– Damages to compensate the company for loss
– Orders to account for profits made in breach of duty
– Injunction if necessary
– Enforceable by company or members

Duties – Criminal offences

• Criminal offences relating to good faith, use of position and use of

information (CACL 17.470)
– Crime committed if recklessly or intentionally dishonestly:
§ Fail to exercise powers in good faith in the best interests of
the corporation and for proper purposes – s 184(1)
§ Misuse position – s 184(2)
§ Misuse information – s 184(3)
• R v Rodney Stephen Adler [2005] NSWSC 274 – criminal proceedings
• Criminal charge under s.184(1)
• (plus 3 other charges under other legislative provisions, including
obtaining $ by deception: Crimes Act)
- Court found ‘the offences are serious and display an appalling lack of
morality… Directors are not appointed to advance their own interests
but to manage for the benefit of shareholders to whom they owe
fiduciary duties … these were not stupid errors but deliberate lies.’
• Imprisoned for 3 years for s.184 offence (served concurrently with other
prison sentences for other crimes, totalling 4 years 6 months (non parole
for 2.5 years))

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Disclosure of interest by directors

• Disclosure of interests by directors: s 191 (CACL 17.490)

- Director with ‘material personal interest in a matter that relates to the
corporation must give other directors notice of that interest’: s 191(1).
• Notice must be given at a director’s meeting as soon as practicable after
the director becomes aware of the interest: s191(3).
• Contravention of this provision by a director is a strict liability offence, but
does not affect the validity of any act, transaction, agreement, instrument
or resolution: s191(4).
• A fine of up to $1,000 or a 3-month prison term may be imposed.
• Interrelated with directors’ duties to avoid a conflict of interest under
ss.181-183 and the common law.
• Voting in connection with the matter:
• Public company: Director of a public company who has a material
personal interest in a matter that is being considered at a director’s
meeting must not vote and must not be present while the matter is being
discussed: s 195(1) (unless an exemption applies).
• Proprietary company: director may participate in discussions, vote on a
matter and keep any benefits that arise, provided they have declared
their interest beforehand: s.194

Duty to protect insolvent training

• Director’s duty to prevent insolvent trading: s 588G

• Section 588G imposes a duty on the director to prevent insolvent trading
by the company.
- A director contravenes the section if, when the company incurs a debt
(e.g. buys something on credit, borrows money) there are reasonable
grounds for suspecting that the company is, or would become,
insolvent
- Director aware OR a reasonable person in a similar position in the
company’s circumstances would be aware that there are reasonable
grounds for suspecting insolvency
• Definition of insolvency: A company will be insolvent if it is unable to pay
its debts as and when they fall due: s.95A – focus is on the cash flow
position of the company

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 Duty to prevent insolvent trading – Defences

• At the time when the debt was incurred the director:

– s 588H(2): had reasonable grounds to expect (and the director did
expect) that the company was solvent and would remain solvent even
with the new debt(s);
– s 588H(3): had reasonable grounds to rely on information provided by
a competent and reliable person that the company was solvent;
– s 588H(4): s/he did not take part in management owing to illness or
other good reason (note mere ignorance of the company’s operations
is not a defense).
– s 588H(5): s/he took all reasonable steps to prevent the company from
incurring the debt (including appointment of an administrator:
s.588H(6)).
– Need only establish one defense to avoid liability.

Insolvent trading – Safe Harbour Defence

• There is a “safe harbor” for insolvent trading – S.588GA, where the

directors start developing one or more courses of action that are
reasonably likely to provide a better outcome for the company than an
immediate liquidation or administration.
• The safe harbor protects directors from insolvent trading liability arising
from debts incurred directly or indirectly in connection with any such
course of action (even if it does not succeed).
• Relevant factors:
– the director is properly informing himself/herself of the company’s
financial position; or
– advice has been obtained from a qualified entity; or
– there are company restructuring plans
• Does not apply if employee entitlements or tax requirements not met

Consequences of insolvent trading

• Personal liability for debts:

– Directors can be made personally liable for company’s debts if they
were incurred at a time the company was trading while insolvent
– Director may have to compensate the company (s.588J) or
liquidator may seek compensation for creditors (s.588M)
– Corporate veil is lifted/pierced.

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• Civil penalty imposed on the directors
• Disqualification of the directors
• Criminal offence: s 588G(3)
– Director can be charged if dishonesty involved

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 Week 12: Business Ethics and the law

• Ethics are moral principles that govern a person's behaviour or how an

activity is conducted.
• Provide guidance in making decisions about how to behave – informed
by personal values, and community values and standards.
• Can vary by individual, community, culture, country
• An ethical or moral choice is one that is recognised as “good” and
“right”.
• Unethical = morally wrong
• Acting ethically creates trust, and trust is essential for us to enjoy the
benefits of a community, including the benefits of business.
• Business ethics concerns the application of ethical concepts to business
– it is about how business is conducted and how it interacts with others.
• Examples of ethical conduct:
- Complying with the law
- Being fair
- Being honest
- Being respectful and considerate of others
- Not taking advantage of the vulnerable or disadvantaged
- Not abusing power

Laws vs Ethics

• A legal choice is one that complies with the law.

• Law and ethics are interconnected and often overlap but are not the
same.
• Complying with the law is generally regarded as ethical behaviour.
• Conduct that is ethical will usually satisfy the requirements of the law.
• BUT just because the law allows you to do something does not
automatically mean it is the ethical thing to do.
• Ethics may demand more than the law.
• The law may be seen as imposing minimum standards of conduct.
• The law does not always take into account the effect of actions on others
in a particular situation.
• In many situations you will need to ask not just whether a business
decision or activity is lawful, but also whether it is ethical.

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• Just because something is legal, does not necessarily make it ethical.
Case: James Hardie
Asbestos case

Types of ethical challenges a business might face – Tension between the

pursuit of profit and ethics

• Should making a profit be the only purpose?

• Should the pursuit of profits be at the expense of everything else?
• Recent example - Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry -
• Excessive focus on profit – “Maximum share of customer wallet” pursued
above all else, including customers and compliance with the law
• Employees across the board, from managers to front line employees had
performance measured and rewarded by reference to profit and sales.
• Profit can be rightly pursued – duties to shareholders require this.
• But the duty to pursue profit has a significant temporal dimension - focus
should be on the long-term advantage to the business rather than the
short-term gain.
• It is essential to preserve and enhance the reputation of the business,
obey the law, and engage in activities honestly and fairly.

Types of ethical challenges a business might face

• Unsafe product – can the business afford the cost of making a product
safe? Should the business disclose that a product is unsafe? (profit ahead
of customer safety)
• ACCC v Thermomix (13.410)
• James Hardie (asbestos – continued use and failure to warn and withdraw
product)
• Cigarettes
• False product claims - ethics of marketing (profit ahead of honesty)
ACCC v Reckitt (Nurofen) (13.22)
ACCC v Heinz (13.440)
• Exploiting vulnerable or disadvantaged customers – ASIC v Cassimatis
(17.360)
• Loopholes – can the business resist not taking advantage of an
unintended loophole in the law or in a contract?
• Admitting negligence
• Admitting true financial position of the company
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 • Misuse of market power

Corporate Social Responsibility

• Enterprises have a degree of responsibility not only for the economic

consequences of their activities, but also for the social and environmental
implications.
• Legal requirements are a minimum not maximum level of corporate
responsibility
• Strive to observe a higher level of behaviour – “good corporate citizen”

Stake holders

• Stakeholders are those who stand to gain or lose by the activities and
policies of an organisation.

Shareholders v other stakeholders

• Shareholders are always stakeholders in a corporation,

but stakeholders are not always shareholders.
• A shareholder owns part of a company through shares, while
a stakeholder has an interest in the performance of a company for
reasons other than share performance or appreciation.

Stakeholder theory

• Stakeholder Theory stresses the interconnected relationships between a

business and its customers, suppliers, employees, investors,
communities and others who have a stake in the organisation. The
theory argues that a business should create value for all stakeholders,
not just shareholders.

Broader consequences of unethical conduct

• How is an unethical business organisation “punished” (other than legal

sanctions)?
• If customers and the community become aware of unethical conduct by
a particular organisation or within a particular industry, may withhold
their custom and support for that organisation or industry. Loss of
profits as a result.

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 • Adverse media publicity – news reports and social media – damage to
reputation and goodwill of the business.
• May not attract high quality employees.
• Investors may not invest.

Benefits of acting ethically

• Long term ethical business methods are more profitable than unethical
methods.
• Enhanced business reputation.
• Happier, more motivated employees who are more productive.
• Attract more investors.
• Benefits to society more broadly.
• The longer the time horizon considered, the more likely it is the interests
of shareholders, customers, employees and the company’s other
stakeholders will converge rather than conflict (as opposed to short
term focus on immediate profit).
• You are a future business leader – strive to act ethically and lawfully!

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