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LAWS5136 Commercial Law Semester 2, 2009 Mid-Semester Exam Notes

Angus OBrien

DRAFTING AND CONSTRUING COMMERCIAL AGREEMENTS ........................................................ 3 AGENCY ........................................................................................................................................................ 8 SALE OF GOODS........................................................................................................................................ 21 BAILMENT .................................................................................................................................................. 45

DRAFTING AND CONSTRUING COMMERCIAL AGREEMENTS This topic concerns: 1. Drafting commercial agreements; and 2. Construing commercial agreements. 1. Drafting Commercial Agreements The basic elements of all commercial agreement drafting are as follows. First, the agreement must have a title. When it is doubtful whether the agreement is a lease, loan agreement, trust deed or other document, it may be titled Agreement. Secondly, the agreement must have a date e.g. This Agreement is made the x day of y, 2009. Thirdly, the agreement must outline the parties. This should include the parties full names, addresses and, if applicable, ACN. An abbreviation should also be assigned to each party. This may reflect the nature of the agreement (e.g. licensee, franchisor), although if the nature of the agreement is unclear the abbreviation may be a shortened name or acronym. Fourthly, the agreement should outline the recitals. These are facts which everyone knows, agrees, and which are pre-cursors for the agreement. The final recital will usually state that the parties wish to record their agreement as to x as follows. Fifthly, the agreements operative clauses must be set out. These are the terms of the agreement. Importantly, the sentences should be short. It is better to use multiple clauses than subordinate clauses. Finally, there must be provision for execution and attestation. 2. Construing Commercial Agreements (a) Is there an issue of construction? Construction is the process of determining the meaning and effect of the words in the written document. It is the commercial equivalent of statutory interpretation. Indeed, Kirby J has argued extra-judicially for a synthesis of statutory and commercial construction: see SLR 24(2). Construction does not concern whether there is a binding contract. Extrinsic evidence of negotiations between the parties and their subsequent conduct can be admitted for this purpose: ABC v XIVth Games (1998) 18 NSWLR 540; Anaconda Nickel v Tarmoola Aust [2000] WAR 101. Construction also does not concern the identification of the terms of any contract. It therefore is separate from the parole evidence rule or rules concerning the implication of terms: see Codelfa (1982) 149 CLR 337.

(b) How is that issue to be resolved? The law concerning the construction of contracts has recently given rise to a great deal of controversy. That controversy has been primarily concerned with whether a plain meaning or commercial construction approach should be adopted. (i) The traditional view Traditionally, the primary duty of the court in construing an agreement is to discover the intention of the parties from the words of the instrument. In ascertaining the intention, it is permissible to look at the document as a whole and to interpret specific words in that context. However, it is not permissible to consider extrinsic evidence of the factual background or surrounding circumstances of the agreement unless the language of the contract is ambiguous, that is, susceptible of more than one meaning: Codelfa per Mason J; ABC v Australasian Performing Right Association (1973) 129 CLR 99 per Gibbs J. The only exceptions were where: 1. The language had a proven special technical meaning, trade usage or custom; or 2. Application of the plain meaning would lead to manifest absurdity or inconvenience. (ii) Developments in England However, there has recently been a move towards a more contextual or commercial method of construction. This started with two judgments of Lord Wilberforce in the 70s: see Prenn v Simmonds [1971] 1 WLR 1361; Reardon Smith v Yngvar Hansen-Tangen [1976] 1 WLR 989, but the principle has been developed and entrenched particularly by Lord Hoffman: see Mannai Investments [1997] AC 749; ICS v West Bromwich [1998] 1 WLR 896. According to Lord Hoffmans 5 principles, the task of the court is to ascertain the meaning that the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties. Lord Hoffmans approach distinguishes between the meanings of words, and what would be understood as the meaning of a person who uses words. The basis for Lord Hoffmans reformulation is therefore that people may use the wrong words or syntax yet at the same time succeed in communicating their meaning. Consequently, the background or matrix of facts surrounding the agreement is always admissible as an aid to interpretation. It does not merely enable the court to choose between the possible meanings of words that are ambiguous. It may enable the court to override a plain meaning if it considers the parties to have simply used the wrong words or syntax. The relevant background includes anything which would have affected the way in which the language of the document would have been understood by a reasonable person. However, it does not include the previous negotiations of the parties or declarations of their subjective intent; the test is therefore still objective.
Mannai Investments [1997] AC 749 Facts: A lease contained a break clause which gave the tenant, at a specified time, a right to determine the lease.


The tenant was entitled to determine the lease on its third anniversary i.e. 13 January 1995. However, the notice wrongly named the date upon which the tenant proposed to do so as 12 January 1995. The notice was construed to mean 13, not 12, and was therefore valid. A reasonable recipient with of the terms of the lease and of the 3 rd anniversary date would have been left in no doubt that the tenant wished to determine the lease on 13 January 1995, notwithstanding that the lease wrongly described the determination date as 12 January 1995.

(iii) Consideration in Australia Opinion is divided on the status of the reception of Lord Hoffmans reformulation in Australia. On one hand, Douglas (2009) ABR assumes that the shift from a strict construction of contracts to a more purposive construction is now an accepted development, there having been a number of recent decisions (including of the High Court) which have seemed to apply the commercial approach: see Royal Botanic Gardens v South Sydney CC (2002) 76 ALR 436; Ray Brooks v NSW Grains Board [2002] NSWSC 1049 (Palmer J); Pacific Carriers v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) v Alphapharm (2004) 219 CLR 165; Lion Nathan v Coopers (2005) 223 ALR 560 (Finn J), affirmed on appeal in (2006) 236 ALR 561. On the other, McLauchlan (2009) JCL argues that the post-ICS case law is characterised by mixed messages. Whilst McLauchlan recognises the decisions to which Douglas refers, he also points to certain decisions which continue to evidence reluctance to extricate themselves from the ingrained principles of Codelfa: see, e.g., Kooee Communications v Primus [2008] NSWCA 5. McLauchlan therefore suggests that Codelfa is better characterised as superseded, rather than overruled, and may therefore continue to influence construction doctrine in Australia. This is also the characterisation used by Spigelman CJ, writing extrajudicially (2007 ALJ). In the authors opinion, McLauchlan and Spigelman CJs view is to be preferred. Although the balance of authority prefers the commercial approach to construction, its application cannot be taken for granted.
Royal Botanic Gardens v South Sydney City Council (2002) 186 ALR 289 Facts: There was a 50yr lease between two public authorities, the RBG (as lessor) and SSCC (as lessee). The demise was in respect of a strata of land to allow the construction and operation by the lessee of a large underground parking station. The lease provided that the rent for the first three years of the lease would be $2000 per annum. Thereafter, the rent was to be determined in respect of each three year period as provided for in clause 4(b). Clause 4(b) conferred power upon the lessor to fix rent for the remaining period of the lease (i.e. other than the first 3yrs). In particular, clause 4(b)(iv) provided that the lessor, in setting the price, may have regard to additional costs and expenses which [the lessor] may incur in maintaining the land. The lessor sought to impose a commercial rent, which the lessee disputed. The lessee argued that the words may have regard should be read as may and may only have regard i.e. the power to increase the rent payable was simply to cover the cost of maintaining the land. The lessor argued that may have regard was permissive and did not confine the lessor in fixing the rent to have regard to other factors. To bolster its arguments, the lessee sought to rely on the lengthy negotiations for the lease which made it relatively clear that the parties did not intend that the lessor would be able to charge commercial rent for the land.

The lessor challenged the lessees attempt to rely on this extrinsic evidence. Held: External evidence admissible. Reasoning of majority: There was an ambiguity in the failure to specify expressly whether or not the lessor was limited to take into account the costs and expenses of the kind referred to in clause 4(b)(iv). Therefore, on Codelfa principles, evidence of the negotiations was admissible. In particular, the following factors are in the lessees favour: o The parties to the transaction were two public authorities; o The primary purpose of the transaction was to provide a public facility, not a profit; o The lessee was responsible for the substantial cost of construction of the facility; o The facility was to be constructed under the lessors land and would not interfere with the continues public enjoyment of the land for its primary object, recreation; o The parties concern was to protect the lessor from financial disadvantage from the transaction; and o The only financial disadvantage to the lessor which the parties identified related to the additional expense which it might incur immediately or in the future. NOTE: Carter argued that the lease was not ambiguous, but was clearly in the lessors favour. He argues that the ambiguity was a fiction designed to legitimise the reception of evidence of the surrounding circumstances. Reasoning of Kirby J: Like Carter, Kirby J thought that the clause was clearly in the lessors favour. However, his Honour did not require an ambiguity before admitting extrinsic evidence. He therefore joined in the orders of the majority. Pacific Carriers v BNP Paribas (2004) 218 CLR 451 Facts: This case concerned the construction of two letters of indemnity signed by BNP that were sent to Pacific. Pacific claimed, pursuant to those letters, to be entitled to be indemnified by BNP in respect of the losses it suffered by reason of delivering the cargo in question. NEAT, an Australian company, sold a quantity of legumes to Royal, an Indian grain trader operating out of Calcutta. The legumes were to be transported from Australia to Calcutta. NEATs banker was BNP while Royals banker was SSOE. Pacific was the time charterer of the MV Nelson, the vessel on which the cargo was to be carried from Australia to Calcutta. On 28 January 1999, NEAT faxed Pacific a letter of indemnity. In the letter: o We, NEAT requested delivery of the Cargo; o We agreed to indemnify Pacific; and o The letter was signed by both NEAT and BNP. The venture was a disaster as the food went off. Claims made by SSOE against Pacific went to arbitration and settled on the basis that Pacific paid substantial damages. Pacific then sued NEAT and BNP pursuant to the letters of indemnity to recover its losses. As BNP was not part of We in the clause regarding indemnification, it was unclear whether BNP, by nonetheless signing the agreement, agreed to join in the indemnity. Held: BNP had agreed in the indemnity. Construction required consideration, not only of the text of the documents, but also the surrounding circumstances and the purpose and object of the transaction. Typically, a letter of indemnity is used in the absence of a bill of lading and is backed by a bank. A reasonable reader in the position of Pacific would have understood the document as a bank endorsed absent bills of lading indemnity, and would have understood that the bank was undertaking liability as an indemnifying party to support the liability undertaken by NEAT.

(iv) But note Even on Lord Hoffmans approach, evidence of the following remains inadmissible: 1. The parties subjective intentions (that is, background material is admissible only for the purpose of ascertaining the parties objective intentions); 2. Conduct subsequent to the execution of the contract: Gardiner (2008) 251 ALR 322 (HC); and 3. Contractual negotiations. However, it is noted that some authority has permitted evidence of deleted words or clauses for construction purposes: Gonigan v Direct Engineering (No. 2) [2008] WASCA 112, although the preferred view is probably that, if at all permissible, such evidence is admissible only to negative the existence of a suggested implied term: Telstra Corp v Australis Media Holdings (1997) per McLelland CJ. However, such evidence is admissible in courts of equity, for example if rectification or equitable estoppel is pleaded: B & B Constructions (1994) 35 NSWLR 227 (rectification).

AGENCY Agency is the relationship existing between two parties whereby one (the agent) is authorised by the other (the principal) to do, on the principals behalf, certain acts which affect the principals rights and duties in relation to third parties. Agency overlaps with two other relationships which, though similar, are mutually exclusive: 1. Employer-employee persons employed on such terms that they are subject to control regarding the manner in which their work is to be carried out (i.e. a contract of service). 2. Independent contractor and person with whom contracts persons who exercise their own discretion as to the manner in which they carry out the work (i.e. a contract for services). Not all employees or independent contractors are agents for their employers. To be an agent, the act must be within the scope of the employment/contract e.g. a shop assistant is an agent for the purpose of a sale contract, but a domestic servant is not. Trustees are not agents. In acting on behalf of the beneficiary, the trustee acts as principal and does not bring the beneficiaries of the trust into contractual relationships with third parties. 1. Who is the Dispute Between? See facts. A dispute will be between: 1. P/A and a TP; and/or 2. P and A. 2. If P/A and a TP The next step is to identify the nature of the potential liability, namely whether it is: 1. On the contract; 2. For misrepresentation; or 3. For a wrong. (a) If on the contract It is necessary to separately consider the liability of: 1. P; and 2. A. (i) Liability of P The question is: was A the agent of P for the purpose of the particular identified act?: Traves. This reduces to 2 Q's: 1. Was there an agency relationship? 2. If so, was the act within the scope of the agency? 8

(a) Was there an agency relationship? The relationship of principal and agent may be created by: 1. Express agreement; 2. Holding out or estoppel; 3. Ratification; 4. Necessity; and 5. Cohabitation. These are not mutually exclusive; a contract of agency may be partly written and partly verbal, or partly express and partly implied. (i) Express agreement Agencies may be created expressly by: 1. Deed necessary where the agent is required to execute any instrument under seal on behalf of their principal, in which case the document creating the power is termed a power of attorney. 2. Writing this is common. It may be required e.g. under the Property Agents and Motor Dealers Act 2001 (Qld). 3. Word of mouth a verbal offer followed by acceptance in writing or verbally is sufficient to conclude a contact of agency for most purposes at common law. The use of the word agency or agent does not of itself create an agency at law (though it may indicate one): International Harvester Co (1958) 100 CLR 644. (ii) Holding out/estoppel Where a person, by words or conduct, leads a TP to believe that another is his agent, the person will not be allowed to deny the authority of that other to act as his agent, where the third person has entered into an agreement with the other on the fact of the representation: Freeman & Lockyer [1964] 2 QB 480. This is a question of fact to be decided upon the circumstances of each particular case: Crabtree-Vickers (1975) 133 CLR 72; Derham v Amev (1981) 56 FLR 34.
In Freeman & Lockyer [1964] 1 All ER 630, K, a company director, contracted a firm of architects to assist with property development. No board resolution was passed. Nonetheless, it was held that the board had held K out as managing director (although not appointed as such, as the constitution would have allowed). The other three directors were, first, H, who was overseas at all relevant times, and two others who were nominees of K and H and who played no practical role in running the company.

(iii) Ratification Where one person acts on behalf of another without authority, the person on whose behalf the act is done may render the act as valid and effectual as if it had been done by their duly authorised agent. Ratification may be by silence or inaction: Klement v Pencoal [2000] QCA 152 (3yr delay by principal in informing other party that agents authority to sign transfers of land was 9

withdrawn). NOTE: in such cases, there will also probably be agency by estoppel (as in Klement). Ratification may occur whether the agent exceeded his/her authority or had no authority at all: Firth v Staines [1897] 2 QB 70. NOTE that for the ratification to be effective, the following principles apply: The acts must have been done for and on behalf of the supposed principal: Howard Smith v Varawa (1907) 5 CLR 68. The effect of this is that an undisclosed principal cannot ratify a contract made by his or her agent in excess of authority. The ratification may only be by a principal who was in existence at the time of the making of the contract: Kelner v Baxter (1886) LR 2 CP 174. But see s 131 CA below re companies. The principal must have the capacity to make the contract both at the date of the contract and at the date of ratification. Ratification must be of the whole contract; a principal cannot ratify that which is beneficial and reject the remainder: Cox v Mosman [1909] QSR 45. Ratification must be with the full knowledge of what has been done: Marsh v Joseph [1897] 1 Ch 213 (rogue concealed fraudulent nature of transactions from principal). Ratification must be within a reasonable time. The signature must not have been forged (ratification does not make good a forgery). The original contract must not have been void.

(iv) Necessity Per Swaffield (1874) LR 9 Exch 132 (agent put horse in stable overnight to protect); Munro v Willmott [1949] 1 KB 295, an agency relationship may be created where: 1. A person is entrusted with property; 2. Urgent action is objectively required to protect it; 3. It is impossible or very difficult to communicate with the owner; and 4. The person takes bona fide action in interests of principal by necessity.
In Swaffield (1874) LR 9 Exch 132, an agent put a horse in a stable overnight to protect it. The owner of the horse was liable to pay the stable fees, not the agent. In Munro v Willmott [1949] 1 KB 295, an inconveniently parked car was not sufficient to create an agency to dispose of it. The test of necessity is objective.

(v) Cohabitation There is a common law presumption of authority to pledge credit for domestic necessaries as between husband and wife, whether de facto or de jure. 10

This can be rebutted by: express warning to third parties; express limitation to wife; and provision of sufficient allowance: Debenham v Mellon (1880) 5 QBD 394. This has been abolished by statute in NSW, SA, the ACT and NT e.g. Married Persons (Equality of Status) Act 1996 (NSW) s7. It is unlikely a court would enforce it in Qld. (vi) Termination Obviously, the agency must also not have been terminated, which occurs in the following circumstances: 1. Performance or completion of agency; 2. Impossibility of performance; 3. Agreement; 4. Revocation/renunciation a term that the principal or agent may revoke the relationship at any time is implied into an agency agreement. This does not affect any rights or liabilities created between the principal and third party prior to the agreement. The agent may have to compensate the principle for any loss occasioned by the renunciation. 5. Death the death (or liquidation) of either principal or agent immediately puts an end to the agency: Noonan v Martin (1987) 10 NSWLR 402. If the principal dies but the agent continues to act, the agent becomes personally liable, including for breach of warranty of authority, regardless of whether the agent knew of the death. 6. Insanity the contract of agency is immediately terminated once insanity has overtaken either principal or agent: Yonge v Toynbee [1910] 1 KB 215. However, a third party can treat the authority of the agent as subsisting until they receive notice of the insanity. 7. Bankruptcy. a. Of the agent determines their authority, unless bankruptcy does not affect their capacity to contract. b. Of the principal determines the relationship, although the agent may do some acts necessary to complete a transaction that was already binding. (b)If so, was the act within the scope of the agency? The authority of an agent may be: 1. Actual; or 2. Apparent/ostensible.
NOTE: there is a significant potential for overlap between actual and apparent authority, particularly where actual authority is implied. One significant difference is that an agent may have actual authority even where the third party does not know of the agency i.e. where there is an undisclosed principal. In contrast, undisclosed principal issues cannot arise where authority is ostensible, as the third party must establish a holding out on the party of the principal. NOTE: a general classification of agents is as follows: 1. Special agents appointed for the performance of some special act or purpose (e.g. to procure a truck for towing); 2. General agents have authority to act for the principal in all matters or in all matters concerning a particular trade or business; and 3. Universal agents authority is unlimited to do such things which the principal may do through the


instrumentality of another (e.g. power of attorney). An agent cannot have greater powers conferred upon them than the principal possesses; and, if the principal is under some legal disability (e.g. capacity), the powers of the agent are equally limited.

(i) Actual authority An actual authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is ascertainable by applying the ordinary principles of construction of contracts: Freeman & Lockyer per Diplock LJ. The actual authority of an agent can be: 1. Express the express authority of an agent is the authority the principal has expressly given the agent in words or writing (usually in the agreement which gives rise to the agency relationship); or 2. Implied. a. An agent has further implied authority to do whatever: i. is necessarily incidental to carrying out the principals express instructions i.e. to give the agency business efficacy: ANZ v Ateliers [1967] 1 AC 86; Showa Shoji v Oceanic Life (1994) 34 NSWLR 548; and ii. that particular type of agent (if any) usually has authority to do: HelyHutchinson v Brayhead [1968] 1 QB 549 (MD has implied authority to do all such things as usually fall within the scope of that office). b. Actual implied authority in an agent to enter into a particular transaction cannot exist where there are express instructions from P to A to the contrary: Fray v Voules. (ii) Ostensible authority A principal who represents either by words or conduct that an agent has authority to contract on the principals behalf is bound by those acts of the agent which fall within that represented authority: Hely-Hutchinson; Freeman & Lockyer; Crabtree-Vickers; Pacific Carries v BNP Paribas (2004) 218 CLR 451. It is essential to closely analyse the facts, and in particular the principals conduct, to determine the precise extent of As ostensible authority: Derham v AMEV (1981) 56 FLR 34. Per Freeman & Lockyer, there are 3 elements: 1. A holding out; 2. By someone with actual authority; and 3. Reliance. If these are made out, it is immaterial that there had been an express limitation of authority to the contrary: First Energy (UK) [1993] 2 Lloyds Rep 194; Freeman & Lockyer. Ostensible authority may exceed actual authority: Hely-Hutchison. (A) Holding out? The holding out may be by either a specific representation or a representation by conduct. 12

In the latter case, the agent will have ostensible authority to deal with third parties in a manner consistent with the functions and duties normally falling within the usual authority of the holder of such a position: Freeman & Lockyer (MD); Panorama Dev. v Fidelis Furnishing [1971] 2 QB 711 (company secretary); Pacific Carriers v BNP Paribas (2004) 218 CLR 451 (officer equipped with certain title, status and facilities and holding out arising from allowing him to act in a certain manner (i.e. sign documents)); see also ss 128, 129(3) CA.
USUAL AUTHORITY IN COMPANIES Managing directors A managing director has usual authority to deal with everyday matters and supervise the daily running of the company: Entwells (1991) 6 WAR 68; Re Tummon Inv. (1993) 11 ACSR 637; Green v Meltzer (1993) MCLR 289. Examples: Large scale borrowing for capital purpose outside usual authority: Green (1993) MCLR 289 ($9m outside authority, but $100,000 within authority); Can provide security over the companys assets, but cannot raise finance on the companys behalf; Can instruct solicitors to conduct litigation re trading disputes, but not re internal disputes; An issue of almost 10% of capital and payment of substantial sums in the purchase of business outside authority: Camelot Resources v MacDonald (1994) ACSR 437. A managing director may also have powers delegated under ss 198C, 201J. A managing director, acting as an agent, also has authority to appoint further agents: see Crabtree-Vickers (1975) 33 CLR 72. Individual directors An individual director has no usual authority to bind the company: Northside Developments (1990) 170 CLR at 205. Individual directors must have either express actual authority, or be made a governing director, thereby becoming an organ of the company. Likewise the chairperson: see Parry (1990) 2 ACSR 15. Company secretary The company secretary keeps records and ensures the company performs statutory functions: s188. Although originally perceived as mere clerks, a company secretary may now enter contracts on behalf of the company to deal with administrative matters: Panorama Dev. Fidelis Furnishing (1971) 2 QB 711 (hire vehicles); Donato v Legion Cabs (1966) 2 NSWR 583. Non-executive managers The authority of managers below board level will depend on their particular position: see eg AWA Ltd v Daniels (1992) 7 ACSR 759 per Rogers CJ (dealing with usual authority of money market managers and foreign exchange dealers). USUAL AUTHORITY OF SOLICITORS The usual authority of solicitors includes entering a compromise, even where the solicitors actual authority to compromise has been withdrawn: Waugh v HB Clifford [1982] 1 Ch 374; Donellan v Watson (1990) 21 NSWR 335, or the solicitor mistakenly exceeds the clients instructions: Buseka v Sergio (1990) 102 FLR 157. However, the solicitor may be liable in negligence. Solicitors should therefore be careful to use the phrase subject to instructions.

(B) By someone with actual authority? The representation must be made by someone with actual authority to make it: CrabtreeVickers. It cannot be by the agent himself: Armagas v Mundogas [1986] AC 717.
Crabtree-Vickers (1975) 33 CLR 72 Facts: The dispute concerned whether an order placed for a printing machine (and related equipment) by the company was binding on it. The company was a closely-held family company. Its four directors were Bruce McWilliam Snr, Bruce McWilliams Jnr and their respective wives. Bruce Snr was the chairman and although no longer a full-time executive director remained fully



involved in management decisions. Indeed, the court said that he might properly be described as a governing director. Bruce Jnr was the companys managing director. Also involved was Peter, Bruces brother. Peter had been a director but resigned when he became bankrupt, although he continued to be employed by the company for sales and technical matters. At the trial it was held that, in an unusual arrangement, full management powers had been either reserved to the board as a whole or at least to the three men. Thus, despite the fact that Bruce Jnr had been appointed managing director, his authority had been restricted. The three men were considering buying a printing machine for the company. Peter was asked to get information and quotes, but was not authorised to purchase the machine. Despite this, he in fact proceeded to place an order for a machine and related equipment. He had obtained a blank company order form from Bruce Jnr. The form had, at the bottom, Bruce Jnrs printed name, followed by the word per and a line for a signature. Peter signed his name after the word per. Bruce Snr knew nothing of these arrangements.

Peter had no actual authority to make the contract. The express agreement was for him to obtain information and quotations only. As to apparent authority, the HC adopted the principles in Freeman. Here, Peter had clearly held out as having authority to place the order. Bruce had also, by arming Peter with the order form. However, the problem was that the actual authority in this instance required the agreement of all three men. Bruce Snr knew nothing of the order form. The third party was accordingly unable to enforce the contract against the company. NOTE: this case causes disquiet as the company would have been liable if Bruce Jnr had authorised Peter to place the order. As managing director, Bruce Jnr had apparent authority to place the order, so authorising Peter would have been an exercise of his apparent authority. However, it was because he did not have the actual authority required to make a binding representation on behalf of the company that the company was not liable.

(C) Reliance? If the third party knows, or ought to know, that the agent does not have actual authority, there is no estoppel. If the third party has some reason to doubt the agents authority, it is put on inquiry and failure to make further inquiries will prevent it from enforcing the contract: Northside Developments (1990) 170 CLR 146. (ii) Liability of A The agents liability towards third parties depends upon whether the agent: 1. discloses the name of the principal; 2. discloses the existence of a principal, but not name; or 3. does not disclose the existence of any agency. (i) Agent discloses name of principal Where the agent discloses the name of the principal, the agent is not liable on the contract except where: 1. The agent contracts outside the scope of their authority, in which case the agent is liable in damages for breach of warranty of authority: Yonge v Toynbee [1910] 1 KB 215; 2. The agent agrees to be liable; 3. The agent contracts by deed in their own name; or


4. The principal is in fact non-existent: Kelner v Baxter (1866) LR 2 CP 174 (co. only in promotional stage) c.f. Black v Smallwood (1966) 117 CLR 52 (co. existed but became insolvent directors not liable). On the last point, if the principal is a company, the company can be bound by a preregistration contract entered by someone on behalf of the putative company if the company, once it is registered, ratifies the decision: s 131(1). If the company does not ratify the decision, the person purporting to enter the contract on the companys behalf is liable in damages: s 131(2), and has no right of indemnity from the company: s 132(2). Alternatively, the person purporting to enter the contract on behalf of the company can be released by the promisee signing a release: s 132. (ii) Existence but not name disclosed The same rules as where the agent discloses the name of the principal apply: Marsh & McLennan v Stanyers Transport [1994] 2 VR 232. (iii) Existence of principal not disclosed (the 'undisclosed principle') Where the agent permits the third party to believe he or she is entering into the contract on her or his own account and does not suggest he/she is merely an agent, the agent becomes personally liable on the contract: Cooper v Fisken (1912) 33 ALT 231. Inconsistently with principles of privity of contract, the undisclosed principal may also have rights or liabilities under the contract. Where the third party discovers the reality of the situation, the third party may elect to sue either the principal or agent, although the agent is not liable if in the meantime he/she has paid the principal: Armstrong v Stokes (1872) LR 7 QB 598. The third party is irrevocably bound by its election once judgment is entered (but not merely on the initiation of proceedings): Clarkson, Booker v Andjel [1964] 2 QB 775. The undisclosed principal or the agent can also sue on the contract unless it would be inconsistent with the terms of the contract for the principal to sue on the contract: Sin Yin Kwan v Eastern Insurance [1994] 2 AC 199; White v Baycorp Advantage (2006) 200 FLR 125. If the undisclosed principal sues the third party, the agent cannot continue any legal action they have commenced the principals rights prevail: Maynegrain v Compafina Bank [1982] 2 NSWLR 141 per Hope JA. However, the legal rights and obligations of the undisclosed principal only arise where the agent had actual authority from the principal to enter into the contract at the time of the transaction: Keighley, Maxsted & Co v Durant [1901] AC 240 (agent bought grain at price above that specified in authority). NOTE also that for the undisclosed principals rights and liabilities to arise: There must be evidence to show who is the principal: Humble v Hunter (1848) 12 QB 310: White v Baycorp [2006] NSWSC 441; The contract must not exclude the possibility of an undisclosed principal: Said v Butt [1920] 3 KB 497; The third party must elect to sue within a reasonable time; and 15

The agent must have contracted as agent i.e. have had an intention to contract on Ps behalf: Sin Yin Kwan.

(b) If for misrepresentation Where an agent is engaged to sell property, the principal is liable for representations made by the agent that are untrue in the course of selling that property: Aliotta v Broadmeadows Bus Service (1988) ATPR 40-873. Where the agent makes a negligent misrepresentation which was relied on by the purchaser, both the agent and principal are liable, the principal vicariously: Roots v Oentory [1983] 2 Qd R 745; Thompson v Henderson (1990) 58 SASR 548. Where an agents misrepresentation to a third party comprises information provided to the agent by their principal, the agent will be entitled to an indemnity from the principal in the event of the agent being liable to the third party. (c) If for a wrong An agent is generally liable for their tortious or fraudulent acts, but the principal is also liable where the agent has acted within the scope of their actual or apparent authority, whether the tort was committed for the benefit of the principal or agent: Royal Globe Life Assurance v Kovacevic (1979) 22 SASR 78. The principal is not liable for acts outside the agents authority: Deatons v Flew (1949) 79 CLR 370 (barmaid assaulted patron). Further, per Armagas v Mundogas [1986] 1 AC 717, the principal is not liable for fraud of an agent where: 1. The agent was not authorised to do the act; 2. The act was not within the class of acts an agent in their position is not usually authorised to do; and 3. The principal has done nothing to represent that the agent had authority to do the act. 3. If P and A See facts determine whether advising on: 1. Duties and liabilities of agents; or 2. Rights of agents. (a) Duties and liabilities of agents Every agent owes certain duties to their principal which vary in degree according to the nature of the agency or according to the express terms of the contract of agency. These include duties to: 1. Follow the principals instructions failure to comply with the principals instructions, except where they are illegal, will render the agent liable for the loss suffered by the principal as a result of the breach: Mitor Investments;


2. Act in person agents generally have no authority to delegate their duties as agents to another, although this rule has been relaxed in certain circumstances e.g.: a. A MD has authority to appoint further agents: see Crabtree-Vickers (1975) 33 CLR 72. b. Where the duties to be performed by the agent are purely ministerial, and do not involve the exercise of any discretion or skill on the part of the agent in person. c. Where from the nature of the transaction it is clear that the parties intended, or may be reasonably presumed to have known, that it might be necessary to act through a sub agent. d. Where unforeseen circumstances arise which necessitate the agent delegating. 3. Act in good faith as agents are fiduciaries to their principal, they must act in the interests of the principal and must not allow their own interests to conflict with those of the principal: Lintrose Nominees v King [1995] 1 VR 574 (agent retained by both vendor and purchaser of land => purchaser could rescind); 4. Make full disclosure of any personal interest see below; 5. Not to make a secret profit see below; 6. Exercise reasonable care and skill see below. Duty to make full disclosure of personal interests An agent must disclose to the principal all the material circumstances of which they are aware which might influence the principle in entering into any negotiation: Dargusch v Sherley Investments [1970] Qd R 338 (agent retained by both vendor and purchaser of land => not entitled to commission); Walden Properties v Beaver Properties [1973] 2 NSWLR 815 (profit accountable to principal). After termination of their employment, an agent may not use information acquired in the course of the agency in a manner prejudicial to the interests of the principal: Robb v Green [1895] 2 QB 315. Duty not to make a secret profit An agent must not use their position to make a gain for themselves without the knowledge and assent of the principal: Parker v McKenna (1874) 10 Ch App 96; Regal v Gulliver [1967] 2 AC 134; see also ss 183, 191 CA (for directors). Where an agent desires to act for both vendor and purchaser and to obtain commission from both, the agent must make full disclosure to each party or her or his intention to act for and receive payment from the other, and must obtain the assent of each party for so acting: Fullwood v Hurley [1928] 1 KB 498. This general principle can be rebutted by a special usage or custom which is 'notorious, certain and reasonable': Jones v Canavan [1972] 2 NSWLR 236 (sharebrokers entitled to marry certain selling and buying orders for shares without express reference to the respective clients).
Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134. Facts: The company owned a cinema. As part of the business, the company decided to set up a subsidiary which would take the lease of a number of cinemas. The parent company did not have sufficient capital to purchase the lease of all the cinemas in question.


To progress the transaction, the directors bought shares in the parent company. Eventually, all of these shares were sold to a third party, which therefore took control of the board of directors and removed it. It caused the company to sue the former directors for breach of fiduciary duty. Held: Breach of duty. The directors were liable to account once it is proved that (i) what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors; and (ii) that what they did resulted in a profit to themselves. (Lord MacMillan). However, this was not a meritorious claim as the 3rd party purchaser obtained a windfall when the directors had to refund some of the purchase price to the company. NOTE what the directors could have done was force the parent company to borrow to capitalize the subsidiary, and then the directors could have provided personal guarantees, and profited as shareholders. The HoL also emphasised that it had been open to the general meeting to ratify the breach of duty.

Duty to exercise reasonable care and skill An agent employed for remuneration must exercise such care, skills and diligence as is usual or necessary for the ordinary or proper conduct of the profession or business in which the agent is employed. Failure to do so will make the agent liable to the principal for the loss sustained by the latter: Veljkovic v Vrybergena [1985] VR 419 (insurance agent); Mitor Investments [1984] WAR 365 (insurance broker); Havas v Cornish [1985] Qd R 353 (real estate agent duty to tell vendor if purchaser avoids contract); ss 180, 181 CA (for directors).
In Mitor Investments [1984] WAR 365, an insurance broker was instructed by a client to obtain unqualified insurance cover against damage caused by storm and flood, but obtained insurance cover excluding flood caused by the sea. When the client suffered loss as a result of flooding by the sea in a cyclone, the insurance company was liable in negligence.

An agent acting gratuitously is not presumed to have any special knowledge or skill, but must still show such care and diligence in performing the undertaking as he/she would in conducting his/her own affairs. Further duties Per Weld-Blundell v Stephens [1920] AC 956, further duties include: 1. To keep all moneys and property of the principal separate from their own; 2. To keep separate accounts of their dealings on behalf of the principal and have such accounts ready for inspection; and 3. To preserve confidentiality in all matters coming to their knowledge whilst acting as agent. (b) Rights of agents Agents have rights to: 1. Remuneration; 2. Indemnity and reimbursement; and 3. A lien. (i) Right to remuneration Agents have a right to remuneration where: 1. As a matter of construction, the agency agreement provides for remuneration of the agent for the tasks performed by the agent (e.g. the parties coming together and/or entering a legally binding arrangement); and 18

2. The agent was the effective cause of the principal and third party coming together and/or entering a legally binding arrangement: LJ Hooker v WJ Adams Estate (1977) 138 CLR 52; Rasmussen & Russo v Gaviglio [1982] Qd R 571; Moneywood v Salamon Nominees (2000) 202 CLR 351.
LJ Hooker v WJ Adams Estate (1977) 138 CLR 52 Facts: The respondent company was the owner of a property in Sydney and engaged the appellant real estate agent to find a purchaser for it. The appellant introduced the property to Company A which made several unsuccessful offers to purchase it. Meanwhile, the respondent was negotiating for the sale of the property to Company B which the appellant had not introduced. On Companies A and B learning of each others interest in the property, they entered into a joint venture agreement for the purpose of avoiding the risk of forcing up the price by competing bids. The joint venture agreement provided that each company would continue to negotiate upon agreed terms and conditions with the respondent, and that upon one of the companies becoming the purchaser, that party would complete the purchase and carry out the redevelopment of the site with the other on an equal basis. The property was eventually sold by the respondent to Company B. The appellant then sued the respondent to recover commission. Held (3:2): The appellant estate agent was not entitled to recover any commission as it had not been an effective cause of the sale to Company B, nor of any sale of any interest in the property to Company A. The end result was the product of two separate transactions: o The sale to Company B; and o The JV between Company A and Company B. Rasmussen & Russo v Gaviglio [1982] Qd R 571 Facts: The vendor of land agreed to pay commission to a real estate agent, A, if you find a purchaser who enters into a valid and enforceable contract of sale confirmed by me/us for such property and who completes such sale. A introduced a purchaser who signed a contract for the purchase of the property subject to obtaining approval for bank finance by a certain date, otherwise the transaction would be void. The purchaser was unable to obtain bank finance by the date stipulated and, accordingly, the contract of sale was rescinded. Shortly afterwards, the purchaser signed another contract for the purchase of the property through a second hand real estate agent, B, who was able to arrange finance for the purchaser from a finance organisation which generally only did business through B. The first agent, A, claimed commission from the vendor. Held: A was not entitled to commission simply because of the purchasers completion of the contract of sale through B. There had been a break in the necessary causal connection between As actions (in introducing a purchaser who had signed a contract for the purchase of the property) and the actual sale which eventually took place through B. The sale could not have occurred had it not been for the engagement of F who had been able to arrange the necessary finance. Accordingly, A was not the effective cause of the sale and therefore was not entitled to the commission claimed. Interpreting this listing authority, it is not enough for the agent to introduce a purchaser who sometime afterwards entered into and completed a contract. What happened here was that Rasmussen & Russo introduced the buyer, but that contract ultimately fell over and was terminated. The buyer could not complete the purchase without finance. They only managed to obtain finance due to the efforts of Blacks. This was the only way in which they could obtain finance which would allow them to complete the contract. Therefore the effective cause of the sale was what Blacks did, and it rendered anything done by Rasmussen & Russo ineffective (McPherson J)


Construction real estate agents As to the first issue, in the case of real estate agents, prima facie, courts will be disposed to impute an intention to the parties that the commission is payable only in the event of an actual sale being completed: Midgley Estates v Hand [1952] 2 QB 432. It does not suffice that a contract was entered: RJ Mabarrack v King (1971) 1 SASR 313, unless the reason for non-completion is the vendors refusal to complete: Rapacioli [1974] QB 781. However, where the agency agreement provides for the payment of the agent for finding a purchaser, it is necessary and sufficient that the purchaser enters into a binding contract to purchase at the vendors price: Gerlach v Pearson [1950] VLR 321; Turnbull v Wightman (1945) 45 SR (NSW) 592. Statutory restrictions In Qld, letting agents, real estate agents, auctioneers, motor dealers and commercial agents cannot sue to enforce their commission unless the agents appointment is in writing and signed by the principal: ss 117, 140 PAMDA. The writing need not make specific reference to the transaction; it may be in respect of such transaction: Moneywood v Salamon Nominees (2001) 202 CLR 351. (ii) Right to indemnity and reimbursement Agents are entitled to be indemnified against all losses and liabilities sustained: 1. Lawfully; 2. Within the scope of his/her authority; and 3. Not negligently. (iii) Right of lien An agent has a particular lien on such property of the principal as comes into the agents hands for the due payment of all expenses and remuneration lawfully incurred by the agent in transacting the principals affairs.


SALE OF GOODS There are two distinct issues: 1. Whether there has been a breach of k; and/or 2. Who bears the loss where goods are lost or damaged. In each case, it will be necessary to assess remedies. It will also be necessary to determine, as a threshold issue, whether the SGA applies. 1. Does the SGA Apply? The Sale of Goods Act 1896 (Qld) applies to all contracts of sale of goods (whether between two companies, a company and consumer, or an individual and consumer). Per s 4(1), a contract of sale of goods involves: 1. A contract; 2. Of sale; 3. For the transfer of property; 4. In goods; 5. For money consideration. (a) Contract? The definition presupposes that the ordinary elements of a contract (e.g. offer and acceptance, consideration) must be present. Issues of capacity are regulated by the general law: s 5(1). There are no formal requirements for sale of good contracts; the contract may be oral, written, or partly written and partly oral: s 6(1). Note that the acceptance requirement can be satisfied when the buyer does any act which recognizes a pre-existing contract, for example the acceptance or receipt of goods, even if only partial: Deta Nominees v Viscount Plastics [1979] VR 167. This is broader than the usual common law conception of acceptance, which requires acceptance of an offer as is. (b) Of sale? Per ss 3(1), 4, a contract of sale includes both: 1. A sale one under which the property in the goods is transferred from the seller to the buyer: s 4(3); and 2. An agreement to sell one where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled: s 4(3) (e.g. hire-purchase agreement), which will necessarily be the case where the goods are unascertained: Jansz v GMB Imports [1979] VR 581. An agreement to sell becomes a sale when the time has elapsed or the conditions have been fulfilled subject to which the property in the goods is to be transferred: s 4(4).


(c) For the transfer of property? It has been said that where the main substance of the agreement is the skill and experience to be displayed by one of the parties in performance and the transfer of title to the materials used is only ancillary, the contract is for work and labor and the supply of materials: Robinson v Graves [1935] 1 KB 579 (k commissioning artist to paint portrait). However, it has also been said that the more satisfactory (and simple) test is whether the contract when carried out would result in the sale of a chattel; if so, the contract is for the sale of goods: Deta Nominees v Viscount Plastics [1979] VR 167. (d) In goods? The term goods includes all chattels personal other than things in action and money, and also includes emblements and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale: s 3(1). Examples: A contract for the removal of a house in its entirety from its original site to another location: Symes v Laurie [1985] 2 Qd R 547. An agreement for the sale of a computer system comprising three items of computer hardware and two items of software: Toby Constructions v Computer Bar Sales [1983] 2 NSWLR 48. Although note it was left undecided whether the sale of computer software is of itself a sale of goods. NOTE that the goods which form the subject-matter of a contract of sale may be: 1. Existing i.e. possessed by the seller at the time of the contract; 2. Future i.e. those to be manufactured or acquired by the seller after the making of the contract of sale: s 3(1); 3. Specific or unascertained (see below). (e) For money consideration? The SGA does not apply to gifts or the exchange of goods by barter. 2. Breaches of Contracts for the Sale of Goods Contracts for the sale of goods may be breached by: 1. Breach of the conditions and/or warranties implied into such contracts by the SGA; and/or 2. Failure to perform the contract in accordance with the SGA. (a) Implied conditions and warranties To ameliorate the sometimes harsh effects of the common laws caveat emptor approach, the SGA implies certain conditions and/or warranties into contracts for the sale of goods relating to: 1. Title (see also s 69 TPA); 2. Correspondence with description (see also s 70 TPA); 3. Merchantable quality (see also s 71 TPA); 22

4. Fitness for purpose; and 5. Sale by sample. These terms may be excluded by express or implied provision to the contrary: s 56. (i) Title In a contract of sale, there is an implied condition that the seller has a right to sell the goods and, in the case of an agreement to sell, that they will have a right to sell the goods at the time when the property is to pass: s 15(a). If the buyers title is avoided by reason of the fact that the seller had no title to the goods transferred, the buyer is entitled to a refund from the seller of any money paid to the seller for the goods, notwithstanding that the buyer may have had temporary use of them: Rowland v Divall [1923] 2 KB 500. However, where a seller who has no title to goods they purport to sell subsequently acquires a good title before the buyer rescinds the contract, the seller can hold the buyer to the contract: Patten v Thomas Motors [1965] NSWR 1457. Per s 15(b)-(c), the following warranties are also implied: 1. That the buyer will have and enjoy quiet possession of the goods. This amounts to an indemnity against the consequences of a defective title and of any disturbance which might result: Microbeads v Vinhurst Road Markings [1975] 1 All ER 529; and 2. That the goods are free from any charge or encumbrance in favor of any third party not declared or known to the buyer before or at the time when the contract is made.
Microbeads v Vinhurst Road Markings [1975] 1 All ER 529. Facts: P Co., between January and April 1970, sold three road marking machines to D Co. X Co. had applied for a patent for a similar machine in 1966; the specification was published in November 1970, and letters patent granted in February 1972. D Co. withheld payment for the machines. Held: P Co. were not in breach of their implied condition as to title under s.12(1), since they had a right to sell at the date when property passed. They would, however, be in breach of the implied warranty for quiet enjoyment under s.12(2) if the buyers' possession and enjoyment of the machines was disturbed at a date after the sale through publication of the patent specification

(ii) Correspondence with description When there is a contract for the sale of goods by description there is an implied condition that the goods shall correspond with the description: s 16. Goods are sold by description in all cases where the buyer has not seen the goods but is relying on the description alone: Varley v Whipp [1900] 1 QB 513. However, goods may also be sold by description where the buyer has seen and examined the goods provided the buyer bought them as corresponding to a description: Beale v Taylor [1967] 1 WLR 1193; Grant v Australian Knitting Mills [1936] AC 85. 23

Statements relating to the quality of goods, as distinct from their identity, do not form part of their contractual description: Ashington Piggeries v Christopher Hill [1972] AC 441 (contaminated mink food issue of quality). However, it can be difficult to distinguish between the two: Elder Smith v McBride [1976] 2 NSWLR 631 (breeding bull sterile issue of identity). Further, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods correspond with the sample if the goods do not also correspond with the description: s 16. (iii) Merchantable quality When goods are bought by description from a seller who deals in goods of that description (whether the seller is the manufacturer or not) there is an implied condition that the goods shall be of merchantable quality: s 17(c). (a) Bought by description? In this context, description means goods of that kind, not that there has been a sale by description in the sense used in other parts of the Act: Ashington Piggeries per Lord Wilberforce. Goods may be bought by description even where the buyer has seen and examined the goods, provided the buyer bought them as corresponding to a description: Grant v AKM, including over the counter: David Jones v Willis (1934) 52 CLR 110 (heel on shoes snapped => broken leg). However, if the buyer examines the goods before the contract is made, the condition is not implied as regards defects which such examination ought to have revealed: s 17(d); Thornett & Fehr v Beers [1919] 1 KB 486 (glue inspected even though barrels not opened). (b) Seller deals in goods of that description See facts. If it is a sale by description, this requirement would be satisfied. (c) Merchantable quality The goods must be commercially saleable under the description they were sold; that is, fit for a purpose for which goods of that description are normally used, having regard also to the price paid for the goods and the other circumstances of the sale: Australian Knitting Mills v Grant (itchy underpants); Henry Kendall v William [1969] 2 AC 31; David Jones v Willis. (iv) Fitness for purpose Per s 17(a), there is an implied condition that goods are reasonably fit for purpose where: 1. The buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the sellers skill or judgment; and 2. The goods are of a description which it is in the course of the sellers business to supply (whether the seller is the manufacturer or not). 24

There is also an exception for trade names in s 17(b). (a) Communication of intended purpose If the intended purpose is the ordinary or sole use of the goods, it is not necessary that the buyer makes known his/her particular intended purpose: Priest v Last [1903] 2 KB 148 (hot water bottle); Resell v Garden City Vinyl (1991) ATPR 41-152 (carpet); Frost v Aylesbury Dairy [1905] 1 KB 608 (milk); Grant v Australian Knitting Mills (underwear). Where the goods are not being acquired for their ordinary use, the buyer must bring home to the seller the particular purpose contemplated and that the buyer is relying on the seller: Griffiths v Peter Conway [1939] 1 All ER 685 (failure to disclose skin allergies). However, it is not necessary that there be any reference to such matters in the contract itself: Ashford Shire Council v Dependable Motors (1960) 104 CLR 139 (PC).
Ashford Shire Council v Dependable Motors (1960) 104 CLR 139 (PC) Facts: A shire council requested its engineer to inspect a tractor and see whether it was suitable for roadwork. The engineer went to the companys showroom where he introduced himself to the companys managing director as the Shire Engineer of the council and told him that he had been instructed to give a report on the tractor with a view to its purchase. After inspecting the tractor the engineer informed the MD that the tractor was required for roadwork and asked whether it could perform such work which he described. The engineer reported to the Shire Clerk that the tractor seems to have plenty of horsepower and was big enough to do the work; he did not however report what had passed between the MD and himself. The Shire President instructed the Shire Clerk to make the purchase, relying upon the report made by the engineer. Held: The engineer, having disclosed the proposed purpose for which the tractor was required, had acted on the skill and judgment of the MD of the company. In so far as the assurances of the managing director had induced the engineer's report to the shire clerk, which had in turn induced the purchase of the tractor, the council had in purchasing the tractor relied upon the company's skill and judgment. As the tractor was unsuitable for roadwork, the council was entitled to damages

The buyers particular purpose and reliance may be communicated impliedly by a history of dealings: McWilliams Wines v Liaweena (1988) ASC 55-695 (corks contaminated, many transactions over number of years). Similarly, reliance on the respondents skill and judgment can be established as an inference from the buyers statement of purpose: Expo Aluminium v WR Pateman (1990) ASC 55-978 (NSWCA).
Expo Aluminium v WR Pateman (1990) ASC 55-978 (NSWCA). Facts: The owner of a house built on a site exposed to the weather requested the appellant manufacturer to supply replacement aluminium windows for wooden ones which leaked. The appellant ordered the windows in turn from the respondent manufacturer who was told: There is nothing between the job and the South Pole. The windows supplied were totally unsuited to the site.



The appellant had made known to the respondent the particular purpose for which the windows were required. Reliance on the respondents skill and judgment was established as an inference from the appellants statement of purpose.

Reliance requires trust to a substantial extent: Grant v AKM. It is sufficient that the buyer relies only partially on the skill and judgment of the seller provided that the matters of which the buyer complains are matters in respect of which the buyer relied on the seller: Ashington Piggeries v Christopher Hill [1972] AC 441. This may be so even if the buyer has researched the product: Cargo v Multiquip [1998] ATPR 41-620.
Ashington Piggeries v Christopher Hill [1972] AC 441 Facts: P, a compounder of animal foodstuffs, contracted with the defendant mink farmer to compound and supply to him certain mink food in accordance with a formula supplied by D. One of the ingredients in the formula was herring meal, which P purchased from a third party. However, the herring meal had become contaminated by a substance produced by a chemical reaction following the use of a preservative. D suffered heavy losses on feeding his mink with the compound. P sued D for the price of the mink food and D counterclaimed for damages. Held: The third party supplier of the herring meal was liable to P for breach of the implied condition. Although D had relied on his own judgment as to the suitability of the compound for mink food, he relied on P to select and acquire good quality ingredients of the kind set out in the formula.

(b) Course of sellers business See facts. (c) Exception trade name proviso In the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose: s 17(b). This provision has a narrow operation; it effectively applies only where the buyer orders the goods under their trade name in such a way as to show that the buyer does not rely on the sellers skills and judgment: Baldry v Marshall [1925] 1 KB 260. (v) Sale by sample A contract of sale is a contract for sale by sample when there is a term in the contract, express or implied, to that effect: s 18(1). Per s 18(2), where a sale is by sample only, there is an implied condition that: (a) the bulk shall correspond with the sample in quality; (b) the buyer shall have a reasonable opportunity of comparing the bulk with the sample; (c) the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.


(b) Performance of the contract It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale: s 29. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions: s 30. There are rules governing the methods of delivery and payment. (i) Rules as to delivery General rules S 31 SGA sets out the following general rules as to delivery of goods under a contract of sale: 1. Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties: s 31(1). 2. In the absence of contractual stipulation, the place of delivery is the sellers place of business, if the seller has one, and if not, the sellers residence: s 31(1A). However, if the contract is for the sale of specific goods which to the knowledge of the parties when the contract is made are in some other place, then that place is the place of delivery: s 31(1B). If the seller agrees to deliver goods to the buyers premises and, without negligence, delivers them there to a person apparently authorised to receive them and the person receiving them misappropriates them, the loss must fall on the buyer and not on the seller: Galbraith & Grant v Block [1922] 2 KB 155. 3. When under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time: s 31(2). 4. When the goods at the time of sale are in the possession of a third person, there is no delivery by the seller to the buyer unless and until such third person acknowledges to the buyer that the third person holds the goods on the buyers behalf: s 31(3). 5. Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour: s 31(4). What is a reasonable hour is a question of fact: s 31(4A). 6. Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller: s 31(5). Delivery to carrier S 34 sets out the following rules regarding delivery to carrier: 1. When, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer: s 34(1). 2. Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case: s 34(2). 3. If the seller omits so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or herself, or may hold the seller responsible in damages: s 34(2A). 4. Unless otherwise agreed, when goods are sent by the seller to the buyer by a route involving sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable the buyer to insure them during their


sea transit, and if the seller fails to do so, the goods are deemed to be at the sellers risk during such sea transit: s 34(3). Constructive or symbolical delivery Delivery may also be effected constructively where the seller subjects the goods to the immediate control of the person to whom delivery has to be made e.g. by delivery of documents of title, such as a bill of lading. Delivery of wrong quantity or mixed goods When the seller delivers to the buyer a quantity of goods greater or less than the seller contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered the buyer must pay for them at the contract rate: s 32(1)-(2A). When the seller delivers to the buyer the goods which the seller contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest, or the buyer may reject the whole: s 32(3); London Plywood v Nasic Oak [1939] 2 KB 343. Instalment deliveries Unless otherwise agreed, the buyer of goods is not bound to accept delivery of them by instalments: s 33(1). When there is a contract of sale to be delivered by instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of 1 or more instalments, or the buyer neglects or refuses to take delivery of or pay for 1 or more instalments, it is a question in each whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation: s 33(2). The test is to consider, first, the ratio quantitatively which the breach bears to the contract as a whole and, secondly, the degree of probability or improbability that such a breach will be repeated: Maple Flock v Universal Furniture [1934] 1 KB 148; Hammer and Barrow v Coca-Cola [1962] NZLR 723.
In Hammer and Barrow v Coca-Cola [1962] NZLR 723, a manufacturer agreed to supply 200,000 yoyos to a buyer to be used in an advertising campaign and approximately 80% of 85,000 yoyos delivered in a number of separate consignments were found to be effective. HELD: the buyer was entitled to rescind the contract so far as future deliveries were concerned rather than submit to the risk of being sent further unsatisfactory consignments.

FOB and CIF Contracts FOB FOB refers to free on board. Where goods have been quoted FOB, it is the sellers duty to put the goods on board the ship at the port of shipment and to pay all expenses incurred in doing so, the buyer being responsible for subsequent charges such as freight and insurance. Delivery is complete once the goods have been put aboard ship. S 34(3) (above) applies to a contract for the sale of goods FOB: Wimble v Rosenberg [1913] 3 KB 743. It is therefore the duty of the seller to notify the buyer of the shipment to enable the buyer to insure, otherwise the goods are at the sellers risk.


CIF CIF refers to cost, insurance and freight. When the goods have been quoted CIF, the sellers duties are: 1. To make arrangements for the transport of the goods; 2. To ship the goods paying the costs thereof; 3. To effect upon the terms current in the trade an insurance of the goods and to pay the premium; and 4. To tender, within a reasonable time after shipment, the shipping documents (bill of lading, policy of insurance and invoice) to the buyer. Delivery is effected when the buyer gets the documents; the seller is not obliged to effect actual physical delivery of the goods. Thus, on presentation of the documents, the buyer is bound to pay the price, even if they have been lost at sea: Manbre Saccharine v Corn Products [1919] 1 KB 198. However, the buyer still has the right to reject the documents when they are tendered if they do not describe the goods in accordance with the contract. The buyer also has the right to accept the documents but reject the goods if, upon examination, they are not in conformity with the contract: Kwei Tek Chao v British Traders and Shippers [1954] 2 QB 459. Although the property in the goods passes when the documents are handed over, it is conditional property. (ii) Rules as to acceptance and payment Per s 37, the buyer is deemed to have accepted the goods when: 1. The buyer intimates to the seller that the buyer has accepted them; 2. When the goods have been delivered to the buyer, and the buyer does any act in relation to them which is inconsistent with the ownership of the seller; or 3. When, after the lapse of a reasonable time, the buyer retains the goods without intimating to the seller that the buyer has rejected them. However, where the buyer has not previously examined the goods, the buyer is entitled to a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract before the buyer is deemed to have accepted them: s 36. There is a possibility of conflict between s 36 and the circumstances in which the buyer is deemed to have accepted the goods in 2 above: that is, the buyer may have done an act inconsistent with the ownership of the seller in, for example re-selling the goods, before the buyer has had an opportunity of examining them. In such a case, the buyer has no right of refusal: Hardy v Hillerns and Fowler [1923] 2 KB 490.
Hardy v Hillerns and Fowler [1923] 2 KB 490 Facts: Wheat was sold under a c.i.f. contract to be shipped from a foreign port to this country. The ship arrived and the buyers took up the shipping documents on March 20. On March 21 she commenced to discharge the wheat and the buyers took delivery. On the same day they resold and dispatched to sub-purchasers a portion of the wheat so delivered to them. They subsequently discovered that it was not in accordance with the contract, and on March 23 before a reasonable time for the examination of the goods had expired they gave the sellers notice of rejection. It was contended by the buyers that before the date of the sub-sales the property in the wheat had


passed to them, so that the sellers had no ownership with which the sub-sales could be inconsistent Held: The transfer of the possession to the sub-purchasers was an act inconsistent with the ownership of the sellers, being either inconsistent with their ownership at the time of such transfer of possession in one view of the contract, or inconsistent with the ownership revested in them by rejection in the other. The transfer of possession to the sub-purchasers put an end to the buyers' right of rejection notwithstanding that it took place before a reasonable time for examining the goods had expired

Where the buyer, in accordance with his/her rights, refuses to accept the goods, the buyer is not bound, unless otherwise agreed, to return them to the seller; it is sufficient if the buyer intimates to the seller that he or she refuses to accept them: s 38. 3. Allocation of Risk for Loss Consider: 1. The general rule; and 2. Whether any exceptions apply. (a) General rule Unless otherwise agreed, the risk lies with the title-holder: s 23(1); Allied Mills v Gwyder Valley Oilseeds [1978] 2 NSWLR. (i) Has the property transferred? This depends on whether there is a: 1. Sale; or 2. Agreement to sell. However, retention of title clauses are an exception. (a) Is there a sale or agreement to sell? See definitions above. (b) If an agreement to sell Ownership has not yet passed to the buyer. (c) If a sale The SGA sets up a regime which distinguishes between the transfer of property in goods which are: 1. Specific/ascertained those identified and agreed upon at the time the contract of sale is made: s 3(1). 2. Unascertained those sold under description where no particular goods were identified and agreed upon.


There are two key rules: 1. If the goods are unascertained, no property in the goods is transferred to the buyer unless and until the goods are ascertained: s 19; and 2. If the goods are ascertained, the property in them is transferred to the buyer at such time as the parties to the contract intended it to be transferred: s 20(1). For the purpose of ascertaining the intention, regard is to be had to the terms of the contract, the conduct of the parties, and the circumstances of the case: s 20(2). Unless a different intention appears, s 21 establishes 5 rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. The first three rules apply to contracts for specific goods, the fourth to specific or unascertained goods, and the fifth to unascertained goods. (A) Rule 1 unconditional contract for sale of specific goods When there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, is or are postponed: Rule 1; Bodilingo v Webb Projects (1990) ASC 56-001; Tarling v Baxter [1827] 6 B&C 360. Goods are said to be in a deliverable state when they are in such a state that the buyer is bound under the contract to take delivery of them.
In Bodilingo v Webb Projects (1990) ASC 56-001, a contract for the sale of office furniture, computers and other equipment provided for the purchase price to be paid by a deposit of $10k and the balance of $360k by ten monthly instalments. The NSWCA held that, since there was no contrary intention in the contract, property passes to the buyer under Rule 1 at the time when the contract was made. Accordingly, the seller was not entitled to recover the goods when the buyer became insolvent after payment of the fifth instalment and thereby unable to pay the balance of the purchase price in full.

(B) Rule 2 specific goods in undeliverable state When there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof: Rule 2. (C) Rule 3 specific but unpriced goods When there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof: Rule 3. (D) Rule 4 goods delivered on approval Per Rule 4(1), when goods are delivered to the buyer on approval or on sale or return or other similar terms the property therein passes to the buyer (a) when the buyer signifies the buyers approval or acceptance to the seller, or does any other act adopting the transaction;


(b) if the buyer does not signify the buyers approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact: Rule 4(2). (E) Rule 5 contract for unascertained goods by description When there is a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer when goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller: Rule 5(1). Such assent may be express or implied, and may be given either before or after the appropriation is made: Rule 5(1A). When, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, the seller is deemed to have unconditionally appropriated the goods to the contract: Rule 5(2).
Wardars (Import & Export) v W Norwood [1968] 2 QB 663 Facts: The plaintiff wholesaler agreed to buy 600 cartons of frozen ox kidneys from the defendant importer. The cartons were held in a cold store. When the plaintiffs carrier arrived at the cold store at 8am he found the cartons stacked on the pavement outside. The carrier handed over the delivery note and loading commenced but was not completed until 12 noon. The carrier did not turn on the refrigeration unit in his lorry until 10am. Around 11am the carrier noticed that some of the cartons on the pavement were dripping. Cooling of the lorry was not effective until 1pm The carrier delivered the cartons to Scotland where the kidneys were found to be unfit for human consumption. The plaintiff sued for damages for breach of the implied condition of merchantable quality and the defendant counterclaimed for the price of the kidneys. Held: Property in the cartons of kidneys, and therefore the risk of their deterioration, passed to P on the carrier handing over the delivery note at the cold store. Accordingly, Ps action failed and P was liable for the price of the kidneys.

(d) Exception reservation of right of disposal In a contract for the sale of specific goods or a later appropriation of unascertained goods to the contract, the seller may, by the terms of the contract or appropriation (i.e. a Romalpa/retention of title clause), reserve the right of disposal of the goods until certain conditions are fulfilled: s 22(1). In such case, notwithstanding the delivery of the goods to the buyer or to a carrier, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled: s 22(1A). 32

An appropriately worded retention of title clause enables the seller to recover the goods (or the proceeds of any resale) in the event of the buyers insolvency by preventing the goods from becoming part of the property or assets of the buyer available for distribution among the buyers other creditors: Romalpa Aluminium [1976] 1 WLR 676; Associated Alloys (2000) 202 CLR 588; Rondo Building Services v Casaron [2003] 2 Qd R 558; Hardy Wine v Tasman Liquor Traders (2006) 95 SASR 21.
Associated Alloys (2000) 202 CLR 588 Facts: A Romalpa clause in a contract of sale provided as follows: In the event that the [buyer] uses the goods in some manufacturing process then the [buyer] shall hold such part of the proceeds of such manufacturing process as relates to the goods in trust for the [seller]. Such part shall be deemed to equal the amount owing by the [buyer] to the [seller] at the time of the receipt of such proceeds. S 266 of the CA provided that an unregistered charge was void against the liquidator or administrator of a company. Held: The trust created by the Romalpa clause did not constitute an unregistered charge, and was thus not rendered void against the liquidator by s 266. The Romalpa clause could be effective to create a trust over the proceeds in the amount owing to the seller. However, on the facts, the seller had not established that the buyer had received the proceeds of the manufacturing process, an essential precondition for the creation of the trust under the Romalpa clause. The court also indicated that it was an implied term of the contract that the buyers debt to the seller would be discharged by the constitution of a trust under the Romalpa clause. Rondo Building Services v Casaron [2003] 2 Qd R 558 Facts: A Romalpa clause provided that the buyer of goods was permitted to sell them, but until the purchase price was paid, the buyer acted as agent for the seller when selling the goods. The clause also provided that the proceeds of sale would be held in a separate account in trust for the buyer. The buyer, in breach of the clause, did not put the proceeds into the trust account. The debt owing by the buyer was guaranteed by the respondent (who was not the buyer). The guarantor argued that the clause discharged the debt, and that there was therefore nothing to guarantee. Held: The buyers obligation to pay the purchase price would not be discharged until the full price was held in that separate account. That was not the case. Therefore, the clause was not activated and the guarantors obligation was not discharged. Hardy Wine v Tasman Liquor Traders (2006) 95 SASR 21 Facts: Hardy supplied wines and other liquor to Tasman. The terms of trade as set out in the 1997 credit application and invoices rendered included a clause providing that property did not pass from Hardy to Tasman until payment. One of Tasman's customers was Eaglehawk Inn (Eaglehawk), and arrangements between Hardy and Tasman were changed in 1999 or 2000 such that Hardy would deliver goods directly to Eaglehawk. Under the arrangement Hardy would invoice Tasman, and Tasman would invoice Eaglehawk. Hardy included a delivery docket with each dispatch of goods to Eaglehawk, each delivery docket including a retention of title clause in favour of Hardy. Tasman's invoices to Eaglehawk also contained a retention of title clause. As at the date that Tasman was placed in administration there were eight unpaid invoices for goods delivered by Hardy to Eaglehawk totalling $282,269.75.



Hardy appealed against the trial judge's refusal to make declarations that title to the goods remained with Hardy. Appeal allowed. Hardy gave notice through its documentation that it retained title to the Eaglehawk Goods until payment in full had been made. It did so as a term of the credit agreement with Tasman, in its invoices to Tasman, and in the delivery dockets accompanying the goods delivered to Eaglehawk. Eaglehawk was accordingly on notice that Hardy claimed that it retained property in the goods until payment was received by Hardy. The change in arrangements in 1999 or 2000 did not lead to a change to the terms of retention of title clause. There is no reason to suppose that the change of place of delivery from Tasman's premises to Eaglehawk's premises meant that the parties changed their express agreement as set out in the credit agreement and the invoices. Hardy intended and Tasman accepted that Hardy retained title as against Tasman to the Eaglehawk Goods until payment. The express terms of the retention of title clause as set out in the credit agreement, the invoices and the delivery dockets should be given full effect. If necessary the court would conclude that there was an implied term to the credit agreement and to the Eaglehawk Agreement that the change of delivery arrangement did not adversely affect the Hardy retention of title clause. Hardy was acting for Tasman as agent in delivering direct to the sub-purchaser. Tasman obtained constructive possession of the Eaglehawk Goods and made constructive delivery to Eaglehawk. Tasman was the bailee of the Eaglehawk Goods and liable to account as bailee. The delivery into the physical possession of Tasman was not necessary -- constructive possession was sufficient. Alternatively, Hardy acted as the agent of Tasman in effecting delivery to Tasman's sub-purchaser. In the circumstances the retention of title clause was operative.

(b) Exceptions? There are 3 exceptions: 1. Fault; 2. Specific, perished goods; and 3. Indivisible contracts. (i) Non-delivery at fault of either party When delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault: s 23(2); Allied Mills v Gwydir Valley Oilseeds [1978] 2 NSWLR 26. (ii) Specific, perished goods When there is a contract for the sale of specific goods and the goods, without the knowledge of the seller, have perished at the time when the contract is made, the contract is void: s 9. When there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided: s 10. NOTE: if the stock from which a seller intended to fulfil a contract of sale of unascertained goods has perished at the time of the contract of sale, there is no ground for avoidance of the agreement and the seller would be required to find other goods to tender in the performance of the contract.


(iii) Indivisible contracts A contract for the sale and delivery of an indivisible parcel of goods may be avoided if part of the goods is not forthcoming: Barrow, Lane & Ballard v Phillip Phillips & Co [1929] 1 KB 574 (591 of 700 bags of nuts delivered, k indivisible). 4. Title of Transferee Generally, the transferee of goods cannot obtain a better title to such goods than that of the transferor (nemo dat): s 24(1). However, there are 4 exceptions: 1. Estoppel; 2. Sales by a mercantile agent or under special powers of sale; 3. Sales by persons having voidable title; and 4. Sales by a seller or buyer in possession after the sale. (a) Estoppel The nemo dat principle does not apply where the owner of the goods is by the owners conduct precluded from denying the sellers authority to sell: s 24(1). An estoppel may operate where the owner permits the goods to go into the possession of a person in circumstances which make it appear that such person has authority to sell the goods: Big Rock v Esanda Finance (1992) 10 WAR 259. Merely parting with possession of goods, even carelessly, will not itself raise an estoppel against the true owner; there must have been conduct which, expressly or impliedly, amounts to an unambiguous representation: Thomas v Marac Finance (1985) 3 NSWLR 452. PS suggests that silence would only amount to a representation if it were in the face of a very specific question.
Big Rock v Esanda Finance (1992) 10 WAR 259 Facts: The respondent financier lent money to a borrower on the security of a mortgage over a motor vehicle. By mistake, the financier wrote a letter to the borrower stating that the loan had been finalized and that the financier no longer had an interest in the vehicle. In fact, only two of 48 payments had been paid in reduction of the loan. The borrower purported to sell the vehicle to the appellant motor dealers. The latter, by a search of the Register of Encumbered Motor Vehicles established under WA legislation, ascertained the existence of the financiers mortgage but relied on the letter as supporting the borrowers claim that the mortgage debt had been paid in full. The financier sued the motor dealers in conversion for the value of the vehicle. Held: The respondent financier was precluded (i.e. estopped) by its conduct from denying the borrowers authority to sell the vehicle. The appellant motor dealers therefore acquired a good title to the vehicle.


(b) Mercantile agent or special power When goods are sold by a mercantile agent to a person who takes them bona fide, such person obtains good title to the goods, notwithstanding that the principal may have revoked the agents authority to sell. Sales made under any special common law or statutory power of sale (e.g. sheriffs enforcing a judgment, innkeepers and landlords) also pass the title to the buyer. (c) Sale under voidable title Where the seller of goods has a voidable title, but the title has not been avoided at the time of the sale, the buyer acquires good title to the goods provided he or she buys them in good faith and without notice of the sellers defect of title: s 25. This would apply to title gained by fraud, but not in the case of outright theft: Phillips v Brooks Ltd [1919] 2 KB 243 (fraud). (d) Sale by seller or buyer in possession after sale Distinguish between: 1. Sale by seller in possession; and 2. Sale by buyer in possession. (i) By seller When a seller, having sold goods, continues or is in possession of the goods (or of the documents of title to the goods) the delivery or transfer by the seller of the goods or documents of title under any disposition to a person receiving them in good faith and without notice of the previous sale, has the same effect as if the transaction was authorised by the owner, that is, the original purchaser: s 27(1); see also Pacific Motor Auctions v Motor Credits (Hire Finance) [1965] AC 867. (ii) By buyer Similarly, the bona fide purchaser of goods from a buyer who obtained possession of the goods with the consent of the original seller obtains a good title to them: s 27(2); see also Gamers Motor Centre v Natwest (1987) 163 CLR 236. However, the original seller must be lawfully entitled to sell the goods: Ford Credit Australia v Auto Trade Auction [1982] VR 795 (sale in breach of the agreement). The purchaser bears the burden of proving that he/she does not have notice of the rights or the original seller. Notice here means actual, not constructive notice, unless there was something so obviously suspicious such as to put the purchaser on inquiry: Robinson Motors v Fowler [1982] Qd R 374.


5. Remedies for Breach of the Contract The SGA deals separately with the remedies of the: 1. Unpaid seller; and 2. Buyer. determine whom you are advising. (a) Unpaid seller Per s 40, the seller of goods is deemed to be an unpaid seller where: 1. The whole of the price has not been paid or tendered; or 2. The bill of exchange or other negotiable instrument has been received as conditional payment, and the condition has not been fulfilled by reason of the dishonor of the instrument or otherwise. The unpaid seller has remedies against: 1. The goods; and 2. The buyer. (i) The goods The unpaid seller may have any one of the following rights against the goods: 1. A lien; 2. Withholding delivery; 3. Stoppage of goods; 4. Resale. (a) Lien An unpaid seller has a right to retain the goods for the price while the unpaid seller is in possession of them: s 41(1)(a). Per s 42(1), the unpaid seller may exercise their lien where: (a) when the goods have been sold without any stipulation as to credit; (b) when the goods have been sold on credit, but the term of credit has expired; and/or (c) when the buyer becomes insolvent. The seller may exercise the right of retention notwithstanding that the seller is in possession of the goods as agent or bailee for the buyer: s 42(2). When an unpaid seller has made part delivery of the goods, the unpaid seller may exercise the right of retention on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive that right: s 43. Per s 44(1), the unpaid seller of goods loses the right of retention (a) when the unpaid seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods;


(b) when the buyer or the buyers agent lawfully obtains possession of the goods; and/or (c) by waiver thereof. (b) Withholding delivery When the property in goods has not passed to the buyer, the unpaid seller has, in addition to the unpaid sellers other remedies, a right of withholding delivery similar to and coextensive with the unpaid sellers rights of retention and stoppage in transitu when the property has passed to the buyer: 41(2). This right is similar to and equally extensive with the unpaid sellers right of lien in cases where the ownership has passed to the buyer. (c) Stoppage in transit When the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit (i.e. must be in the course of transit), resuming possession, and retaining them until payment or tender of the price: ss 41(1)(b), 45. This is typically used where the seller hears about the insolvency of the buyer after he has passed possession to a carrier. (i) Has the unpaid seller parted possession? See facts. (ii) Are the goods in transit? Per s 46:
(1) Goods are deemed to be in course of transit from the time when they are delivered to a carrier by land or water, or other bailee, for the purpose of transmission to the buyer, until the buyer, or the buyers agent in that behalf, takes delivery of them from such carrier or other bailee. (2) If the buyer or the buyers agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end. (3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer, or the buyers agent, that the carrier or other bailee holds the goods on the buyers behalf and continues in possession of them as bailee for the buyer or the buyers agent, the transit is at an end, and it is immaterial that a further destination for the goods may have been indicated by the buyer. (4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back. (5) When goods are delivered to a ship chartered by the buyer it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent to the buyer. (6) When the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or the buyers agent in that behalf, the transit is deemed to be at an end. (7) When part delivery of the goods has been made to the buyer, or the buyers agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been made under such circumstances as to show an agreement to give up possession of the whole of the goods.


(iii) Effection of stoppage in transitu Per s 47:

(1) The unpaid seller may exercise the right of stoppage in transitu either by taking actual possession of the goods, or by giving notice of the unpaid sellers claim to the carrier or other bailee in whose possession the goods are. (1A) Such notice may be given either to the person in actual possession of the goods or to the persons principal. (1B) In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may communicate it to the principals servant or agent in time to prevent a delivery to the buyer. (2) When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, the carrier or other bailee must re-deliver the goods to, or according to the directions of, the seller. (3) The expenses of such re-delivery must be borne by the seller.

(iv) Defeat of stoppage in transitu The unpaid sellers right of retention or stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto: s 48(1). However, per s 48(2), where a document of title to goods has been lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who takes the document in good faith and for valuable consideration, then: 1. if such last mentioned transfer was by way of sale the unpaid sellers right of retention or stoppage in transitu is defeated, and 2. if such last mentioned transfer was by way of pledge or other disposition for value the unpaid sellers right of retention or stoppage in transitu can only be exercised subject to the rights of the transferee. (d) Resale Per s 49, the unpaid seller has a right of resale of the goods where: 1. The goods are of a perishable nature; 2. The seller exercises the right of lien or stoppage in transitu and gives notice to the buyer of their intention to resell, and the price is not paid or tendered within a reasonable time; or 3. The seller has expressly reserved a right of re-sale in case the buyer should make a default. The exercise of the right of resale in the first two cases has the effect of rescinding the contract of sale and the seller is entitled to recover damages from the original buyer for any loss occasioned by the latters breach of contract: RV Ward v Bignall [1967] 1 QB 534. Conversely, if the sale realizes more than the original contract price, the seller would not have to account to the original purchaser for any profit made on the resale. The unpaid sellers right of resale is additional to other general contractual remedies e.g. termination (for breach of condition) and re-sale without notice: Wherry v Watson (1991) ASC 56-048.


Wherry v Watson (1991) ASC 56-048 Facts: P1 agreed to buy Ds 1963 Bentley for $35, 000 and gave D a cheque for $3000 as a deposit. The cheque was dishonoured because of an administrative error on the part of P1s bank. A day after dishonor, D agreed to sell the vehicle to P2 for $37, 000. Both Ps claimed an order for specific performance of their respective contracts for the purchase of the vintage car. Held: Due payment of the deposit by P1s cheque being met was an essential term of the contract. Dishonour entitled the defendant to terminate the contract and sell the vehicle to P2.

(ii) The buyer The unpaid seller also has rights against the buyer for: 1. Price; and 2. Damages. (a) Price Recall that delivery of the goods and payment of the price are ordinarily concurrent conditions. Where the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue the buyer for the price: s 50(1). Further, when the price is payable on a certain day irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed: s 50(2). Where there is no special agreement as to the payment of the price and the property in the goods has not passed to the buyer, the seller cannot sue for the price of the goods: Colley v Overseas Exporters [1921] 3 KB 302. (b) Damages On a buyers non-acceptance of the goods, the seller may recover the estimated loss directly and naturally resulting in the ordinary course of events from the buyers breach of contract: s 51(1)-(2). (i) Is there an available market for the goods? An available market is one that is available from day to day in which the goods might be sold at a then current price or at the will of the vendor. The expression contemplates a continuous market for a commodity by always subject to fluctuation according to the rise and fall of the market: Eclipse Motors v Nixon [1940] VLR 49. (ii) If yes Where there is an available market for the goods in question the measure of damages is, prima facie, the difference between the contract price and the market or current price at the time the goods ought to have been accepted: s 50(3); Eclipse Motors v Nixon [1940] VLR 49.


(iii) If no Where there is no available market, the seller is generally entitled to damages in the amount of their loss of bargain: W L Thompson v Robinson [1955] Ch 177 (profit would have made). However, where it appears that the seller did not have a replacement for the particular goods sold to the buyer, the seller is only entitled to recover for the loss which they suffer on the resale of the goods, that is, the difference (if any) between the price agreed to be paid by the original buyer and the price at which the goods were resold: Kargotich v Mustica [1973] WAR 167; Lazenby Garages v Wright [1976] 1 WLR 459 (2nd hand car).
Kargotich v Mustica [1973] WAR 167 Facts: M agreed to buy a new hay-baling machine from K for $4, 290. Ks profits on the sale would have been nearly $870. However, M refused to accept the machine. K sold it to another customer for $4, 830. The question arose whether K was entitled to recover from M $90 (the difference between the original contract price with M and the resale price) or the full loss of profit of nearly $870 on the basis that K could have sold two hay-balers instead of one. Held: K was only entitled to recover $90 since he had not shown that he could have obtained a second hay-baler and hence made a second sale.

NOTE: that there is a duty to mitigate loss. (b) Remedies of the buyer The buyers remedies are: 1. Repudiation; 2. Damages; or 3. Specific performance. (i) Repudiation The buyer is entitled to rescind the contract and reject the goods where there is a breach of a condition: Koompahtoo v Sanpine (2007) 233 CLR 115; Chao v British Traders [1954] 1 All ER 779. The buyer can also recover the purchase price paid if there has been a total failure of consideration: Rowland v Divall [1923] 2 KB 500 (TFC where buyer of car in fact had no title, even though had used). The right of repudiation may be lost to the buyer where: 1. The buyer has waived the breach of condition or elected to treat it only as a breach of warranty: s 14(1); 2. The contract of sale is not severable and the buyer has accepted the goods or part of them: s 14(3); 3. The contract is for specific goods and the property in them has passed to the buyer: s 14(3). See above re acceptance and transfer of title. 41

(ii) Damages Damages may be appropriate where: 1. There is a breach of warranty of quality; and/or 2. Non-delivery. (a) Breach of warranty of quality When there is a breach of warranty by the seller, or when the buyer elects, or is compelled, to treat a breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods: s 54(1). However, per s 54(1), the buyer may: (a) set up against the seller the breach of warranty in diminution or extinction of the price; or (b) maintain an action against the seller for damages for the breach of warranty. The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty: s 54(2); Bostock v Nicholson [1904] 1 KB 725. Such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value which they would have had if they had answered to the warranty: s 54(3). However, this is only appropriate where the buyers claims is in respect of the actual defect in the goods, not where the claim is for damage caused by the goods.
Bostock v Nicholson [1904] 1 KB 725 Facts: Ds contracted to sell Ps sulphuric acid commercially free from arsenic. Ps used the acid in the manufacture of glucose which was sold to brewers. In breach of the implied condition of correspondence with description in the contract, the sulphuric acid contained arsenic, with the result that the beer made by the brewers who had purchased the glucose from the Ps poisoned a large number of people. Consequently, Ps were liable to pay damages to the brewers. Ps in turn claimed damages from Ds as follows: o The price paid for the acid. o The value of the other materials spoilt in the manufacture of the glucose. o Loss of goodwill; and o The damages they were liable to pay to the brewers. Held: Ps were only entitled to recover for: o The price paid for the acid; and o The value of the goods rendered useless by being mixed with the poisonous acid. Ps were not entitled to damages for: o The loss of goodwill this did not arise directly from the act of the defendants but arose from the act of the Ps in selling the poisonous glucose to the brewers. o The damages which had to be paid to the brewers as the special circumstances surrounding the purpose of the contract had not been communicated to D, the damages were not within the contemplation of the parties within the meaning of the rule in Hadley v Baxendale.

The chain of contracting parties may in some cases be followed in order to calculate the damages for breach of warranty in supplying goods not fit for the purpose for which they were sold, namely, where such purpose was made known to the sellers at the time of the 42

contract and it was within the contemplation of the parties that if there was a breach of contract damages would be claimed by parties separated by several contractual steps: Kasler & Cohen v Slavouski [1928] 1 KB 78.
Kasler & Cohen v Slavouski [1928] 1 KB 78 Facts: A sold some dyed rabbit skins to B, a wholesale furrier, and knew that B intended making them into fur collars. B, having made the collars, sold to C, C resold to D, D to E and E had one attached to a coat and sold it to F who wore the coat with the fur attached. F developed dermatitis caused by the presence of antimony in the dyed skin and sued E for damages and was successful with costs. E claimed the amount he paid F together with his costs from D, who in turn claimed this amount plus his costs from C. C claimed from B and by this time the original 67 damages awarded to F had arisen to 699 by reason of successive costs. Held: It was held that B was entitled to recover from A: o The damages awarded in the original action to F; o The costs of both sides of that action; and o A sum in respect of the costs incurred by B, C and D respectively in connection with the claims against them.

(b)Non-delivery When the seller wrongfully neglects or refuses to deliver the goods to the buyer the buyer may maintain an action against the seller for the estimated loss directly and naturally resulting, in the ordinary course of events, from the sellers breach of contract: s 52(1)-(2). When there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed, then at the time of the refusal to deliver: s 52(3). It is the duty of the buyer to mitigate their loss where possible. If there are special circumstances exacerbating the damage, the seller may be liable for those, but only if those circumstances were known to both parties, and there is no available market for the goods in question: Hadley v Baxendale (1854) 9 Exch 341; Hydraulic Engineering v McHaffie (1879) 4 QBD 670.
In Hydraulic Engineering v McHaffie (1879) 4 QBD 670, the buyer notified the seller that he or she required a particular gun for a pile driver that had to be delivered to a third party within a specified period. The third party refused to take delivery because of unreasonable delay and, as the gun was useless to anyone else except as iron, and the manufacturers were aware of these circumstances, their liability was the expenses incurred and the profit which would have been made upon the contract with the third party. From this was deducted any amount obtained on the sale of the rejected machine.

(iii) Specific performance In an action for breach of contract to deliver specific or ascertained goods the court may, if it thinks fit, on the application of the plaintiff, by its judgment direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages: s 53(1). 43

The court will generally not do so unless the chattels are of a special kind: Dougan v Ley (1946) 71 CLR 142 (taxicab had a valuable privilege (taxicab licence) annexed to it). The judgment may be unconditional, or upon such terms and conditions as to damages, payment of the price, and otherwise, as to the court may seem just, and the application by the plaintiff may be made at any time before judgment: s 53(2).


BAILMENT A bailment is a delivery of goods from one person (the bailor) to another (the bailee) on a condition, either express or implied, that when the purpose for which the goods were bailed has been fulfilled, the goods will be returned to the bailor or delivered according to their instructions. 1. Is There a Bailment? To constitute a bailment there must be: 1. A transfer of possession of goods; but 2. No intention by the bailor to transfer ownership. NOTE: money cannot usually be the subject of a bailment as the transferor does not intend to receive the exact same money back. However, it may be where there is such an intention: Brambles Security v Bi-Lo (1992) Aust Torts Reports 81-161 (security firm used to deliver exact money to bank). Distinction between bailment and licence The requirement that there be a transfer of possession distinguishes the relationship of bailor and bailee from that of licensor and licensee. A mere licence or permission to use particular premises or facilities for the purpose of temporarily leaving or storing goods does not involve a transfer of possession: Greenwood v Council of the Municipality of Waverly (1928) 28 SR (NSW) 219; Zweeres v Thibault (1942) 138 ALR 1131.
Greenwood v Council of the Municipality of Waverly (1928) 28 SR (NSW) 219. Facts: P paid a fee to hire a locker in the D-councils dressing sheds at Bondi Beach. P put his clothes in the locker and ensured it was locked. On returning from the Beach, P found his locker to be empty. P sued the council contending it was a bailee of his clothes and as such, owed him a duty of reasonable care. Held: The council was not a bailee since possession of the clothes had not passed to the council and had always remained with P. The council merely let the locker to P and this did not give rise to a duty of care.

A bailment may be more readily implied where the land-owner initiates the transfer of possession: Ultzyen v Nichols [1894] 1 QB 92 (waiter took Ps coat to hang up). Parking lots The English courts have tended to regard the leaving of a car in an attended parking station as merely creating a relationship of licensee and licensor: BG Transport v Marston Motor Co [1970] 1 Lloyds Rep 371; Tinsley v Dudley [1951] 2 KB 18; Ashby v Tolhurst [1937] 2 KB 242.
Tinsley v Dudley [1951] 2 KB 18. Facts: P called in for a drink at the Ds public house, leaving his motorcycle in the adjacent yard. The area was approached through double gates which were standing open at the time but could be closed and locked. Across them were painted the words, Wheatsheaf: Covered Yard and Garage.



There was no fee to be paid and no attendant on duty. P was separated from his motorcycle for nearly two hours, and for some of that time was not drinking at the inn. D not liable for the theft of the machine. It had never been delivered into Ds possession.

In Ashby v Tolhurst [1937] 2 KB 242, the owner of a car left it on anothers land and paid one shilling. Just a bare block of land, not a car park in the usual sense. No attendant, no exchange of keys, no security. HELD: mere licence.

However, Australian courts are more disposed to find that there is a transfer of possession. Each case will be determined on its facts. Some relevant factors the courts have taken into account include: Transfer of the means of access to or control over the chattel e.g. where the keys have been left in the ignition or handed over to an attendant the courts have found a bailment to exist: Shorters Parking Station v Johnson [1963] NZLR 135. The method of restoring control to the owner: Walton Stores v SCC (1968) 88 WN (NSW) 153. A defendant who imposes stringent security precautions to prevent the evasion of charges is more likely to find himself responsible for the vehicles on his premises than the operator who lacks such a system and works on a more haphazard basis. It is not the effectiveness of the procedures so much as the intention behind them.
Walton Stores Ltd v Sydney City Council (1968) 88 WN (NSW) 153. Facts: The case involved a car parked in a multi-storey car park. P was required to produce a ticket, which he had received on entry, before the car would be released. Held (Asprey JA): The steps to be taken to enable the plaintiff to regain physical possession of its motor car from the defendants building involved more than its removal by simply driving it away. Its removal required a bilateral transaction in the terms of the document. It may be that the defendant did not have a lien at common law upon the vehicle for parking charges... but the contract which regulated the legal relationship of the parties plainly evinced their intention that the holder of the card or ticket had either to pay or tender payment of the amount of the charges for the storage of the vehicle before he was entitled to demand possession of it.

Fee and charges that P is charged for leaving his chattel on Ds premises will not, of itself, be of particular relevance. The layout and security of a car-park or other premises may be a relevant factor: Ashby v Tolhurst [1937] 2 KB 242 (Crt attached some importance to the fact that the site was open and accessible on two sides).

Subconscious bailment As the relevant intention is that of the bailor, a bailee may become so involuntarily or subconsciously: AUX v EGM Solders (1982, Unreported, Straughton J). See below re duties. Sub-bailment A sub-bailment arises whenever a bailee transfers possession to a third party for a limited period or a specific purpose, on the understanding (express or implied) that his own position as bailee is to persist throughout the subsidiary disposition: Palmer (1991).


2. Is There a Special Type of Bailment? There are two relevant types of special bailment: 1. Common carriers; and 2. Innkeepers. (a) Common carriers A common carrier of goods is one whose business it is and who holds themselves out as willing to carry goods from place to place for anyone who thinks fit to employ the carrier: James v Cth (1939) 62 CLR 339. At common law, common carriers have particular duties and liabilities as bailees. However, the Carriage of Goods by Land (Carriers Liabilities) Act 1967 (Qld) effectively abolished the special status and responsibilities of a common carrier by road within the state. Although this was repealed in 1993, the preferred position remains that the liability of bailment will be determined by the general principles of bailment, tort and contract. NOTE also the following statutory interventions regarding common carriers: s 137 Transport Infrastructure Act 1994 (Qld): the State railway authority is not a common carrier. s 72 Australian National Railways Commission Act 1983 (Qld): Commission is not a common carrier. The Civil Aviation (Carriers Liability) Act 1959 (Cth) gives effect to the Warsaw convention. Carriage of Goods by Sea Act 1991 (Cth). (b) Innkeepers An innkeeper is a person who holds themself out as providing accommodation for travellers in the course of their journeys. A motel is such a common inn: Turner v Qld Motels [1968] Qd R 189; Irving v Heferen [1995] 1 Qd R 255. At common law innkeepers are insurers of the goods of their guests and may be liable for loss even in the absence of negligence on their part: Williams v Linnitt [1951] 1 KB 565. However, whilst liability is strict, the innkeeper is liable only for damage to the goods of a guest where such damage was caused by negligence on the part of the innkeeper or the inkeepers employees: Winkworth v Raven [1931] 1 KB 652. Although the usual rules about bailee liability (below) apply, the strict liability of an innkeeper for the goods of a guest does not apply in respect of the goods of a lodger or boarder: Ex parte Coulson; Re Jones (1947) 64 WN (NSW) 215; Daniel v Hotel Pacific Pty Ltd [1953] VLR 447. Whereas a person who stays at an inn or hotel who retains the character of a traveller is a guest, a lodger is one who arranges for accommodation for a definite period at an agreed rate.
Daniel v Hotel Pacific Pty Ltd [1953] VLR 447: Facts: The plaintiff booked accommodation in advance at the defendants hotel at a holiday resort. P subsequently arrived at the hotel where he claimed the accommodation on the terms of the prior booking.



Without the booking, P would not have been received at the hotel except in the event of a cancellation. P, at the invitation of the defendants employee, put his money in the hotel safe. The safe was kept locked in the hotel office which was locked at night. During the night, thieves entered the hotel and stole the safe. P was not a guest but a lodger and therefore the hotel was not strictly liable for the loss of Ps money. The hotel, as a bailee, owed P a duty to take reasonable care of goods entrusted to it but it was held that on the facts there had been no breach of duty.

The Traveller Accommodation Providers (Liability) Act 2001 (Qld) modifies the common law position. An innkeeper can still be strictly liable, but only to an amount of $250 per room per day: s 12. However, this limitation does not apply if loss is caused by fault of the accommodation provider or if various conditions relating to notice to guests of the statutory limitation of liability are breached: s 13(2). Further, in the case of property accepted for deposit in safe custody, the relevant limitation of liability is $50,000: s 14. Note that at common law an innkeeper has a lien on the goods of a traveller or guest upon a debt for accommodation or services being incurred by the guest. The lien attaches to the goods of a traveller or guest which are situated in the inn and gives the innkeeper the right to take to goods peaceably into their possession and retain them until the debt is paid. 3. Actions Against the Bailee(s) It is relevant to consider actions against: 1. The bailee; and 2. Any sub-bailee. It is also necessary to consider: exemption of liabilities; and statutory obligations regarding consumers. (a) Duties of bailee (i) Is there a k between the parties? A contract is not necessary to create a bailment, but parties in a relationship of bailment will frequently be in a contractual relationship. As the law of bailment is residual, any contract will govern the relationship to the extent it covers the issue in dispute. Where there is no contract, or the contract does not apply to the matters in dispute, the residual law of bailment applies: Brambles Security v Bi-Lo (1992) Aust Torts Reports 81-161. (ii) If k governs Apply contract. (iii) If k n/a residual law of bailment. Lord Holts 7 categories of bailment in Coggs v Bernard (1703) 2 Ld Raym 909 reflected a traditional distinction between the duties of a gratuitous bailee and a bailee for reward.


(a) Is the bailment gratuitous or for reward? See facts. (b) If for reward It is well-established that there are three primary duties: 1. To take reasonable care of the property; 2. Re-delivery of the goods; and 3. Where the bailment is for work, that the bailee has the skill to do the work. (i) Care A bailee for reward has a duty to take such care as a careful and vigilant person would exercise in the custody of their own property: Nibali v Sweeting & Denney (WA) (1989) Aust Torts Reports 80-258; Cowper v JG Goldner (1986) 40 SASR 457; Nightingdale v Tildsley. As a bailee is not an insurer, the duty is not to take every conceivable or possible precaution to prevent the loss of goods.
In Cowper v JG Goldner (1986) 40 SASR 457, a carrier allowed a mare to die of travel sickness. HELD: a reasonable owner would have inspected more frequently and obtained veterinary assistance. In Nightingdale v Tildsley, a failure to turn over a bailed motor vehicle caused it damage. HELD: the bailee was not required to turn over the vehicle. There was evidence that he did not do this for his own.

Once the bailor proves a bailment relationship and that the goods were damaged, the onus is upon the bailee to prove that such loss or damage was not the result of their failure to take reasonable care: Pitt Son & Badgery v Proulefco SA (1984) 153 CLR 644; Tottenham Investments v Carburettor Services (1994) Aust Torts Reports; Port Swettenham Authority v TW Wu & Co [1971] AC 580.
Pitt Son & Badgery Ltd v Proulefco SA (1984) 153 CLR 644. Facts: The bailee stored bales of wool in an old timber building, the fencing around which was clearly inadequate to keep out intruders. Held: The bailee was liable for breach of his duty to take reasonable care of the wool when it was destroyed in a fire deliberately lit by an intruder who had gained access to the wool store through the inadequate fencing. Tottenham Investments Pty Ltd v Carburettor Services Pty Ltd (1994) Aust Torts Reports 81-292. Facts: P left a valuable car with Ds for repair. Overnight thieves entered Ds premises and stole the car. The keys were left in the ignition. Following the break in D took steps to secure the premises. Held: D was liable to P for the loss of the vehicle since they had failed to discharge the onus of establishing that they had taken reasonable care appropriate in the circumstances. The precautions taken subsequent to the break in should have been in place earlier. However, leaving the keys in the ignition did not of itself constitute a failure to take reasonable care. In Port Swettenham Authority v TW Wu & Co [1971] AC 580, the bailee was liable despite good evidence of its general security systems as it did not prove that the specific goods were adequately cared for.


A bailee for reward is also vicariously liable for the negligence of their employees, even if they themselves were not negligent: Makower, McBeath & Co v Dalgety & Co [1921] VLR 365. (ii) Re-delivery A bailees primary duty is to redeliver the goods to the bailor or as the bailor may direct. If the bailee delivers the goods to a third person other than in accordance with the bailors express authority or mandate, the bailee will be liable for their loss, even in the absence of negligence: Jackson v Cochrane [1989] 2 Qd R 23.
Jackson v Cochrane [1989] 2 Qd R 23 Facts: The respondent delivered her caravan to the appellant, a motor dealer, on consignment. The appellant was subsequently approached by three strangers who produced a copy of the document signed by the respondent when she delivered the caravan to the appellant and who claimed to be acting on the instructions of the respondent to remove the caravan. The appellant made some effort to communicate with the respondent by telephone but that attempt was unsuccessful. In the end she was persuaded to allow the three strangers to tow the caravan away from her sales yard. The respondent sued the appellant to recover the value of the caravan and judgment was given in her favour. Held: Liable for misdelivery even if not negligent.

A bailee for reward is also vicariously liable for an employee or agent who sells the goods entrusted to the bailee: Rick Cobby Haulage v Simsmetal (1986) 43 SASR 533. (iii) Skilful completion of work In the case of delivery of a chattel for work to be done upon it for reward, if the work is of the type which the bailee holds herself or himself out as skilled to do, the bailee warrants that he or she possesses the technical skill and ability to do the work e.g. watch repairer. (b) If gratuitous Despite the traditional distinction, the modern trend is for the courts to apply the same basic principle to both a bailment for reward and a gratuitous bailment, both in respect of: the duty of care: WGH Nominees v Tomblin (1985) 39 SASR 117; McComb v Martin Box Marine (1992) 8 SR (WA) 193; and the duty to re-deliver the goods: Mitchell v Ealing London Borough Council [1979] QB 1; Graham v Voigt (1989) 89 ACTR 11.
Graham v Voigt (1989) 89 ACTR 11. Facts: This case was based on a claim that a landlady was liable for failing to return a former boarders possessions, incl. a number of valuable stamp albums, which had been left with her for some 8 months. As a gratuitous bailee, the landlady was bound to take reasonable care of the goods and to deliver them up on an unequivocal demand for their return being made. Held: Since she failed to deliver the goods and could not show that they had been lost without negligence or default on her part she was held liable for their value.


Subconscious bailments In such cases, the bailee owes a duty to inquire as to the true owner; it cannot simply dispose of or otherwise destroy the goods: AUX v EGM Solders (1982, Unreported, Straughton J).
AUX v EGM Solders (1982, Unreported, Straughton J) Facts: The defendants had agreed to the return of defective spheres of solder which they had manufactured for the plaintiffs. By mistake, as well as returning the defective solder in one box, the plaintiffs returned 21 boxes of capacitors which were as the judge said "finished goods which could not, by any stretch of imagination, be said to look remotely like solder spheres". The defendants set about scrapping the capacitors in the mistaken belief that they were their own property and mixed them with the rejected solder spheres so that it became uneconomic to retrieve them. Held: Ds were liable as unconscious bailees whose duty before dealing with the goods was to "use what is in all the circumstances of the case a sufficient standard of care to ascertain that they truly" were their own goods.

However, in Marcq v Christie Manson & Woods [2004] QB 286, the English Court of Appeal suggested that the defendants in EGM Solders were negligent absent any relationship of bailment as they were put on inquiry that the goods might belong to someone else. They therefore did not consider the case authority for the proposition that an agent who receives goods from someone who is their apparent owner and later returns them to him owes any duty to their true owner to investigate title in the absence of anything to put him on inquiry. (b) Duties of sub-bailees Notwithstanding the absence of contractual relationship between a sub-bailee and bailor, a sub-bailee owes to the bailor all the duties of the bailee: Palmer (1991); Morrise v CW Martin & Sons [1996] 1 QB 716; Westrac Equipment v Owners of the Ship Asset Venture (2002) 192 ALR 277.
Morrise v CW Martin & Sons Ltd [1996] 1 QB 716. Facts: P sent her mink stole to a furrier for cleaning. B explained that he did not provide this service and, with Ps consent, forwarded the mink to the D drycleaners who accordingly become sub-bailees. While in Ds possession, the mink was stolen by the employee entrusted with cleaning it, although Ds had not themselves been negligent either in failing to take proper steps to safeguard the mink or in employing the particular employee. Held: The sub-bailee was liable to the bailor for the unauthorised theft of the mink by their employee. Westrac Equipment Pty Ltd v Owners of the Ship Asset Venture (2002) 192 ALR 277. Facts: The plaintiff carried on business as an importer and distributor of heavy earthmoving equipment and machinery. It contracted to supply a bulldozer to the Commonwealth Department of Transport at West Island in the Cocos (Keeling) Islands. Title to the machine was not to pass until the machine had been delivered to the department. In October 1999, the plaintiff and the second defendant entered into a contract under which the second defendant agreed to arrange for the transport of the machine from the plaintiff's premises to West Island. The second defendant made a further contract with the first defendant, for the first defendant to carry the machine from the Malaysian port, Port Kelang to Cocos.


During the course of the voyage the crew of the vessel of the first defendant noticed that the machine was no longer on board the vessel. The plaintiff claimed damages for the loss of the machine against the first defendant in bailment, and in negligence, and against the second defendant for breach of contract, in bailment and in negligence.

Held: Claims against the first defendant: The first defendant had knowledge of the plaintiff's interest in the machine in the sense that it had notice that the second defendant was arranging carriage of the machine for a third party and was not the owner of the machine. In these circumstances, a quasi- (or sub-) bailment arises. The first defendant as quasi- (or sub-) bailee was under the same duty as that of a direct bailee and was liable to the plaintiff for the loss of the machine unless it could establish that it had taken reasonable care of the machine or that its failure to do so was not a cause of the loss. The first defendant did not establish that it had exercised reasonable care in the carriage of the machine on the vessel and accordingly was liable to the plaintiff in bailment for the loss of the plaintiff's machine. Thus, the first defendant was in breach of its duty of care to the plaintiff in negligence and that breach caused loss to the plaintiff. Claims against the second defendant: The second defendant contracted personally and as a principal with the plaintiff for carriage of the machine and not as an agent of the plaintiff authorised to enter contracts with sub-contractors on the plaintiff's behalf. Therefore, it was an implied term of the contract that the second defendant would exercise reasonable care of the plaintiff's goods in carrying out the contract and that negligence of a subcontractor would constitute a breach of that term.

In an action by the owner of goods against a sub-bailee for loss of the goods, the sub-bailee can rely as against the owner on the terms of the contract between the bailee and the subbailee if the owner has expressly or impliedly consented to the bailee making a sub-bailment containing such terms, but not otherwise: Pioneer Container [1994] 2 AC 324. (c) Exclusion of liability by bailees (or sub-bailees) A bailee may seek to limit or exempt their liability for negligence in a contract of bailment: Thomas National Transport v May & Baker (Aust) (1966) 115 CLR 353. However, the exemption clause must: 1. Be incorporated into the contract; and 2. Cover the liability purported to be exempted. (i) Is the exemption clause incorporated into the k? If the clause was included in a contract signed by the other party the clause will be binding, in the absence of fraud or misrepresentation: Toll (FGCT) v Alphapharm (2004) 219 CLR 165. In the absence of a signed document, that the exemption clause was brought to the notice of the other party before or at the time the contract was made. The question is whether steps were taken which were reasonably sufficient in the circumstances to give notice of the exemption clause to the other contracting party: Baltic Shipping Co v Dillon (1991) 22 NSWLR 1; Thornton v Shoe Lane Parking [1971] 2 QB 163 (lengthy terms on back of ticket); Causer v Browne [1952] VLR 1 (dry cleaning docket). An exemption clause may also be included by showing that the parties had intended to contract on the same basis as the terms used in a previous course of dealing which had included an exemption clause: Kendall v Lillico [1969] 2 AC 41. 52

(ii) If yes, does it operate to exempt liability? An incorporated exclusion clause will not operate where: 1. As a matter of construction, it does not cover the alleged liability; or 2. There is a fundamental breach. (a) Construction Exemption clauses are construed strictly and any ambiguity resolved against the person seeking to rely upon it (contra proferentum) rule: Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 (exclusion of liability for breach of warranty will not exclude liability for breach of condition). An exemption clause will not protect a party that strays outside the four corners of the contract by doing something neither authorised nor permitted by the contract. (i.e. where it was never within the contemplation of the parties that the exclusion clause would apply to these circumstances): Sydney City Council v West (1965) 114 CLR 481 (car park attendant gave car to wrong person). An appropriately worded exemption clause can exclude a party from liability for negligence. However, they will not normally be construed as doing so in the absence of clear words to that effect: Canada Steamship Lines v The King; TNT (Melbourne) v May & Baker (Aust) Pty Ltd (1966) 115 CLR 353. (b) Fundamental breach It has been held that if the exclusion goes to the very heart of the bailment contract then it will be ineffective: Spurling-v-Bradshaw [1956] 2 All ER 121 (relied on exclusion clause to exempt liability where orange juice spoiled as a result of plainly negligent storage). Fundamental breach is no longer the basis for reasoning by the High Court which prefers to use a more sophisticated approach which looks at the meaning of the clause in the context of the contract as a whole. However, the production of an absurd result may result in a reading down of the clause. (d) Statutory obligations regarding consumers There is implied into every contract for the supply by a corporation of services to a consumer a warranty that the services will be rendered with due care and skill and that any materials supplied in connexion with those services will be reasonably fit for the purpose for which they are supplied: s 74(1) TPA. Per s 4B(1)-(2), a consumer is someone acquiring goods where: 1. The price of the goods does not exceed $40, 000; or 2. Where that price is exceeded the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption or the goods consisted of a commercial road vehicle.


Provisions purporting to contract out of s 74 are void: s 68. However, they are not void to the extent that they purport to limit the liability of the corporation to the supplying of the services again or the payment of the cost of having the services supplied again: s 68A(1), unless this would be unfair or unreasonable: s 68A(2). 4. Actions Against Bailor There are two main duties of a bailor: 1. Not to interfere with possession; and 2. To inform of dangers in goods. There are also specific issues relating to hire of goods. (a) Interference with possession Where a bailment for reward is for a fixed term, the bailor is under a duty not to interfere with the bailees possession of the goods until the expiry of the period of the bailment. If the bailor retakes possession of the goods during the term of the bailment, the bailor may be liable to the bailee for trespass, conversion, or breach of contract. In contrast, a gratuitous bailment is revocable at the will of the bailor: Parastatidis v Kotaridis [1978] VR 449. (b) To inform of dangers in goods The bailor must inform the bailee of dangers in the goods of which the bailor is aware, whether the bailment is gratuitous or for reward: Coughlin v Gillison [1899] 1 QB 145. Where the bailee accepts possession of the goods after being sufficiently warned of their dangerous qualities, the bailor will not be liable for subsequent loss of damage suffered by the bailee: Pivovaroff v Chernabaeff (1978) 21 SASR 1.
Pivovaroff v Chernabaeff (1978) 21 SASR 1 Facts: A market gardener gratuitously lent an onion-sorting machine to a fellow market gardener. While giving directors to the bailee on how to use the machine, the bailor warned the bailee not to allow children near it. However, the bailee operated the machine assisted by a 13-year-old boy whose hand became caught in the machine and was mutilated. Held: The bailor was not liable since he had sufficiently discharged his duty to warn of dangers that might arise from the operation of the machine by the directions he had given to the bailee. It was further held that the bailee was liable in negligence for the injuries suffered by the boy.

(c) Hire of goods Common law The common law implies in the contract of hire a condition that the goods are reasonably fit for the particular purpose made know to the bailor / lessor for which they are being hired: Cottee v Franklins Self-Serve [1977] 1 Qd R 469; Derbyshire Building Co v Becker (1962) 107 CLR 633. The onus is on the supplier to show that the hirer had assumed the risk as to the goods suitability: Star Express Merchandising Co v V G McGrath [1959] VR 443. 54

Cottee v Franklins Self-Serve Pty Ltd [1977] 1 Qd R 469. Facts: The plaintiff was injured when she attempted to prevent a laden shopping trolley from toppling over when one it its wheels collapsed. The trolley had been supplied to the plaintiff by an employee of the defendant supermarket. Held: There was a contract of hire between the plaintiff and the defendant supermarket. Implied in that contract was a term that the trolley would be reasonably fit for its contemplated purpose or use. The plaintiff was awarded damages for the injuries suffered as a result of the breach of the implied term. Marcrossan CJ expressed the view that since the trolley had been supplied to the plaintiff at the checkout counter, there was a contract for hire for reward between the plaintiff and the supermarket, the consideration for the contract being the plaintiffs payment of the price for her selected goods at the checkout.

This condition can be excluded by an appropriately drafted exclusion clause. Statute There now exist provisions in the TPA to protect consumers in respect of hire / lease of goods from a corporation. See s 4B above for a definition of consumer. Note also that ss 68, 68A concerning excludability apply to the below provisions. (a) Implied undertakings as to title, encumbrances and quiet possession Per s 69(1) TPA, in every contract for the supply of goods by a corporation to a consumer, there is:
(a) an implied condition that, in the case of a supply by way of sale, the supplier has a right to sell the goods, and, in the case of an agreement to sell or a hire-purchase agreement, the supplier will have a right to sell the goods at the time when the property is to pass; (b) an implied warranty that the consumer will enjoy quiet possession of the goods except so far as it may lawfully be disturbed by the supplier or by another person who is entitled to the benefit of any charge or encumbrance disclosed or known to the consumer before the contract is made; and (c) in the case of a contract for the supply of goods under which the property is to pass or may pass to the consumeran implied warranty that the goods are free, and will remain free until the time when the property passes, from any charge or encumbrance not disclosed or known to the consumer before the contract is made.

(b) Supply by description Where there is a contract for the supply (otherwise than by way of sale by auction) by a corporation in the course of a business of goods to a consumer by description, there is an implied condition that the goods will correspond with the description, and, if the supply is by reference to a sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description: s 70(1). (c) Implied undertakings as to quality or fitness Per s 71(1), where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business, there is an implied condition that the goods supplied under the contract for the supply of the goods are of merchantable quality, except that there is no such condition by virtue only of this section:


(a) as regards defects specifically drawn to the consumers attention before the contract is made; or (b) if the consumer examines the goods before the contract is made, as regards defects which that examination ought to reveal. Where a corporation supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired, there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the skill or judgment of the corporation or of that person: s 71(2). 5. Rights Against Third Parties If a third party commits a wrongful act against the chattel bailed, for example wrongfully takes possession of it, the bailor has the right to sue the third party in tort for damages for conversion if the bailment is a bailment at will. A bailee is also entitled to bring an action against a tortfeasor who has negligently caused damage to the bailed chattel while the chattel was in the bailees possession. Such an independant action arises because the bailees possession is good against any tortfeasor: Goodwin v Ron Heath Tyre Service (1999) 74 SASR 508 Where the bailment is for reward, the bailors right to possession of the goods is suspended, and accordingly only the bailee can sue the third party for the wrongful interference. However, if the interference with the goods adversely affect the bailors reversionary interest, for example where goods are destroyed or permanently damaged so that they will not be returned to the bailor in good order at the expiry of the bailment, the bailor may bring an action against the third party: Penfolds Wines v Elliot (1964) 74 CLR 204. Where the bailee wrongfully disposes of the chattel, such act entitles the bailor to terminate the bailment; if the bailor does so, he or she will have an immediate right to possession of the goods enabling the bailor to sue not only the bailee but also the third party in an action for conversion. 6. Termination of Bailment Bailments terminate: 1. By expiry of term; 2. By demand of a gratuitous bailee; 3. By wrongful act of bailee; and 4. By destruction of the subject matter.


(a) Expiry of term Bailment may be for a term, or at will. In the former case, it will terminate when the period for which the goods were bailed expires, or the purpose for which the bailment was created has been fulfilled. In the latter case, it expires after a reasonable period. (b) Demand of gratuitous bailee In the case of gratuitous bailments, the bailment may be determined at any time by the bailor: Parastatidis v Kotaridis [1978] VR 449. (c) Wrongful act of bailee Where the bailee commits a wrongful act of such a nature as to jeopardise the title of the bailor to the goods or to otherwise amount to a repudiation of the transaction, such as purporting to sell the goods, the bailment may be terminated at the election of the bailor: Anderson Group v Tynan Motors (2006) 65 NSWLR 400.
Anderson Group Pty Ltd v Tynan Motors Pty Ltd (2006) 65 NSWLR 400. Facts: Anderson hired a valuable car under a hire purchase agreement with finance company Esanda. The agreement provided that Anderson would not part with possession of the car unless Esanda gave prior written consent. Anderson told Esanda that it had decided to sell the car and was given a payout figure by Esanda. Esanda did not give its prior written consent to the sale. Anderson bought the vehicle to a car yard, from which it was stolen. Esanda then sought to repossess the vehicle. Anderson sued the car yard for breach of its duty as a bailee. The car yard argued that Anderson had committed a fundamental breach of the hire purchase agreement and thus had no right to sue in bailment. Held: A repudiation of a simple bailment terminates the bailment. However, where there is a bailment within a contract a bailee does not forfeit their right to immediate possession by any dealing that is unwarranted by the bailment. Here there was a bailment of the vehicle to Anderson under a contract (the hire purchase agreement). A term providing for the way in which the bailees right of possession could be terminated would need to be expressed in the clearest express terms. A term that allows termination by notice of breach of any term of the bailment will not be construed to have the effect of terminating the bailees right of possession. An act would need to be very serious to justify termination of the bailment, virtually a disclaimer of the contract of bailment. Conversion was not necessarily sufficient to justify termination. Here there was no attempt to defraud Esanda. Anderson thus had a right to immediate possession of the vehicle and had standing to sue the car yard in bailment.

(d) Destruction of subject-matter A bailment is terminated when the subject matter of the bailment is lost or destroyed, or by reason of some change in its nature becomes incapable of use for the purpose of the bailment.